# Official Journal L 345/2009

| | ISSN 1725-2555
  doi:10.3000/17252555.L_2009.345.eng |
| --- | --- |
| Official Journal
  of the European Union | L 345 |
| | |
| English edition | Legislation | Volume 5223 December 2009 |

ISSN 1725-2555

doi:10.3000/17252555.L_2009.345.eng

Official Journal

of the European Union

L 345

English edition

Legislation

Volume 5223 December 2009

---

| Contents | | II   Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory | page |
| --- | --- | --- | --- |
| | | DECISIONS |
| | | Commission |
| | | 2009/971/EC |
| | * | Commission Decision of 12 May 2009 on State aid which Germany proposes to grant towards the restructuring of WestLB AG (C 43/08 (ex N 390/08))
  (notified under document C(2009) 3900)

   (
  1
  ) | 1 |
| | | 2009/972/EC |
| | * | Commission Decision of 17 June 2009 on aid scheme C 41/06 (ex N 318/A/04) which Denmark is planning to implement for refunding the CO2 tax on quota-regulated fuel consumption in industry
  (notified under document C(2009) 4517)

   (
  1
  ) | 18 |
| | | 2009/973/EC |
| | * | Commission Decision of 13 July 2009 on the restructuring aid for Combus A/S
  (notified under document C(2009) 4538)

   (
  1
  ) | 28 |

Contents

II   Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory

page

DECISIONS

Commission

2009/971/EC

*

Commission Decision of 12 May 2009 on State aid which Germany proposes to grant towards the restructuring of WestLB AG (C 43/08 (ex N 390/08))
  (notified under document C(2009) 3900)

   (
  1
  )

(notified under document C(2009) 3900)

1

1

2009/972/EC

*

Commission Decision of 17 June 2009 on aid scheme C 41/06 (ex N 318/A/04) which Denmark is planning to implement for refunding the CO2 tax on quota-regulated fuel consumption in industry
  (notified under document C(2009) 4517)

   (
  1
  )

2

(notified under document C(2009) 4517)

1

18

2009/973/EC

*

Commission Decision of 13 July 2009 on the restructuring aid for Combus A/S
  (notified under document C(2009) 4538)

   (
  1
  )

(notified under document C(2009) 4538)

1

28

| | |
| --- | --- |
| | (1)   Text with EEA relevance |

---

(1)   Text with EEA relevance

1

| EN | Acts whose titles are printed in light type are those relating to day-to-day management of agricultural matters, and are generally valid for a limited period.
  The titles of all other Acts are printed in bold type and preceded by an asterisk. |
| --- | --- |

EN

Acts whose titles are printed in light type are those relating to day-to-day management of agricultural matters, and are generally valid for a limited period.

The titles of all other Acts are printed in bold type and preceded by an asterisk.

---

II Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory

DECISIONS

Commission

| 23.12.2009 | EN | Official Journal of the European Union | L 345/1 |
| --- | --- | --- | --- |

23.12.2009

EN

Official Journal of the European Union

L 345/1

---

COMMISSION DECISION

of 12 May 2009

on State aid which Germany proposes to grant towards the restructuring of WestLB AG (C 43/08 (ex N 390/08))

(notified under document C(2009)3900)

(Only the German text is authentic)

(Text with EEA relevance)

(2009/971/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1),

Whereas:

1.   PROCEDURE

| (1) | By Decision of 30 April 2008 (2) the Commission found that the risk shield provided to WestLB AG on 8 February 2008 by its owners, namely Westfälisch-Lippischer Sparkassen- und Giroverband, Rheinischer Sparkassen- und Giroverband, and — directly and indirectly, through NRW. BANK — the Land of North Rhine-Westphalia, Landschaftsverband Westfalen Lippe, and Landschaftsverband Rheinland (the owners), constituted State aid. But the Commission took the view that the aid was rescue aid compatible with the common market, and authorised it in accordance with the Community guidelines on State aid for rescuing and restructuring firms in difficulty (the rescue and restructuring guidelines) (3) for six months, or, in the event that a restructuring plan was submitted, until such time as a final decision was taken on the restructuring plan. |
| --- | --- |

(1)

By Decision of 30 April 2008 (2) the Commission found that the risk shield provided to WestLB AG on 8 February 2008 by its owners, namely Westfälisch-Lippischer Sparkassen- und Giroverband, Rheinischer Sparkassen- und Giroverband, and — directly and indirectly, through NRW. BANK — the Land of North Rhine-Westphalia, Landschaftsverband Westfalen Lippe, and Landschaftsverband Rheinland (the owners), constituted State aid. But the Commission took the view that the aid was rescue aid compatible with the common market, and authorised it in accordance with the Community guidelines on State aid for rescuing and restructuring firms in difficulty (the rescue and restructuring guidelines) (3) for six months, or, in the event that a restructuring plan was submitted, until such time as a final decision was taken on the restructuring plan.

| (2) | On 8 August 2008 Germany notified to the Commission a restructuring aid measure with a restructuring plan for WestLB. The notification included a commitment to submit by 31 December 2008‘concrete steps’ for a change in the ownership structure. |
| --- | --- |

(2)

On 8 August 2008 Germany notified to the Commission a restructuring aid measure with a restructuring plan for WestLB. The notification included a commitment to submit by 31 December 2008‘concrete steps’ for a change in the ownership structure.

| (3) | By letter dated 1 October 2008, the Commission informed Germany that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of the measure. |
| --- | --- |

(3)

By letter dated 1 October 2008, the Commission informed Germany that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of the measure.

| (4) | The Commission decision to initiate the formal investigation procedure (the opening decision) was published in the Official Journal of the European Union
   (4). The Commission there invited any other interested parties to submit their comments on the measure. The Commission received no comments from other interested parties. |
| --- | --- |

(4)

The Commission decision to initiate the formal investigation procedure (the opening decision) was published in the Official Journal of the European Union
   (4). The Commission there invited any other interested parties to submit their comments on the measure. The Commission received no comments from other interested parties.

| (5) | On 24 November 2008 Germany submitted its comments on the initiation of the formal investigation procedure. |
| --- | --- |

(5)

On 24 November 2008 Germany submitted its comments on the initiation of the formal investigation procedure.

| (6) | On 16 December 2008 WestLB requested an extension of the deadline for the submission of concrete steps for a change in the ownership structure. The Commission approved the extension of the deadline until 31 March 2009. |
| --- | --- |

(6)

On 16 December 2008 WestLB requested an extension of the deadline for the submission of concrete steps for a change in the ownership structure. The Commission approved the extension of the deadline until 31 March 2009.

| (7) | On 27 February 2009 Germany submitted an interim report covering progress up to the end of February 2009. |
| --- | --- |

(7)

On 27 February 2009 Germany submitted an interim report covering progress up to the end of February 2009.

| (8) | From 6 to 8 April 2009, discussions on the restructuring took place between representatives of the Commission, Germany, the owners and WestLB. |
| --- | --- |

(8)

From 6 to 8 April 2009, discussions on the restructuring took place between representatives of the Commission, Germany, the owners and WestLB.

| (9) | On 17 April 2009 Germany submitted further information on the restructuring. On 30 April 2009 Germany submitted an amended restructuring plan. |
| --- | --- |

(9)

On 17 April 2009 Germany submitted further information on the restructuring. On 30 April 2009 Germany submitted an amended restructuring plan.

| (10) | On 12 May 2009 the Commission adopted a Decision. That Decision contained some minor errors, though they did not affect its substance or its reasoning. The present Decision is being adopted for the sake of correctness, and replaces the Decision of 12 May 2009 (C(2009) 3900). |
| --- | --- |

(10)

On 12 May 2009 the Commission adopted a Decision. That Decision contained some minor errors, though they did not affect its substance or its reasoning. The present Decision is being adopted for the sake of correctness, and replaces the Decision of 12 May 2009 (C(2009) 3900).

2.   DESCRIPTION OF THE AID SCHEME

2.1.   The beneficiary

| (11) | The beneficiary is WestLB. WestLB is a European commercial bank based in North Rhine Westphalia. With total assets of EUR 286,5 billion at 31 December 2007, WestLB is a major German financial services provider. It is the central institution for the savings banks in North Rhine-Westphalia and Brandenburg, and as a commercial bank operating internationally it acts as their link to the global financial markets. Working in close partnership with the savings banks, WestLB offers the full range of products and services of a universal bank, focusing on lending, structured finance, capital market and private equity products, asset management, transaction services and real estate finance. On 30 December 2007 WestLB employed 6 147 staff. |
| --- | --- |

(11)

The beneficiary is WestLB. WestLB is a European commercial bank based in North Rhine Westphalia. With total assets of EUR 286,5 billion at 31 December 2007, WestLB is a major German financial services provider. It is the central institution for the savings banks in North Rhine-Westphalia and Brandenburg, and as a commercial bank operating internationally it acts as their link to the global financial markets. Working in close partnership with the savings banks, WestLB offers the full range of products and services of a universal bank, focusing on lending, structured finance, capital market and private equity products, asset management, transaction services and real estate finance. On 30 December 2007 WestLB employed 6 147 staff.

| (12) | WestLB is a public limited company (AG) with its head offices in Düsseldorf and Münster. WestLB emerged from the former Westdeutsche Landesbank Girozentrale, on 30 August 2002, after that organisation’s public service activities had been integrated into Landesbank Nordrhein-Westfalen, a company governed by public law, which was established on 1 August 2002. |
| --- | --- |

(12)

WestLB is a public limited company (AG) with its head offices in Düsseldorf and Münster. WestLB emerged from the former Westdeutsche Landesbank Girozentrale, on 30 August 2002, after that organisation’s public service activities had been integrated into Landesbank Nordrhein-Westfalen, a company governed by public law, which was established on 1 August 2002.

| (13) | The current owners of WestLB are the savings banks’ and giro associations Westfälisch-Lippischer Sparkassen- und Giroverband (25,03 %) and Rheinischer Sparkassen- und Giroverband (25,03 %) and — directly and indirectly, through NRW. BANK (the former Landesbank Nordrhein-Westfalen) — the Land of North Rhine Westphalia (37,74 %) and the regional associations of local authorities Landschaftsverband Westfalen Lippe (6,09 %) and Landschaftsverband Rheinland (6,09 %). |
| --- | --- |

(13)

The current owners of WestLB are the savings banks’ and giro associations Westfälisch-Lippischer Sparkassen- und Giroverband (25,03 %) and Rheinischer Sparkassen- und Giroverband (25,03 %) and — directly and indirectly, through NRW. BANK (the former Landesbank Nordrhein-Westfalen) — the Land of North Rhine Westphalia (37,74 %) and the regional associations of local authorities Landschaftsverband Westfalen Lippe (6,09 %) and Landschaftsverband Rheinland (6,09 %).

| (14) | WestLB is one of the German public banks which until 18 July 2005 still enjoyed the unlimited state guarantees known as Anstaltslast and Gewährträgerhaftung, which were abolished in accordance with a series of understandings between Germany and the Commission (5). |
| --- | --- |

(14)

WestLB is one of the German public banks which until 18 July 2005 still enjoyed the unlimited state guarantees known as Anstaltslast and Gewährträgerhaftung, which were abolished in accordance with a series of understandings between Germany and the Commission (5).

| (15) | In 2002, following the abolition of Anstaltslast and Gewährträgerhaftung, the former WestLB was split up into NRW. BANK and WestLB. Between 2003 and 2005 WestLB was restructured; it received various capital injections between 2002 and 2005. In a Decision it adopted on 18 July 2007, the Commission found that these capital injections did not constitute State aid (6). |
| --- | --- |

(15)

In 2002, following the abolition of Anstaltslast and Gewährträgerhaftung, the former WestLB was split up into NRW. BANK and WestLB. Between 2003 and 2005 WestLB was restructured; it received various capital injections between 2002 and 2005. In a Decision it adopted on 18 July 2007, the Commission found that these capital injections did not constitute State aid (6).

2.2.   WestLB’s financial difficulties

| (16) | From the middle of 2007 the ongoing turmoil in the financial markets affected WestLB’s structured portfolio investments, which included exposures to US subprime real estate loans. The mark-to-market valuations of the securities suffered, and WestLB was unable to refinance the structured portfolio by selling notes on the market. As a consequence WestLB had to consolidate the off-balance portfolios on its own balance sheet. |
| --- | --- |

(16)

From the middle of 2007 the ongoing turmoil in the financial markets affected WestLB’s structured portfolio investments, which included exposures to US subprime real estate loans. The mark-to-market valuations of the securities suffered, and WestLB was unable to refinance the structured portfolio by selling notes on the market. As a consequence WestLB had to consolidate the off-balance portfolios on its own balance sheet.

| (17) | On 8 February 2008, the owners of WestLB reached agreement on the basic principles of an additional measure, which were set out in what was called the ‘Eckpunktepapier’ (key points paper) (7). The talks included the financial services regulator (Bundesanstalt für Finanzdienstleistungsaufsicht – ‘BaFin’) and the Deutsche Bundesbank. The owners agreed essentially on a structure to ring-fence substantial risks in the bank’s structured portfolios, which were to be secured by a ‘risk shield’ of EUR 5 billion (8) (this figure included capital injections envisaged previously). |
| --- | --- |

(17)

On 8 February 2008, the owners of WestLB reached agreement on the basic principles of an additional measure, which were set out in what was called the ‘Eckpunktepapier’ (key points paper) (7). The talks included the financial services regulator (Bundesanstalt für Finanzdienstleistungsaufsicht – ‘BaFin’) and the Deutsche Bundesbank. The owners agreed essentially on a structure to ring-fence substantial risks in the bank’s structured portfolios, which were to be secured by a ‘risk shield’ of EUR 5 billion (8) (this figure included capital injections envisaged previously).

| (18) | By this agreement the owners intended to protect WestLB against the volatility of the markets. Under the IFRS international accounting standards applied by WestLB, the bank has to use the mark-to-market method, which means that a major part of the assets held by the bank has regularly to be valued afresh. As a result of the subprime crisis, demand for structured investment portfolios collapsed. At the end of 2007, on a portfolio of around EUR 23 billion, the balance sheet had to show a mark-to-market loss of approximately EUR [1,5-2,5] billion (9). |
| --- | --- |

(18)

By this agreement the owners intended to protect WestLB against the volatility of the markets. Under the IFRS international accounting standards applied by WestLB, the bank has to use the mark-to-market method, which means that a major part of the assets held by the bank has regularly to be valued afresh. As a result of the subprime crisis, demand for structured investment portfolios collapsed. At the end of 2007, on a portfolio of around EUR 23 billion, the balance sheet had to show a mark-to-market loss of approximately EUR [1,5-2,5] billion (9).

| (19) | The risk shield provides the legal basis for the transfer of impaired assets from WestLB to a special-purpose vehicle, Phoenix Light SF Ltd, so that WestLB will not have to incorporate the impact of market volatility related to these portfolios into its accounts. Once the assets have been transferred and the guarantee has been issued, the effects of this market volatility will have been completely removed from WestLB's accounts. The special-purpose vehicle is equivalent to a ‘bad bank’ which is set up for one institution and benefits from a state guarantee. |
| --- | --- |

(19)

The risk shield provides the legal basis for the transfer of impaired assets from WestLB to a special-purpose vehicle, Phoenix Light SF Ltd, so that WestLB will not have to incorporate the impact of market volatility related to these portfolios into its accounts. Once the assets have been transferred and the guarantee has been issued, the effects of this market volatility will have been completely removed from WestLB's accounts. The special-purpose vehicle is equivalent to a ‘bad bank’ which is set up for one institution and benefits from a state guarantee.

| (20) | On 31 March 2008 the owners of WestLB approved the measures, subject to final approval by the regional parliament of North Rhine-Westphalia. The bank and the auditors were satisfied that the parliament would in all probability agree, and considered the decision sufficient for the transfer of the risk to the owners, which took place on 31 March 2008. The parliament did indeed subsequently approve the measure. |
| --- | --- |

(20)

On 31 March 2008 the owners of WestLB approved the measures, subject to final approval by the regional parliament of North Rhine-Westphalia. The bank and the auditors were satisfied that the parliament would in all probability agree, and considered the decision sufficient for the transfer of the risk to the owners, which took place on 31 March 2008. The parliament did indeed subsequently approve the measure.

2.3.   The measure

| (21) | The restructuring plan provides that the risk shield granted to the special-purpose vehicle, Phoenix Light SF Ltd, will be prolonged and converted from a provisional into a permanent structure. However, the structure of the shield has not been altered. |
| --- | --- |

(21)

The restructuring plan provides that the risk shield granted to the special-purpose vehicle, Phoenix Light SF Ltd, will be prolonged and converted from a provisional into a permanent structure. However, the structure of the shield has not been altered.

| (22) | The risk shield consists of:






  — | a guarantee issued by the owners of WestLB in line with their respective shareholdings covering claims up to an amount of EUR 2 billion held by WestLB against Phoenix Light, to which WestLB will transfer a structured securities portfolio with a nominal value of EUR 23 billion; and |
| --- | --- | --- |

(22)

The risk shield consists of:

—

a guarantee issued by the owners of WestLB in line with their respective shareholdings covering claims up to an amount of EUR 2 billion held by WestLB against Phoenix Light, to which WestLB will transfer a structured securities portfolio with a nominal value of EUR 23 billion; and

| — | a guarantee issued by the Land of North Rhine-Westphalia covering further claims held by WestLB against Phoenix Light up to an additional amount of EUR 3 billion. |
| --- | --- |

—

a guarantee issued by the Land of North Rhine-Westphalia covering further claims held by WestLB against Phoenix Light up to an additional amount of EUR 3 billion.

| (23) | The transaction was carried out as follows:






  — | Until 31 March 2008 WestLB held a EUR 23 billion portfolio consisting essentially of structured securities and commercial paper, medium-term notes and income and capital notes issued by three investment vehicles called Greyhawk, Harrier, and Kestrel (10). |
| --- | --- | --- |

(23)

The transaction was carried out as follows:

—

Until 31 March 2008 WestLB held a EUR 23 billion portfolio consisting essentially of structured securities and commercial paper, medium-term notes and income and capital notes issued by three investment vehicles called Greyhawk, Harrier, and Kestrel (10).

| — | With effect from 31 March 2008 WestLB sold the portfolio to Phoenix Light at its nominal value of EUR 23 billion. In order to pay the EUR 23 billion purchase price, Phoenix Light issued notes equal to the nominal value of the portfolio. The notes were issued in two tranches. The lower tranche consists of junior notes which have priority in the event of non-performance of the assets (i.e. they carry all the risks); these have a total nominal value of EUR 5 billion. The upper tranche consists of senior notes for a total amount of EUR 18 billion. |
| --- | --- |

—

With effect from 31 March 2008 WestLB sold the portfolio to Phoenix Light at its nominal value of EUR 23 billion. In order to pay the EUR 23 billion purchase price, Phoenix Light issued notes equal to the nominal value of the portfolio. The notes were issued in two tranches. The lower tranche consists of junior notes which have priority in the event of non-performance of the assets (i.e. they carry all the risks); these have a total nominal value of EUR 5 billion. The upper tranche consists of senior notes for a total amount of EUR 18 billion.

| — | The Land of North Rhine-Westphalia issued a guarantee for the junior notes. This has the effect that the junior notes are considered to be safe. As soon as they were covered by the guarantee, the notes were purchased by WestLB. There are two reasons for this. First, once the notes were covered by the guarantee, the auditors agreed they would not have to correct them downwards in WestLB’s accounts, as they would have been obliged to do to the original portfolio investments. Second, WestLB could use the notes as collateral to raise the funds required in order to buy them. |
| --- | --- |

—

The Land of North Rhine-Westphalia issued a guarantee for the junior notes. This has the effect that the junior notes are considered to be safe. As soon as they were covered by the guarantee, the notes were purchased by WestLB. There are two reasons for this. First, once the notes were covered by the guarantee, the auditors agreed they would not have to correct them downwards in WestLB’s accounts, as they would have been obliged to do to the original portfolio investments. Second, WestLB could use the notes as collateral to raise the funds required in order to buy them.

| — | Phoenix Light is to pay the guarantors a commission of [0,2–0,1] % per annum on the guarantee of EUR 5 billion, and is to pay a return to the holder or holders of the senior and junior notes (for the duration of the interim structure, the holder was WestLB). These costs and all the administrative costs are to be borne out of the return on the paper transferred to Phoenix Light. The return paid by Phoenix Light on the senior and junior notes was calculated in such a way that WestLB was able to cover its refinancing costs. |
| --- | --- |

—

Phoenix Light is to pay the guarantors a commission of [0,2–0,1] % per annum on the guarantee of EUR 5 billion, and is to pay a return to the holder or holders of the senior and junior notes (for the duration of the interim structure, the holder was WestLB). These costs and all the administrative costs are to be borne out of the return on the paper transferred to Phoenix Light. The return paid by Phoenix Light on the senior and junior notes was calculated in such a way that WestLB was able to cover its refinancing costs.

| — | During the rescue period WestLB had to hold both the junior and the senior notes in order to ensure their reversibility. After approval by the Commission, the interim structure was changed into a permanent structure. In the permanent structure, WestLB will continue to hold the guaranteed junior notes until maturity. Phoenix Light will try to place the senior notes on the capital markets as soon as market conditions make such transactions possible once again. WestLB will consequently hold the senior notes in the permanent structure too, until such time as they can be placed on the markets. The senior notes now held by WestLB will then be redeemed by Phoenix Light and sold to third parties. |
| --- | --- |

—

During the rescue period WestLB had to hold both the junior and the senior notes in order to ensure their reversibility. After approval by the Commission, the interim structure was changed into a permanent structure. In the permanent structure, WestLB will continue to hold the guaranteed junior notes until maturity. Phoenix Light will try to place the senior notes on the capital markets as soon as market conditions make such transactions possible once again. WestLB will consequently hold the senior notes in the permanent structure too, until such time as they can be placed on the markets. The senior notes now held by WestLB will then be redeemed by Phoenix Light and sold to third parties.

| (24) | Vis-à-is third parties, the Land of North Rhine-Westphalia has exclusive liability for the total amount of the guarantee of EUR 5 billion. On a first tranche of EUR 2 billion, the Land may claim compensation from the other four owners in proportion to their holdings. For the remainder of the guarantee, amounting to EUR 3 billion, the Land will bear sole liability, without regard to its proportionate holding. In return for bearing this liability, the Land has obtained from the other owners an adjustment of its shareholder rights and entitlement to compensation, which it can opt to receive either in cash or by way of an assignment of shares in WestLB. |
| --- | --- |

(24)

Vis-à-is third parties, the Land of North Rhine-Westphalia has exclusive liability for the total amount of the guarantee of EUR 5 billion. On a first tranche of EUR 2 billion, the Land may claim compensation from the other four owners in proportion to their holdings. For the remainder of the guarantee, amounting to EUR 3 billion, the Land will bear sole liability, without regard to its proportionate holding. In return for bearing this liability, the Land has obtained from the other owners an adjustment of its shareholder rights and entitlement to compensation, which it can opt to receive either in cash or by way of an assignment of shares in WestLB.

| (25) | It was agreed that changes would in any event be made to the consortium agreement, under which certain rights held by the savings banks’ and giro associations would be ended or adjusted (11). The detailed changes would be agreed between the owners of WestLB later. |
| --- | --- |

(25)

It was agreed that changes would in any event be made to the consortium agreement, under which certain rights held by the savings banks’ and giro associations would be ended or adjusted (11). The detailed changes would be agreed between the owners of WestLB later.

| (26) | Compensation is to be paid to the Land if the disproportionate EUR 3 billion component of the guarantee is called upon: in that event the Land will be entitled to demand the transfer to it of a corresponding number of WestLB shares currently held by the savings banks’ associations and the regional associations. The compensation will be calculated on the basis of a share price of EUR 220, less a discount of EUR 20 per share. For the regional associations the share price will be EUR 220. Instead of a transfer of the shares, the parties may also agree on a cash payment. |
| --- | --- |

(26)

Compensation is to be paid to the Land if the disproportionate EUR 3 billion component of the guarantee is called upon: in that event the Land will be entitled to demand the transfer to it of a corresponding number of WestLB shares currently held by the savings banks’ associations and the regional associations. The compensation will be calculated on the basis of a share price of EUR 220, less a discount of EUR 20 per share. For the regional associations the share price will be EUR 220. Instead of a transfer of the shares, the parties may also agree on a cash payment.

| (27) | In the Decision of 30 April 2008, the Commission found that the risk shield described constituted temporary rescue aid, and declared it compatible with the common market under the rescue and restructuring guidelines until 8 August 2008. At the same time the Commission requested that Germany submit a far-reaching and coherent restructuring plan. Germany sent a restructuring plan on 8 August 2008. |
| --- | --- |

(27)

In the Decision of 30 April 2008, the Commission found that the risk shield described constituted temporary rescue aid, and declared it compatible with the common market under the rescue and restructuring guidelines until 8 August 2008. At the same time the Commission requested that Germany submit a far-reaching and coherent restructuring plan. Germany sent a restructuring plan on 8 August 2008.

