The European Court of First Instance has dismissed a state aid appeal brought by petroleum heavyweight, Kuwait Petroleum (KP).

The action related to Dutch subsidies granted in 1997 to petrol operators within close proximity of the German border.  This followed a rise in excise duties on fuel introduced by the Dutch government and a fear that operators close to the German border would be disproportionately affected given the proximity of cheaper fuel across the border.

The Dutch authorities had notified the Commission of the measure at the time and the Commission had decided in 1999 after an in-depth investigation that a large part of the aid was exempted, given that it amounted to less than €100,000 over three years.  However, some of the aid was found to risk exceeding this threshold and was therefore found to be incompatible with the common market.  This was particularly the case where oil companies, rather than the dealers themselves, bore the risk of price increases.  Under such a structure, the Dutch government's subsidies in effect constituted aid to the oil companies themselves and the Commission wished to avoid this.

Several actions were brought against this decision, among them KP's action seeking to annul the Commission's decision in its application to thirteen of its service stations.  KP raised four arguments:

1) KP operated a discretionary system of compensation towards its service station operators for increases in duties.  It argued that the Commission had not taken account of the nature of its system in arriving at its original decision back in 1999.  This argument was dismissed as on the evidence it was shown that KP had exercised this discretion throughout the period.  The Commission's assessment was therefore upheld.

2) KP argued that it did not receive a benefit from the subsidies since it had voluntarily chosen to compensate its operators.  This causation-based argument was also dismissed.

3) KP argued the aid did not lead to any distortion of competition nor did it affect trade between member states.  This argument was rejected as it was shown that the aid did benefit oil companies in that the amount of money they required to pay their operators in compensation was reduced in the border area of the Netherlands.

4) Finally the CFI also rejected KP's argument that insufficient notice had been given of the measures it intended to take in this area.  Indeed, it was shown that KP had submitted comments to the Commission during the formal investigation procedure!

This case provides a good example of the strict application of state aid rules by the European Union and stinging rebuke to oil companies such as KP who try to avoid state aid provisions through novel contractual terms.

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