Privatisation of Royal Mail Group moved a step closer after EU regulators approved government plans to take on its deficit-ridden pension scheme.
The European Commission said on Wednesday the revamp included measures that would ensure state-owned Royal Mail would not enjoy an unfair advantage over competitors.
In order to achieve a level playing field in postal markets, it is crucial that incumbent operators neither enjoy undue advantages, nor suffer from structural disadvantages in comparison with competitors, EU Competition Commissioner Joaquin Almunia said in a statement.
The relief of excessive pension costs and the restructuring aid approved today will help ensure this balance for Royal Mail and its competitors, he said.
Britain's decision to take on the pension plan, which has a deficit of 8.4 billion pounds, is intended to secure the safety of the fund for staff, and also to attract private sector investment to Royal Mail.
The Conservative-led coalition government wants to sell up to 90 percent of the group, with employees to be offered the remaining stake.
Today's decision does not mean that a sale of Royal Mail will happen overnight, Postal Affairs Minister Norman Lamb said. However, this decision is a fundamental step towards achieving that goal.
A government source told Reuters on Sunday that Chancellor George Osborne will use a 28 billion pound asset transfer from Royal Mail's pension fund to pay down government debt next year.
Liabilities from the scheme, worth 37.5 billion pounds, will show up on the government's accounts across the next two decades as they are drawn on by scheme members.
In order to ensure Royal Mail does not gain a better position than its competitors, the Commission said Britain could only relieve the group of costs which are in excess of the level of pension payments made by comparable companies in the UK.
Royal Mail, which delivers around 59 million items every day to 29 million British addresses, is struggling with a loss- making letters and parcels business, exacerbated by the rise in use of email. The unit made a 41 million pounds operating loss in the six months to September 25.
Group operating profit in the period more than trebled, however, to 67 million pounds thanks to strong business at its European and British express parcel service GLS, and its post office branch network.
The Communication Workers Union (CWU), which represents non-managerial staff in Royal Mail Group and the Post Office, said it was good news for postal workers but remained opposed to privatisation.
Nationalising the debt and privatising the profit doesn't make sense. It's not in the interests of customers, workers or the taxpayer. Royal Mail is now 8.4 billion pounds better off and the case for privatisation (is) weaker still, CWU General Secretary Billy Hayes said in a statement.
(Additional reporting by Foo Yun Chee in Brussels; Editing by Rex Merrifield and David Holmes)