2.4.   The restructuring plan

| (28) | The notification consists of a ‘key points agreement’ (Eckpunktevereinbarung) between the owners of the bank, dated 8 August 2008, and a more detailed ‘stand-alone’ restructuring plan, which has been amended following discussion with the Commission. The restructuring plan can be summarised as follows. |
| --- | --- |

(28)

The notification consists of a ‘key points agreement’ (Eckpunktevereinbarung) between the owners of the bank, dated 8 August 2008, and a more detailed ‘stand-alone’ restructuring plan, which has been amended following discussion with the Commission. The restructuring plan can be summarised as follows.

| (29) | A central element in the key points agreement and the restructuring plan is the intended change of ownership, which Germany and the owners undertook to put into definite terms, for example by producing a letter of intent, by 31 December 2008. But this step has not been taken. Downsizing, cost-cutting, de-risking and refocusing measures are to be taken in order to facilitate a sale. An unbundled WestLB will therefore be offered for sale, as a whole or in the form of independent business units, in an open, transparent and non-discriminatory tender procedure which will be launched before the end of August 2010 and which will be completed before the end of [June–October] 2011, enabling the sale to become effective on 1 January 2012. |
| --- | --- |

(29)

A central element in the key points agreement and the restructuring plan is the intended change of ownership, which Germany and the owners undertook to put into definite terms, for example by producing a letter of intent, by 31 December 2008. But this step has not been taken. Downsizing, cost-cutting, de-risking and refocusing measures are to be taken in order to facilitate a sale. An unbundled WestLB will therefore be offered for sale, as a whole or in the form of independent business units, in an open, transparent and non-discriminatory tender procedure which will be launched before the end of August 2010 and which will be completed before the end of [June–October] 2011, enabling the sale to become effective on 1 January 2012.

| (30) | The restructuring plan stipulates that there must be an open, transparent and non-discriminatory tender procedure open to any buyer, domestic or foreign. The sale must be adequately publicised in at least one international newspaper or periodical available throughout the Community in English. WestLB acts as a central institution for savings banks in North Rhine-Westphalia. WestLB itself is a commercial bank in the legal form of a public limited company. Therefore neither the current role of WestLB as a central institution for savings banks nor the name WestLB is to be invoked to prevent a complete sale of the bank to a private investor. |
| --- | --- |

(30)

The restructuring plan stipulates that there must be an open, transparent and non-discriminatory tender procedure open to any buyer, domestic or foreign. The sale must be adequately publicised in at least one international newspaper or periodical available throughout the Community in English. WestLB acts as a central institution for savings banks in North Rhine-Westphalia. WestLB itself is a commercial bank in the legal form of a public limited company. Therefore neither the current role of WestLB as a central institution for savings banks nor the name WestLB is to be invoked to prevent a complete sale of the bank to a private investor.

| (31) | The primary objective of the tender procedure is a change of ownership of WestLB, i.e. the complete transfer of the voting rights. Full divesture of one or several unbundled business areas is preferred to a simple transfer of the majority of the voting rights (50 % plus one share). Such a transfer of the majority of the voting rights to a new buyer will be admissible only if in the tender procedure no offer is made for the full divesture of one or more segmented business areas. Although the priority is a transfer of the entirety of the voting rights, the Commission agreed in view of the unpredictable situation on the financial markets and the failure of efforts to change WestLB’s ownership structure that there might be a need for alternative scenarios, such as a transfer of the majority of the voting rights or a consolidation of Landesbanken in Germany. The Commission does not oppose a restructuring of the banks on an aggregate level, and accepts that the restructuring plan may have to be implemented against the background of a restructuring of the Landesbanken in Germany. However, in order to monitor the correct implementation of the restructuring plan even if an alternative scenario for the change of ownership is chosen, the Commission considers it necessary that a trustee be appointed. |
| --- | --- |

(31)

The primary objective of the tender procedure is a change of ownership of WestLB, i.e. the complete transfer of the voting rights. Full divesture of one or several unbundled business areas is preferred to a simple transfer of the majority of the voting rights (50 % plus one share). Such a transfer of the majority of the voting rights to a new buyer will be admissible only if in the tender procedure no offer is made for the full divesture of one or more segmented business areas. Although the priority is a transfer of the entirety of the voting rights, the Commission agreed in view of the unpredictable situation on the financial markets and the failure of efforts to change WestLB’s ownership structure that there might be a need for alternative scenarios, such as a transfer of the majority of the voting rights or a consolidation of Landesbanken in Germany. The Commission does not oppose a restructuring of the banks on an aggregate level, and accepts that the restructuring plan may have to be implemented against the background of a restructuring of the Landesbanken in Germany. However, in order to monitor the correct implementation of the restructuring plan even if an alternative scenario for the change of ownership is chosen, the Commission considers it necessary that a trustee be appointed.

| (32) | In order to facilitate the sale of WestLB, whether as a whole or in separate parts, the restructuring plan provides for cost-cutting and downsizing measures. The divesture of shareholdings and the closure of locations are key elements. As regards cost-cutting and downsizing, all major shareholdings will be divested in order to finance the restructuring activities. The sale process will be organised in two tranches: The first tranche of holdings, comprising Weberbank, [...] and [...] will be sold by the end of [February–May] 2010 (12), and the second tranche, comprising [...] and [...], will be sold by the end of [February-May] 2011 (13). |
| --- | --- |

(32)

In order to facilitate the sale of WestLB, whether as a whole or in separate parts, the restructuring plan provides for cost-cutting and downsizing measures. The divesture of shareholdings and the closure of locations are key elements. As regards cost-cutting and downsizing, all major shareholdings will be divested in order to finance the restructuring activities. The sale process will be organised in two tranches: The first tranche of holdings, comprising Weberbank, [...] and [...] will be sold by the end of [February–May] 2010 (12), and the second tranche, comprising [...] and [...], will be sold by the end of [February-May] 2011 (13).

| (33) | Of its eleven locations in Germany, WestLB will close five by [...] 2010 at the latest (Bielefeld, Münster, Dortmund, Cologne and Mainz) (14). By [...] 2010 at the latest (15) WestLB will reduce its locations outside Germany from over thirty to seven (16). |
| --- | --- |

(33)

Of its eleven locations in Germany, WestLB will close five by [...] 2010 at the latest (Bielefeld, Münster, Dortmund, Cologne and Mainz) (14). By [...] 2010 at the latest (15) WestLB will reduce its locations outside Germany from over thirty to seven (16).

| (34) | Finally, the restructuring plan sets out a programme of downsizing measures, as follows:






  — | By comparison with the year-end financial statement for 2007, the balance sheet total will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011 (17). In absolute figures, the balance sheet total will be reduced from EUR [200-280] billion net to EUR [150–250] billion net by 31 March 2010 and EUR [80-180] billion net by 31 March 2011. |
| --- | --- | --- |

(34)

Finally, the restructuring plan sets out a programme of downsizing measures, as follows:

—

By comparison with the year-end financial statement for 2007, the balance sheet total will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011 (17). In absolute figures, the balance sheet total will be reduced from EUR [200-280] billion net to EUR [150–250] billion net by 31 March 2010 and EUR [80-180] billion net by 31 March 2011.

| — | By comparison with the year-end financial statement for 2007, the risk-weighted assets (RWA) will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011. In absolute figures, the risk-weighted assets will be reduced from EUR 104 billion to EUR 78 billion by 31 March 2010 and EUR 52 billion by 31 March 2011. |
| --- | --- |

—

By comparison with the year-end financial statement for 2007, the risk-weighted assets (RWA) will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011. In absolute figures, the risk-weighted assets will be reduced from EUR 104 billion to EUR 78 billion by 31 March 2010 and EUR 52 billion by 31 March 2011.

| — | These target figures are to be achieved preferably by divesting or disposing of assets that have previously been grouped in the ‘exit portfolio’. |
| --- | --- |

—

These target figures are to be achieved preferably by divesting or disposing of assets that have previously been grouped in the ‘exit portfolio’.

| (35) | In addition to cost-cutting and downsizing, the plan involves comprehensive refocusing and de-risking of all business. In particular, the following measures are to be taken:






  — | Core business will be divided into three separate areas, with organisational unbundling of all business processes, |
| --- | --- | --- |

(35)

In addition to cost-cutting and downsizing, the plan involves comprehensive refocusing and de-risking of all business. In particular, the following measures are to be taken:

—

Core business will be divided into three separate areas, with organisational unbundling of all business processes,

| — | There will be a phase-out of investment management, ending in full withdrawal, |
| --- | --- |

—

There will be a phase-out of investment management, ending in full withdrawal,

| — | In the field of structured finance, including international project finance (global origination), the volume of business will be considerably reduced and focused on identified sectors, |
| --- | --- |

—

In the field of structured finance, including international project finance (global origination), the volume of business will be considerably reduced and focused on identified sectors,

| — | The international capital market business will be limited to customer-related trading activities. |
| --- | --- |

—

The international capital market business will be limited to customer-related trading activities.

| (36) | Before the end of October 2009, with a view to the formation of three separate core business areas, WestLB will unbundle all business processes and set up the following units, which will abstain from external growth through mergers or acquisitions:






  — | transaction banking, |
| --- | --- | --- |

(36)

Before the end of October 2009, with a view to the formation of three separate core business areas, WestLB will unbundle all business processes and set up the following units, which will abstain from external growth through mergers or acquisitions:

—

transaction banking,

| — | medium-sized companies and savings banks partnership (Verbund/Mittelstand), |
| --- | --- |

—

medium-sized companies and savings banks partnership (Verbund/Mittelstand),

| — | capital markets, wholesale banking and structured financing. |
| --- | --- |

—

capital markets, wholesale banking and structured financing.

| (37) | Pending the sale of the investment management business, WestLB will cease trading for its own account and will no longer perform relative value and arbitrage transactions (18). Trading for clients’ accounts is restricted to the locations in Düsseldorf, New York, London and Hong Kong. |
| --- | --- |

(37)

Pending the sale of the investment management business, WestLB will cease trading for its own account and will no longer perform relative value and arbitrage transactions (18). Trading for clients’ accounts is restricted to the locations in Düsseldorf, New York, London and Hong Kong.

| (38) | Until WestLB’s change of ownership, the business volume of capital market activities will be restricted as follows: in 2009, by 31 December 2009, to EUR [70–100] billion; in 2010, by 31 December 2010, to EUR [60–90] billion; and in 2011, by 31 December 2011, to EUR [50-80] billion. |
| --- | --- |

(38)

Until WestLB’s change of ownership, the business volume of capital market activities will be restricted as follows: in 2009, by 31 December 2009, to EUR [70–100] billion; in 2010, by 31 December 2010, to EUR [60–90] billion; and in 2011, by 31 December 2011, to EUR [50-80] billion.

| (39) | Until WestLB’s change of ownership, the risk-weighted assets to be allocated to capital markets business will be restricted as follows: by 31 December 2009, to EUR [10–25] billion; by 31 December 2010, to EUR [5–25] billion; and by 31 December 2011, to EUR [5–25] billion. |
| --- | --- |

(39)

Until WestLB’s change of ownership, the risk-weighted assets to be allocated to capital markets business will be restricted as follows: by 31 December 2009, to EUR [10–25] billion; by 31 December 2010, to EUR [5–25] billion; and by 31 December 2011, to EUR [5–25] billion.

| (40) | Pending the sale of WestLB, the volume of business in the field of wholesale banking and structured financing (forming part of the capital markets, wholesale banking and structured financing area) will be restricted as follows: in 2009, by 31 December 2009, to EUR [20-40] billion; in 2010, by 31 December 2010, to EUR [15-35] billion; and in 2011, by 31 December 2011, to EUR [10-30] billion. |
| --- | --- |

(40)

Pending the sale of WestLB, the volume of business in the field of wholesale banking and structured financing (forming part of the capital markets, wholesale banking and structured financing area) will be restricted as follows: in 2009, by 31 December 2009, to EUR [20-40] billion; in 2010, by 31 December 2010, to EUR [15-35] billion; and in 2011, by 31 December 2011, to EUR [10-30] billion.

| (41) | In addition, pending the sale of WestLB, the risk-weighted assets corresponding to the volume of business in the field of wholesale banking and structured financing (forming part of the capital markets, wholesale banking and structured financing area) will be restricted as follows: by 31 December 2009, to EUR [30-60] billion; by 31 December 2010, to EUR [20-50] billion; and by 31 December 2011, to EUR [20-50] billion. |
| --- | --- |

(41)

In addition, pending the sale of WestLB, the risk-weighted assets corresponding to the volume of business in the field of wholesale banking and structured financing (forming part of the capital markets, wholesale banking and structured financing area) will be restricted as follows: by 31 December 2009, to EUR [30-60] billion; by 31 December 2010, to EUR [20-50] billion; and by 31 December 2011, to EUR [20-50] billion.

| (42) | All remaining activities, units and locations in the form of subsidiaries, branches or representation offices which cannot be sold before the end of December 2011 will be wound up by the owners. All the amendments made to the restructuring plan of 8 August 2008 were discussed with the Commission, accepted by Germany, and submitted to the Commission on 30 April 2009. But the amended restructuring plan is still subject to official confirmation by three out of WestLB’s five owners. Although it has been accepted by Germany and by the owners, therefore, the restructuring plan cannot be considered binding. In the course of the proceedings the Commission has observed that the owners have been unable to comply with the original timetable for an authorised restructuring plan, and that decision-making has fallen behind schedule. The Commission consequently considers it necessary to attach conditions to its Decision. |
| --- | --- |

(42)

All remaining activities, units and locations in the form of subsidiaries, branches or representation offices which cannot be sold before the end of December 2011 will be wound up by the owners. All the amendments made to the restructuring plan of 8 August 2008 were discussed with the Commission, accepted by Germany, and submitted to the Commission on 30 April 2009. But the amended restructuring plan is still subject to official confirmation by three out of WestLB’s five owners. Although it has been accepted by Germany and by the owners, therefore, the restructuring plan cannot be considered binding. In the course of the proceedings the Commission has observed that the owners have been unable to comply with the original timetable for an authorised restructuring plan, and that decision-making has fallen behind schedule. The Commission consequently considers it necessary to attach conditions to its Decision.

| (43) | Given the complexity of the proposed restructuring measures, and the tight deadlines for their implementation, the Commission considers that the implementation of the restructuring plan should be monitored by a trustee, who should keep the Commission informed of the steps taken. The appointment of a trustee is important especially because the Commission is prepared to accept some flexibility in the implementation schedule. In principle the divesture of holdings has to be completed by [February–May] 2010. But it may be postponed if WestLB can show that a sale was possible only below book value. This Decision also provides for the possibility of a restricted sale or the consolidation of the Landesbanken in Germany, and thus for exemption from the tendering requirement. The trustee should monitor the implementation of the restructuring plan, report on decisions taken in the framework of the flexibility allowed during the implementation period, and facilitate communication with the Commission. |
| --- | --- |

(43)

Given the complexity of the proposed restructuring measures, and the tight deadlines for their implementation, the Commission considers that the implementation of the restructuring plan should be monitored by a trustee, who should keep the Commission informed of the steps taken. The appointment of a trustee is important especially because the Commission is prepared to accept some flexibility in the implementation schedule. In principle the divesture of holdings has to be completed by [February–May] 2010. But it may be postponed if WestLB can show that a sale was possible only below book value. This Decision also provides for the possibility of a restricted sale or the consolidation of the Landesbanken in Germany, and thus for exemption from the tendering requirement. The trustee should monitor the implementation of the restructuring plan, report on decisions taken in the framework of the flexibility allowed during the implementation period, and facilitate communication with the Commission.

3.   GERMANY’S COMMENTS ON THE OPENING DECISION

| (44) | In response to the opening decision Germany submitted observations on the assessment of the aid. |
| --- | --- |

(44)

In response to the opening decision Germany submitted observations on the assessment of the aid.

| (45) | Regarding the scale of the aid involved, Germany argues, contrary to the Commission’s view, that for the calculation of the amount of aid the only relevant time is the time at which the risk shield was put in place and announced to the public, and not the later time at which the provisional structure was transformed into a permanent structure. |
| --- | --- |

(45)

Regarding the scale of the aid involved, Germany argues, contrary to the Commission’s view, that for the calculation of the amount of aid the only relevant time is the time at which the risk shield was put in place and announced to the public, and not the later time at which the provisional structure was transformed into a permanent structure.

| (46) | Concerning the nature of the risk shield, Germany argues that the conversion from a provisional structure to a permanent one is not relevant. The test applied by the Commission to assess the eligibility of the measure, i.e. its reversibility, is satisfied, despite the fact that the risk shield is not subject to a time-limit. |
| --- | --- |

(46)

Concerning the nature of the risk shield, Germany argues that the conversion from a provisional structure to a permanent one is not relevant. The test applied by the Commission to assess the eligibility of the measure, i.e. its reversibility, is satisfied, despite the fact that the risk shield is not subject to a time-limit.

| (47) | Germany argues that where a guarantee is given to a firm in difficulty the aid component will be equal to the amount effectively covered by the guarantee only if total loss is very likely. The calculation performed by WestLB which was presented to BaFin and the Bundesbank in December 2007 and January 2008 put the expected losses of the portfolio at a nominal EUR [...] million at the end of January 2008; the calculation performed by Morgan Stanley in February 2008 arrived at the significantly higher value of about EUR [...] billion; both of these are well below the nominal value of EUR 5 billion, and do not suggest that total loss was very likely. Furthermore the calculation performed by WestLB already takes account of a bad case scenario, as it is based upon an additional two-notch downgrading of the recent ratings of all instruments assessed, whereas the report provided by Morgan Stanley was too pessimistic, being based, among other differing assumptions, upon a four-notch downgrading. |
| --- | --- |

(47)

Germany argues that where a guarantee is given to a firm in difficulty the aid component will be equal to the amount effectively covered by the guarantee only if total loss is very likely. The calculation performed by WestLB which was presented to BaFin and the Bundesbank in December 2007 and January 2008 put the expected losses of the portfolio at a nominal EUR [...] million at the end of January 2008; the calculation performed by Morgan Stanley in February 2008 arrived at the significantly higher value of about EUR [...] billion; both of these are well below the nominal value of EUR 5 billion, and do not suggest that total loss was very likely. Furthermore the calculation performed by WestLB already takes account of a bad case scenario, as it is based upon an additional two-notch downgrading of the recent ratings of all instruments assessed, whereas the report provided by Morgan Stanley was too pessimistic, being based, among other differing assumptions, upon a four-notch downgrading.

| (48) | Turning to the legal basis, Germany argues that the aid should be found compatible with the common market pursuant to Article 87(3)(b) of the EC Treaty, since at the time the aid was granted there was a serious disturbance in the economy, and the risk shield for WestLB, which according to Germany is of systemic importance, was also intended to remedy that disturbance. The measure was appropriate, necessary and proportionate. |
| --- | --- |

(48)

Turning to the legal basis, Germany argues that the aid should be found compatible with the common market pursuant to Article 87(3)(b) of the EC Treaty, since at the time the aid was granted there was a serious disturbance in the economy, and the risk shield for WestLB, which according to Germany is of systemic importance, was also intended to remedy that disturbance. The measure was appropriate, necessary and proportionate.

| (49) | Germany also contends that the aid is compatible with the common market under Article 87(3)(c), because the restructuring plan does not consist solely of incremental improvements, but provides for a considerable reduction of the business conducted by WestLB for its own account, an appreciable improvement in its risk profile, and a stabilisation of its earnings outlook. |
| --- | --- |

(49)

Germany also contends that the aid is compatible with the common market under Article 87(3)(c), because the restructuring plan does not consist solely of incremental improvements, but provides for a considerable reduction of the business conducted by WestLB for its own account, an appreciable improvement in its risk profile, and a stabilisation of its earnings outlook.

| (50) | Finally, Germany argues that the planned measures aimed at limiting the potential distortion of competition are not necessary in order to restore long-term viability, and that the overall cost of these measures as compared with the amount of aid received is considerably higher than in similar cases such as Crédit Lyonnais II
   (19), Banco di Napoli, Crédit Foncier de France, Societé Marseillaise de Crédit, BAWAG-PSK
   (20), Bankgesellschaft Berlin
   (21) or IKB
   (22). |
| --- | --- |

(50)

Finally, Germany argues that the planned measures aimed at limiting the potential distortion of competition are not necessary in order to restore long-term viability, and that the overall cost of these measures as compared with the amount of aid received is considerably higher than in similar cases such as Crédit Lyonnais II
   (19), Banco di Napoli, Crédit Foncier de France, Societé Marseillaise de Crédit, BAWAG-PSK
   (20), Bankgesellschaft Berlin
   (21) or IKB
   (22).

4.   ASSESSMENT

4.1.   Existence of aid

| (51) | The Commission must first assess whether the measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty. That provision encompasses any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings, in so far as it affects trade between Member States. |
| --- | --- |

(51)

The Commission must first assess whether the measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty. That provision encompasses any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings, in so far as it affects trade between Member States.

| (52) | The risk shield is a continuation of the rescue aid granted by the owners. As the Commission found in its Decision of 30 April 2008, the risk shield constitutes State aid. Germany does not dispute this. |
| --- | --- |

(52)

The risk shield is a continuation of the rescue aid granted by the owners. As the Commission found in its Decision of 30 April 2008, the risk shield constitutes State aid. Germany does not dispute this.

4.2.   The amount of aid

| (53) | The Commission does not agree with Germany that the amount of aid should be calculated on the basis of the expected losses. |
| --- | --- |

(53)

The Commission does not agree with Germany that the amount of aid should be calculated on the basis of the expected losses.

| (54) | First, as regards methodology, the Commission would confirm that the risk shield was approved as rescue aid in view of its reversibility. The risk shield is now to be converted into a permanent arrangement, and the amount of aid may therefore need to be assessed afresh at the restructuring stage. A fresh evaluation of the expected losses was requested in the opening decision, but no such evaluation has been submitted, although more up-to-date figures exist and could have been provided by the beneficiary. The Morgan Stanley report, which arrives at the significantly higher value of about EUR [...] billion, shows the sensitivity of such calculations, depending on the assumptions made and the methodology adopted. |
| --- | --- |

(54)

First, as regards methodology, the Commission would confirm that the risk shield was approved as rescue aid in view of its reversibility. The risk shield is now to be converted into a permanent arrangement, and the amount of aid may therefore need to be assessed afresh at the restructuring stage. A fresh evaluation of the expected losses was requested in the opening decision, but no such evaluation has been submitted, although more up-to-date figures exist and could have been provided by the beneficiary. The Morgan Stanley report, which arrives at the significantly higher value of about EUR [...] billion, shows the sensitivity of such calculations, depending on the assumptions made and the methodology adopted.

| (55) | The Commission would point out that in its Decision in Sachsen LB it found that that in assessing expected losses in the current unpredictable circumstances of the financial markets a market economy investor would have looked at least at a bad case scenario (23). The Commission does not share the view that the differing assumptions in the Morgan Stanley report are overly pessimistic, nor that WestLB has already taken a bad case scenario into account, as there is a noticeable effect on the expected losses only if lower grades on the rating scale are chosen. This conclusion is in line with the reasoning in the Bankgesellschaft Berlin Decision (24). |
| --- | --- |

(55)

The Commission would point out that in its Decision in Sachsen LB it found that that in assessing expected losses in the current unpredictable circumstances of the financial markets a market economy investor would have looked at least at a bad case scenario (23). The Commission does not share the view that the differing assumptions in the Morgan Stanley report are overly pessimistic, nor that WestLB has already taken a bad case scenario into account, as there is a noticeable effect on the expected losses only if lower grades on the rating scale are chosen. This conclusion is in line with the reasoning in the Bankgesellschaft Berlin Decision (24).

| (56) | Furthermore, the Commission considers that in the present case the effect and the character of the EUR 5 billion guarantee, which allows the bank to free its balance sheet from a EUR 23 billion portfolio, is similar to that of a capital injection. The amount of the aid is thus comparable to the capital that would have been required to achieve the same stabilisation of the portfolio (25). |
| --- | --- |

(56)

Furthermore, the Commission considers that in the present case the effect and the character of the EUR 5 billion guarantee, which allows the bank to free its balance sheet from a EUR 23 billion portfolio, is similar to that of a capital injection. The amount of the aid is thus comparable to the capital that would have been required to achieve the same stabilisation of the portfolio (25).

| (57) | According to the established practice of the Commission (26), the consistent findings of the courts, and the Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees (27), the aid component in a guarantee to a company in difficulty may be as high as the amount effectively covered by the guarantee (here EUR 5 billion). |
| --- | --- |

(57)

According to the established practice of the Commission (26), the consistent findings of the courts, and the Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees (27), the aid component in a guarantee to a company in difficulty may be as high as the amount effectively covered by the guarantee (here EUR 5 billion).

| (58) | In accordance with the Communication from the Commission on the treatment of impaired assets in the Community banking sector (28) (paragraph 39), the amount of aid is equal to the difference between the transfer value of the assets (based on their real economic value) and the market price. For this reason the assets should be valued on the basis of their current market value whenever possible. According to the information supplied by the German authorities, the market for the assets in the portfolio has almost entirely dried up, so that it is not possible to establish a market price for purposes of the Communication on impaired assets, there being no market to refer to. It must be concluded, therefore, that the amount of aid is equal to the amount of the guarantee, i.e. EUR 5 billion. |
| --- | --- |

(58)

In accordance with the Communication from the Commission on the treatment of impaired assets in the Community banking sector (28) (paragraph 39), the amount of aid is equal to the difference between the transfer value of the assets (based on their real economic value) and the market price. For this reason the assets should be valued on the basis of their current market value whenever possible. According to the information supplied by the German authorities, the market for the assets in the portfolio has almost entirely dried up, so that it is not possible to establish a market price for purposes of the Communication on impaired assets, there being no market to refer to. It must be concluded, therefore, that the amount of aid is equal to the amount of the guarantee, i.e. EUR 5 billion.

| (59) | In addition, the commission to be paid, at [0,2–1,0] %, is significantly below the price a market investor would expect in line with the Communication on impaired assets (29). |
| --- | --- |

(59)

In addition, the commission to be paid, at [0,2–1,0] %, is significantly below the price a market investor would expect in line with the Communication on impaired assets (29).

| (60) | The economic value of the aid is thus substantially higher than both Germany’s assessment of the expected loss and the EUR [...] billion calculated by Morgan Stanley. In all likelihood, therefore, the aid is equal to the nominal value of EUR 5 billion. |
| --- | --- |

(60)

The economic value of the aid is thus substantially higher than both Germany’s assessment of the expected loss and the EUR [...] billion calculated by Morgan Stanley. In all likelihood, therefore, the aid is equal to the nominal value of EUR 5 billion.

4.3.   Legal basis for the assessment of the compatibility of the aid with the common market

| (61) | In the opening decision the Commission stated that the legal basis for the assessment of the compatibility of the aid measure was Article 87(3)(c) of the EC Treaty. The Commission also considered whether the measure should be assessed on the basis of Article 87(3)(b). That provision states that aid may be considered to be compatible with the common market if it is intended to remedy a serious disturbance in the economy of a Member State. The Commission pointed out that at the time when the aid was granted to WestLB the crisis on the subprime market had not yet led to a serious disturbance in the German economy within the meaning of Article 87(3)(b). Nor had the Commission received evidence from the German authorities demonstrating that a failure to aid WestLB would have led to such serious disturbance. |
| --- | --- |

(61)

In the opening decision the Commission stated that the legal basis for the assessment of the compatibility of the aid measure was Article 87(3)(c) of the EC Treaty. The Commission also considered whether the measure should be assessed on the basis of Article 87(3)(b). That provision states that aid may be considered to be compatible with the common market if it is intended to remedy a serious disturbance in the economy of a Member State. The Commission pointed out that at the time when the aid was granted to WestLB the crisis on the subprime market had not yet led to a serious disturbance in the German economy within the meaning of Article 87(3)(b). Nor had the Commission received evidence from the German authorities demonstrating that a failure to aid WestLB would have led to such serious disturbance.

| (62) | In the meantime, the Commission has acknowledged in three Communications (30) and in its approval of the German banks rescue package (31) that there is a threat of a serious disturbance in the German economy, and that measures supporting banks are likely to remedy that disturbance. The legal basis for the assessment of the aid measure should accordingly be Article 87(3)(b) of the EC Treaty. |
| --- | --- |

(62)

In the meantime, the Commission has acknowledged in three Communications (30) and in its approval of the German banks rescue package (31) that there is a threat of a serious disturbance in the German economy, and that measures supporting banks are likely to remedy that disturbance. The legal basis for the assessment of the aid measure should accordingly be Article 87(3)(b) of the EC Treaty.

| (63) | In the three Communications it has adopted in connection with the current financial crisis (32), the Commission has stated that aid granted to banks in the context of the crisis should be assessed in line with the rescue and restructuring guidelines, having regard to the particular features of a systemic crisis in the financial markets (33). Under the rescue and restructuring guidelines, State aid can be authorised only if it is accompanied by thorough-going restructuring to restore viability, by an adequate contribution to the cost of restructuring on the part of the beneficiary, and by measures to remedy the potential distortion of competition. The guidelines therefore offer the appropriate framework for dealing with the restructuring of WestLB in the context of the crisis. However, given the nature and scale of the present crisis, account will have to be taken of further specific factors related to the current market conditions. When applied to the restructuring of WestLB in the present crisis, therefore, the principles of the rescue and restructuring guidelines will have to be modulated. Special attention should be given to the rules set out in the rescue and restructuring guidelines regarding the contribution to be made by the beneficiary. Since external financing for WestLB [...], the 50 % target set in the rescue and restructuring guidelines appears very difficult to achieve, and the Commission accepts that during the systemic crisis in the financial markets it may not be appropriate to request a precise quantification of the beneficiary’s own contribution. Furthermore, the design and implementation of measures to limit distortion of competition may also need to be reconsidered, in so far as WestLB may need more time for their implementation, owing to market circumstances. |
| --- | --- |

(63)

In the three Communications it has adopted in connection with the current financial crisis (32), the Commission has stated that aid granted to banks in the context of the crisis should be assessed in line with the rescue and restructuring guidelines, having regard to the particular features of a systemic crisis in the financial markets (33). Under the rescue and restructuring guidelines, State aid can be authorised only if it is accompanied by thorough-going restructuring to restore viability, by an adequate contribution to the cost of restructuring on the part of the beneficiary, and by measures to remedy the potential distortion of competition. The guidelines therefore offer the appropriate framework for dealing with the restructuring of WestLB in the context of the crisis. However, given the nature and scale of the present crisis, account will have to be taken of further specific factors related to the current market conditions. When applied to the restructuring of WestLB in the present crisis, therefore, the principles of the rescue and restructuring guidelines will have to be modulated. Special attention should be given to the rules set out in the rescue and restructuring guidelines regarding the contribution to be made by the beneficiary. Since external financing for WestLB [...], the 50 % target set in the rescue and restructuring guidelines appears very difficult to achieve, and the Commission accepts that during the systemic crisis in the financial markets it may not be appropriate to request a precise quantification of the beneficiary’s own contribution. Furthermore, the design and implementation of measures to limit distortion of competition may also need to be reconsidered, in so far as WestLB may need more time for their implementation, owing to market circumstances.

| (64) | As the Commission indicated in two of the Communications adopted in connection with the current financial crisis, the depth of restructuring required to return to viability is likely to be in direct proportion to the scope and volume of the aid provided to WestLB on the one hand and to the solidity of its business model on the other (34). |
| --- | --- |

(64)

As the Commission indicated in two of the Communications adopted in connection with the current financial crisis, the depth of restructuring required to return to viability is likely to be in direct proportion to the scope and volume of the aid provided to WestLB on the one hand and to the solidity of its business model on the other (34).

