The Government’s plan to wipe out Royal Mail’s £4.6bn pension deficit, as well as an extra £1.7bn of debt, has hit the buffers after the European Commission called into question whether the deal was too generous.
The EC has now launched an investigation to determine whether the Government’s proposed financial restructuring of Royal Mail, as a part of the postal operator’s privatisation, breaches EU state aid rules and gives the postal service a competitive advantage.
The plan has already been attacked by the DMA, which fears brand owners will ultimately pay the bill through price increases.
The Commission has said it had “doubts that Royal Mail’s restructuring plan foresees adequate measures to mitigate any distortions of competition brought about by the state intervention and to ensure a sufficient own contribution to the cost of restructuring”.
The opening of the investigation will give third parties the chance to comment on the measures under examination, the Commission said.
Joaquín Almunia, the Commission’s vice president in charge of competition policy, said: “The Commission acknowledges the importance of the reform of the postal market in the UK.
“However, we must ensure that the state measures do not provide undue advantages to Royal Mail as this would distort the conditions of competition among postal operators in the internal market.”
As it stands, the UK government claims the measures are in line with the EU Guidelines on state aid for rescuing and restructuring firms in difficulty. However the Commission said that it “has not convincingly demonstrated that the submitted restructuring plan would comply with the guidelines”.
“Moreover, the Commission has doubts whether the pension relief could be found compatible as compensation for an exceptional burden resulting from Royal Mail’s past status as public sector monopoly,” the Commission said.
In response to the news, postal affairs minister Edward Davey said: “It is only right that the Commission has opened the State Aid process to properly investigate the case. However, we are keen to resolve the case as soon as possible, and are seeking a resolution by March 2012.”
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