Direct subsidies and compensation funds in financing of universal postal services

Leszek Borowiec

doi:10.9770/jesi.2021.8.3(34)

Abstract

Member States of the European Union are obliged to ensure access to universal postal services for all citizens. The aim of the study is to assess the effectiveness of direct subsidies and compensation funds as basic methods of financing universal postal services in the scope of incurred net cost on the example of selected postal operators in Europe and to indicate the results of application of such solutions. The scope of the study includes an evaluation of the direct subsidy mechanism applicable in Europe on the example of Belgium. A characterization of the legal framework of operation of the compensation fund and an analysis of the impact of the adopted financing mechanisms on the achieved level of profitability of the entity obliged to provide universal postal services in Poland were made. The thesis of the current study is that the mechanism of compensation for provision of universal postal services by means of a compensation fund on the Polish example is defective and ineffective from the point of view of market regulation and the designated postal operator. The study concludes by stating that the preferred form of net cost financing should be a full budget subsidy and that it is unjustified to charge the full value of the net cost as additional commitment to the operator. The research methods used include analysis of scientific literature, collection, comparison, classification and generalization of data and expert evaluation.

Highlights

Universal postal services are considered services of general economic*interest (SGEI), that is, their provision is in the public interest
For the universal service net cost financing, a distinction can be made between financing through direct subsidies or compensation funds usually financed by postal operators
Subsidies can directly finance the cost of the universal service (Spain, Italy), maintain the postal network (UK, France and Belgium) or support selected processes, for example press delivery (France and Belgium)

Summary

Introduction

Universal postal services are considered services of general economic*interest (SGEI), that is, their provision is in the public interest (they implement public service mission). They are entities which would not be provided otherwise (or would be provided under less favorable conditions) on the market without public intervention because the postal operator would consider them unprofitable (Commission Communication, 2011). In the case of a positive net cost value, a significant problem arises as to how the additional costs should be compensated for by the operator designated in the universal service sector in order not to impair its market position in fully commercial service areas, without using prohibited public aid which distorts market mechanisms. According to the 3rd Postal Directive (Directive, 2008), application of any financing mechanism currently depends on fulfilling the following conditions: (1) universal service obligations entail a net cost for the operator responsible for providing the universal service, (2) the net cost represents an unjustified financial burden for that operator

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