4.4.   Compatibility under Article 87(3)(b) of the EC Treaty

| (65) | In order to assess the compatibility of the aid with the common market under Article 87(3)(b) of the EC Treaty, the Commission has to determine whether it meets the following conditions for restructuring aid set out in the rescue and restructuring guidelines: (i) the aid must be based on a restructuring plan, which must demonstrate that the company is capable of restoring its long-term viability; (ii) the aid must be limited to the minimum necessary in time and amount, and the beneficiary must make a significant contribution to the costs of restructuring; and (iii) the aid must not distort competition to an extent contrary to the common interest; in these respects the Commission may impose conditions on the beneficiary. |
| --- | --- |

(65)

In order to assess the compatibility of the aid with the common market under Article 87(3)(b) of the EC Treaty, the Commission has to determine whether it meets the following conditions for restructuring aid set out in the rescue and restructuring guidelines: (i) the aid must be based on a restructuring plan, which must demonstrate that the company is capable of restoring its long-term viability; (ii) the aid must be limited to the minimum necessary in time and amount, and the beneficiary must make a significant contribution to the costs of restructuring; and (iii) the aid must not distort competition to an extent contrary to the common interest; in these respects the Commission may impose conditions on the beneficiary.

4.4.1.   Restoration of long-term viability

| (66) | Paragraph 34 of the rescue and restructuring guidelines states that the grant of the aid must be conditional on implementation of the restructuring plan, which must be endorsed by the Commission in all cases of individual aid. The Commission must establish that the restructuring plan can be expected to restore the long-term viability of the firm within a reasonable timescale. The restructuring plan must be of limited duration and be based on realistic assumptions. It must describe the circumstances that led to the firm’s difficulties, thereby providing a basis for assessing whether the proposed measures are appropriate. It must enable the firm to progress towards a new structure that offers it prospects for long-term viability and enables it to stand on its own feet. This means that it should enable the firm to cover all its costs, including depreciation and financial charges, and to achieve a return on its capital sufficient for it to compete in the marketplace on its own merits. |
| --- | --- |

(66)

Paragraph 34 of the rescue and restructuring guidelines states that the grant of the aid must be conditional on implementation of the restructuring plan, which must be endorsed by the Commission in all cases of individual aid. The Commission must establish that the restructuring plan can be expected to restore the long-term viability of the firm within a reasonable timescale. The restructuring plan must be of limited duration and be based on realistic assumptions. It must describe the circumstances that led to the firm’s difficulties, thereby providing a basis for assessing whether the proposed measures are appropriate. It must enable the firm to progress towards a new structure that offers it prospects for long-term viability and enables it to stand on its own feet. This means that it should enable the firm to cover all its costs, including depreciation and financial charges, and to achieve a return on its capital sufficient for it to compete in the marketplace on its own merits.

| (67) | The Commission has based its assessment on information furnished by Germany, and in particular the restructuring plan together with far-reaching modifications to the plan submitted at the later stage of the investigation procedure after discussions with the Commission, which include the detailed scheduling of the sale of specific assets. |
| --- | --- |

(67)

The Commission has based its assessment on information furnished by Germany, and in particular the restructuring plan together with far-reaching modifications to the plan submitted at the later stage of the investigation procedure after discussions with the Commission, which include the detailed scheduling of the sale of specific assets.

| (68) | In its opening decision the Commission expressed doubts that the documents initially submitted by Germany could be considered a proper restructuring plan meeting the conditions in paragraphs 32–51 of the rescue and restructuring guidelines. In the opening decision the Commission also expressed the view that WestLB’s difficult situation was in part due to the ownership structure of the bank and the different interests of the respective owners. The Commission therefore considers that the change of ownership, to be achieved by the end of 2011 by means of an open, transparent and non-discriminatory tender procedure, is an important step towards solving the difficulties and will facilitate the positive economic development of the bank. |
| --- | --- |

(68)

In its opening decision the Commission expressed doubts that the documents initially submitted by Germany could be considered a proper restructuring plan meeting the conditions in paragraphs 32–51 of the rescue and restructuring guidelines. In the opening decision the Commission also expressed the view that WestLB’s difficult situation was in part due to the ownership structure of the bank and the different interests of the respective owners. The Commission therefore considers that the change of ownership, to be achieved by the end of 2011 by means of an open, transparent and non-discriminatory tender procedure, is an important step towards solving the difficulties and will facilitate the positive economic development of the bank.

| (69) | WestLB or its owners accepted this point, and undertook to put the change of ownership into definite terms by 31 December 2008, for example by producing a letter of intent. At Germany’s request the deadline was extended until 31 March 2009. An interim report submitted by Germany on 27 February 2009 reviewed progress achieved by the end of February 2009 (35). The preferred strategy was to create a consolidated supra-regional group (referred to as ’Landesbank Mitte) by merging two Landesbanken, WestLB and Landesbank Hessen-Thüringen (Helaba). The integration of DeKaBank Deutsche Girozentrale was proposed as a complementary measure. Both options proved unsuccessful, for many reasons. One reason was the conflict of interests among the owners of WestLB. The interests of the savings banks and the Land are sometimes directly opposed, which confirms that the view of the matter that the Commission expressed in the opening decision was correct, and that a change of ownership is of the greatest importance if the long-term viability of WestLB is to be restored. |
| --- | --- |

(69)

WestLB or its owners accepted this point, and undertook to put the change of ownership into definite terms by 31 December 2008, for example by producing a letter of intent. At Germany’s request the deadline was extended until 31 March 2009. An interim report submitted by Germany on 27 February 2009 reviewed progress achieved by the end of February 2009 (35). The preferred strategy was to create a consolidated supra-regional group (referred to as ’Landesbank Mitte) by merging two Landesbanken, WestLB and Landesbank Hessen-Thüringen (Helaba). The integration of DeKaBank Deutsche Girozentrale was proposed as a complementary measure. Both options proved unsuccessful, for many reasons. One reason was the conflict of interests among the owners of WestLB. The interests of the savings banks and the Land are sometimes directly opposed, which confirms that the view of the matter that the Commission expressed in the opening decision was correct, and that a change of ownership is of the greatest importance if the long-term viability of WestLB is to be restored.

| (70) | In view of the failure of the initial attempt at the privatisation of WestLB, the Commission has sought to establish with a sufficient degree of certainty that the restructuring plan submitted is capable of restoring the bank’s viability. |
| --- | --- |

(70)

In view of the failure of the initial attempt at the privatisation of WestLB, the Commission has sought to establish with a sufficient degree of certainty that the restructuring plan submitted is capable of restoring the bank’s viability.

| (71) | Not only does the amended plan provide more detailed information about the planned measures, it also includes a range of important measures, such as a reduction of the balance sheet and the risk-weighted assets by almost 50 %, the sale of the bank as a whole or in separate units by means of an open tender procedure, the sale of nearly all subsidiaries, including Westdeutsche ImmobilienBank, and the closure of the majority of the bank’s locations. |
| --- | --- |

(71)

Not only does the amended plan provide more detailed information about the planned measures, it also includes a range of important measures, such as a reduction of the balance sheet and the risk-weighted assets by almost 50 %, the sale of the bank as a whole or in separate units by means of an open tender procedure, the sale of nearly all subsidiaries, including Westdeutsche ImmobilienBank, and the closure of the majority of the bank’s locations.

| (72) | The sale of the bank has to be completed by 31 December 2011. The owners of WestLB have to launch an open, transparent and non-discriminatory tender procedure by 31 August 2010, and sign a contract with a buyer by [June–October] 2011, so that the sale can take effect by 1 January 2012. The main objective is a complete transfer of the voting rights. But because the situation on the financial markets is unpredictable, and attempts to change the ownership structure of WestLB have been unsuccessful, the Commission has agreed that there may be a need for alternative scenarios, such as a transfer of the majority of the voting rights. Although the consolidation of Landesbanken in Germany has been unsuccessful so far, the Commission does not oppose the aggregate restructuring of the banks and the implementation of the restructuring plan in the broader context of the restructuring of the whole Landesbanken sector in Germany. The implementation of the change of ownership is to be monitored by a trustee approved by the Commission and appointed by WestLB. |
| --- | --- |

(72)

The sale of the bank has to be completed by 31 December 2011. The owners of WestLB have to launch an open, transparent and non-discriminatory tender procedure by 31 August 2010, and sign a contract with a buyer by [June–October] 2011, so that the sale can take effect by 1 January 2012. The main objective is a complete transfer of the voting rights. But because the situation on the financial markets is unpredictable, and attempts to change the ownership structure of WestLB have been unsuccessful, the Commission has agreed that there may be a need for alternative scenarios, such as a transfer of the majority of the voting rights. Although the consolidation of Landesbanken in Germany has been unsuccessful so far, the Commission does not oppose the aggregate restructuring of the banks and the implementation of the restructuring plan in the broader context of the restructuring of the whole Landesbanken sector in Germany. The implementation of the change of ownership is to be monitored by a trustee approved by the Commission and appointed by WestLB.

| (73) | The sale of the bank will be facilitated by the prior unbundling of business activities and their grouping into three core business areas, which will be offered for sale in a tender procedure, both separately and as a whole, and by the prior downsizing of the balance sheet total and risk-weighted assets by 25 % by the end of March 2010 and by 50 % by the end of March 2011, by reference to the year-end financial statement for 2007. |
| --- | --- |

(73)

The sale of the bank will be facilitated by the prior unbundling of business activities and their grouping into three core business areas, which will be offered for sale in a tender procedure, both separately and as a whole, and by the prior downsizing of the balance sheet total and risk-weighted assets by 25 % by the end of March 2010 and by 50 % by the end of March 2011, by reference to the year-end financial statement for 2007.

| (74) | Moreover, the investigation has confirmed that WestLB has redirected its activities. It has abandoned loss-making business such as investment management and proprietary trading, which gave rise to the crisis, and lays the emphasis once again on customer-driven business. The amended restructuring plan provides that the bank will again concentrate its activities on North Rhine-Westphalia and Germany, withdrawing from more than 20 locations and subsidiaries, and on transaction banking, the medium-sized companies and savings banks partnership, and wholesale banking, capital markets and structured financing. The refocus from risky activities to less volatile business like transaction banking and cooperation with savings banks, private-banking customers, and mid-size corporates will increase the sustainable part of WestLB’s activities and therefore contribute to the restoration of the bank’s viability. The Commission observes that under the amended restructuring plan, WestLB is to move a long way from its previous business model. The restructuring plan therefore constitutes a significant change in the business approach that proved unsustainable in the past. |
| --- | --- |

(74)

Moreover, the investigation has confirmed that WestLB has redirected its activities. It has abandoned loss-making business such as investment management and proprietary trading, which gave rise to the crisis, and lays the emphasis once again on customer-driven business. The amended restructuring plan provides that the bank will again concentrate its activities on North Rhine-Westphalia and Germany, withdrawing from more than 20 locations and subsidiaries, and on transaction banking, the medium-sized companies and savings banks partnership, and wholesale banking, capital markets and structured financing. The refocus from risky activities to less volatile business like transaction banking and cooperation with savings banks, private-banking customers, and mid-size corporates will increase the sustainable part of WestLB’s activities and therefore contribute to the restoration of the bank’s viability. The Commission observes that under the amended restructuring plan, WestLB is to move a long way from its previous business model. The restructuring plan therefore constitutes a significant change in the business approach that proved unsustainable in the past.

| (75) | The Commission also notes the cost-cutting measures which are to be implemented by the end of 2010. In addition, WestLB has taken measures to improve its risk management, and has already reduced its risk exposure. The Commission has analysed the underlying assumptions of the restructuring plan and has no reason to doubt that they are realistic. The Commission therefore considers that the amended restructuring plan demonstrates the capacity of WestLB to restore its long-term viability. |
| --- | --- |

(75)

The Commission also notes the cost-cutting measures which are to be implemented by the end of 2010. In addition, WestLB has taken measures to improve its risk management, and has already reduced its risk exposure. The Commission has analysed the underlying assumptions of the restructuring plan and has no reason to doubt that they are realistic. The Commission therefore considers that the amended restructuring plan demonstrates the capacity of WestLB to restore its long-term viability.

4.4.2.   Aid limited to the minimum necessary

| (76) | The Commission’s doubts that the aid might not be limited to the minimum have been allayed. The Commission can now conclude that the aid is indeed limited to the minimum necessary, and that there will be a significant contribution on the part of the beneficiary. The Commission acknowledges that the 50 % target indicated in paragraph 44 of the rescue and restructuring guidelines has to be modulated when applied to the restructuring of WestLB in the present crisis. |
| --- | --- |

(76)

The Commission’s doubts that the aid might not be limited to the minimum have been allayed. The Commission can now conclude that the aid is indeed limited to the minimum necessary, and that there will be a significant contribution on the part of the beneficiary. The Commission acknowledges that the 50 % target indicated in paragraph 44 of the rescue and restructuring guidelines has to be modulated when applied to the restructuring of WestLB in the present crisis.

| (77) | The Commission considers that the costs of restructuring are to be borne by the bank itself to the greatest extent possible in the circumstances, through the disposal of assets and subsidiaries. The effect of these divestments is twofold. On the one hand, the divestments reduce the volume of risk-weighted assets, thus freeing capital and increasing the capital ratios. On the other hand, the divestments generate liquidity which can be used to finance the restructuring or to strengthen the liquidity base (36). Part of this expected inflow of funds has already been realised, and another part is to be realised in the near future. So, even leaving aside expected inflows of funds which can be realised only in 2011, and for the sake of precaution assuming that the projected proceeds may not materialise fully for all of these divestments, the Commission concludes that the beneficiary’s own contribution can be considered significant. |
| --- | --- |

(77)

The Commission considers that the costs of restructuring are to be borne by the bank itself to the greatest extent possible in the circumstances, through the disposal of assets and subsidiaries. The effect of these divestments is twofold. On the one hand, the divestments reduce the volume of risk-weighted assets, thus freeing capital and increasing the capital ratios. On the other hand, the divestments generate liquidity which can be used to finance the restructuring or to strengthen the liquidity base (36). Part of this expected inflow of funds has already been realised, and another part is to be realised in the near future. So, even leaving aside expected inflows of funds which can be realised only in 2011, and for the sake of precaution assuming that the projected proceeds may not materialise fully for all of these divestments, the Commission concludes that the beneficiary’s own contribution can be considered significant.

| (78) | Despite the modulation of the 50 % target for the beneficiary’s own contribution, the Commission will continue to require that the equity holders make as substantial a contribution as possible (i.e. that they will share the burden). This means that investors in hybrid capital must participate in the restructuring of the bank. The Commission considers that to adjust capital reserves in order to be able to pay a return on hybrid capital and to avoid participation in losses in cases where State aid has been granted is problematic, for two reasons. First, the State aid would not seem to be limited to the minimum necessary. The principle that State aid should be limited to the minimum necessary is a general principle of State aid policy. The adjustment of reserve funds to pay interest on hybrid capital directly removes regulatory capital from the bank, which increases the amount needed for recapitalisation and thus the amount of State aid. Second, it runs counter to the principle of burden sharing, and increases the moral hazard. The payment of a return, even though there is no legal obligation, protects the owners of hybrid capital from the consequences of losses and from full exposure to the risk they decided to take when investing in a type of instrument which is risky by nature and carries a higher remuneration precisely in view of the risk. Furthermore, hybrid instruments will participate in the losses. The Commission therefore requires that interest payments on such instruments be prohibited until the sale of WestLB, and that the instruments participate in the losses if in the absence of an adjustment of the reserves the bank shows a balance sheet loss. This applies with particular force to WestLB, because WestLB is going to be sold, and investor confidence in the current owners is not of major relevance (37). |
| --- | --- |

(78)

Despite the modulation of the 50 % target for the beneficiary’s own contribution, the Commission will continue to require that the equity holders make as substantial a contribution as possible (i.e. that they will share the burden). This means that investors in hybrid capital must participate in the restructuring of the bank. The Commission considers that to adjust capital reserves in order to be able to pay a return on hybrid capital and to avoid participation in losses in cases where State aid has been granted is problematic, for two reasons. First, the State aid would not seem to be limited to the minimum necessary. The principle that State aid should be limited to the minimum necessary is a general principle of State aid policy. The adjustment of reserve funds to pay interest on hybrid capital directly removes regulatory capital from the bank, which increases the amount needed for recapitalisation and thus the amount of State aid. Second, it runs counter to the principle of burden sharing, and increases the moral hazard. The payment of a return, even though there is no legal obligation, protects the owners of hybrid capital from the consequences of losses and from full exposure to the risk they decided to take when investing in a type of instrument which is risky by nature and carries a higher remuneration precisely in view of the risk. Furthermore, hybrid instruments will participate in the losses. The Commission therefore requires that interest payments on such instruments be prohibited until the sale of WestLB, and that the instruments participate in the losses if in the absence of an adjustment of the reserves the bank shows a balance sheet loss. This applies with particular force to WestLB, because WestLB is going to be sold, and investor confidence in the current owners is not of major relevance (37).

| (79) | In sum, even if the 50 % target will probably not be achieved, the Commission is of the opinion that the contribution that WestLB has undertaken to make to the restructuring is as great as it can be. |
| --- | --- |

(79)

In sum, even if the 50 % target will probably not be achieved, the Commission is of the opinion that the contribution that WestLB has undertaken to make to the restructuring is as great as it can be.

4.4.3.   Avoidance of undue distortion of competition

| (80) | Paragraphs 35 to 39 of the rescue and restructuring guidelines state that measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors. This usually involves limiting or reducing the company’s presence on the relevant product markets by selling production capacity or subsidiaries or reducing activities. The limitation or reduction should be in proportion to the distortive effects of the aid. |
| --- | --- |

(80)

Paragraphs 35 to 39 of the rescue and restructuring guidelines state that measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors. This usually involves limiting or reducing the company’s presence on the relevant product markets by selling production capacity or subsidiaries or reducing activities. The limitation or reduction should be in proportion to the distortive effects of the aid.

| (81) | At the end of its investigation the Commission is satisfied that sufficient measures are indeed being taken in order to mitigate as far as possible any adverse effects of the aid on competition. |
| --- | --- |

(81)

At the end of its investigation the Commission is satisfied that sufficient measures are indeed being taken in order to mitigate as far as possible any adverse effects of the aid on competition.

| (82) | WestLB is withdrawing from investment management and considerably reducing its volume of business in the field of structured finance and capital markets, two of its most profitable business segments. |
| --- | --- |

(82)

WestLB is withdrawing from investment management and considerably reducing its volume of business in the field of structured finance and capital markets, two of its most profitable business segments.

| (83) | But the Commission finds that the withdrawal from investment management and about half of the total downsizing volume are necessary in order to restore viability. According to paragraph 40 of the rescue and restructuring guidelines, such measures do not qualify as measures limiting distortion of competition. While the exit from the investment management business cannot be accepted as a measure to mitigate distortion of competition, it nevertheless has an impact on the size of the bank and its activities. |
| --- | --- |

(83)

But the Commission finds that the withdrawal from investment management and about half of the total downsizing volume are necessary in order to restore viability. According to paragraph 40 of the rescue and restructuring guidelines, such measures do not qualify as measures limiting distortion of competition. While the exit from the investment management business cannot be accepted as a measure to mitigate distortion of competition, it nevertheless has an impact on the size of the bank and its activities.

| (84) | Overall, the balance sheet total of WestLB will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011. At the same time, the volume of risk-weighted assets will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011. |
| --- | --- |

(84)

Overall, the balance sheet total of WestLB will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011. At the same time, the volume of risk-weighted assets will be reduced by 25 % by the end of March 2010 and by 50 % by the end of March 2011.

| (85) | The Commission considers that the reduction of the network of branches to five branches in Germany and seven locations outside of Germany, the abandonment of proprietary trading and the restrictions on trading for clients’ accounts represent adequate measures to mitigate distortion of competition. |
| --- | --- |

(85)

The Commission considers that the reduction of the network of branches to five branches in Germany and seven locations outside of Germany, the abandonment of proprietary trading and the restrictions on trading for clients’ accounts represent adequate measures to mitigate distortion of competition.

| (86) | The restructuring plan also provides for cost-cutting and downsizing measures. Almost all holdings in subsidiaries are to be divested. The process of selling these holdings is to be organised in two tranches: the first tranche of shareholdings, comprising 16 subsidiaries, is to be sold by the end of [February–May] 2010 (38), and the second tranche, comprising three subsidiaries, is to be sold by the end of [February–May] 2011. |
| --- | --- |

(86)

The restructuring plan also provides for cost-cutting and downsizing measures. Almost all holdings in subsidiaries are to be divested. The process of selling these holdings is to be organised in two tranches: the first tranche of shareholdings, comprising 16 subsidiaries, is to be sold by the end of [February–May] 2010 (38), and the second tranche, comprising three subsidiaries, is to be sold by the end of [February–May] 2011.

| (87) | In addition, business development in WestLB’s core business areas — structured finance, wholesale banking, and capital markets — is to be limited in terms of new business and balance sheet volume (risk-weighted assets). |
| --- | --- |

(87)

In addition, business development in WestLB’s core business areas — structured finance, wholesale banking, and capital markets — is to be limited in terms of new business and balance sheet volume (risk-weighted assets).

| (88) | In sum, the Commission considers that the compensatory measures are in proportion to the distortive effects of the aid granted to WestLB and ensure that the adverse effects on trading conditions are minimised as far as possible. |
| --- | --- |

(88)

In sum, the Commission considers that the compensatory measures are in proportion to the distortive effects of the aid granted to WestLB and ensure that the adverse effects on trading conditions are minimised as far as possible.

5.   CONCLUSION

| (89) | The measure constitutes restructuring aid which can be considered to be compatible with the common market in accordance with Article 87(3)(b) of the EC Treaty provided the conditions imposed are complied with, |
| --- | --- |

(89)

The measure constitutes restructuring aid which can be considered to be compatible with the common market in accordance with Article 87(3)(b) of the EC Treaty provided the conditions imposed are complied with,

HAS ADOPTED THIS DECISION:

Article 1

The aid in the form of a guarantee of EUR 5 billion which Germany plans to grant to WestLB AG is compatible with the common market subject to the conditions set out in Article 2 and in the Annex.

Article 2

1.   The restructuring plan for WestLB submitted by Germany on 8 August 2008, as last amended by Germany’s communication of 30 April 2009, must be implemented, subject to all the conditions set out in the Annex and in accordance with the timetable announced.

2.   If appropriate, for example in view of a continuation of the current crisis on financial markets, the Commission may, in response to a properly reasoned application on the part of Germany:

| (a) | allow an extension of the deadlines laid down in the Annex, or |
| --- | --- |

(a)

allow an extension of the deadlines laid down in the Annex, or

| (b) | in exceptional circumstances, dispense with, amend or replace one or more of the conditions set out in the Annex. |
| --- | --- |

(b)

in exceptional circumstances, dispense with, amend or replace one or more of the conditions set out in the Annex.

If Germany wishes to request the extension of a deadline, it must submit a properly reasoned application to the Commission no later than two months before the expiry of that deadline.

Article 3

Germany shall inform the Commission within two months of notification of this Decision of the measures taken to comply with it.

Article 4

This Decision is addressed to the Federal Republic of Germany.

Germany is requested to forward a copy of this Decision to the beneficiary of the aid without delay.

Done at Brussels, 12 May 2009.

For the Commission

Neelie KROES

Member of the Commission

---

(1)  OJ C 322, 17.12.2008, p. 16.

1

(2)  OJ C 189, 26.7.2008, p. 3.

2

(3)  OJ C 244, 1.10.2004, p. 2.

3

(4)  See footnote 1.

4

(5)  Anstaltslast conferred rights on the financial institution vis-à-vis its owners, whereas Gewährträgerhaftung conferred rights on the creditors of the financial institution vis-à-vis its owners. Under the first of these understandings, dated 17 July 2001, for a transitional period between 19 July 2001 and 18 July 2005 new liabilities could still be covered by Gewährträgerhaftung provided their maturity did not go beyond 31 December 2015; this was known as ‘grandfathering’. See State aid case E 10/2000 (OJ C 146, 19.6.2002, p. 6, and OJ C 150, 22.6.2002, p. 7).

5

Anstaltslast

Gewährträgerhaftung

Gewährträgerhaftung

(6)  OJ C 4, 9.1.2008, p. 1. See also http://ec.europa.eu/comm/competition/state_aid/register/ii/doc/NN-19-2006-WLWL-en-18.07.2007.pdf

6

(7)  See press release of 8 February 2008, at: http://www.westlb.de/cms/sitecontent/westlb/westlb_de/en/wlb/ui/news/newscontainer/news_2008/S_P.standard.gid-N2FkNDZmMzU4OWFmYTIyMWM3N2Q2N2Q0YmU1NmI0OGU_.html

7

(8)  The measure might be considered to constitute asset relief (within the meaning of the Communication from the Commission on the treatment of impaired assets in the Community banking sector, OJ C 72, 26.3.2009, p. 1), but differs from an asset relief measure mainly because when an asset portfolio is transferred to Phoenix Light all WestLB owners pay the costs of the transaction according to their respective shareholdings. The effect of the measure is comparable to that of a capital injection by the existing shareholders. While it is true that WestLB is owned by the Land of North Rhine-Westphalia and state-owned entities, the owners nevertheless acted in their capacity as owners of the bank, and not as third parties independent of the owners. In addition, the transaction took place in March 2008. The Communication from the Commission on the treatment of impaired assets was approved only in February 2009, and does not apply here.

8

Land

(9)  Confidential information.

9

(10)  Breakdown of the EUR 23 billion portfolio by type of security: US and European collateralised debt obligations (CDOs), EUR [...] billion; commercial mortgages, EUR [...] billion; residential mortgages, EUR [...] billion; and other positions, EUR [...] billion. On 31 December 2007 80 % of the securities had S & P AAA ratings.

10

(11)  These are rights which were given to the savings banks’ associations when they acquired major stakes in mid-2004.

11

(12)  Provided this can be done at a price above book value; otherwise by the end of 2010.

12

(13)  If any of the subsidiaries is identical to one of the seven international locations which may be maintained, it is to be sold as part of the sale of WestLB by the end of 2011.

13

(14)  The following locations may be maintained: Düsseldorf, Berlin, Frankfurt, Hamburg, Munich and Stuttgart.

14

(15)  In order to give the owners an incentive to speed up the sale, a new owner may keep three additional WestLB locations provided that the sale is completed by the end of 2010.

15

(16)  The following locations may be maintained: London, New York, Hong Kong, Moscow, Sydney, Istanbul and São Paulo.

16

(17)  Excluding the market value of derivatives.

17

(18)  Trading activities for clients’ accounts and generally accepted trading activities to manage the balance sheet total continue to be admissible.

18

(19)  Commission Decision of 20 May 1998 in case 1454/1998 (OJ L 221, 8.8.1998, p. 28).

19

(20)  Commission Decision of 27 June 2007 in case C 50/06 (OJ L 83, 26.3.2008, p. 7).

20

(21)  Commission Decision of 18 February 2004 in case C 327/04 (OJ L 116, 4.5.2005, p. 1).

21

(22)  Commission Decision of 21 October 2008 in case C 50/10 (not yet published).

22

(23)  Commission Decision of 4 June 2008 in case C 9/08 Sachsen LB (not yet published in the Official Journal: http://ec.europa.eu/comm/competition/state_aid/register/ii/doc/C-9-2008-WLWL-en-04.06.2008.pdf).

23

Sachsen LB

(24)  Commission Decision of 18 February 2004 in case C 28/02 (OJ L 116, 14.5.2005, p. 1, paragraph 140).

24

(25)  Communication from the Commission on the treatment of impaired assets in the Community banking sector (OJ C 72, 26.3.2009, p. 1).

25

(26)  See Commission Decision of 21 October 2008 in case C 50/10 (not yet published).

26

(27)  OJ C 155, 20.6.2008, p. 10.

27

(28)  OJ C 72, 26.3.2009, p. 1.

28

(29)  See Annex 4 point II of the Communication from the Commission on the treatment of impaired assets in the Community banking sector (OJ C 72, 26.3.2009, p. 1). If the commission paid is not in line with the Communication on impaired assets, there must be far-reaching restructuring (paragraph 41 of the Communication); WestLB is indeed undergoing such restructuring. Thus the commission to be paid need not be adjusted.

29

(30)  Communication from the Commission — The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8); Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (OJ C 10, 15.1.2009, p. 2); and Communication from the Commission on the treatment of impaired assets in the Community banking sector (OJ C 72, 26.3.2009, p. 1).

30

(31)  Commission Decision of 12 December 2008 in case N 625/08, Rettungspaket für Finanzistitute in Deutschland.

