EUROPE - British Telecom could have to pay the Pension Protection Fund £16.6m (US$23.9m) after its partial exemption from levies was declared illegal by the European Commission.
It said it did not question the safeguards for BT's employees introduced by the Crown guarantee but said the firm should not have been allowed to pay a discounted levy to the PPF - as it gave the firm an unfair competitive advantage that constituted state aid.
The Commission said the UK government had to recover the aid by ensuring that a full levy was paid to the PPF.
BT has already blocked an amount of £16.6m in an escrow account corresponding to the levies payable until 2008 - an amount which the commission said should now be given to the PPF.
Competition Commissioner Neelie Kroes said: "In the liberalised market of electronic communications, it is important to ensure that BT is subject to the same rules and obligations as its competitors to guarantee a level playing field and fair competition, so that consumers can benefit from high-quality services and competitive prices."
The European Commission initiated a formal investigation into the Crown guarantee for BT's pension liabilities in November 2007 following a complaint.
The guarantee was granted by the government in 1984 at the time of BT's privatisation - and guaranteed the pension rights of the employees working at BT's at the time of privatisation.
The guarantee can only be called upon if BT goes bankrupt and if there are not enough assets in its pension fund to finance the covered employees' pension rights.
The Commission's investigation found that the guarantee benefits the relevant employees "directly and exclusively" and therefore did not constitute state aid to BT.
However, it said UK legislation imposed obligations - such as PPF levies - on pension funds, from which funds with a Crown guarantee were exempted and should not have been.
BT said in a statement: "BT welcomes the decision from the European Commission confirming that the terms of the Crown Guarantee do not constitute state aid. We are delighted that the rights of all Scheme members who joined before privatisation are fully protected in the unlikely event of BT going into liquidation.
"We are disappointed however, with the Commission's decision regarding the Pension Protection Fund and we will review whether to appeal the decision to the European Court of First Instance once we have the detailed information of the Commission decision."
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