The European Commission has given the State forestry board, Coillte, two months to reverse what the EU authority says was the improper award of a public contract.

The Commission wrote to Coillte last week instructing the agency to put right its non-compliance with EU rules on the contract, which relates to the aerial fertilisation of forests by helicopter. The contract is currently held by Scottish firm, PDG, but was first awarded in 1995, when it was won by Irish Helicopters on a one-year basis. PDG purchased Irish Helicopters last year.

The contract has been subject to tender each year since 1995, but has never been listed in the EU's Official Journal.

The Commission says this runs contrary to EU public procurement rules and has thus concluded that the contract, which is worth tens of thousands of euros, has never been "adequately advertised".

The EU authority sees the forestry board as "a body covered by public law" in light of its role of maintaining national forests.

Coillte, by contrast, has consistently argued that it does not fall under the procurement rules because it is not a public entity.

Coillte says it must take account only of Government procurement guidelines and claims to have fulfilled all advertising obligations on the fertilisation contract.

"We do advertise all tenders," said a spokeswoman on Friday.

The Commission's opinion has been received but has not yet been fully-digested, she said, describing the matter as "complex".

The issue was drawn to the attention of the Commission by O'Brien Air Services, a firm which failed to win the fertilisation contract when it was first awarded in 1995. It is unclear whether the firm remains in operation.

If, two months from now, the Commission decides that Coillte continues to flout EU law, it could take the company to the European Court of Justice (ECJ).

The ECJ has concluded on a previous occasion that Coillte is a state body under the meaning of EU legislation and is therefore subject to EU public procurement rules. A spokeswoman for the Commission said, however, that most cases of this nature are resolved before this final stage is reached.

Mr John McCallum, commercial director of PDG, said meanwhile that his company had not been made aware of any problems with the contract, describing it as "small" within his company's overall operations.

Coillte said the contract would be up for tender again at the start of next year.