31

Rettungspaket für Finanzistitute in Deutschland

(32)  Communication from the Commission — The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8, paragraphs 10, 32 and 42); Communication from the Commission – The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (OJ C 10, 15.1.2009, p. 2, paragraph 44); and Communication from the Commission on the treatment of impaired assets in the Community banking sector (OJ C 72, 26.3.2009, p. 1, paragraphs 17, 58 and 59).

32

(33)  Explicitly in Communication from the Commission — The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8, paragraph 42).

33

(34)  Communication from the Commission on the treatment of impaired assets in the Community banking sector, paragraph 52, and Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition, paragraph 44.

34

(35)  See Annex 2 (Mitteilung der Bundesrepublik Deutschland an die Europäische Kommission: Zwischenbericht über den Fortschritt der Konsolidierungsverhandlungen).

35

Mitteilung der Bundesrepublik Deutschland an die Europäische Kommission: Zwischenbericht über den Fortschritt der Konsolidierungsverhandlungen

(36)  Depending on the book value of the assets and the maturity of debt. This reasoning has been followed in previous Commission decisions, such as the Decision of 20 December 2006 in case C 44/05 Huta Stalowa Wola (OJ L 112, 30.4.2007, p. 67, paragraph 71); the Decision of 10 July 2007 in case C 20/06 Novoles Straža (OJ L 29, 2.2.2008, p. 7), the Decision of 12 September 2007 in case C 54/06 Bison Bial (OJ L 46, 21.2.2008, p. 41); the Decision of 4 June 2008 in case C 9/08 SachsenLB (not yet published); and the Decision of 21 October 2008 in case C 10/08 (not yet published).

36

Huta Stalowa Wola

Novoles Straža

Bison Bial

SachsenLB

(37)  This might be viewed differently in cases where hybrid capital is provided by the State in the context of a rescue.

37

(38)  Provided this can be done at a price above book value; otherwise by [...] 2010.

38

---

ANNEX

WITH REGARD TO ARTICLE 2(1)

1.1.   All measures that may be necessary for the implementation of the restructuring plan, and in particular any further aid, must comply with the notices issued by the Commission and with the practice established by the Commission in its decisions, having due regard to the special features of the case of WestLB. They may not evade them or deprive them of effect. This applies in particular in the event that the restructuring plan is implemented by divesting balance sheet items to a vehicle belonging to the owners of WestLB with a view to their liquidation, and to measures taken by the Special Financial Market Stabilisation Fund (Sonderfonds Finanzmarktstabilisierung — ‘SoFFin’) and measures aimed at ensuring the refinancing of WestLB. The Commission must be notified of any State aid to WestLB before it is put into effect.

2.1.   WestLB’s owners — Westfälisch-Lippische Sparkassen- und Giroverband, Rheinische Sparkassen- und Giroverband, and — directly and indirectly, through NRW.BANK – the Land of North Rhine-Westphalia, Landschaftsverband Westfalen Lippe, and Landschaftsverband Rheinland, are to sell WestLB, as a whole or in separate units, in accordance with the following conditions, by 31 December 2011.

2.2.   The owners of WestLB are to initiate a tender procedure in accordance with paragraphs 6.1 to 6.7 below by 31 August 2010, and to conclude a contract of sale with the purchaser by 31 August 2011, so that the sale can take effect by 31 December 2011 For properly substantiated reasons the Commission may agree to a sale by private treaty or to a consolidation of Landesbanken before or during the tender procedure.

3.1.   By reference to WestLB’s audited balance sheet total for 31 December 2007 (EUR 287 billion), the balance sheet total is to be reduced by 25 % by 31 March 2010 and by 50 % by 31 March 2011, excluding the market value of derivatives (EUR [20–60] billion on 31 December 2007). In absolute figures, the net balance sheet total is thus to be reduced from EUR [200–280] billion to no more than EUR [150–250] billion by 31 March 2010, excluding the market value of derivatives, and to no more than EUR [80–180] billion by 31 March 2011, excluding the market value of derivatives.

3.2.   By reference to WestLB’s audited total risk-weighted assets on 31 December 2007 (EUR 104 billion), the total risk-weighted assets are to be reduced by 25 % overall by 31 March 2010 and by 50 % overall by 31 March 2011. Thus the risk-weighted assets are to be reduced to no more than EUR 78 billion by 31 March 2010 and to no more than EUR 52 billion by 31 March 2011. The Commission and the trustee are to take account here of circumstances in which the movement of the risk-weighted assets is unexpectedly affected by external factors (such as ratings or exchange rates) which are outside the control of WestLB and its owners.

3.3.   The reduction of the balance sheet total and the risk-weighted assets stated in point 3.1 and 3.2 is based on the assumption that the exit portfolio is entirely removed from the balance sheet. If that proves impossible to achieve, assets (including risk-weighted assets) from other balance sheet headings must be reduced to a comparable extent in compensation.

4.1.   WestLB’s core business must be unbundled, and grouped in the following business areas, segmented transparently in operational and business terms, by 30 October 2009:

| (a) | transaction banking, |
| --- | --- |

(a)

transaction banking,

| (b) | medium-sized companies and savings banks partnership (Verbund/Mittelstand), |
| --- | --- |

(b)

medium-sized companies and savings banks partnership (Verbund/Mittelstand),

| (c) | capital markets, wholesale banking and structured financing. |
| --- | --- |

(c)

capital markets, wholesale banking and structured financing.

4.2.   The segmented business areas referred to in paragraph 4.1 are to be sold together or separately by 31 December 2011.

4.3.   Pending the sale, none of the segmented business areas referred to in paragraph 4.1 may be expanded by mergers or acquisitions (no external growth).

4.4.   The distribution of financial products to savings banks, which offers transaction banking and capital markets, wholesale banking and structured financing services to the members of the savings banks partnership, is to form part of the medium-sized companies and savings banks partnership area. [...] is not to form part of this area, but is to be sold separately by WestLB by 31 [February–May] 2010.

4.5.   In the capital markets, wholesale banking and structured financing business area, the following restrictions are to apply to capital market business pending the sale:

| (a) | The volume of capital market business is not to exceed EUR [70–100] billion in the 2009 balance sheet, by 31 December 2009, EUR [60–90] billion in 2010, by 31 December 2010, and EUR [50–80] billion in 2011, by 31 December 2011. |
| --- | --- |

(a)

The volume of capital market business is not to exceed EUR [70–100] billion in the 2009 balance sheet, by 31 December 2009, EUR [60–90] billion in 2010, by 31 December 2010, and EUR [50–80] billion in 2011, by 31 December 2011.

| (b) | The risk-weighted assets attributable to capital market business may not exceed EUR [10–25] billion on 31 December 2009, EUR [5–25] billion on 31 December 2010, and EUR [5–25] billion on 31 December 2011. |
| --- | --- |

(b)

The risk-weighted assets attributable to capital market business may not exceed EUR [10–25] billion on 31 December 2009, EUR [5–25] billion on 31 December 2010, and EUR [5–25] billion on 31 December 2011.

| (c) | WestLB is to cease trading for its own account. This includes relative value and arbitrage transactions. Trading activities for clients’ accounts and generally accepted trading activities to manage the balance sheet total continue to be admissible. |
| --- | --- |

(c)

WestLB is to cease trading for its own account. This includes relative value and arbitrage transactions. Trading activities for clients’ accounts and generally accepted trading activities to manage the balance sheet total continue to be admissible.

| (d) | Operative capital market trading is restricted to the locations in Düsseldorf, New York, Hong Kong and London. |
| --- | --- |

(d)

Operative capital market trading is restricted to the locations in Düsseldorf, New York, Hong Kong and London.

4.6.   In the capital markets, wholesale banking and structured financing business area, the following restrictions are to apply to wholesale banking and structured financing business pending the sale:

| (a) | New wholesale banking and structured financing business is not to exceed EUR [20-40] billion in the 2009 balance sheet, by 31 December 2009, EUR [15-35] billion in 2010, by 31 December 2010, and EUR [10-30] billion in 2011, by 31 December 2011. |
| --- | --- |

(a)

New wholesale banking and structured financing business is not to exceed EUR [20-40] billion in the 2009 balance sheet, by 31 December 2009, EUR [15-35] billion in 2010, by 31 December 2010, and EUR [10-30] billion in 2011, by 31 December 2011.

| (b) | The risk-weighted assets attributable to wholesale banking and structured financing business may not exceed EUR [30-60] billion on 31 December 2009, EUR [20-50] billion on 31 December 2010, and EUR [20-50] billion on 31 December 2011. |
| --- | --- |

(b)

The risk-weighted assets attributable to wholesale banking and structured financing business may not exceed EUR [30-60] billion on 31 December 2009, EUR [20-50] billion on 31 December 2010, and EUR [20-50] billion on 31 December 2011.

| (c) | The following locations are to be closed as quickly as possible and no later than [...] 2010:






  — | Münster, |
| --- | --- | --- |

(c)

The following locations are to be closed as quickly as possible and no later than [...] 2010:

—

Münster,

| — | Bielefeld, |
| --- | --- |

—

Bielefeld,

| — | Cologne, |
| --- | --- |

—

Cologne,

| — | Dortmund, |
| --- | --- |

—

Dortmund,

| — | Mainz. |
| --- | --- |

—

Mainz.

| (d) | The subsidiaries, branches and representation offices in the following locations are to be closed as quickly as possible and no later than [...] 2010:






  — | Toronto, |
| --- | --- | --- |

(d)

The subsidiaries, branches and representation offices in the following locations are to be closed as quickly as possible and no later than [...] 2010:

—

Toronto,

| — | Houston, |
| --- | --- |

—

Houston,

| — | Mexico City, |
| --- | --- |

—

Mexico City,

| — | Madrid, |
| --- | --- |

—

Madrid,

| — | Milan, |
| --- | --- |

—

Milan,

| — | Paris, |
| --- | --- |

—

Paris,

| — | Kiev, |
| --- | --- |

—

Kiev,

| — | Dubai, |
| --- | --- |

—

Dubai,

| — | Johannesburg, |
| --- | --- |

—

Johannesburg,

| — | Prague, |
| --- | --- |

—

Prague,

| — | Shanghai, |
| --- | --- |

—

Shanghai,

| — | Singapore, |
| --- | --- |

—

Singapore,

| — | Tokyo, |
| --- | --- |

—

Tokyo,

| — | Mumbai, |
| --- | --- |

—

Mumbai,

| — | Seoul, |
| --- | --- |

—

Seoul,

| — | Beijing. |
| --- | --- |

—

Beijing.

| (e) | If WestLB is sold as a whole or in separate units by 31 December 2010, the purchaser may maintain three further locations. |
| --- | --- |

(e)

If WestLB is sold as a whole or in separate units by 31 December 2010, the purchaser may maintain three further locations.

| (f) | Existing business that has not been fully run down at the time of the closure of the locations referred to in points 4.6(c) and (d) is to be transferred or wound up in some other appropriate fashion. |
| --- | --- |

(f)

Existing business that has not been fully run down at the time of the closure of the locations referred to in points 4.6(c) and (d) is to be transferred or wound up in some other appropriate fashion.

| (g) | The following locations may be maintained:






  — | London, |
| --- | --- | --- |

(g)

The following locations may be maintained:

—

London,

| — | New York, |
| --- | --- |

—

New York,

| — | Hong Kong, |
| --- | --- |

—

Hong Kong,

| — | Moscow, |
| --- | --- |

—

Moscow,

| — | Sydney, |
| --- | --- |

—

Sydney,

| — | Istanbul, |
| --- | --- |

—

Istanbul,

| — | São Paulo, |
| --- | --- |

—

São Paulo,

| — | Düsseldorf, |
| --- | --- |

—

Düsseldorf,

| — | Berlin, |
| --- | --- |

—

Berlin,

| — | Frankfurt am Main, |
| --- | --- |

—

Frankfurt am Main,

| — | Hamburg, |
| --- | --- |

—

Hamburg,

| — | Munich, |
| --- | --- |

—

Munich,

| — | Stuttgart. |
| --- | --- |

—

Stuttgart.

| (h) | Pending the sale of WestLB, no subsidiary, branch or representation office may be established in any new location. |
| --- | --- |

(h)

Pending the sale of WestLB, no subsidiary, branch or representation office may be established in any new location.

5.1.   All of the following WestLB holdings are to be sold in their entirety as quickly as possible and no later than [February–May] 2010:

| — | Weberbank Actiengesellschaft, Berlin, |
| --- | --- |

—

Weberbank Actiengesellschaft, Berlin,

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...]. |
| --- | --- |

—

[...].

5.2.   If by [February–May] 2010 WestLB’s efforts to sell its holdings in [...] and [...] remain unsuccessful, they may be sold together with WestLB by the procedure referred to in point 6.1.

5.3.   A sale of the holdings referred to in point 5.1 may be postponed, until no later than 31 December 2010, if WestLB shows that the price that would be obtained by the transaction is lower than the book value of the holding in the individual accounts drawn up by WestLB AG in accordance with the German Commercial Code, or would produce losses in the group accounts in accordance with the IFRS accounting standards.

5.4.   [...] is to be sold in an open, transparent and non-discriminatory tender procedure in accordance with points 6.1 to 6,7, subject to the deadlines in points 5.1 and 5.3.

5.5.   All of the following WestLB holdings are to be sold in their entirety as quickly as possible and no later than [February–May] 2011:

| — | [...], |
| --- | --- |

—

[...],

| — | [...], |
| --- | --- |

—

[...],

| — | [...]. |
| --- | --- |

—

[...].

5.6.   The proceeds of the sale of WestLB’s holdings are to be used entirely to finance the company’s restructuring plan.

5.7.   The existing business of holdings that have not been sold within the deadlines laid down in points 5.1 and 5.2 is to be transferred or allowed to expire after the relevant deadline upon the maturity of the underlying business. No new business is to be accepted.

5.8.   Pending the sale, in the event of a loss WestLB is to make no payments on hybrid capital instruments. If WestLB’s balance sheet, without adjustment of capital reserves, shows a loss, these instruments must also participate in the loss.

6.1.   WestLB is to be sold, as a whole or in separate units, in an open, transparent and non-discriminatory tender procedure, subject to the deadlines in points 2.1 and 2.2.

6.2.   The procedure must be open to any potential buyer, domestic or foreign. The conditions of sale may not contain any clause which unduly limits the number of potential bidders or which is tailored to a particular potential bidder.

6.3.   The sale must be adequately publicised. This is to be done by advertising it in at least one international newspaper or periodical available throughout the Community in English. In so far as it is legally permissible, bidders are to be given direct access to all necessary information by due diligence procedures. Buyers are to be selected on economic criteria.

6.4.   The buyer

| (a) | must be a third party unconnected with the owners of WestLB; an ‘unconnected’ party here means any party who is not connected with any company belonging to the WestLB group within the meaning of Commission Regulation (EC) No 2790/1999 (1); |
| --- | --- |

(a)

must be a third party unconnected with the owners of WestLB; an ‘unconnected’ party here means any party who is not connected with any company belonging to the WestLB group within the meaning of Commission Regulation (EC) No 2790/1999 (1);

| (b) | must be reasonably expected to be able to obtain all necessary authorisations from all relevant competition authorities and other authorities to acquire the holding in WestLB; |
| --- | --- |

(b)

must be reasonably expected to be able to obtain all necessary authorisations from all relevant competition authorities and other authorities to acquire the holding in WestLB;

| (c) | on the basis of its financial resources and in particular its rating, must be able to ensure the solvency of the bank. |
| --- | --- |

(c)

on the basis of its financial resources and in particular its rating, must be able to ensure the solvency of the bank.

6.5.   Full divesture of segmented business areas is to be preferred to a simple transfer of the majority of the voting rights (50 % plus one share). Such a transfer of the majority of the voting rights is admissible only if in the tender procedure no offer is made for the full divesture of one or more segmented business areas. The Commission must be informed of the award, and may enter an objection.

6.6.   This is without prejudice to the possibility referred to in point 2.2 of a sale by private treaty or a consolidation of Landesbanken with the Commission’s assent. The previous owners may thereby become minority shareholders if the controlling majority is lost.

6.7.   Business areas and activities which are not sold are to be finally discontinued by 31 December 2011, or allowed to expire after that date upon the maturity of the underlying business.

7.1.   Full and correct application of all conditions must be continuously and comprehensively monitored and audited in detail by a properly qualified trustee, preferably a chartered accountant (Wirtschaftsprüfer). Within three months of notification of this Decision, WestLB is to nominate a suitable independent trustee to the Commission. The trustee is to be appointed only with the assent of the Commission. The Commission may ask the trustee to provide explanations and clarifications. The costs of engaging the trustee’s services are to be borne by WestLB.

7.2.   During the implementation of this Decision the Commission is to have unlimited access to all information necessary for the monitoring of the implementation of this Decision. The Commission may ask WestLB to provide explanations and clarifications. Germany and WestLB are to cooperate fully with the Commission, and with the trustee acting for the Commission, in response to any request in connection with the monitoring of the implementation of this Decision.

7.3.   Every year until 2011 inclusive, Germany is to send the Commission a progress report drawn up with the assistance of the trustee referred to in point 7.1. The report must contain a review of progress in the implementation of the restructuring plan and details of all sales and closures of subsidiaries, departments and locations in accordance with this Decision. The report is to show the date of sale or closure, the book value at 31 December 2007, the selling price, all profits or losses in connection with the sale or closure, and details of steps that have still to be taken to implement the restructuring plan. The report is to be sent each year within one month of the approval of WestLB’s annual accounts by WestLB’s supervisory board, but no later than 31 May.

WITH REGARD TO ARTICLE 2(2)

In applying the review clause in Article 2(2), the Commission is to have due regard to supply conditions and the situation on the capital markets.

---

(1)  OJ L 336, 29.12.1999, p. 21.

---

| 23.12.2009 | EN | Official Journal of the European Union | L 345/18 |
| --- | --- | --- | --- |

23.12.2009

EN

Official Journal of the European Union

L 345/18

---

COMMISSION DECISION

of 17 June 2009

on aid scheme C 41/06 (ex N 318/A/04) which Denmark is planning to implement for refunding the CO2 tax on quota-regulated fuel consumption in industry

(notified under document C(2009) 4517)

(Only the Danish text is authentic)

(Text with EEA relevance)

(2009/972/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the first subparagraph of Article 88(2) cited above (1) and having regard to their comments,

Whereas:

1.   PROCEDURE

| (1) | By letter dated 20 July 2004, registered at the Commission on 22 July 2004 (SG/A/7988), the Danish authorities notified the measure described below to the Commission. |
| --- | --- |

(1)

By letter dated 20 July 2004, registered at the Commission on 22 July 2004 (SG/A/7988), the Danish authorities notified the measure described below to the Commission.

| (2) | By letters of 13 September 2004 and 14 December 2004, the Commission asked for additional information, which was received by letters of 14 October 2004, registered on 18 October 2004 (A/37970), and of 15 March 2005, registered 15 March 2005 (SG/A/2724). |
| --- | --- |

(2)

By letters of 13 September 2004 and 14 December 2004, the Commission asked for additional information, which was received by letters of 14 October 2004, registered on 18 October 2004 (A/37970), and of 15 March 2005, registered 15 March 2005 (SG/A/2724).

| (3) | Following a meeting with DG Competition and DG Taxation and Customs Union on 27 April 2005, the Danish authorities requested more time to complement their notification by letter of 12 May 2005, registered 17 May 2005 (A/33975). |
| --- | --- |

(3)

Following a meeting with DG Competition and DG Taxation and Customs Union on 27 April 2005, the Danish authorities requested more time to complement their notification by letter of 12 May 2005, registered 17 May 2005 (A/33975).

| (4) | After a few changes to the measure, the case was further discussed in meetings between representatives of the Commission and of the Danish authorities held on 12 October 2005, on 15 December 2005 and on 21 February 2006. |
| --- | --- |

(4)

After a few changes to the measure, the case was further discussed in meetings between representatives of the Commission and of the Danish authorities held on 12 October 2005, on 15 December 2005 and on 21 February 2006.

| (5) | By letter of 10 July 2006, registered 11 July 2006 (A/35577), the Danish authorities informed the Commission that they considered the notification complete and asked the Commission to continue the preliminary examination of the measure in the form that it was presented at the meeting of 12 October 2005. |
| --- | --- |

(5)

By letter of 10 July 2006, registered 11 July 2006 (A/35577), the Danish authorities informed the Commission that they considered the notification complete and asked the Commission to continue the preliminary examination of the measure in the form that it was presented at the meeting of 12 October 2005.

| (6) | By letter dated 26 September 2006, the Commission informed Denmark that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of the measure. |
| --- | --- |

(6)

By letter dated 26 September 2006, the Commission informed Denmark that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of the measure.

| (7) | The Commission decision to initiate the procedure was published in the Official Journal of the European Union
   (2). The Commission invited interested parties to submit their comments on the proposed measure. |
| --- | --- |

(7)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union
   (2). The Commission invited interested parties to submit their comments on the proposed measure.

| (8) | By letter dated 24 November 2006, registered 27 November 2006 (A/39579) the Danish Government submitted its observations on the opening of the procedure. |
| --- | --- |

(8)

By letter dated 24 November 2006, registered 27 November 2006 (A/39579) the Danish Government submitted its observations on the opening of the procedure.

| (9) | The Commission received observations from the following third parties: the Swedish Government (8 December 2006, A/40067), Novo Nordisk (8 December 2006, A/40027), Novozymes (11 December 2006, A/40089) and Dansk Industri (12 December 2006, A/40147). It forwarded them to the Danish authorities, which was given the opportunity to react. The comments by the Danish Government were received by letter dated 5 February 2007, registered the same day (A/31115). |
| --- | --- |

(9)

The Commission received observations from the following third parties: the Swedish Government (8 December 2006, A/40067), Novo Nordisk (8 December 2006, A/40027), Novozymes (11 December 2006, A/40089) and Dansk Industri (12 December 2006, A/40147). It forwarded them to the Danish authorities, which was given the opportunity to react. The comments by the Danish Government were received by letter dated 5 February 2007, registered the same day (A/31115).

| (10) | On 12 September 2007, there was a meeting between the Cabinet of Ms Kroes and the Danish Tax Minister Kristian Jensen. In that meeting, it was agreed to await the adoption of the new Community Guidelines on State aid for Environmental Protection before taking a decision on the proposed tax relief. |
| --- | --- |

(10)

On 12 September 2007, there was a meeting between the Cabinet of Ms Kroes and the Danish Tax Minister Kristian Jensen. In that meeting, it was agreed to await the adoption of the new Community Guidelines on State aid for Environmental Protection before taking a decision on the proposed tax relief.

| (11) | By letter of 14 May 2008, the Commission asked for information with respect to the rules on exemptions from environmental taxes under the new Community guidelines on State aid for Environmental Protection (3). Denmark replied by letter dated 22 July 2008 (A/15183) with a supplement (A/15244). |
| --- | --- |

(11)

By letter of 14 May 2008, the Commission asked for information with respect to the rules on exemptions from environmental taxes under the new Community guidelines on State aid for Environmental Protection (3). Denmark replied by letter dated 22 July 2008 (A/15183) with a supplement (A/15244).

| (12) | The information request, as well as the reply, was communicated to the third parties who had commented on the opening of the formal investigation procedure. Following the submission to third parties, observations were received from Dansk Industri (6 October 2008, A/20427), Novo Nordisk (7 October 2008, A/20550), Novozymes (8 October 2008, A/20739) and the Swedish Government (15 October 2008, A/21433). |
| --- | --- |

(12)

The information request, as well as the reply, was communicated to the third parties who had commented on the opening of the formal investigation procedure. Following the submission to third parties, observations were received from Dansk Industri (6 October 2008, A/20427), Novo Nordisk (7 October 2008, A/20550), Novozymes (8 October 2008, A/20739) and the Swedish Government (15 October 2008, A/21433).

2.   DETAILED DESCRIPTION OF THE MEASURE

2.1.   Background

| (13) | A tax on CO2 emissions was introduced in Denmark in 1992 and is levied on energy products and electricity. The tax takes the form of a consumption tax and currently amounts to DKK 90 per tonne of CO2 emitted. The objective of the CO2 tax is mainly to discourage emissions of CO2. The tax rate for each fuel is related to the carbon content of the energy product (4). In addition, an energy tax has been collected since 1977. |
| --- | --- |

(13)

A tax on CO2 emissions was introduced in Denmark in 1992 and is levied on energy products and electricity. The tax takes the form of a consumption tax and currently amounts to DKK 90 per tonne of CO2 emitted. The objective of the CO2 tax is mainly to discourage emissions of CO2. The tax rate for each fuel is related to the carbon content of the energy product (4). In addition, an energy tax has been collected since 1977.

| (14) | As regards the energy tax, ordinary households and certain parts of the service sector pay the full tax, while all other VAT-registered companies are fully exempted from the tax. With respect to the CO2 tax, ordinary households and certain parts of the service sector pay the full tax, while a special business rate applies to other VAT-registered companies. That so-called business rate was approved by the Commission in November 2005 (5). For energy used in certain ‘heavy processes’ (6) businesses get a further reduction from the general business tax rate. The lower tax rate for such processes was last approved by the Commission in September 2005 (7). The approval was based on the fact that the beneficiaries still paid the CO2 tax in order to respect the Community minimum taxation levels, which are set out by Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (8) (hereafter referred to as the Energy Taxation Directive). In addition, certain energy-intensive companies have concluded voluntary energy-saving agreements with the Danish government. In compensation for achieving their goals under those agreements, they receive a further reduction of the CO2 tax, which was last approved by the Commission in April 2003 (9). |
| --- | --- |

(14)

As regards the energy tax, ordinary households and certain parts of the service sector pay the full tax, while all other VAT-registered companies are fully exempted from the tax. With respect to the CO2 tax, ordinary households and certain parts of the service sector pay the full tax, while a special business rate applies to other VAT-registered companies. That so-called business rate was approved by the Commission in November 2005 (5). For energy used in certain ‘heavy processes’ (6) businesses get a further reduction from the general business tax rate. The lower tax rate for such processes was last approved by the Commission in September 2005 (7). The approval was based on the fact that the beneficiaries still paid the CO2 tax in order to respect the Community minimum taxation levels, which are set out by Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (8) (hereafter referred to as the Energy Taxation Directive). In addition, certain energy-intensive companies have concluded voluntary energy-saving agreements with the Danish government. In compensation for achieving their goals under those agreements, they receive a further reduction of the CO2 tax, which was last approved by the Commission in April 2003 (9).

| (15) | In accordance with Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (10) (hereafter referred to as the Emission Trading Directive), the EU Emission Trading System (hereinafter referred to as the EU ETS) entered into force on 1 January 2005. As a consequence, the operator of an installation covered by that directive must hold allowances for its greenhouse gas emissions. The allowances are either allocated to the operator for free at the beginning of each trading period or bought by the operator in auction and/or on the market. In the first trading period (1.1.2005 until 31.12.2007), Member States were obliged to allocate at least 95 % of the allowances for free. Denmark chose to auction the remaining 5 % allowances in open auctions. For the second trading period (1.1.2008 until 31.12.2012), Member States had the option to auction 10 % of the allowances. Denmark chose to allocate all allowances for free (11). |
| --- | --- |

(15)

In accordance with Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (10) (hereafter referred to as the Emission Trading Directive), the EU Emission Trading System (hereinafter referred to as the EU ETS) entered into force on 1 January 2005. As a consequence, the operator of an installation covered by that directive must hold allowances for its greenhouse gas emissions. The allowances are either allocated to the operator for free at the beginning of each trading period or bought by the operator in auction and/or on the market. In the first trading period (1.1.2005 until 31.12.2007), Member States were obliged to allocate at least 95 % of the allowances for free. Denmark chose to auction the remaining 5 % allowances in open auctions. For the second trading period (1.1.2008 until 31.12.2012), Member States had the option to auction 10 % of the allowances. Denmark chose to allocate all allowances for free (11).

