The European Commission yesterday accused Ireland of illegally giving a contract worth €50 million a year to An Post. The contract, which provides for the payment of social welfare benefits to about 1.1 million people, is one of the main sources of revenue for the Irish postal service.

At the European Court of Justice in Luxembourg yesterday, the commission alleged that the award of the contract to An Post without a tender breached the EU directive on the procedures for the award of public service contracts.

Commission lawyers argued that the contract should have been advertised before being awarded. Private companies may have been in a position to offer the same type of service, they said.

The Government defended its decision, arguing that the general provisions of the EU treaties, particularly articles 43 and 49, mean this type of service can be exempted from public tender.

France, the Netherlands, Denmark and Finland all made submissions in the case supporting the position of the Government.

The judgment, which is expected this year or next, could have major implications for An Post.

If the European court finds against the Government, the contract would have to be put out to tender pushing An Post into financial trouble.

The commission took the case following a complaint made in 1999 by the US group Transaction National Services. It claimed An Post benefited from an illegal subsidy when it was awarded the contract.