1. BACKGROUND

On the basis of an intergovernmental agreement concluded in 2014, the Russian Federation and Hungary undertook to cooperate on the construction of two new nuclear reactors („Paks II“). The planning and construction of Paks II were to be carried out by a Russian state-controlled company; a Hungarian company, 100% owned by the state, was designated as the owner and operator. The project was to be financed primarily by a state loan of EUR 10 billion granted by the Russian Federation; Hungary was to contribute a further EUR 2.5 billion.

In March 2017, the European Commission approved the state aid notified by Hungary. The action for annulment brought by the Republic of Austria in February 2018 against the European Commission’s authorisation decision was dismissed by the General Court in its judgment of 30 November 2022, Austria v Commission (T-101/18), rejected. Consequently, the Republic of Austria lodged an appeal with the ECJ, which set aside the contested judgment and referred the Commission’s decision upholding the claim for void has explained.

2. KEY FINDINGS OF THE ECJ

2.1. Purpose of the aid

The ECJ held that the General Court’s legal assessment – according to which the provision of the nuclear reactors free of charge constituted the sole purpose of the aid – was incorrect. In assessing the purpose of the aid, account must also be taken of circumstances which form an integral part of the aid. It is not sufficient to rely solely on the objective pursued by the aid. The construction of Paks II is so closely linked to the notified measure that it is encompassed by its purpose; it forms an integral part of it (Paks II, paragraphs 60–65). The same applies to indirect financing from Hungarian funds. The contested decision states that „[t]he measure … involves the development of two new nuclear reactors … in Hungary, the construction of which is being fully financed by the Hungarian State for the benefit of Paks II …, which will also be the owner and operator of the new reactors“ (Paks II, paras 62, 64).

The assessment of the purpose of the aid must therefore, on the one hand, cover the actual purpose of the State measure, namely to support the generation of nuclear energy. Furthermore, however, it must also take into account the „manner in which it is intended to be implemented“. „Such an inseparable link exists in the case of elements or conditions that are indispensable to the realisation of the purpose of the aid or to its functioning, without which the planned State measure cannot achieve the objectives pursued“ (Judgment in Medina, C‑59/23 P, paragraph 32 et seq.).

The ECJ thus draws an initial distinction between the definition of the purpose of the aid and the arrangements that are inextricably linked to that purpose.

2.2. Untrennbare Modalitäten der Beihilfe

„Modalities“ generally refers to circumstances that are factually linked to the aid. The ECJ distinguishes between „mere modalities“ of the aid and those that are inextricably linked to an aid measure.

He categorically classifies the direct award of the contract for the construction of Paks II as a „condition linked to the purpose of the aid in question“. In a second step, it must be examined „whether it can be assumed that this arrangement is so inextricably linked to the purpose of the aid in question that the Commission was obliged, in the context of its assessment of the compatibility of that aid with the internal market, also assess the compatibility of that condition with EU rules on the award of public contracts“ (Paks II, para. 68 et seq.).

In the present judgment, the ECJ makes it clear that the direct award of the construction contract for the nuclear reactors was intended to constitute State aid inextricably linked and was essential to its realisation (Paks II, para. 72).

Specifically, the granting of the aid under the intergovernmental agreement was contingent upon direct award. Without direct award, the purpose of the aid (the construction and operation of Paks II) could not have been achieved either, which made it an inseparable condition and thus required it to be taken into account in the State aid proceedings.

2.3. The Commission’s duty to state reasons and to carry out an assessment

In this context, the ECJ reaffirms its previous case law: the Commission is not obliged to examine every mere incidental breach of EU law. However, it must certainly examine those aspects that are inextricably linked to the purpose of the aid. In the present case, this concerned not only the operation and financing of the plant, but also its planning, construction and direct award (Paks II, paragraphs 71–79).

In the context of the procedure under Article 108 TFEU, the Commission was therefore obliged to examine whether the direct award of the works contract was compatible with the provisions of EU law on the award of public contracts. The Court of Justice emphasises that the State aid procedure must not lead to results that are contrary to other provisions of EU law. Where such an infringement arises, for example, from conditions inextricably linked to the purpose of the aid, as in the present case, the Commission must take it into account (Paks II, paragraph 52 et seq.).

The Court also takes issue with the reasoning set out in the order at issue: the Commission had merely referred to a closed infringement procedure, without providing a substantive explanation as to why it considers the direct award to be compatible with the relevant EU rules.

A mere reference, combined with a citation of the applicable provision, satisfies the requirements regarding the duty to state reasons under Article 296 TFEU No. There is no clear explanation of the relevant considerations (Paks II, para. 123).

3. CONCLUSION

The decision highlights the crucial importance of distinguishing between conditions that are inextricably linked to the purpose of the aid and „mere conditions“. However, it does not necessarily provide a clear picture of the criteria under which a condition can be regarded as „inextricably linked“.

For the Commission, however, this finding entails a comprehensive duty to examine the matter and far-reaching responsibility in state aid proceedings: it must examine all the terms and conditions with regard to their connection to the purpose of the aid and assess the terms and conditions that are inextricably linked to determine their compatibility with EU law. A mere reference to other proceedings is not sufficient for this purpose.

If the overall project structure of an initiative is not designed in accordance with EU law from the outset, there is a risk for those notifying state aid that an authorisation already granted may subsequently be declared null and void. However, unless there is an inseparable link between a provision that contravenes EU law and the purpose of the aid, such a breach will have no bearing on the assessment under State aid law.

So, as is so often the case, the answer is: „It depends!“