2.2.   The notified scheme

| (16) | By the notified scheme, the Danish authorities propose that energy-intensive businesses (12) covered by the EU ETS would get a full exemption (by refunding) from the CO2 tax. Other businesses covered by the EU ETS would pay a CO2 tax corresponding to 50 % of the minimum tax levels. According to the Danish authorities, all businesses presently regulated by the EU ETS are energy intensive as defined in the Energy Taxation Directive. In consequence, the fuel consumption of the entire EU ETS-regulated process in industry would be eligible for refunding in full of the CO2 tax if the notified measure were approved. |
| --- | --- |

(16)

By the notified scheme, the Danish authorities propose that energy-intensive businesses (12) covered by the EU ETS would get a full exemption (by refunding) from the CO2 tax. Other businesses covered by the EU ETS would pay a CO2 tax corresponding to 50 % of the minimum tax levels. According to the Danish authorities, all businesses presently regulated by the EU ETS are energy intensive as defined in the Energy Taxation Directive. In consequence, the fuel consumption of the entire EU ETS-regulated process in industry would be eligible for refunding in full of the CO2 tax if the notified measure were approved.

| (17) | The notified exemption applies only to the fuel (mineral oil products, gas and coal) used in business covered by the EU ETS. It does not cover electricity and heat consumption and, in addition, it does not concern fuel used for room heating and hot water. |
| --- | --- |

(17)

The notified exemption applies only to the fuel (mineral oil products, gas and coal) used in business covered by the EU ETS. It does not cover electricity and heat consumption and, in addition, it does not concern fuel used for room heating and hot water.

| (18) | The legal basis for the proposed exemptions is Act No 464 of 9 June 2004. |
| --- | --- |

(18)

The legal basis for the proposed exemptions is Act No 464 of 9 June 2004.

| (19) | All industrial activities which are covered by the Emission Trading Directive, with the exception of electricity and heat production, are proposed to be fully or partially exempted from the CO2 tax for their use of fuel as described above. The number of beneficiaries is foreseen to be about 85 production processes spread out among some 120 production units. |
| --- | --- |

(19)

All industrial activities which are covered by the Emission Trading Directive, with the exception of electricity and heat production, are proposed to be fully or partially exempted from the CO2 tax for their use of fuel as described above. The number of beneficiaries is foreseen to be about 85 production processes spread out among some 120 production units.

| (20) | The Danish authorities have estimated the annual loss of tax revenue due to this measure to be about DKK 30 million (about EUR 4 million). However, in their letter of 22 July 2008, the Danish authorities indicate that the budget of the scheme will be below that estimate. |
| --- | --- |

(20)

The Danish authorities have estimated the annual loss of tax revenue due to this measure to be about DKK 30 million (about EUR 4 million). However, in their letter of 22 July 2008, the Danish authorities indicate that the budget of the scheme will be below that estimate.

| (21) | The Danish authorities adopted the legal basis for the proposed scheme in 2004, but have ensured that they will only implement it if the Commission authorises it. If so, it will apply as from 1 January 2005. The duration of the scheme is not limited, but if it is approved, the Danish authorities have undertaken to re-notify it after 10 years. |
| --- | --- |

(21)

The Danish authorities adopted the legal basis for the proposed scheme in 2004, but have ensured that they will only implement it if the Commission authorises it. If so, it will apply as from 1 January 2005. The duration of the scheme is not limited, but if it is approved, the Danish authorities have undertaken to re-notify it after 10 years.

3.   GROUNDS FOR OPENING THE FORMAL INVESTIGATION PROCEDURE IN ARTICLE 88(2)

| (22) | In its decision to open the formal investigation procedure, the Commission found that the measure is funded by State resources. It applies only to companies covered by the EU ETS and relieves these companies from costs that they would otherwise bear from their operating budget, i.e. the measure gives an economic advantage to these companies. The Commission doubted that the selectivity of the measure was justified by the nature and structure of the tax system. The beneficiaries are active in markets that are open for competition and trade between Member States. The measure can, thus, distort competition and affect trade on the internal market. Therefore, the Commission took the view that the measure could constitute State aid. |
| --- | --- |

(22)

In its decision to open the formal investigation procedure, the Commission found that the measure is funded by State resources. It applies only to companies covered by the EU ETS and relieves these companies from costs that they would otherwise bear from their operating budget, i.e. the measure gives an economic advantage to these companies. The Commission doubted that the selectivity of the measure was justified by the nature and structure of the tax system. The beneficiaries are active in markets that are open for competition and trade between Member States. The measure can, thus, distort competition and affect trade on the internal market. Therefore, the Commission took the view that the measure could constitute State aid.

| (23) | The Commission queried whether the measure could be found compatible with the then applicable Community Guidelines on State aid for Environmental Protection (13) (EAG 2001), since the tax paid by the firms under the proposed scheme would be below the minimum levels of the Energy Taxation Directive, without the beneficiaries entering into any voluntary commitments or agreements to undertake measures that go beyond the fulfilment of a harmonised EU obligation. |
| --- | --- |

(23)

The Commission queried whether the measure could be found compatible with the then applicable Community Guidelines on State aid for Environmental Protection (13) (EAG 2001), since the tax paid by the firms under the proposed scheme would be below the minimum levels of the Energy Taxation Directive, without the beneficiaries entering into any voluntary commitments or agreements to undertake measures that go beyond the fulfilment of a harmonised EU obligation.

| (24) | The Commission examined whether the potential aid could be found compatible with the common market under Article 87(3)(c) of the EC Treaty based on the alleged need to eliminate the double regulation. In this context, the Commission pointed out that the national CO2 taxes are counted towards the national level of energy taxation for the purpose of complying with the Energy Taxation Directive. Therefore, the proposed tax relief could distort competition on the internal market, since it would increase tax differentiation in an area where taxes have been harmonised at Community level. Furthermore, it could run against the ‘polluter-pays’ principle to grant CO2 tax relief to all companies participating in the EU ETS, since it would include companies that have received emission allowances for free. The Commission invited Denmark to submit information on the mechanism in order to ensure that the existence and amount of a possible extra burden on top of the CO2 tax could be established at the level of each individual company, and that only companies that actually suffered from such a burden would benefit from the tax exemptions. The Commission noted, however, that it could go against the environmental logic to grant relief only to those companies that have to buy additional allowances, since this could favour those who did not limit their pollution. |
| --- | --- |

(24)

The Commission examined whether the potential aid could be found compatible with the common market under Article 87(3)(c) of the EC Treaty based on the alleged need to eliminate the double regulation. In this context, the Commission pointed out that the national CO2 taxes are counted towards the national level of energy taxation for the purpose of complying with the Energy Taxation Directive. Therefore, the proposed tax relief could distort competition on the internal market, since it would increase tax differentiation in an area where taxes have been harmonised at Community level. Furthermore, it could run against the ‘polluter-pays’ principle to grant CO2 tax relief to all companies participating in the EU ETS, since it would include companies that have received emission allowances for free. The Commission invited Denmark to submit information on the mechanism in order to ensure that the existence and amount of a possible extra burden on top of the CO2 tax could be established at the level of each individual company, and that only companies that actually suffered from such a burden would benefit from the tax exemptions. The Commission noted, however, that it could go against the environmental logic to grant relief only to those companies that have to buy additional allowances, since this could favour those who did not limit their pollution.

4.   COMMENTS FROM INTERESTED PARTIES

| (25) | The Swedish authorities stated that the Commission should make a comprehensive, economic as well as legal, analysis of the notified tax relief. They referred to the arguments submitted in their own notification of a similar case (14) on which the Commission had also opened the formal investigation procedure. |
| --- | --- |

(25)

The Swedish authorities stated that the Commission should make a comprehensive, economic as well as legal, analysis of the notified tax relief. They referred to the arguments submitted in their own notification of a similar case (14) on which the Commission had also opened the formal investigation procedure.

| (26) | Dansk Industri argued that it should be specified, first, that the measure does not constitute State aid and, secondly, that it is compatible with Article 87(3)(c) of the EC Treaty. In this context, it should be kept in mind that Dansk Industri has to pay CO2 tax, energy tax, SO2 tax and a price supplement which is administrated by Energinet.dk and distributed to producers of green electricity. Therefore, Danish companies pay much more for their energy consumption than their European and international competitors. |
| --- | --- |

(26)

Dansk Industri argued that it should be specified, first, that the measure does not constitute State aid and, secondly, that it is compatible with Article 87(3)(c) of the EC Treaty. In this context, it should be kept in mind that Dansk Industri has to pay CO2 tax, energy tax, SO2 tax and a price supplement which is administrated by Energinet.dk and distributed to producers of green electricity. Therefore, Danish companies pay much more for their energy consumption than their European and international competitors.

| (27) | According to Novo Nordisk A/S, their annual tax saving under the proposed measure will be DKK 200 000. The company claims that such saving will not be able to distort competition, particularly as, under the emission quota system, they have to spend approximately DKK 400 000 in order to achieve lower CO2 emissions. They refer to the de minimis rules which allow them to receive aid up to EUR 200 000 (ca. DKK 1,5 million) over a period of 3 years. As regards compliance with the Energy Taxation Directive, Novo Nordisk referred to the fact that they use energy from combined heat and power production and, thus, can be allowed an exemption or reduction of the tax in accordance with Article 15(1)(c) of the Directive. Furthermore, they are energy-intensive and the costs they have for their energy consumption (the tax in question plus costs for cutting CO2 emissions) are in total higher than the Community minima. Novo Nordisk further referred to point 7 of the preamble of the Energy Taxation Directive, which states that energy taxation can be one instrument to reach the Kyoto Protocol objectives (i.e. the same objective as for the EU ETS) and concludes that in this case, there is double regulation. Finally, as regards the proposal by the Commission to assess the potential burden at the level of each beneficiary, Novo Nordisk pointed out that such an approach would lead to serious difficulties with allocation to the correct period, etc., inter alia, because the time of purchase of the allowances does not necessarily have to reflect the time of consumption of the energy. |
| --- | --- |

(27)

According to Novo Nordisk A/S, their annual tax saving under the proposed measure will be DKK 200 000. The company claims that such saving will not be able to distort competition, particularly as, under the emission quota system, they have to spend approximately DKK 400 000 in order to achieve lower CO2 emissions. They refer to the de minimis rules which allow them to receive aid up to EUR 200 000 (ca. DKK 1,5 million) over a period of 3 years. As regards compliance with the Energy Taxation Directive, Novo Nordisk referred to the fact that they use energy from combined heat and power production and, thus, can be allowed an exemption or reduction of the tax in accordance with Article 15(1)(c) of the Directive. Furthermore, they are energy-intensive and the costs they have for their energy consumption (the tax in question plus costs for cutting CO2 emissions) are in total higher than the Community minima. Novo Nordisk further referred to point 7 of the preamble of the Energy Taxation Directive, which states that energy taxation can be one instrument to reach the Kyoto Protocol objectives (i.e. the same objective as for the EU ETS) and concludes that in this case, there is double regulation. Finally, as regards the proposal by the Commission to assess the potential burden at the level of each beneficiary, Novo Nordisk pointed out that such an approach would lead to serious difficulties with allocation to the correct period, etc., inter alia, because the time of purchase of the allowances does not necessarily have to reflect the time of consumption of the energy.

| (28) | Novozymes A/S commented that, in connection with its production of enzymes, it produces electricity and heating at industrial combined heat and power installations. Its production is considered as a heavy process, which means that it is subject to a tax of between DKK 3 and 25 per tonne CO2 of the used fuels. It is also covered by the EU ETS. Novozymes’ comments are identical to those submitted by Novo Nordisk. |
| --- | --- |

(28)

Novozymes A/S commented that, in connection with its production of enzymes, it produces electricity and heating at industrial combined heat and power installations. Its production is considered as a heavy process, which means that it is subject to a tax of between DKK 3 and 25 per tonne CO2 of the used fuels. It is also covered by the EU ETS. Novozymes’ comments are identical to those submitted by Novo Nordisk.

5.   COMMENTS FROM DENMARK

| (29) | The Danish authorities argue, with reference to the judgment of the Court of 16 May 2000 in Case C-83/98 P (France v Ladbroke Racing and Commission
   (15)), that there is no selective advantage in the case at hand. The Court has established in several cases (16) that in the situation where a scheme is of a general economic-political or social-political character and does not favour certain activities or business sectors, the scheme falls outside of the scope of Article 87(1) of the EC Treaty. In the Adria-Wien judgment, an energy tax relief provided undertakings producing goods with an economic advantage in comparison with those in the service sector, despite the fact that undertakings in the service sector can also be relatively large energy consumers. The Danish authorities argue that the scheme in question does not provide an advantage for a specific group of businesses, but consists in a tax relief for all businesses in the same legal and factual situation (17). This is why the Danish authorities consider that the proposed scheme falls outside of the scope of Article 87(1) of the EC Treaty. |
| --- | --- |

(29)

The Danish authorities argue, with reference to the judgment of the Court of 16 May 2000 in Case C-83/98 P (France v Ladbroke Racing and Commission
   (15)), that there is no selective advantage in the case at hand. The Court has established in several cases (16) that in the situation where a scheme is of a general economic-political or social-political character and does not favour certain activities or business sectors, the scheme falls outside of the scope of Article 87(1) of the EC Treaty. In the Adria-Wien judgment, an energy tax relief provided undertakings producing goods with an economic advantage in comparison with those in the service sector, despite the fact that undertakings in the service sector can also be relatively large energy consumers. The Danish authorities argue that the scheme in question does not provide an advantage for a specific group of businesses, but consists in a tax relief for all businesses in the same legal and factual situation (17). This is why the Danish authorities consider that the proposed scheme falls outside of the scope of Article 87(1) of the EC Treaty.

| (30) | Moreover, they refer to the conclusion of the Court in Adria-Wien that a scheme which fairly certainly constitutes an advantage for the recipient, but which is justified by the character or structure of the system, does not fulfil the selectivity criteria. In the case at hand, after the introduction of the EU ETS, the Danish authorities take the view that the tax no longer has an environmental value. Since the purpose of the tax can no longer be fulfilled or is reduced, it is in the logic and nature of the tax system to exempt the undertakings concerned from the tax. |
| --- | --- |

(30)

Moreover, they refer to the conclusion of the Court in Adria-Wien that a scheme which fairly certainly constitutes an advantage for the recipient, but which is justified by the character or structure of the system, does not fulfil the selectivity criteria. In the case at hand, after the introduction of the EU ETS, the Danish authorities take the view that the tax no longer has an environmental value. Since the purpose of the tax can no longer be fulfilled or is reduced, it is in the logic and nature of the tax system to exempt the undertakings concerned from the tax.

| (31) | Both the EU ETS allowances and the CO2 tax are cost-effective market-based instruments with the objective to reduce CO2 emissions when consuming energy. Both instruments lead to an increase of the marginal cost of energy consumption, even if the allowances are distributed for free. Allowances, as well as taxes, result in higher production costs. The total CO2 emissions are limited to the total amount of allowances. If one undertaking therefore, for example due to taxes, reduces its emissions, it will provide scope for other undertakings to increase their emissions. Under the double regulation the tax is therefore no longer a cost-effective steering instrument. It has no additional environmental effect, but only an additional financial burden for the undertakings in question. Therefore, the Danish authorities take the view that the scheme at hand is in the nature and logic of the tax system. |
| --- | --- |

(31)

Both the EU ETS allowances and the CO2 tax are cost-effective market-based instruments with the objective to reduce CO2 emissions when consuming energy. Both instruments lead to an increase of the marginal cost of energy consumption, even if the allowances are distributed for free. Allowances, as well as taxes, result in higher production costs. The total CO2 emissions are limited to the total amount of allowances. If one undertaking therefore, for example due to taxes, reduces its emissions, it will provide scope for other undertakings to increase their emissions. Under the double regulation the tax is therefore no longer a cost-effective steering instrument. It has no additional environmental effect, but only an additional financial burden for the undertakings in question. Therefore, the Danish authorities take the view that the scheme at hand is in the nature and logic of the tax system.

| (32) | First, the Danish authorities point out that the EAG 2001 are only so-called soft law containing criteria for the State aid assessment by the Commission. At the time of the notification and of the decision of the Commission to open the formal investigation procedure under Article 88(2) of the EC Treaty, the relevant applicable guidelines were contained in the EAG 2001. These guidelines cannot be deemed to contain criteria for assessing schemes like the one in question, since they entered into force more than two years before the Emission Trading Directive and the Energy Taxation Directive were adopted. Therefore, the Danish authorities find that the Commission’s interpretation of voluntary agreements and commitments in point 51(1)(a) is too strict, in particular since the second paragraph of that point states that the provisions also apply where a Member State makes a tax reduction subject to conditions that have the same effect as agreements or commitments in the nature of voluntary agreements. The Danish authorities take the view that the EU ETS results in the same effects as those that would have been achieved under voluntary agreements or with the CO2 tax. |
| --- | --- |

(32)

First, the Danish authorities point out that the EAG 2001 are only so-called soft law containing criteria for the State aid assessment by the Commission. At the time of the notification and of the decision of the Commission to open the formal investigation procedure under Article 88(2) of the EC Treaty, the relevant applicable guidelines were contained in the EAG 2001. These guidelines cannot be deemed to contain criteria for assessing schemes like the one in question, since they entered into force more than two years before the Emission Trading Directive and the Energy Taxation Directive were adopted. Therefore, the Danish authorities find that the Commission’s interpretation of voluntary agreements and commitments in point 51(1)(a) is too strict, in particular since the second paragraph of that point states that the provisions also apply where a Member State makes a tax reduction subject to conditions that have the same effect as agreements or commitments in the nature of voluntary agreements. The Danish authorities take the view that the EU ETS results in the same effects as those that would have been achieved under voluntary agreements or with the CO2 tax.

| (33) | If the Commission does not find the scheme compatible with the EAG 2001, it is the opinion of the Danish authorities that it can instead be approved directly on the basis of Article 87(3)(c) of the EC Treaty due to the fact that the situation has changed considerably since the adoption of the Energy Taxation Directive and the EU ETS Directive, and the undertakings concerned are now subject to double regulation. |
| --- | --- |

(33)

If the Commission does not find the scheme compatible with the EAG 2001, it is the opinion of the Danish authorities that it can instead be approved directly on the basis of Article 87(3)(c) of the EC Treaty due to the fact that the situation has changed considerably since the adoption of the Energy Taxation Directive and the EU ETS Directive, and the undertakings concerned are now subject to double regulation.

| (34) | Denmark has referred to a Commission Staff Working Paper (18) drawn up in the context of the adoption of the Energy Taxation Directive. In that paper, the Commission stated that a CO2 tax exemption, granted in favour of companies which would be subject to the Community emissions trading scheme, might not constitute State aid since imposing both a CO2 tax and an emissions cap could lead to a form of double taxation which needs to be avoided. Moreover, in its minutes (19) concerning the Directive the Council undertook, on the basis of a proposal from the Commission, to examine positively tax measures which will accompany the implementation of the EU ETS, particularly in order to avoid double taxation cases. |
| --- | --- |

(34)

Denmark has referred to a Commission Staff Working Paper (18) drawn up in the context of the adoption of the Energy Taxation Directive. In that paper, the Commission stated that a CO2 tax exemption, granted in favour of companies which would be subject to the Community emissions trading scheme, might not constitute State aid since imposing both a CO2 tax and an emissions cap could lead to a form of double taxation which needs to be avoided. Moreover, in its minutes (19) concerning the Directive the Council undertook, on the basis of a proposal from the Commission, to examine positively tax measures which will accompany the implementation of the EU ETS, particularly in order to avoid double taxation cases.

| (35) | In its decision to open the formal investigation procedure, the Commission asked the Danish government to submit information showing that the scheme would lead to the achievement of environmental objectives or increased energy efficiency, broadly equivalent to what would have been achieved if the standard community minimum rate had been observed. The Danish authorities claim that such information was already apparent from their comparison between the price of allowances and the Community minima. At the time of the comments made by Denmark, the price of allowances was EUR 13 per tonne CO2, while the Community minima recalculated into EUR per tonne CO2 were 1,55 for coal and coke, 6,66 for gas oil and 2,64 for natural gas. A CO2 allowance price of EUR 13 per tonne creates, thus, an essentially greater economic incentive to reduce emissions than the tax would have done. In accordance with the Danish National Allocation Plan for 2005-2007, the quota-regulated industry in Denmark is allocated allowances at a level which is 7,1 % below what the CO2 emissions would have been in a ‘business as usual’ situation (including taxes and voluntary agreements) for the same period. |
| --- | --- |

(35)

In its decision to open the formal investigation procedure, the Commission asked the Danish government to submit information showing that the scheme would lead to the achievement of environmental objectives or increased energy efficiency, broadly equivalent to what would have been achieved if the standard community minimum rate had been observed. The Danish authorities claim that such information was already apparent from their comparison between the price of allowances and the Community minima. At the time of the comments made by Denmark, the price of allowances was EUR 13 per tonne CO2, while the Community minima recalculated into EUR per tonne CO2 were 1,55 for coal and coke, 6,66 for gas oil and 2,64 for natural gas. A CO2 allowance price of EUR 13 per tonne creates, thus, an essentially greater economic incentive to reduce emissions than the tax would have done. In accordance with the Danish National Allocation Plan for 2005-2007, the quota-regulated industry in Denmark is allocated allowances at a level which is 7,1 % below what the CO2 emissions would have been in a ‘business as usual’ situation (including taxes and voluntary agreements) for the same period.

6.   ASSESSMENT OF THE PROPOSED MEASURE

6.1.   Existence of State aid

| (36) | According to Article 87(1) of the EC Treaty, any aid granted by a Member State or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, in so far as it affects trade between Member States shall be incompatible with the common market. |
| --- | --- |

(36)

According to Article 87(1) of the EC Treaty, any aid granted by a Member State or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, in so far as it affects trade between Member States shall be incompatible with the common market.

| (37) | The proposed measure results in a loss of State revenue and is, thus, financed by Denmark through State resources. The beneficiaries are active on markets where there is competition and trade between Member States and, therefore, the measure has the potential of distorting competition and affecting trade between Member States. In order to determine whether the proposed measure is caught by Article 87(1), the question is thus whether it provides a selective economic advantage to the beneficiaries or not. |
| --- | --- |

(37)

The proposed measure results in a loss of State revenue and is, thus, financed by Denmark through State resources. The beneficiaries are active on markets where there is competition and trade between Member States and, therefore, the measure has the potential of distorting competition and affecting trade between Member States. In order to determine whether the proposed measure is caught by Article 87(1), the question is thus whether it provides a selective economic advantage to the beneficiaries or not.

| (38) | The Danish authorities argue that the proposed tax relief does not confer a selective advantage on the beneficiaries, since it covers all undertakings that are legally and factually in the same situation, namely those who are the subject of double regulation. Should it be assumed, however, that it is a case of selective advantage, the Danish authorities find this justified by the nature and structure of the system. This is because the CO2 tax and the EU ETS have the same objective, i.e. to reduce CO2 emissions. Since the EU ETS was introduced the CO2 tax no longer serves any environmental purpose. For companies covered by the EU ETS, the CO2 tax is therefore not an effective instrument for reducing the overall CO2 emissions, but merely an extra economic burden. |
| --- | --- |

(38)

The Danish authorities argue that the proposed tax relief does not confer a selective advantage on the beneficiaries, since it covers all undertakings that are legally and factually in the same situation, namely those who are the subject of double regulation. Should it be assumed, however, that it is a case of selective advantage, the Danish authorities find this justified by the nature and structure of the system. This is because the CO2 tax and the EU ETS have the same objective, i.e. to reduce CO2 emissions. Since the EU ETS was introduced the CO2 tax no longer serves any environmental purpose. For companies covered by the EU ETS, the CO2 tax is therefore not an effective instrument for reducing the overall CO2 emissions, but merely an extra economic burden.

| (39) | The Commission notes that it was established in the Adria-Wien judgment (20) that ‘the only question to be determined is whether, under a particular statutory scheme, a State measure is such as to favour certain undertakings or the production of certain goods within the meaning of Article 92(1) of the Treaty in comparison with other undertakings which are in a legal and factual situation that is comparable in the light of the objective pursued by the measure in question’. There is recent case-law (21) on the interpretation of advantage and selectivity. The Gibraltar judgment offered a standard State aid analysis for tax cases (22). The Court of First Instance held that such an analysis should consist of: (1) the identification of the system of reference; (2) the determination of the derogation from that system of reference; and (3) the possibility of justification of the derogation by the nature or structure of the system. |
| --- | --- |

(39)

The Commission notes that it was established in the Adria-Wien judgment (20) that ‘the only question to be determined is whether, under a particular statutory scheme, a State measure is such as to favour certain undertakings or the production of certain goods within the meaning of Article 92(1) of the Treaty in comparison with other undertakings which are in a legal and factual situation that is comparable in the light of the objective pursued by the measure in question’. There is recent case-law (21) on the interpretation of advantage and selectivity. The Gibraltar judgment offered a standard State aid analysis for tax cases (22). The Court of First Instance held that such an analysis should consist of: (1) the identification of the system of reference; (2) the determination of the derogation from that system of reference; and (3) the possibility of justification of the derogation by the nature or structure of the system.

| (40) | As regards the notion of selective advantage, the Commission thus first has to identify the system of reference. In the case at hand, the Commission considers, in line with the standard analysis, the system of reference to be the existing general energy tax system (including all taxes levied on the consumption of each energy product, i.e. CO2 tax and electricity tax). This is in line with Article 4(2) of the Energy Taxation Directive, according to which all indirect taxes on the same energy product can be added together for the purpose of meeting the Community minimum levels of taxation. Furthermore, in 2004 Denmark presented the two taxes together as part of the national energy tax system in order to demonstrate compliance with the Energy Taxation Directive and to justify for State aid purposes the tax exemption from the electricity tax (23). By relieving the beneficiaries of a financial burden which would otherwise have been part of their production costs, the scheme clearly favours the beneficiaries compared to the non-exempted firms and thereby derogates from the system of reference. The Danish authorities argue that the analysis of whether there is a selective advantage should take into account that the beneficiaries have a burden under the EU ETS. The Commission notes that the energy tax system has only partially the same objective as the EU ETS. Whereas the EU ETS aims exclusively at reducing CO2 emissions, the energy tax system also has other objectives, such as promoting energy efficiency and collecting revenue for the State. In addition, there are important differences in the functioning of a tax and of an allowance system (for example, the EU ETS does not always result in an actual cost to be paid by each beneficiary for every energy unit consumed). Against that background, the Commission does not share Denmark’s view that the CO2 tax and the EU ETS together should be regarded as the reference system. |
| --- | --- |

(40)

As regards the notion of selective advantage, the Commission thus first has to identify the system of reference. In the case at hand, the Commission considers, in line with the standard analysis, the system of reference to be the existing general energy tax system (including all taxes levied on the consumption of each energy product, i.e. CO2 tax and electricity tax). This is in line with Article 4(2) of the Energy Taxation Directive, according to which all indirect taxes on the same energy product can be added together for the purpose of meeting the Community minimum levels of taxation. Furthermore, in 2004 Denmark presented the two taxes together as part of the national energy tax system in order to demonstrate compliance with the Energy Taxation Directive and to justify for State aid purposes the tax exemption from the electricity tax (23). By relieving the beneficiaries of a financial burden which would otherwise have been part of their production costs, the scheme clearly favours the beneficiaries compared to the non-exempted firms and thereby derogates from the system of reference. The Danish authorities argue that the analysis of whether there is a selective advantage should take into account that the beneficiaries have a burden under the EU ETS. The Commission notes that the energy tax system has only partially the same objective as the EU ETS. Whereas the EU ETS aims exclusively at reducing CO2 emissions, the energy tax system also has other objectives, such as promoting energy efficiency and collecting revenue for the State. In addition, there are important differences in the functioning of a tax and of an allowance system (for example, the EU ETS does not always result in an actual cost to be paid by each beneficiary for every energy unit consumed). Against that background, the Commission does not share Denmark’s view that the CO2 tax and the EU ETS together should be regarded as the reference system.

| (41) | In the NOx judgment, the Court of First Instance found that there was no selectivity, because the advantage (the allocation of free emission permits) was only provided to undertakings which had an obligation under the same scheme and could therefore not be considered to be in the same legal and factual situation as undertakings outside the scheme (24). The Commission finds that the situation in the NOx case is different from the one at hand. In the NOx case, the granting of the advantage (i.e. the free NOx trading allowances) was subject to the beneficiaries falling under the emission ceiling of the same system. In the case at hand, though, it is proposed to provide a relief from a CO2 tax which is normally to be paid by all energy consumers. The reason for the relief will be that the beneficiaries are covered by another (non-tax) system. In the Commission’s view this case is therefore more similar to the situation in the abovementioned Adria-Wien judgment, where the Court of Justice ruled that there was indeed a selective advantage because the energy tax relief favoured certain undertakings or the production of certain goods in comparison with other undertakings which were in a legal and factual situation that was comparable in the light of the objective pursued by the tax in question. |
| --- | --- |

