EC ORDERS DEUTSCHE POST TO REPAY 572-MILLION-EURO “ILLEGAL” SUBSIDY
EC ORDERS DEUTSCHE POST TO REPAY 572-MILLION-EURO “ILLEGAL” SUBSIDY
The European Commission today dealt a serious blow to Deutsche Post, the stock market-listed German postal and logistics group, when it announced an order that the group must repay 572 million euro ($543 million) of state subsidies used illegally to cross-subsidize its commercial parcel activities.
“After a careful analysis, the European Commission has concluded that Deutsche Post AG has used 572 million euro — funds it received from the state to finance its public service mission — to finance an aggressive pricing policy intended to undercut private rivals in the parcel sector between 1994 and 1998,” the Brussels-based agency said.
European companies that receive state funding for services of general interest are not allowed to use these resources to subsidize activities open to competition.
However, Deutsche Post reacted to the European Commission ruling on Wednesday by announcing that it will file a suit before the European Court of Justice against the decision.
“The commission’s decision is so clearly disputable that only a judgment in favor of Deutsche Post is conceivable,” said Klaus Zumwinkel, chairman of Deutsche Post.
Zumwinkel denied that Deutsche Post used unauthorized cross-subsidies and unlawful state aid for its business parcel division. “The EU Commission has neither determined nor proven that this alleged cross-subsidization was actually financed from state aid,” the group said.
Deutsche Post accused the European Commission of applying double standards in reaching its decision. The group said that its latest decision “stands in blatant contradiction to the commission’s decision on state aid in Italy as well as in Ireland at the beginning of 2002.”
However the German postal and logistics group said it would take an extraordinary charge in its accounts of approximately 850 million euro ($808 million), representing repayment of the subsidies plus interest, until a decision is taken by the European Court of Justice to reverse the EC ruling.
“Given an operating profit of almost 2.5 billion euro ($2.4 billion), this one-off payment corresponds to almost one-third of the net profit for the period,” Deutsche Post said.
The huge financial penalty imposed on Deutsche Post by the EC represents a victory for United Parcel Service, which has campaigned for years against the alleged anticompetitive activities of the German group in Europe.
In 1994, UPS lodged a complaint accusing Deutsche Post of selling its parcel delivery services below cost. In 1997, the German association of private parcel undertakings, BIEK, joined in this complaint, stating that, without state support, Deutsche Post would not have been able to survive in the commercial parcels sector.
From 1994 through 1998, Deutsche Post “engaged in an aggressive rebate policy with respect to commercial door-to-door parcel services,” and lost 572 million euro ($543 million) on its parcel delivery business, the European Commission said. The 572 million euro loss “was ultimately financed through state resources.”
The German government has two months to inform the European Commission of how it intends to recover the money unlawfully used by Deutsche Post in the commercial sector, the commission said.
Following an antitrust case under Article 82 of the European Union treaty on abuses of a dominant position, also triggered by a UPS complaint, Deutsche Post last year decided to create a separate business parcel company to avoid this situation of cross-subsidization.
Deutsche Post, which has a monopoly over postal services for letters in Germany, is the parent company of the forwarding and logistics group Danzas and has a stake in the express operator DHL.