EU orders Deutsche Post to repay subsidies

Deutsche Post DHL will launch an appeal against a European Commission rulling demanding it repay between 500m and 1bn euros in illegal state aid

EU orders Deutsche Post to repay subsidies
EU orders Deutsche Post to repay subsidies

January 27, 2012

Deutsche Post DHL will launch an appeal against a ruling by the European Union (EU) Commission
demanding it repay between 500
million ($648.3 million) and 1billion euros in illegal state aid.

While the German government says it will comply with the order, the logistics firm, which owns DHL, says it will take the matter to the European Court of Justice.

The group’s chief executive Frank Appel
says the ruling
is "incomprehensible and has no basis in fact".

Appel claims the decision contradicts an earlier EU decision and the outcomes of similar proceedings.

"If you examine the state aid rulings on other European postal service providers, it becomes quite clear that here the commission has applied double standards," he says.

The company says the formal investigation against the Federal Republic of Germany in 2007 concerning alleged unlawful state aid to Deutsche Post AG addressed the same matters examined as early as 2002.

These were defeated in the courts following an appeal by Deutsche Post.

"The current proceedings focused on state grants like financial equalisation and the funding of civil servant pensions at Deutsche Post," Appel says in a statement.

"In its decision today, the commission found no case of incompatible state aid with respect to financial equalisation."

However Appel concedes there might be some validity in the commission’s finding that the pension expenses of Deutsche Post were in part incorrectly assessed.

The commission argues regulated prices aimed at subsidising pension costs since 1995 conferred the company with an economic advantage.

"In addition to the subsidies, Deutsche Post benefited during the same period from increased stamp prices to finance a further share of the civil servants' pension costs," the commission says.

"Taking account of this extra relief, Deutsche Post has effectively borne significantly lower social contributions than its private competitors for services which were open to competition."

But Frank Appel says he expects the repayment will be at the lower range of the demanded 500 million to one billion euros.

He says the liquidity of the group will be temporarily affected by the payment, but will continue to remain solid.

"Since it is the company's opinion that today's state aid ruling cannot withstand legal review, the payment that is to be made in the next few months will be recorded only in the balance sheet for 2012," he says.

"As a consequence, company earnings both in the past fiscal year and in the years to come as well as the basis of the dividend that is yet to be proposed for fiscal year 2011 remain unaffected by the decision."

The EU Commission also investigated the markets in Belgium, France and Greece.

Belgium was ordered to recover 417 million euros of aid given to Bpost between 1992 and 2010.

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