(41)

In the NOx judgment, the Court of First Instance found that there was no selectivity, because the advantage (the allocation of free emission permits) was only provided to undertakings which had an obligation under the same scheme and could therefore not be considered to be in the same legal and factual situation as undertakings outside the scheme (24). The Commission finds that the situation in the NOx case is different from the one at hand. In the NOx case, the granting of the advantage (i.e. the free NOx trading allowances) was subject to the beneficiaries falling under the emission ceiling of the same system. In the case at hand, though, it is proposed to provide a relief from a CO2 tax which is normally to be paid by all energy consumers. The reason for the relief will be that the beneficiaries are covered by another (non-tax) system. In the Commission’s view this case is therefore more similar to the situation in the abovementioned Adria-Wien judgment, where the Court of Justice ruled that there was indeed a selective advantage because the energy tax relief favoured certain undertakings or the production of certain goods in comparison with other undertakings which were in a legal and factual situation that was comparable in the light of the objective pursued by the tax in question.

| (42) | According to the Commission’s notice on the application of the State aid rules to measures relating to direct business taxation (25), tax measures of a purely technical nature (such as avoiding double taxation) are in principle regarded as general measures (26). As mentioned above, there are important differences between a tax and the EU ETS. The latter can therefore not be considered as taxation in the meaning of the notice. |
| --- | --- |

(42)

According to the Commission’s notice on the application of the State aid rules to measures relating to direct business taxation (25), tax measures of a purely technical nature (such as avoiding double taxation) are in principle regarded as general measures (26). As mentioned above, there are important differences between a tax and the EU ETS. The latter can therefore not be considered as taxation in the meaning of the notice.

| (43) | For these reasons, the Commission finds that the tax relief per se grants a selective advantage within the meaning of Article 87(1) EC. |
| --- | --- |

(43)

For these reasons, the Commission finds that the tax relief per se grants a selective advantage within the meaning of Article 87(1) EC.

| (44) | As regards the logic of the system, the Commission notes again that the energy tax system has only partially the same objective as the EU ETS. In this case, the system of reference is the energy tax system. The logic of that system is to tax each energy product consumed and the proposed relief from the tax is not in line with that logic. In this context, Denmark argues that the double regulation increases companies’ marginal costs without reducing overall CO2 emissions. The Commission considers, however, that argument relevant only as regards the compatibility of potential State aid, in particular with reference to the proportionality of State aid. This is because the effects of the EU ETS are not part of the reference system for the definition of State aid. Anyway, even if the Commission were to include EU ETS in the reference system, not all activities which generate emissions and a corresponding obligation to surrender emission allowances pursuant to the EU ETS would be covered by the proposed CO2 tax relief (27). That would deviate from the general logic claimed by Denmark and the relief would therefore not be fully in keeping with the logic of the system. |
| --- | --- |

(44)

As regards the logic of the system, the Commission notes again that the energy tax system has only partially the same objective as the EU ETS. In this case, the system of reference is the energy tax system. The logic of that system is to tax each energy product consumed and the proposed relief from the tax is not in line with that logic. In this context, Denmark argues that the double regulation increases companies’ marginal costs without reducing overall CO2 emissions. The Commission considers, however, that argument relevant only as regards the compatibility of potential State aid, in particular with reference to the proportionality of State aid. This is because the effects of the EU ETS are not part of the reference system for the definition of State aid. Anyway, even if the Commission were to include EU ETS in the reference system, not all activities which generate emissions and a corresponding obligation to surrender emission allowances pursuant to the EU ETS would be covered by the proposed CO2 tax relief (27). That would deviate from the general logic claimed by Denmark and the relief would therefore not be fully in keeping with the logic of the system.

| (45) | The Commission therefore does not find that the selectivity of the proposed exemption was justified by the nature and logic of the tax system. |
| --- | --- |

(45)

The Commission therefore does not find that the selectivity of the proposed exemption was justified by the nature and logic of the tax system.

| (46) | Classifying the notified measure as State aid is in line with established Commission practice, under which exemptions or reductions from environmental taxes normally are regarded as State aid. In particular, the Commission considered as State aid schemes where CO2 tax reductions were introduced for companies covered by the EU ETS (28). |
| --- | --- |

(46)

Classifying the notified measure as State aid is in line with established Commission practice, under which exemptions or reductions from environmental taxes normally are regarded as State aid. In particular, the Commission considered as State aid schemes where CO2 tax reductions were introduced for companies covered by the EU ETS (28).

| (47) | The Commission, thus, concludes that the notified measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty. |
| --- | --- |

(47)

The Commission, thus, concludes that the notified measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty.

6.2.   Compatibility with Article 87(3)(c) of the EC Treaty

| (48) | Since the decision to open the formal investigation procedure was taken, new Community Guidelines on State aid for Environmental Protection (3) (EAG 2008) have been adopted. According to point 204 of the EAG 2008, the Commission will apply the new guidelines to all notified aid measures in respect of which it is called upon to take a decision after the guidelines are published, even where the schemes were notified prior to their publication. However, point 68 of the EAG 2008 states that, at the time of the drafting of the guidelines, the Commission had not gathered sufficient experience in assessing the compatibility of reductions of environmental taxes where the companies in question participate in tradable permit schemes and it was, therefore, at the time of the adoption of the EAG 2008, too early to provide general guidance thereon. The assessment of such cases will therefore be made on the basis of Article 87(3)(c) EC. When assessing environmental cases which are not covered by the EAG, the Commission normally takes inspiration from the criteria set up in the guidelines. In this case, there are criteria for assessing reductions of and exemptions from energy taxes and it would be inconsistent not at least to take inspiration from these, in particular when assessing whether the aid is necessary and proportionate. |
| --- | --- |

(48)

Since the decision to open the formal investigation procedure was taken, new Community Guidelines on State aid for Environmental Protection (3) (EAG 2008) have been adopted. According to point 204 of the EAG 2008, the Commission will apply the new guidelines to all notified aid measures in respect of which it is called upon to take a decision after the guidelines are published, even where the schemes were notified prior to their publication. However, point 68 of the EAG 2008 states that, at the time of the drafting of the guidelines, the Commission had not gathered sufficient experience in assessing the compatibility of reductions of environmental taxes where the companies in question participate in tradable permit schemes and it was, therefore, at the time of the adoption of the EAG 2008, too early to provide general guidance thereon. The assessment of such cases will therefore be made on the basis of Article 87(3)(c) EC. When assessing environmental cases which are not covered by the EAG, the Commission normally takes inspiration from the criteria set up in the guidelines. In this case, there are criteria for assessing reductions of and exemptions from energy taxes and it would be inconsistent not at least to take inspiration from these, in particular when assessing whether the aid is necessary and proportionate.

| (49) | First, when assessing the compliance of State aid with the EC Treaty, the Commission has to consider the positive impact of the aid measure in question in reaching an objective of common interest (for example, a higher level of environmental protection) against its potentially negative side effects on trade and competition. In this case, it is difficult to establish whether there is an environmental benefit from introducing the proposed scheme. While the objectives of the EU ETS and the CO2 tax are to achieve a higher level of environmental protection, the objective of the tax relief per se is to relieve companies of a tax burden. The effect of the proposed measure is, thus, that the beneficiaries obtain a competitive advantage which in itself cannot be considered to be an objective of common interest. This does, however, not exclude that there can be a direct environmental benefit stemming from the fact that the reduction enables the introduction or maintenance of higher tax levels than the Community minima for other undertakings (29). |
| --- | --- |

(49)

First, when assessing the compliance of State aid with the EC Treaty, the Commission has to consider the positive impact of the aid measure in question in reaching an objective of common interest (for example, a higher level of environmental protection) against its potentially negative side effects on trade and competition. In this case, it is difficult to establish whether there is an environmental benefit from introducing the proposed scheme. While the objectives of the EU ETS and the CO2 tax are to achieve a higher level of environmental protection, the objective of the tax relief per se is to relieve companies of a tax burden. The effect of the proposed measure is, thus, that the beneficiaries obtain a competitive advantage which in itself cannot be considered to be an objective of common interest. This does, however, not exclude that there can be a direct environmental benefit stemming from the fact that the reduction enables the introduction or maintenance of higher tax levels than the Community minima for other undertakings (29).

| (50) | Second, point 152 of the EAG 2008 states that in order to be approved under Article 87 of the EC Treaty, reductions and exemptions from harmonised taxes must be compatible with the relevant Community legislation. The requirement of respect of tax directives was also confirmed in case-law by the judgment of the Court of First Instance of 27 September 2001 in Case T-184/97, BP Chemicals v Commission
   (30). In cases like this, which concerns a relief from the CO2 tax, this means primarily respect of the Energy Taxation Directive. According to that directive, the tax levels have to respect a certain Community minimum level for each energy product and electricity. The minimum levels are specified in Annex I of the directive. As mentioned above, according to Article 4(2) of the Energy Taxation Directive, the minimum levels can be reached by adding all charges levied in respect of all indirect taxes (except for VAT) calculated directly or indirectly on the quantity of energy products and electricity at the time of consumption. According to Article 17(4) of the same directive, businesses that benefit from a level of taxation below the Community minima shall enter into agreements, tradable permit schemes or equivalent arrangements leading to the achievement of environmental objectives broadly equivalent to what would have been achieved if the Community minima would have been observed. In its decision to open the formal investigation procedure, the Commission invited Denmark to submit further information to support its claim that the EU ETS has a broadly equivalent effect to the tax. Denmark has not submitted additional information on that issue. Given the price level of the EU ETS allowances in comparison with the Community minimum levels, it can nevertheless not be excluded that the effects of the EU ETS are broadly equivalent to what would have been achieved under the CO2 tax (31). |
| --- | --- |

(50)

Second, point 152 of the EAG 2008 states that in order to be approved under Article 87 of the EC Treaty, reductions and exemptions from harmonised taxes must be compatible with the relevant Community legislation. The requirement of respect of tax directives was also confirmed in case-law by the judgment of the Court of First Instance of 27 September 2001 in Case T-184/97, BP Chemicals v Commission
   (30). In cases like this, which concerns a relief from the CO2 tax, this means primarily respect of the Energy Taxation Directive. According to that directive, the tax levels have to respect a certain Community minimum level for each energy product and electricity. The minimum levels are specified in Annex I of the directive. As mentioned above, according to Article 4(2) of the Energy Taxation Directive, the minimum levels can be reached by adding all charges levied in respect of all indirect taxes (except for VAT) calculated directly or indirectly on the quantity of energy products and electricity at the time of consumption. According to Article 17(4) of the same directive, businesses that benefit from a level of taxation below the Community minima shall enter into agreements, tradable permit schemes or equivalent arrangements leading to the achievement of environmental objectives broadly equivalent to what would have been achieved if the Community minima would have been observed. In its decision to open the formal investigation procedure, the Commission invited Denmark to submit further information to support its claim that the EU ETS has a broadly equivalent effect to the tax. Denmark has not submitted additional information on that issue. Given the price level of the EU ETS allowances in comparison with the Community minimum levels, it can nevertheless not be excluded that the effects of the EU ETS are broadly equivalent to what would have been achieved under the CO2 tax (31).

| (51) | Denmark has referred to the Green Paper on market-based instruments for environment and related policy purposes (32), which the Commission presented as a starting point for the revision of the Energy Taxation Directive (33). In this context, it should be noted that the Green Paper is a reflection document inviting a debate on the options of a policy before the preparation of proposals, i.e. it is not a binding act. In the Green paper, the Commission acknowledges the fact that the EU ETS and the Energy Taxation Directive, at least to some extent, target the same objective and states that overlaps should be avoided. With respect to energy taxation, that paper also raises the issue of multiple objectives behind energy taxation and suggests a split of energy taxation into a CO2 component and an energy-related component. Logically, the CO2 component should not apply to installations under the EU ETS. Given that, in Denmark, the companies under the EU ETS are already exempted from the energy tax, they would pay no tax at all on the energy consumed in their production processes if the proposed measure was approved. Therefore, the Commission does not find that the measure proposed by Denmark is in line with the ideas of the abovementioned Green Paper. |
| --- | --- |

(51)

Denmark has referred to the Green Paper on market-based instruments for environment and related policy purposes (32), which the Commission presented as a starting point for the revision of the Energy Taxation Directive (33). In this context, it should be noted that the Green Paper is a reflection document inviting a debate on the options of a policy before the preparation of proposals, i.e. it is not a binding act. In the Green paper, the Commission acknowledges the fact that the EU ETS and the Energy Taxation Directive, at least to some extent, target the same objective and states that overlaps should be avoided. With respect to energy taxation, that paper also raises the issue of multiple objectives behind energy taxation and suggests a split of energy taxation into a CO2 component and an energy-related component. Logically, the CO2 component should not apply to installations under the EU ETS. Given that, in Denmark, the companies under the EU ETS are already exempted from the energy tax, they would pay no tax at all on the energy consumed in their production processes if the proposed measure was approved. Therefore, the Commission does not find that the measure proposed by Denmark is in line with the ideas of the abovementioned Green Paper.

| (52) | If the relevant Community legislation were complied with, the principle behind the State aid rules on reductions of and exemptions from environmental taxes is to accept situations where the Community tax levels are respected, while taking a stricter approach in situations where the beneficiaries would be below the level playing field set by the minimum levels. This means that tax reliefs where the Community minima are respected can be approved without further analysis, while, on the contrary, tax reliefs going below these minima are regarded to be particularly distortive and the Commission therefore analyses in detail the necessity and proportionality of such aid. For this analysis, the Commission relies on information received from the Member States. |
| --- | --- |

(52)

If the relevant Community legislation were complied with, the principle behind the State aid rules on reductions of and exemptions from environmental taxes is to accept situations where the Community tax levels are respected, while taking a stricter approach in situations where the beneficiaries would be below the level playing field set by the minimum levels. This means that tax reliefs where the Community minima are respected can be approved without further analysis, while, on the contrary, tax reliefs going below these minima are regarded to be particularly distortive and the Commission therefore analyses in detail the necessity and proportionality of such aid. For this analysis, the Commission relies on information received from the Member States.

| (53) | As regards the necessity of the aid, the Commission should according to point 158 of the EAG 2008 assess (1) whether the choice of beneficiaries is based on objective and transparent criteria, (2) whether there is a substantial increase in production costs and, if so, (3) whether this increase can be passed on to consumers without leading to important sales reductions (this can be proven by estimates of product price elasticity, lost sales and/or reduced profits for the companies or sectors concerned). |
| --- | --- |

(53)

As regards the necessity of the aid, the Commission should according to point 158 of the EAG 2008 assess (1) whether the choice of beneficiaries is based on objective and transparent criteria, (2) whether there is a substantial increase in production costs and, if so, (3) whether this increase can be passed on to consumers without leading to important sales reductions (this can be proven by estimates of product price elasticity, lost sales and/or reduced profits for the companies or sectors concerned).

| (54) | In the case at hand, the beneficiaries are indeed selected on the basis of objective and transparent criteria, namely the participation in the EU ETS. As regards the second criteria, at least for the time being, all concerned companies are energy-intensive within the meaning of Article 17(1) of the Energy Taxation Directive, so these criteria can be presumed to be fulfilled. Information on decreasing turnovers and/or market shares of the concerned beneficiaries would have been valuable indications that the measure is necessary. However, Denmark has not submitted that information. Instead, Denmark has submitted a list of all beneficiaries specifying their CO2 emissions for 2005, 2006 and 2007. Some of them have decreased their emissions during the three-year period, while others instead have increased emissions during that period. The largest beneficiaries would be in the cement industry (where the tax base is approx. 2,8 million tonnes CO2 emissions per year), in the sugar industry (0,2 million tonnes per year) and in the oil refineries (0,1 million tonnes per year). Denmark has, thus, not proven that the fact that the two systems have been applicable in parallel has led to a substantial increase in production costs which cannot be passed on to the consumers without important sales reductions. |
| --- | --- |

(54)

In the case at hand, the beneficiaries are indeed selected on the basis of objective and transparent criteria, namely the participation in the EU ETS. As regards the second criteria, at least for the time being, all concerned companies are energy-intensive within the meaning of Article 17(1) of the Energy Taxation Directive, so these criteria can be presumed to be fulfilled. Information on decreasing turnovers and/or market shares of the concerned beneficiaries would have been valuable indications that the measure is necessary. However, Denmark has not submitted that information. Instead, Denmark has submitted a list of all beneficiaries specifying their CO2 emissions for 2005, 2006 and 2007. Some of them have decreased their emissions during the three-year period, while others instead have increased emissions during that period. The largest beneficiaries would be in the cement industry (where the tax base is approx. 2,8 million tonnes CO2 emissions per year), in the sugar industry (0,2 million tonnes per year) and in the oil refineries (0,1 million tonnes per year). Denmark has, thus, not proven that the fact that the two systems have been applicable in parallel has led to a substantial increase in production costs which cannot be passed on to the consumers without important sales reductions.

| (55) | The Commission can, therefore, not conclude that the proposed scheme is necessary. |
| --- | --- |

(55)

The Commission can, therefore, not conclude that the proposed scheme is necessary.

| (56) | With respect to the question of proportionality, each beneficiary must according to point 159 of the EAG 2008 fulfil one of the following criteria: (1) It must pay a proportion of the national tax which is broadly equivalent to the environmental performance of each individual beneficiary compared to the performance related to the best performing technique within the EEA. The beneficiaries can benefit at most from a reduction corresponding to the increase in production costs from the tax, using the best performing technique and which cannot be passed on to customers; (2) it must pay at least 20 % of the national tax unless a lower rate can be justified; or (3) it can enter into agreements with the Member State whereby they commit themselves to achieve environmental objectives with the same effect as what would be achieved under points 1 or 2 or if the Community minima were applied. |
| --- | --- |

(56)

With respect to the question of proportionality, each beneficiary must according to point 159 of the EAG 2008 fulfil one of the following criteria: (1) It must pay a proportion of the national tax which is broadly equivalent to the environmental performance of each individual beneficiary compared to the performance related to the best performing technique within the EEA. The beneficiaries can benefit at most from a reduction corresponding to the increase in production costs from the tax, using the best performing technique and which cannot be passed on to customers; (2) it must pay at least 20 % of the national tax unless a lower rate can be justified; or (3) it can enter into agreements with the Member State whereby they commit themselves to achieve environmental objectives with the same effect as what would be achieved under points 1 or 2 or if the Community minima were applied.

| (57) | In the case at hand, the Danish authorities have replied that they do not have the information on best performing technique and this is anyway not a requirement under the proposed measure. The second criterion is not fulfilled and paying 20 % of the national tax would in their case anyway lead to a tax rate which is far above the Community minima. As regards the third criterion, some of the beneficiaries already have voluntary agreements under which they are allowed to pay a rate lower than the Community minima. The idea under this measure would be to replace such agreements with the EU ETS. The EU ETS is in place independently of the proposed tax measure and, therefore, there is no additional effort required by Denmark in return for the proposed tax relief. |
| --- | --- |

(57)

In the case at hand, the Danish authorities have replied that they do not have the information on best performing technique and this is anyway not a requirement under the proposed measure. The second criterion is not fulfilled and paying 20 % of the national tax would in their case anyway lead to a tax rate which is far above the Community minima. As regards the third criterion, some of the beneficiaries already have voluntary agreements under which they are allowed to pay a rate lower than the Community minima. The idea under this measure would be to replace such agreements with the EU ETS. The EU ETS is in place independently of the proposed tax measure and, therefore, there is no additional effort required by Denmark in return for the proposed tax relief.

| (58) | In its decision to open the formal investigation procedure, the Commission invited Denmark to submit information on mechanisms that might be envisaged by the Danish authorities in order to ensure that exemptions would be granted only to those individual companies who have net costs from the EU ETS participation, and only covered these net costs. Such information could have given an indication whether the aid is proportionate, although the environmental logic of such an approach could be questioned, since companies that had to buy emission permits because they did not reduce their pollution would be favoured. In any event, the Danish authorities have neither demonstrated nor guaranteed that the exemptions would be limited to companies who have paid for emission allowances (34). |
| --- | --- |

(58)

In its decision to open the formal investigation procedure, the Commission invited Denmark to submit information on mechanisms that might be envisaged by the Danish authorities in order to ensure that exemptions would be granted only to those individual companies who have net costs from the EU ETS participation, and only covered these net costs. Such information could have given an indication whether the aid is proportionate, although the environmental logic of such an approach could be questioned, since companies that had to buy emission permits because they did not reduce their pollution would be favoured. In any event, the Danish authorities have neither demonstrated nor guaranteed that the exemptions would be limited to companies who have paid for emission allowances (34).

| (59) | Consequently, it has not been proven by the Danish authorities that the proposed aid is proportionate. |
| --- | --- |

(59)

Consequently, it has not been proven by the Danish authorities that the proposed aid is proportionate.

| (60) | As regards distortion of competition, companies in Denmark which are not covered by the EU ETS, as well as companies in other Member States, either respect the level playing field set by the Community minima or comply with the rules specified in the EAG 2008. Therefore, the proposed exemption would increase competitiveness for EU ETS companies operating in Denmark and would, thus, unnecessarily distort competition with companies in other Member States. |
| --- | --- |

(60)

As regards distortion of competition, companies in Denmark which are not covered by the EU ETS, as well as companies in other Member States, either respect the level playing field set by the Community minima or comply with the rules specified in the EAG 2008. Therefore, the proposed exemption would increase competitiveness for EU ETS companies operating in Denmark and would, thus, unnecessarily distort competition with companies in other Member States.

| (61) | Against that background, the Commission finds, based on the spirit of the EAG 2008, that the measure at hand cannot be regarded as compatible with Article 87(3)(c) of the EC Treaty. |
| --- | --- |

(61)

Against that background, the Commission finds, based on the spirit of the EAG 2008, that the measure at hand cannot be regarded as compatible with Article 87(3)(c) of the EC Treaty.

| (62) | Following the opening of the formal investigation procedure, the Commission received comments from third parties referring to the fact that the amounts of the exemptions or reductions in most cases are below the thresholds set out in Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid (35) (hereafter referred to as the ‘de minimis regulation’). If the Danish authorities would commit to ensuring that the de minimis rules were complied with in all cases, the aid measure would be deemed not to meet the criteria of Article 87(1) and could, thus, be implemented without being notified to the Commission. |
| --- | --- |

(62)

Following the opening of the formal investigation procedure, the Commission received comments from third parties referring to the fact that the amounts of the exemptions or reductions in most cases are below the thresholds set out in Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid (35) (hereafter referred to as the ‘de minimis regulation’). If the Danish authorities would commit to ensuring that the de minimis rules were complied with in all cases, the aid measure would be deemed not to meet the criteria of Article 87(1) and could, thus, be implemented without being notified to the Commission.

| (63) | As the Commission pointed out in its decision to open the formal investigation procedure, the proposed scheme could be declared compatible with the common market if the harmonised minimum levels of the Energy Taxation Directive were respected. The concerns of the Commission in the same decision regarding the respect of the polluter-pays principle would also be removed if the beneficiaries would pay the Community minima. In fact, energy tax reductions down to the Community minima are covered by Article 25 of Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (General Block Exemption Regulation) (36) and, thus, do not have to be notified to the Commission. |
| --- | --- |

(63)

As the Commission pointed out in its decision to open the formal investigation procedure, the proposed scheme could be declared compatible with the common market if the harmonised minimum levels of the Energy Taxation Directive were respected. The concerns of the Commission in the same decision regarding the respect of the polluter-pays principle would also be removed if the beneficiaries would pay the Community minima. In fact, energy tax reductions down to the Community minima are covered by Article 25 of Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (General Block Exemption Regulation) (36) and, thus, do not have to be notified to the Commission.

| (64) | Article 7(4) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (37) sets out that the Commission can close the formal investigation procedure by means of a positive decision with conditions subject to which an aid may be considered compatible with the common market. The compliance with such conditions shall be closely monitored. |
| --- | --- |

(64)

Article 7(4) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (37) sets out that the Commission can close the formal investigation procedure by means of a positive decision with conditions subject to which an aid may be considered compatible with the common market. The compliance with such conditions shall be closely monitored.

| (65) | The Commission considers in the case at hand, that the aid can be authorised as long as the beneficiaries still pay at least the Community minimum tax levels applicable for each energy source, be it in the form of the CO2 tax or in the form of another energy tax. However, the Commission finds that, if the tax relief goes below these minima, the aid is incompatible with the EC Treaty and cannot therefore be implemented. |
| --- | --- |

(65)

The Commission considers in the case at hand, that the aid can be authorised as long as the beneficiaries still pay at least the Community minimum tax levels applicable for each energy source, be it in the form of the CO2 tax or in the form of another energy tax. However, the Commission finds that, if the tax relief goes below these minima, the aid is incompatible with the EC Treaty and cannot therefore be implemented.

| (66) | Under the conditions set out above, it is furthermore clear that the notified scheme would respect the Energy Taxation Directive and more particularly Article 17(1)(a) thereof. Indeed, all the beneficiaries are energy intensive within the meaning of this provision, and the minimum levels of taxation set out in the Directive are respected. |
| --- | --- |

(66)

Under the conditions set out above, it is furthermore clear that the notified scheme would respect the Energy Taxation Directive and more particularly Article 17(1)(a) thereof. Indeed, all the beneficiaries are energy intensive within the meaning of this provision, and the minimum levels of taxation set out in the Directive are respected.

7.   CONCLUSION

| (67) | The Commission finds that the proposed scheme ‘Modification of the CO2 tax on quota-regulated fuel consumption in industry’ constitutes State aid within the meaning of Article 87(1) of the EC Treaty. |
| --- | --- |

(67)

The Commission finds that the proposed scheme ‘Modification of the CO2 tax on quota-regulated fuel consumption in industry’ constitutes State aid within the meaning of Article 87(1) of the EC Treaty.

| (68) | Provided that all beneficiaries still pay a tax on each energy source which respects the Community minimum tax levels, the aid is declared compatible with Article 87(3)(c) of the EC Treaty. |
| --- | --- |

(68)

Provided that all beneficiaries still pay a tax on each energy source which respects the Community minimum tax levels, the aid is declared compatible with Article 87(3)(c) of the EC Treaty.

| (69) | The part of the proposed scheme which leads to a tax level below the harmonised minima is incompatible with the EC Treaty, |
| --- | --- |

(69)

The part of the proposed scheme which leads to a tax level below the harmonised minima is incompatible with the EC Treaty,

HAS ADOPTED THIS DECISION:

Article 1

As the proposed Danish scheme (Act No 464 of 9 June 2004) does not fall under Regulation (EC) No 1998/2006, it constitutes State aid which is only compatible with the common market under the condition that the concerned beneficiaries pay a tax on their respective energy consumption corresponding to at least the Community minimum taxation levels set out in Annex I of Directive 2003/96/EC.

If Denmark wishes to implement the aid measure, it shall be amended accordingly.

Article 2

Denmark shall inform the Commission, within two months of notification of this Decision, of the measures taken to comply with it.

Article 3

This Decision is addressed to the Kingdom of Denmark.

Done at Brussels, 17 June 2009.

For the Commission

Neelie KROES

Member of the Commission

---

(1)  OJ C 274, 10.11.2006, p. 25.

1

(2)  See footnote 1.

2

(3)  OJ C 82, 1.4.2008, p. 1.

3

(4)  The tax rate for electricity is based on the carbon content of coal since most power stations in Denmark are coal-fired.

4

(5)  State aid case NN 75/04 (OJ C 275, 8.11.2005, p. 4).

5

(6)  The definition used for identifying such ‘heavy processes’ is production processes where a CO2 tax of DKK 50/tonne CO2 represents more than 3 % of the added value in the business and more than 1 % of the value of the production. Both of these criteria have to be fulfilled.

6

2

2

(7)  State aid case N 317/A/04 (OJ C 226, 15.9.2005, p. 6).

7

(8)  OJ L 283, 31.10.2003, p. 51.

8

(9)  State aid case N 540/02 (OJ C 78, 1.4.2003, p. 3).

9

(10)  OJ L 275, 25.10.2003, p. 32.

10

(11)  However, potential surplus allowances from the new entrants reserve and allowances left over from discontinued installations may be subject to auctioning.

11

(12)  In this category, Denmark includes businesses where the national tax payable amounts to at least 0,5 % of the added value and industry defined as ‘heavy process’ pursuant to the Danish Act on CO2 (see footnote 4).

12

2

(13)  OJ C 37, 3.2.2001, p. 3.

13

(14)  State aid case C 46/06 (OJ C 55, 28.2.2008, p. 27).

14

(15)  ECR II-3271, whereby the Court of First Instance’s judgment of 27 January 1998 in Case T-67/94 [1998] ECR II-1, was confirmed.

15

(16)  See, for example, the judgment by the Court of 17 June 1999 in Case C-75/97, Belgium v Commission [1999] ECR I-3671, and of 8 November 2001 in Case C-143/99, Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke v Finanzlandesdirektion für Kärnten [2001] ECR I-8365.

16

Belgium

Commission

Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke

Finanzlandesdirektion für Kärnten

(17)  In this context, Denmark refers to the judgment by the Court of 29 April 2004 in Case C-308/01, GIL Insurance et al., ECR I-4777, in particular point 68.

17

GIL Insurance et al

(18)  Commission Staff Working Paper of 24 October 2002 (SEC(2002) 1142).

18

(19)  Council minutes of 3 April 2003, 8084/03 ADD 1, FISC 59.

19

(20)  See footnote 16.

20

(21)  Judgment by the Court of First Instance of 10 April 2008 in Case T-233/04, Netherlands v Commission (‘the NOx-judgment’), [2008] ECR II-591, judgment of 22 December 2008 in Case C-487/06 P, the British Aggregates Association v Commission, ECR number not available, and judgment of 18 December 2008 in joined Cases T-211/04 and T-215/04, Gibraltar v Commission (‘the Gibraltar judgment’), ECR number not available.

21

Netherlands

Commission

the British Aggregates Association

Commission

Gibraltar

Commission

(22)  The Commission has appealed the Gibraltar judgment, but the appeal does not concern the fact that the analysis must normally contain the three points mentioned.

22

(23)  See footnote 5.

23

(24)  It should be noted that the NOx judgment has been appealed by the Commission for its findings on selectivity.

24

(25)  OJ C 384, 10.12.1998, p. 3.

25

(26)  See point 13, first indent, of the Commission notice on the application of the State aid rules to measures relating to direct business taxation (OJ C 384, 10.12.1998, p. 3).

26

(27)  For example, heat and electricity production is covered by the EU ETS but not by the tax relief.

27

(28)  For example, Joint State aid cases C 44/04 and C 47/04 (OJ C 268, 27.9.2006, p. 19) (Slovenia), and State aid case N 22/08 (OJ C 184, 22.7.2008, p. 5) (Sweden).

28

(29)  See point 57 of the EAG 2008.

29

(30)  ECR II-3145.

30

(31)  In view of the analysis below (recital 52 et seq.), the question whether Article 17(4) of the Energy Taxation Directive extends to the tradable permit scheme under the EU ETS or whether, for the purposes of this provision, the operators in question have to enter into schemes separate therefrom and which are not obligatory under Community law, can be left open.

31

(32)  Green Paper on market-based instrument for environment and related policy purposes (COM(2007) 140 final) (SEC(2007) 388).

32

(33)  Revision of the Energy Taxation Directive is part of the Commission’s legislative and work programme.

33

(34)  According to the comments by third parties (two Danish companies), such an approach would lead to serious problems with allocation to the correct period, etc., which is due, inter alia, to the fact that the time of the purchase of the allowances does not necessarily have to reflect the time of the energy consumption.

34

(35)  OJ L 379, 28.12.2006, p. 5.

35

(36)  OJ L 214, 9.8.2008, p. 3.

36

(37)  OJ L 83, 27.3.1999, p. 1.

37

---

| 23.12.2009 | EN | Official Journal of the European Union | L 345/28 |
| --- | --- | --- | --- |

23.12.2009

EN

Official Journal of the European Union

L 345/28

---

COMMISSION DECISION

of 13 July 2009

on the restructuring aid for Combus A/S

(notified under document C(2009) 4538)

(Only the Danish text is authentic)

(Text with EEA relevance)

(2009/973/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1), and having regard to their comments,

Whereas:

1.   PROCEDURE

| (1) | By letter dated 30 November 2000, the Danish authorities notified their intention to provide financial support to the state owned bus company Combus A/S (hereinafter referred to as ‘Combus’) in association with its sale to Arriva Denmark A/S (hereinafter referred to as ‘Arriva’). |
| --- | --- |

(1)

By letter dated 30 November 2000, the Danish authorities notified their intention to provide financial support to the state owned bus company Combus A/S (hereinafter referred to as ‘Combus’) in association with its sale to Arriva Denmark A/S (hereinafter referred to as ‘Arriva’).

| (2) | Prior to the notification, the Commission had received a letter, dated 25 June 1999, and a complaint, dated 11 November 1999, from the trade association ‘Danske Busvognmaend’ (2) in which the association criticised financial support granted to Combus in the past and a possibly forthcoming new financial support. |
| --- | --- |

(2)

Prior to the notification, the Commission had received a letter, dated 25 June 1999, and a complaint, dated 11 November 1999, from the trade association ‘Danske Busvognmaend’ (2) in which the association criticised financial support granted to Combus in the past and a possibly forthcoming new financial support.

| (3) | The Commission requested further information from the Danish authorities by letter dated 15 December 2000, to which the Danish authorities answered by letter dated 18 December 2000. The Danish Competition Authority also provided information by letter dated 20 December 2000. The Danish authorities provided further information by letter dated 8 January 2001. The Commission requested further information on 9 January 2001 to which the Danish authorities replied on the same day. The Danish authorities provided further information by letter dated 23 January 2001 and by letter dated 26 February 2001. |
| --- | --- |

(3)

The Commission requested further information from the Danish authorities by letter dated 15 December 2000, to which the Danish authorities answered by letter dated 18 December 2000. The Danish Competition Authority also provided information by letter dated 20 December 2000. The Danish authorities provided further information by letter dated 8 January 2001. The Commission requested further information on 9 January 2001 to which the Danish authorities replied on the same day. The Danish authorities provided further information by letter dated 23 January 2001 and by letter dated 26 February 2001.

| (4) | Meetings between the Danish authorities and the Commission's services have taken place in Brussels on 23 November 2000 and 19 December 2000 and in Copenhagen on 4 January 2001 and on 15 January 2001. |
| --- | --- |

(4)

Meetings between the Danish authorities and the Commission's services have taken place in Brussels on 23 November 2000 and 19 December 2000 and in Copenhagen on 4 January 2001 and on 15 January 2001.

| (5) | By decision SG(2001) D/287297 of 28 March 2001 (hereinafter referred to as ‘the initial decision’), the Commission, following a preliminary assessment, decided not to raise objections to the notified measures, considering that they






  — | did not constitute State aid (as regards the compensation payment of DKK 100 million for pension charges), or |
| --- | --- | --- |

(5)

By decision SG(2001) D/287297 of 28 March 2001 (hereinafter referred to as ‘the initial decision’), the Commission, following a preliminary assessment, decided not to raise objections to the notified measures, considering that they

—

did not constitute State aid (as regards the compensation payment of DKK 100 million for pension charges), or

| — | were compatible, for an amount of DKK 162 million (3), with the common market based either on Article 73 EC or on Article 87(3)(c) EC in combination with the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (4) (hereinafter referred to as ‘the 1999 Restructuring Guidelines’), or |
| --- | --- |

—

were compatible, for an amount of DKK 162 million (3), with the common market based either on Article 73 EC or on Article 87(3)(c) EC in combination with the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (4) (hereinafter referred to as ‘the 1999 Restructuring Guidelines’), or

| — | were compatible, for an amount of DKK 328 million (5), with the common market based on Council Regulation (EEC) No 1191/69 of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway (6). |
| --- | --- |

—

were compatible, for an amount of DKK 328 million (5), with the common market based on Council Regulation (EEC) No 1191/69 of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway (6).

| (6) | The decision was published in the Official Journal on 5 May 2001 (7). By letter of 8 May 2001, the Commission informed ‘Danske Busvognmaend’ of the initial decision. |
| --- | --- |

(6)

The decision was published in the Official Journal on 5 May 2001 (7). By letter of 8 May 2001, the Commission informed ‘Danske Busvognmaend’ of the initial decision.

| (7) | By letters dated 6 November 2002, received by the Commission on 12 November 2002, and dated 19 January 2004, received by the Commission on 20 January 2004, the Danish authorities reported to the Commission about the implementation of the restructuring plan for Combus. |
| --- | --- |

(7)

By letters dated 6 November 2002, received by the Commission on 12 November 2002, and dated 19 January 2004, received by the Commission on 20 January 2004, the Danish authorities reported to the Commission about the implementation of the restructuring plan for Combus.

| (8) | On 11 July 2001, ‘Danske Busvognmaend’ filed an action with the Court of First Instance (hereinafter referred to as ‘the CFI’) for annulment of the initial decision. |
| --- | --- |

(8)

On 11 July 2001, ‘Danske Busvognmaend’ filed an action with the Court of First Instance (hereinafter referred to as ‘the CFI’) for annulment of the initial decision.

| (9) | By judgment of 16 March 2004 (hereinafter referred to as ‘the Combus judgment’), the CFI annulled the initial decision ‘in so far as it declares aid granted by the Danish authorities to Combus A/S in the form of capital injections in the amounts of DKK 162 million and DKK 328 million to be compatible with the common market’ (8). |
| --- | --- |

(9)

By judgment of 16 March 2004 (hereinafter referred to as ‘the Combus judgment’), the CFI annulled the initial decision ‘in so far as it declares aid granted by the Danish authorities to Combus A/S in the form of capital injections in the amounts of DKK 162 million and DKK 328 million to be compatible with the common market’ (8).

| (10) | As far as the capital injection in the amount of DKK 328 million is concerned, the CFI found, firstly, that the initial decision is ‘vitiated by an error in that it finds the payment of DKK 328 million to be compensation for public service obligations for the purposes of Articles 2 and 10 to 13 of Regulation (EC) No 1191/69. [...] Accordingly, the contested decision must be annulled in so far as it authorised the payment of DKK 328 million pursuant to that regulation, without its being necessary to rule on the other pleas put forward on this point’ (9). |
| --- | --- |

(10)

As far as the capital injection in the amount of DKK 328 million is concerned, the CFI found, firstly, that the initial decision is ‘vitiated by an error in that it finds the payment of DKK 328 million to be compensation for public service obligations for the purposes of Articles 2 and 10 to 13 of Regulation (EC) No 1191/69. [...] Accordingly, the contested decision must be annulled in so far as it authorised the payment of DKK 328 million pursuant to that regulation, without its being necessary to rule on the other pleas put forward on this point’ (9).

| (11) | Still regarding the capital injection in the amount of DKK 328 million, the CFI found, secondly, that, as far as Article 73 EC is concerned, ‘the Member States may no longer rely directly on Article 73 EC in situations not covered by secondary Community law. Thus, so long as Regulation (EC) No 1191/69 does not apply to the present case and the payment of the DKK 328 million falls within the scope of Article 87(1) EC, Regulation (EEC) No 1107/70 of the Council of 4 June 1970 on the granting of aids for transport by rail, road and inland waterway (OJ, English Special Edition 1970 (II), p. 360) lists exhaustively the circumstances in which the authorities of the Member States may grant aids under Article 73 EC (10). Accordingly, the plea directed against the contested decision in so far as it authorises the payment of the DKK 328 million on the basis of Article 73 EC must be upheld. |
| --- | --- |

(11)

Still regarding the capital injection in the amount of DKK 328 million, the CFI found, secondly, that, as far as Article 73 EC is concerned, ‘the Member States may no longer rely directly on Article 73 EC in situations not covered by secondary Community law. Thus, so long as Regulation (EC) No 1191/69 does not apply to the present case and the payment of the DKK 328 million falls within the scope of Article 87(1) EC, Regulation (EEC) No 1107/70 of the Council of 4 June 1970 on the granting of aids for transport by rail, road and inland waterway (OJ, English Special Edition 1970 (II), p. 360) lists exhaustively the circumstances in which the authorities of the Member States may grant aids under Article 73 EC (10). Accordingly, the plea directed against the contested decision in so far as it authorises the payment of the DKK 328 million on the basis of Article 73 EC must be upheld.

(12)

| (12) | As far as the capital injection in the amount of DK 162 million authorised in application of Article 87(3)(c) EC in combination with the 1999 Restructuring Guidelines is concerned, the CFI found that ‘the contested decision cannot be interpreted as meaning that the college of Commissioners granted clear, unconditional and definitive authorisation for payment of DKK 162 million on the basis of Article 87(3)(c) EC and the Guidelines. On the contrary, the Commission's reasoning must be considered as expressing serious doubt as to Combus’s viability for the purposes of that article and the Guidelines, a doubt which the Commission did not, however, believe it was bound to clarify since Article 73 EC seemed to it to be a sufficient legal basis for the authorisation of the aid in question. Since that latter provision may not be so relied on (see paragraphs 100 and 101 above), the payment of the DKK 328 million is no longer validly authorised in the contested decision. It follows from the foregoing that the authorisation for the payment of the DKK 162 million must be annulled in its entirety, without its being necessary to rule on the other pleas in law submitted on this point’ (12). |
| --- | --- |

As far as the capital injection in the amount of DK 162 million authorised in application of Article 87(3)(c) EC in combination with the 1999 Restructuring Guidelines is concerned, the CFI found that ‘the contested decision cannot be interpreted as meaning that the college of Commissioners granted clear, unconditional and definitive authorisation for payment of DKK 162 million on the basis of Article 87(3)(c) EC and the Guidelines. On the contrary, the Commission's reasoning must be considered as expressing serious doubt as to Combus’s viability for the purposes of that article and the Guidelines, a doubt which the Commission did not, however, believe it was bound to clarify since Article 73 EC seemed to it to be a sufficient legal basis for the authorisation of the aid in question. Since that latter provision may not be so relied on (see paragraphs 100 and 101 above), the payment of the DKK 328 million is no longer validly authorised in the contested decision. It follows from the foregoing that the authorisation for the payment of the DKK 162 million must be annulled in its entirety, without its being necessary to rule on the other pleas in law submitted on this point’ (12).

| (13) | Following the judgment of the CFI, the Commission prepared a new decision. On 11 January 2005, the Commission services met with the Danish authorities in order to get further information on the development of Arriva/Combus in the time lapsed since the initial decision. On 1 March 2005, the Danish authorities sent the Commission a memo on the development of the Danish bus market, which had been prepared by the Danish Office for transport (Trafikstyrelse). |
| --- | --- |

(13)

Following the judgment of the CFI, the Commission prepared a new decision. On 11 January 2005, the Commission services met with the Danish authorities in order to get further information on the development of Arriva/Combus in the time lapsed since the initial decision. On 1 March 2005, the Danish authorities sent the Commission a memo on the development of the Danish bus market, which had been prepared by the Danish Office for transport (Trafikstyrelse).

| (14) | By letter of 3 March 2005 (SG (2005) D/200926), the Commission informed Denmark of its decision to initiate the procedure provided for in Article 88(2) EC with regard to these measures (hereinafter referred to as ‘the decision to initiate the procedure’), and invited Denmark to submit its comments. The Danish government requested twice a prolongation of the period to submit its observations, which the Commission granted by letters of 5 April 2005 (TREN D (2005) 106964) and 24 June 2005 (TREN D (2005) 113062). On 21 June 2005, a meeting between the Commission and the Danish government took place. On 30 June 2005, the Danish authorities sent their observations with regard to the decision to initiate the formal proceedings. |
| --- | --- |

(14)

By letter of 3 March 2005 (SG (2005) D/200926), the Commission informed Denmark of its decision to initiate the procedure provided for in Article 88(2) EC with regard to these measures (hereinafter referred to as ‘the decision to initiate the procedure’), and invited Denmark to submit its comments. The Danish government requested twice a prolongation of the period to submit its observations, which the Commission granted by letters of 5 April 2005 (TREN D (2005) 106964) and 24 June 2005 (TREN D (2005) 113062). On 21 June 2005, a meeting between the Commission and the Danish government took place. On 30 June 2005, the Danish authorities sent their observations with regard to the decision to initiate the formal proceedings.

| (15) | The decision to initiate the procedure was published in the Official Journal of the European Union
   (13) on 22 September 2005. The Commission called on interested parties to submit their comments on the measures covered by this decision within one month of the date of publication, that is to say by 23 October 2005. |
| --- | --- |

(15)

The decision to initiate the procedure was published in the Official Journal of the European Union
   (13) on 22 September 2005. The Commission called on interested parties to submit their comments on the measures covered by this decision within one month of the date of publication, that is to say by 23 October 2005.

| (16) | The Commission informed Danske Busvognmaend of its decision to initiate the procedure by letter of 12 May 2005 (TREN (2005) D 109473). The Commission, following requests of the Danske Busvognmaend, twice prolonged the delay for receiving its observations (letter of 15 July 2005, TREN (2005) D 115786 and letter of 16 August 2005, TREN (2005) D 117806). |
| --- | --- |

(16)

The Commission informed Danske Busvognmaend of its decision to initiate the procedure by letter of 12 May 2005 (TREN (2005) D 109473). The Commission, following requests of the Danske Busvognmaend, twice prolonged the delay for receiving its observations (letter of 15 July 2005, TREN (2005) D 115786 and letter of 16 August 2005, TREN (2005) D 117806).

| (17) | In a letter dated 17 June 2005 (TREN (2005) A 15223), Danske Busvognmaend asked the Commission to send it a copy of the decision to initiate the procedure including the information which had been removed following a request from Denmark. By letter of 15 July 2005, the Commission answered that according to Article 24 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules on the application of Article 93 of the EC Treaty (14), the Commission shall not disclose information which it has acquired through the application of the Regulation and which is covered by the obligation of professional secrecy. The Commission further on explained that as the pieces of information which had been deleted from the copy of the decision sent to Danske Busvognmaend were covered by the obligation of professional secrecy, the Commission could not disclose them to it. |
| --- | --- |

(17)

In a letter dated 17 June 2005 (TREN (2005) A 15223), Danske Busvognmaend asked the Commission to send it a copy of the decision to initiate the procedure including the information which had been removed following a request from Denmark. By letter of 15 July 2005, the Commission answered that according to Article 24 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules on the application of Article 93 of the EC Treaty (14), the Commission shall not disclose information which it has acquired through the application of the Regulation and which is covered by the obligation of professional secrecy. The Commission further on explained that as the pieces of information which had been deleted from the copy of the decision sent to Danske Busvognmaend were covered by the obligation of professional secrecy, the Commission could not disclose them to it.

| (18) | In the same letter of 17 June 2005, Danske Busvognmaend also asked the Commission for a copy of the observations of the Danish government on the decision to initiate formal proceedings. The Commission answered that Article 20 of Regulation (EC) No 659/1999, which stipulates the rights of interested parties, does not provide for the transmission of the reply of the Member State to the plaintiff and that accordingly, the Commission could not transmit a copy of the observations of the Danish government to Danske Busvognmaend. |
| --- | --- |

(18)

In the same letter of 17 June 2005, Danske Busvognmaend also asked the Commission for a copy of the observations of the Danish government on the decision to initiate formal proceedings. The Commission answered that Article 20 of Regulation (EC) No 659/1999, which stipulates the rights of interested parties, does not provide for the transmission of the reply of the Member State to the plaintiff and that accordingly, the Commission could not transmit a copy of the observations of the Danish government to Danske Busvognmaend.

| (19) | With letter of 23 September 2005, Danske Busvognmaend submitted its observations. The Commission transmitted these observations with letter of 25 October 2005 (TREN D (2005) 122503) to the Danish authorities, giving Denmark the opportunity to respond to the comments within a period of one month. The Commission received Denmark’s response to these observations with letter of 23 December 2005 (SG (2006) A 80), after having prolonged the time period for the reply by one month following a request of the Danish government. |
| --- | --- |

(19)

With letter of 23 September 2005, Danske Busvognmaend submitted its observations. The Commission transmitted these observations with letter of 25 October 2005 (TREN D (2005) 122503) to the Danish authorities, giving Denmark the opportunity to respond to the comments within a period of one month. The Commission received Denmark’s response to these observations with letter of 23 December 2005 (SG (2006) A 80), after having prolonged the time period for the reply by one month following a request of the Danish government.

| (20) | The Commission received comments from one interested party, Arriva Denmark A/S, by letter of 21 October 2005 (TREN (2005) A 27196). It transmitted these comments to Denmark by letter of 24 November 2005, giving Denmark the opportunity to respond to the comments within a period of one month. The Commission received Denmark’s response to the comments from Arriva also with letter of 23 December 2005, cited above. |
| --- | --- |

(20)

The Commission received comments from one interested party, Arriva Denmark A/S, by letter of 21 October 2005 (TREN (2005) A 27196). It transmitted these comments to Denmark by letter of 24 November 2005, giving Denmark the opportunity to respond to the comments within a period of one month. The Commission received Denmark’s response to the comments from Arriva also with letter of 23 December 2005, cited above.

| (21) | The Danish authorities submitted additional factual information with letters of 22 February 2007 and 2 April 2007 (TREN (2007) A 28850). |
| --- | --- |

(21)

The Danish authorities submitted additional factual information with letters of 22 February 2007 and 2 April 2007 (TREN (2007) A 28850).

2.   FACTS

2.1.   THE DANISH BUS MARKET

2.1.1.   GENERAL DESCRIPTION OF THE MARKET

| (22) | The decision to initiate the procedure gives (recitals 13 to 22) a detailed description of the Danish bus market. Accordingly, the description of the bus market is limited here to the most important features of the market for the present case and to additional factual information submitted by the Danish government and the interested parties. |
| --- | --- |

(22)

The decision to initiate the procedure gives (recitals 13 to 22) a detailed description of the Danish bus market. Accordingly, the description of the bus market is limited here to the most important features of the market for the present case and to additional factual information submitted by the Danish government and the interested parties.

| (23) | Starting in 1990, Denmark has gradually opened its bus market to competition, in the form of public tendering of the public service contracts, which public authorities conclude with bus operators in Denmark. Since 1994, the applicable Community rules on public procurement (Council Directive 92/50/EC of 18 June 1992 on the coordination of public procurement procedures for service contracts (15)) oblige Denmark to tender public service contracts for the provision of bus transport, except if these services are provided ‘in house’ (16). |
| --- | --- |

(23)

Starting in 1990, Denmark has gradually opened its bus market to competition, in the form of public tendering of the public service contracts, which public authorities conclude with bus operators in Denmark. Since 1994, the applicable Community rules on public procurement (Council Directive 92/50/EC of 18 June 1992 on the coordination of public procurement procedures for service contracts (15)) oblige Denmark to tender public service contracts for the provision of bus transport, except if these services are provided ‘in house’ (16).

| (24) | In 1999, the year in which Combus for the first time received financial support from the Danish State, 9 out of the 12 Danish counties were tendering out 100 % of their lines. The 3 remaining counties tendered respectively out 96 % (Copenhagen), 35 % (Ribe) and 21 % (Vyborg) of their lines (17). Public service contracts in Denmark run for 5 years, some of them foreseeing the option of an extension for another 3 years. |
| --- | --- |

(24)

In 1999, the year in which Combus for the first time received financial support from the Danish State, 9 out of the 12 Danish counties were tendering out 100 % of their lines. The 3 remaining counties tendered respectively out 96 % (Copenhagen), 35 % (Ribe) and 21 % (Vyborg) of their lines (17). Public service contracts in Denmark run for 5 years, some of them foreseeing the option of an extension for another 3 years.

| (25) | The Danish bus market has been characterised by a process of continued concentration. In 1988, more than 400 undertakings were offering bus services, whereas in 2004, only approximately 100 operators remained in business. Historically, the Danish Railways, through their bus subsidiary, were the single biggest operator. In June 1995, the Danish Railways spun off their bus subsidiary and incorporated it as a joint stock company under the name DSB Busser A/S. In 1997, the name of the company was changed into Combus A/S. The Danish State kept 100 % of the shares in Combus. Combus and its predecessor had throughout the 1990s a market share of 20 % in Denmark. |
| --- | --- |

(25)

The Danish bus market has been characterised by a process of continued concentration. In 1988, more than 400 undertakings were offering bus services, whereas in 2004, only approximately 100 operators remained in business. Historically, the Danish Railways, through their bus subsidiary, were the single biggest operator. In June 1995, the Danish Railways spun off their bus subsidiary and incorporated it as a joint stock company under the name DSB Busser A/S. In 1997, the name of the company was changed into Combus A/S. The Danish State kept 100 % of the shares in Combus. Combus and its predecessor had throughout the 1990s a market share of 20 % in Denmark.

| (26) | In 1997, Arriva Denmark A/S (hereinafter referred to as ‘Arriva’), a subsidiary of the British company Arriva plc, and Connex Denmark A/S (hereinafter referred to as ‘Connex’), a subsidiary of the French company Veolia, entered the Danish bus market through acquisitions (18). In 1999 and 2004, the last year for which figures are available, the market shares of the three companies were the following:
  Table 1
  Market shares for Combus, Arriva and Connex in 1999 and 2004











  (in %) |
| --- | --- |
| | Combus
  1999 | Combus
  2004 | Arriva
  1999 | Arriva
  2004 | Connex
  1999 | Connex
  2004 |
| Nordjylland | 64,85 | 0 | 0 | 18,64 | 7,17 | 24,72 |
| Viborg | 17,27 | 0 | 0 | 17,40 | 0 | 0,33 |
| Århus | 54,24 | 0 | 0 | 10,15 | 9,11 | 41,07 |
| Ringkjøbing | 38,18 | 0 | 0 | 27,38 | 0 | 0 |
| Vejle | 56,96 | 0 | 21,68 | 13,29 | 0 | 17,22 |
| Ribe | 0 | 0 | 0 | 0 | 0 | 39,23 |
| Sønderjylland | 32,41 | 0 | 0 | 0 | 0 | 0 |
| Fyn | 97,80 | 0 | 0 | 100,00 | 0 | 0 |
| Vestsjælland | 25,20 | 0 | 24,00 | 33,86 | 32,60 | 35,26 |
| Storstrøm | 19,78 | 0 | 1,80 | 28,51 | 64,49 | 33,00 |
| Bornholm | 28,00 | 0 | 0 | 0 | 50,67 | 81,02 |
| Metropolitan Denmark | 22,26 | 0 | 50,47 | 46,73 | 8,60 | 27,95 |
| Entire country | 33,98 | 0 | 26,59 | 34,46 | 10,99 | 25,14 |
| Entire country excluding Metropolitan Denmark | 56,06 | 0 | 5,82 | 23,94 | 13,06 | 22,73 |

(26)

In 1997, Arriva Denmark A/S (hereinafter referred to as ‘Arriva’), a subsidiary of the British company Arriva plc, and Connex Denmark A/S (hereinafter referred to as ‘Connex’), a subsidiary of the French company Veolia, entered the Danish bus market through acquisitions (18). In 1999 and 2004, the last year for which figures are available, the market shares of the three companies were the following:

Table 1

Market shares for Combus, Arriva and Connex in 1999 and 2004

(in %)

Combus

1999

Combus

2004

Arriva

1999

Arriva

2004

Connex

1999

Connex

2004

Nordjylland

64,85

0

0

18,64

7,17

24,72

Viborg

17,27

0

0

17,40

0

0,33

Århus

54,24

0

0

10,15

9,11

41,07

Ringkjøbing

38,18

0

0

27,38

0

0

Vejle

56,96

0

21,68

13,29

0

17,22

Ribe

0

0

0

0

0

39,23

Sønderjylland

32,41

0

0

0

0

0

Fyn

97,80

0

0

100,00

0

0

Vestsjælland

25,20

0

24,00

33,86

32,60

35,26

Storstrøm

19,78

0

1,80

28,51

64,49

33,00

Bornholm

28,00

0

0

0

50,67

81,02

Metropolitan Denmark

22,26

0

50,47

46,73

8,60

27,95

Entire country

33,98

0

26,59

34,46

10,99

25,14

Entire country excluding Metropolitan Denmark

56,06

0

5,82

23,94

13,06

22,73

| (27) | For the interpretation of these figures, the following information is necessary: In 2001, Arriva acquired Combus. Later the same year, Connex acquired 50 % of the lines initially exploited by Combus from Arriva. In 2004, Arriva further strengthened its position by acquiring the undertaking Wulff Bus A/S, which had a 10 % market share in the province of Jutland. |
| --- | --- |

(27)

For the interpretation of these figures, the following information is necessary: In 2001, Arriva acquired Combus. Later the same year, Connex acquired 50 % of the lines initially exploited by Combus from Arriva. In 2004, Arriva further strengthened its position by acquiring the undertaking Wulff Bus A/S, which had a 10 % market share in the province of Jutland.

| (28) | The Danish bus market represents a total volume of appr. DKK 5,5 billions per year. |
| --- | --- |

(28)

The Danish bus market represents a total volume of appr. DKK 5,5 billions per year.

2.1.2.   FINANCIAL DIFFICULTIES OF COMBUS

| (29) | As explained in the decision to initiate the procedure (recitals 34 and following), Combus had, following its spin-off from the Danish Railways, embarked on an ambitious expansion policy. Combus won many new contracts, especially in the Copenhagen area, and increased its turnover by more than 40 % between 1995 and 1999. However, the vast majority of these new contracts turned out to be loss-making. |
| --- | --- |

(29)

As explained in the decision to initiate the procedure (recitals 34 and following), Combus had, following its spin-off from the Danish Railways, embarked on an ambitious expansion policy. Combus won many new contracts, especially in the Copenhagen area, and increased its turnover by more than 40 % between 1995 and 1999. However, the vast majority of these new contracts turned out to be loss-making.

| (30) | As a consequence, Combus got into serious financial difficulties, starting in 1998. The following two tables illustrate these difficulties in both absolute numbers and percentages.
  Table 2
  Key figures for Combus A/S 1995-2000











  (absolute numbers) |
| --- | --- |
| DKK 1 000 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 |
| Net turnover | 625 392 | 686 123 | 763 432 | 1 049 489 | 1 097 535 | 1 091 253 |
| Gross result | 84 172 | 100 003 | 81 776 | 11 910 | –17 230 | 68 206 |
| Result before interest | 30 870 | 37 423 | 12 227 | – 105 029 | – 134 812 | –50 035 |
| Year's result | 31 184 | 28 546 | 7 684 | – 139 128 | – 168 267 | –82 249 |

(30)

As a consequence, Combus got into serious financial difficulties, starting in 1998. The following two tables illustrate these difficulties in both absolute numbers and percentages.

Table 2

Key figures for Combus A/S 1995-2000

(absolute numbers)

DKK 1 000

1995

1996

1997

1998

1999

2000

Net turnover

625 392

686 123

763 432

1 049 489

1 097 535

1 091 253

Gross result

84 172

100 003

81 776

11 910

–17 230

68 206

Result before interest

30 870

37 423

12 227

– 105 029

– 134 812

–50 035

Year's result

31 184

28 546

7 684

– 139 128

– 168 267

–82 249

Table 3

Key figures for Combus A/S 1995-2000

| (in %) |
| --- |
| DKK 1 000 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 |
| Operating profit margin | 4,9 | 5,5 | 1,6 | neg. | neg. | neg. |
| Profit/capital ratio | 4,0 | 5,5 | 1,3 | neg. | neg. | neg. |
| Gross margin | 13,5 | 14,6 | 10,7 | 6,3 | –1,6 | 1,1 |
| Return on equity | 23,5 | 18,2 | 2,5 | neg. | neg. | neg. |

(in %)

DKK 1 000

1995

1996

1997

1998

1999

2000

Operating profit margin

4,9

5,5

1,6

neg.

neg.

neg.

Profit/capital ratio

4,0

5,5

1,3

neg.

neg.

neg.

Gross margin

13,5

14,6

10,7

6,3

–1,6

1,1

Return on equity

23,5

18,2

2,5

neg.

neg.

neg.

| (31) | Three periods can be distinguished in the process of privatisation of Combus. In the period 1995 to 1998, the Danish State pursued the objective of selling only a minority stake of 25 % but this never materialised. Starting at the end of 1998, it launched a first attempt at selling 100 % of the shares. This attempt failed in July 1999. The Danish government then decided to first restructure and then sell the company. This plan resulted in the sale of Combus to Arriva in early 2001. |
| --- | --- |

(31)

Three periods can be distinguished in the process of privatisation of Combus. In the period 1995 to 1998, the Danish State pursued the objective of selling only a minority stake of 25 % but this never materialised. Starting at the end of 1998, it launched a first attempt at selling 100 % of the shares. This attempt failed in July 1999. The Danish government then decided to first restructure and then sell the company. This plan resulted in the sale of Combus to Arriva in early 2001.

| (32) | The Act No 232 on DSB Busser A/S of 1995, by which Combus A/S was set up as an independent company, foresaw that the Danish State would sell up to 25 % of the shares in the company until the end of 1998. To this end, a steering committee was set up, which was composed of representatives from the Ministry of Finance, the Ministry of Transport, Combus and external legal and financial advisers. The steering committee held a total of 7 meetings, before the work was put on hold in mid 1997. |
| --- | --- |

(32)

The Act No 232 on DSB Busser A/S of 1995, by which Combus A/S was set up as an independent company, foresaw that the Danish State would sell up to 25 % of the shares in the company until the end of 1998. To this end, a steering committee was set up, which was composed of representatives from the Ministry of Finance, the Ministry of Transport, Combus and external legal and financial advisers. The steering committee held a total of 7 meetings, before the work was put on hold in mid 1997.

| (33) | At the beginning of November 1998, the steering committee resumed its work, now with the instruction to prepare the sale of at least a majority holding in Combus. The committee started out with a financial evaluation of the company. |
| --- | --- |

(33)

At the beginning of November 1998, the steering committee resumed its work, now with the instruction to prepare the sale of at least a majority holding in Combus. The committee started out with a financial evaluation of the company.

| (34) | As a basis for this evaluation, Combus submitted in mid November 1998 a forecast of its accounting results for 1998 and a forecast for budget figures for the period 1999 to 2001. Based on these submissions, the financial adviser of the government, the Copenhagen office of Alfred Berg Corporate Finance (hereinafter referred to as ‘Alfred Berg’), concluded as follows:
  ‘.... it can be concluded that Combus’ total share capital has a negative market value of hundreds of millions of Danish kroner. In addition to the profitability of the primary business having fallen significantly over the last couple of years, the estimated value is further reduced by the significant interest-bearing net debt built up by the company over the same period. Most potential buyers understand, however, that financially and economically very weak companies such as Combus are not traded at large negative values as it would then be more appropriate for the vendor to close down the company.
  Against this background we recommend that, in the sales process and the information material being prepared in that connection, the scene must be set, as far as possible, for the price of Combus to be set on the basis of the company’s actual equity capital, minus a discount. On this basis and combined with






  — | the potential for operational improvements |
| --- | --- | --- |

(34)

As a basis for this evaluation, Combus submitted in mid November 1998 a forecast of its accounting results for 1998 and a forecast for budget figures for the period 1999 to 2001. Based on these submissions, the financial adviser of the government, the Copenhagen office of Alfred Berg Corporate Finance (hereinafter referred to as ‘Alfred Berg’), concluded as follows:

‘.... it can be concluded that Combus’ total share capital has a negative market value of hundreds of millions of Danish kroner. In addition to the profitability of the primary business having fallen significantly over the last couple of years, the estimated value is further reduced by the significant interest-bearing net debt built up by the company over the same period. Most potential buyers understand, however, that financially and economically very weak companies such as Combus are not traded at large negative values as it would then be more appropriate for the vendor to close down the company.

Against this background we recommend that, in the sales process and the information material being prepared in that connection, the scene must be set, as far as possible, for the price of Combus to be set on the basis of the company’s actual equity capital, minus a discount. On this basis and combined with

—

the potential for operational improvements

| — | the potential for synergies |
| --- | --- |

—

the potential for synergies

| — | the company’s strategic value by virtue of its large market share in the Danish bus sector |
| --- | --- |

—

the company’s strategic value by virtue of its large market share in the Danish bus sector

it is presumably still conceivable that, despite the continuing deterioration in the company’s financial and economic situation, a buyer can be found for Combus so that the Danish State (“the State”) can dispose of the company with full cover for its creditors.

It should also be expected that the majority of potential buyers will consider that, in the light of Combus’ very weak capital structure and low profitability, the need for an injection of capital into the company is so great that it would be unprofitable for them to acquire Combus’ total share capital for a positive amount.

The considerable uncertainty therefore surrounding the terms under which the State can dispose of Combus can, however, only be overcome by continuing the ongoing sales process.’

| (35) | Alfred Berg listed the following options as alternatives to the quick sale of Combus A/S:






  ‘— | carrying out a controlled closure of the company which would, amongst other things, mean the State/DSB taking over all the civil servants who are today seconded to Combus by DSB, and the concomitant financial obligations. It is doubtful whether Combus, despite the positive book value of capital and reserves, could be wound up while fully covering the company's creditors, and consequently there is a risk of negative coverage of the State’s handling of the case by lenders, the press etc. |
| --- | --- | --- |

(35)

Alfred Berg listed the following options as alternatives to the quick sale of Combus A/S:

‘—

carrying out a controlled closure of the company which would, amongst other things, mean the State/DSB taking over all the civil servants who are today seconded to Combus by DSB, and the concomitant financial obligations. It is doubtful whether Combus, despite the positive book value of capital and reserves, could be wound up while fully covering the company's creditors, and consequently there is a risk of negative coverage of the State’s handling of the case by lenders, the press etc.

| — | continuing ownership in order to carry out a thorough rationalisation and streamlining of Combus and thereby ensure that the company will be profitable within 2-3 years and consequently more saleable. Due to the company’s very weak capital structure and large debt burden at this time, this will probably mean the State injecting a nine-figure amount in new equity capital in the short term. There is considerable risk in investing in a “turnaround” of Combus, and no guarantee of a positive return on the State’s investment.’ |
| --- | --- |

—

continuing ownership in order to carry out a thorough rationalisation and streamlining of Combus and thereby ensure that the company will be profitable within 2-3 years and consequently more saleable. Due to the company’s very weak capital structure and large debt burden at this time, this will probably mean the State injecting a nine-figure amount in new equity capital in the short term. There is considerable risk in investing in a “turnaround” of Combus, and no guarantee of a positive return on the State’s investment.’

| (36) | The financial adviser, based on this assessment, gave the following recommendation:
  ‘Neither of the two aforementioned alternatives appears immediately attractive, and also depend on the State's attitude to injecting further equity capital into Combus and also assuming the responsibility for carrying out a thorough streamlining of the company.
  Alfred Berg therefore recommends that the State continue the ongoing process of selling Combus in order to obtain a more exact picture of which and how relevant aspects (such as trends in results, capital structure, market share, order book, condition of the bus fleet, management resources, potential for operational improvements and synergies etc.) will be given weight by potential buyers in their overall assessment of the company.
  Should this process not result in a potential buyer being found who appears attractive in relation to the terms in the two aforementioned alternatives, the State will choose the alternative that it considers most financially attractive and politically suitable at the time.’ |
| --- | --- |

(36)

The financial adviser, based on this assessment, gave the following recommendation:

‘Neither of the two aforementioned alternatives appears immediately attractive, and also depend on the State's attitude to injecting further equity capital into Combus and also assuming the responsibility for carrying out a thorough streamlining of the company.

Alfred Berg therefore recommends that the State continue the ongoing process of selling Combus in order to obtain a more exact picture of which and how relevant aspects (such as trends in results, capital structure, market share, order book, condition of the bus fleet, management resources, potential for operational improvements and synergies etc.) will be given weight by potential buyers in their overall assessment of the company.

Should this process not result in a potential buyer being found who appears attractive in relation to the terms in the two aforementioned alternatives, the State will choose the alternative that it considers most financially attractive and politically suitable at the time.’

| (37) | Following this advice, the Danish parliament adopted in December 1998 an act allowing the State to dispose of all its shares (100 %) in Combus (19). |
| --- | --- |

(37)

Following this advice, the Danish parliament adopted in December 1998 an act allowing the State to dispose of all its shares (100 %) in Combus (19).

| (38) | Alfred Berg then performed a market screening based upon five criteria; the potential buyer should






  — | be active within public administration, |
| --- | --- | --- |

(38)

Alfred Berg then performed a market screening based upon five criteria; the potential buyer should

—

be active within public administration,

| — | have a strong financial position, |
| --- | --- |

—

have a strong financial position,

| — | have a certain size (defined as ‘operating more than 1 000 buses’), |
| --- | --- |

—

have a certain size (defined as ‘operating more than 1 000 buses’),

| — | have a significant turnover (defined as ‘more than DKK 1 billion’), |
| --- | --- |

—

have a significant turnover (defined as ‘more than DKK 1 billion’),

| — | be active in similar markets as Combus. |
| --- | --- |

—

be active in similar markets as Combus.

| (39) | The outcome of Alfred Berg’s market screening was a list of 12 potential buyers |
| --- | --- |

(39)

The outcome of Alfred Berg’s market screening was a list of 12 potential buyers

| (40) | The steering committee established then the following time table: Management presentations for 12 pre-selected potential buyers were to be hold in the period 9 to 18 February 1999. The deadline for submitting ‘indications of interest’ was end of February 1999, and the ‘indications of interest’ were to be assessed at the beginning of March 1999. Selected buyers were to have access to the data room in the period 10 to 24 March 1999. They then had to submit their final offers on 1 April, and on 8 April the steering committee was to choose a final buyer. |
| --- | --- |

(40)

The steering committee established then the following time table: Management presentations for 12 pre-selected potential buyers were to be hold in the period 9 to 18 February 1999. The deadline for submitting ‘indications of interest’ was end of February 1999, and the ‘indications of interest’ were to be assessed at the beginning of March 1999. Selected buyers were to have access to the data room in the period 10 to 24 March 1999. They then had to submit their final offers on 1 April, and on 8 April the steering committee was to choose a final buyer.

| (41) | Out of the 12 potential buyers, 7 participated in the management presentation of Combus. At the presentation, potential buyers received a letter describing the forthcoming acquisition process. Potential buyers were, via this letter, informed that they could get access to Combus’ data and also have additional meetings with the management of Combus, if they wished to do so. In order to take advantage of these possibilities, potential buyers had to submit an ‘Indication of interest’ by the end of February 1999. |
| --- | --- |

(41)

Out of the 12 potential buyers, 7 participated in the management presentation of Combus. At the presentation, potential buyers received a letter describing the forthcoming acquisition process. Potential buyers were, via this letter, informed that they could get access to Combus’ data and also have additional meetings with the management of Combus, if they wished to do so. In order to take advantage of these possibilities, potential buyers had to submit an ‘Indication of interest’ by the end of February 1999.

| (42) | Alfred Berg received such indications of interest from 6 pre-selected potential buyers in February 1999. In March 1999, 2 of these were selected to have access to the data room. After the examination of the data room, both potential buyers reduced their price indications so significantly that they corresponded to a negative market value of several hundreds of millions DKK. |
| --- | --- |

(42)

Alfred Berg received such indications of interest from 6 pre-selected potential buyers in February 1999. In March 1999, 2 of these were selected to have access to the data room. After the examination of the data room, both potential buyers reduced their price indications so significantly that they corresponded to a negative market value of several hundreds of millions DKK.

| (43) | Alfred Berg submitted on 9 April 1999 a memo to the steering committee, in which it concluded that Combus A/S could hardly be sold at a positive value. Against this background, Alfred Berg laid down three alternatives to selling the company:
  ‘Option 1: For the State to continue ownership in order to carry out a thorough rationalisation and streamlining of Combus and thereby ensure that the company will be profitable within 2-3 years and consequently more saleable. Due to the company’s very weak capital structure and large debt burden at this time, this will probably mean the State injecting a nine-figure amount in new equity capital in the short term. There is considerable risk in investing in a “turnaround” of Combus, and is no guarantee of a positive return on the State’s investment.

  Option 2: To carry out a controlled closure of the company and/or hand over the “key” to the company’s creditors. It is doubtful whether Combus, despite the positive book value of capital and reserves, could be wound up while fully covering the company’s creditors, and consequently there is a risk of negative coverage of the State’s handling of the case by lenders, the press etc.

  Option 3: Combus separating the daily bus operations into an independent subsidiary. In other words, the present assets (buses etc.) and liabilities (loans etc.) would be retained in Combus as it stands, whilst the right to the bus contracts etc. would be placed in an [independent] new subsidiary which would then lease the relevant assets (buses etc.) from Combus. An attempt would be made to sell the new subsidiary and use the sale revenue to reduce debt in Combus, which would continue to be 100 % owned by the State. An attempt could then be made to reduce the debt still remaining in Combus using the rent from leasing the current assets to the new subsidiary. This model does not directly provide any security that the company’s creditors will emerge from their commitments with Combus without losses. The creditors are therefore likely to demand some form of State guarantee, etc.’ |
| --- | --- |

(43)

Alfred Berg submitted on 9 April 1999 a memo to the steering committee, in which it concluded that Combus A/S could hardly be sold at a positive value. Against this background, Alfred Berg laid down three alternatives to selling the company:

‘Option 1: For the State to continue ownership in order to carry out a thorough rationalisation and streamlining of Combus and thereby ensure that the company will be profitable within 2-3 years and consequently more saleable. Due to the company’s very weak capital structure and large debt burden at this time, this will probably mean the State injecting a nine-figure amount in new equity capital in the short term. There is considerable risk in investing in a “turnaround” of Combus, and is no guarantee of a positive return on the State’s investment.

Option 2: To carry out a controlled closure of the company and/or hand over the “key” to the company’s creditors. It is doubtful whether Combus, despite the positive book value of capital and reserves, could be wound up while fully covering the company’s creditors, and consequently there is a risk of negative coverage of the State’s handling of the case by lenders, the press etc.

Option 3: Combus separating the daily bus operations into an independent subsidiary. In other words, the present assets (buses etc.) and liabilities (loans etc.) would be retained in Combus as it stands, whilst the right to the bus contracts etc. would be placed in an [independent] new subsidiary which would then lease the relevant assets (buses etc.) from Combus. An attempt would be made to sell the new subsidiary and use the sale revenue to reduce debt in Combus, which would continue to be 100 % owned by the State. An attempt could then be made to reduce the debt still remaining in Combus using the rent from leasing the current assets to the new subsidiary. This model does not directly provide any security that the company’s creditors will emerge from their commitments with Combus without losses. The creditors are therefore likely to demand some form of State guarantee, etc.’

| (44) | Based on this assessment of Alfred Berg, the Danish government decided to keep Combus going through a restructuring process with a view to a subsequent sale (option 1 proposed by Alfred Berg). This restructuring process is described in detail in the next sub-section. |
| --- | --- |

(44)

Based on this assessment of Alfred Berg, the Danish government decided to keep Combus going through a restructuring process with a view to a subsequent sale (option 1 proposed by Alfred Berg). This restructuring process is described in detail in the next sub-section.

| (45) | On 23 April 1999, Alfred Berg informed the government that a new ‘indication of interest’ had been received from Arriva with an offer to take over 100 per cent of Combus A/S’ share capital for DKK 35 million. Conditions relating to the amount of the equity capital and the company’s results were attached to the offer, with a clause for a ‘krone for krone’ reduction in the event of deviations. The offer was based on the equity capital amounting to DKK 131 million, and Alfred Berg estimated that the equity capital was currently around DKK 10 million lower. Alfred Berg recommended continuing the sales process with this buyer in parallel with the development of the restructuring option. Alfred Berg pointed out that particularly difficult matters still had to be discussed, which could make it difficult to achieve a satisfactory agreement for both parties. |
| --- | --- |

(45)

On 23 April 1999, Alfred Berg informed the government that a new ‘indication of interest’ had been received from Arriva with an offer to take over 100 per cent of Combus A/S’ share capital for DKK 35 million. Conditions relating to the amount of the equity capital and the company’s results were attached to the offer, with a clause for a ‘krone for krone’ reduction in the event of deviations. The offer was based on the equity capital amounting to DKK 131 million, and Alfred Berg estimated that the equity capital was currently around DKK 10 million lower. Alfred Berg recommended continuing the sales process with this buyer in parallel with the development of the restructuring option. Alfred Berg pointed out that particularly difficult matters still had to be discussed, which could make it difficult to achieve a satisfactory agreement for both parties.

| (46) | On 27 April 1999, a letter of intent was signed by the Ministry of Transport and Arriva for the takeover of Combus for DKK 45 million, provided that the company’s equity capital at the time of transfer was DKK 131 million. |
| --- | --- |

(46)

On 27 April 1999, a letter of intent was signed by the Ministry of Transport and Arriva for the takeover of Combus for DKK 45 million, provided that the company’s equity capital at the time of transfer was DKK 131 million.

| (47) | In early June, negotiations with Arriva were so advanced that the advisers considered that a final sales agreement could realistically be concluded in the first half of July 1999. In the remainder of June 1999, however, there was a lot of press coverage on Combus, particularly with regard to statements from several political parties on the need for legal regulation of bus operations in Denmark as regards significant market shares. In the light of the speculations about market caps, Arriva lost interest in acquiring Combus. Arriva stressed, however, that depending on the introduction of any market restrictions, they would be interested in acquiring Combus in the long term. |
| --- | --- |

(47)

In early June, negotiations with Arriva were so advanced that the advisers considered that a final sales agreement could realistically be concluded in the first half of July 1999. In the remainder of June 1999, however, there was a lot of press coverage on Combus, particularly with regard to statements from several political parties on the need for legal regulation of bus operations in Denmark as regards significant market shares. In the light of the speculations about market caps, Arriva lost interest in acquiring Combus. Arriva stressed, however, that depending on the introduction of any market restrictions, they would be interested in acquiring Combus in the long term.

| (48) | The restructuring of Combus had become very urgent in April 1999, as, pursuant to the Danish Annual Accounts Act, Combus had to hold its Annual General Meeting (AGM) before the end of May 1999 and to submit its audited accounts for 1998. The annual accounts had to be available to the press and public no later than 14 days before the AGM. |
| --- | --- |

(48)

The restructuring of Combus had become very urgent in April 1999, as, pursuant to the Danish Annual Accounts Act, Combus had to hold its Annual General Meeting (AGM) before the end of May 1999 and to submit its audited accounts for 1998. The annual accounts had to be available to the press and public no later than 14 days before the AGM.

| (49) | The company’s finances had been so strained that the accountants had stated that the annual accounts could not be presented without reservations as to the going concern principle. On the basis of the accountants’ examination of the company’s contracts, which had demonstrated a need for a provision of approx DKK 65 million to cover loss-making contracts, the company would have to go into administration unless further capital was injected. In addition, there was an imminent risk of a compulsory redemption of loan agreements with a number of financial institutions, all of which contained covenant provisions requiring a minimum capital base of 10 % of the balance sheet total, but no less than DKK 125 million. |
| --- | --- |

(49)

The company’s finances had been so strained that the accountants had stated that the annual accounts could not be presented without reservations as to the going concern principle. On the basis of the accountants’ examination of the company’s contracts, which had demonstrated a need for a provision of approx DKK 65 million to cover loss-making contracts, the company would have to go into administration unless further capital was injected. In addition, there was an imminent risk of a compulsory redemption of loan agreements with a number of financial institutions, all of which contained covenant provisions requiring a minimum capital base of 10 % of the balance sheet total, but no less than DKK 125 million.

| (50) | In April 1999, the Danish Ministry of Transport appointed a legal adviser, Kromann and Münter, to assist in solving Combus’ financial problems. The legal adviser suggested in a memo issued in mid-May 1999 a capital injection of DKK 300 million. Based on this memo, the Ministry of Transport presented on 21 May 1999 a confidential bill to the Finance Committee of the Danish parliament, proposing a capital injection of DKK 300 million. The bill was approved by a majority of the Finance Committee on 27 May 1999 (20). |
| --- | --- |

(50)

In April 1999, the Danish Ministry of Transport appointed a legal adviser, Kromann and Münter, to assist in solving Combus’ financial problems. The legal adviser suggested in a memo issued in mid-May 1999 a capital injection of DKK 300 million. Based on this memo, the Ministry of Transport presented on 21 May 1999 a confidential bill to the Finance Committee of the Danish parliament, proposing a capital injection of DKK 300 million. The bill was approved by a majority of the Finance Committee on 27 May 1999 (20).

| (51) | As regards Combus’ financial situation, the bill stated that in 1998, the company had had to adjust its expectations regarding the result for 1998 several times. Most recently, after the adoption in December 1998 of the Act on the sale of all shares in Combus, there had been a significant downturn in the company’s finances. |
| --- | --- |

(51)

As regards Combus’ financial situation, the bill stated that in 1998, the company had had to adjust its expectations regarding the result for 1998 several times. Most recently, after the adoption in December 1998 of the Act on the sale of all shares in Combus, there had been a significant downturn in the company’s finances.

| (52) | The bill furthermore states that Combus was in imminent danger of going into administration or going bankrupt, but that an injection of capital would ensure that the company could be kept going with a view to a sale taking place at a later date. It was estimated that there was a need for a capital injection in the order of DKK 300 million, against the background of the solidity requirement in the company’s loan agreements and the need for an appropriate relationship between debt and equity capital. |
| --- | --- |

(52)

The bill furthermore states that Combus was in imminent danger of going into administration or going bankrupt, but that an injection of capital would ensure that the company could be kept going with a view to a sale taking place at a later date. It was estimated that there was a need for a capital injection in the order of DKK 300 million, against the background of the solidity requirement in the company’s loan agreements and the need for an appropriate relationship between debt and equity capital.

| (53) | The bill also foresees that the option of selling Combus would continue to be investigated. It was considered unlikely that the State would recoup the capital injected, in the short term. The capital injection was made with a view to ensuring the future operation of the company and ensuring that it had sufficient capital available. |
| --- | --- |

(53)

The bill also foresees that the option of selling Combus would continue to be investigated. It was considered unlikely that the State would recoup the capital injected, in the short term. The capital injection was made with a view to ensuring the future operation of the company and ensuring that it had sufficient capital available.

| (54) | The bill was approved by a majority of the Finance Committee on 27 May 1999. |
| --- | --- |

(54)

The bill was approved by a majority of the Finance Committee on 27 May 1999.

| (55) | The sales process was resumed in the spring 2000, after Combus’ annual accounts for 1999 had been approved at the AGM in May 2000. Alfred Berg would continue to be involved in the sales negotiations as financial adviser, and Kromann and Münter as legal advisor. |
| --- | --- |

(55)

The sales process was resumed in the spring 2000, after Combus’ annual accounts for 1999 had been approved at the AGM in May 2000. Alfred Berg would continue to be involved in the sales negotiations as financial adviser, and Kromann and Münter as legal advisor.

| (56) | In mid July 2000, Alfred Berg presented an indicative evaluation of Combus. Alfred Berg considered that traditional evaluation methods could not be used with regard to Combus due to the high level of uncertainty. The advisers had carried out an evaluation based on a projection of the company’s results to 2004 on the basis of a number of weighted assumptions on turnover developments and restructuring measures. The value of the company was calculated at the future date. Account was taken of any profits/deficits in the intermediate period and the effect on the company’s negative net balance at the future date. The actual sales value was found by discounting back the future sales value calculated. The following table shows the results of this assessment.
  Table 4
  Summary of Alfred Berg’s evaluation of Combus | Scenario |
| --- | --- | --- |
| Worst case | Neutral/negative | Neutral/positive | Best case |
| Assumption: |
| Turnover | Unchanged | Unchanged | Increasing | Increasing |
| Gross margin | Unchanged | Unchanged | Unchanged | Increasing |
| Improvement measures | No | Yes | Yes | Yes |
| Value in DKK millions of equity capital, July 2005 | ÷ 1 116,2 | ÷ 431,9 | 6,0 | 674,2 |
| Value in DKK millions of equity capital current (10 % disc.) | ÷ 693,1 | ÷ 268,2 | 3,7 | 418,6 |
| Source: Indicative valuation from the financial advisers. |

(56)

In mid July 2000, Alfred Berg presented an indicative evaluation of Combus. Alfred Berg considered that traditional evaluation methods could not be used with regard to Combus due to the high level of uncertainty. The advisers had carried out an evaluation based on a projection of the company’s results to 2004 on the basis of a number of weighted assumptions on turnover developments and restructuring measures. The value of the company was calculated at the future date. Account was taken of any profits/deficits in the intermediate period and the effect on the company’s negative net balance at the future date. The actual sales value was found by discounting back the future sales value calculated. The following table shows the results of this assessment.

Table 4

Summary of Alfred Berg’s evaluation of Combus

Scenario

Worst case

Neutral/negative

Neutral/positive

Best case

Assumption:

Turnover

Unchanged

Unchanged

Increasing

Increasing

Gross margin

Unchanged

Unchanged

Unchanged

Increasing

Improvement measures

No

Yes

Yes

Yes

Value in DKK millions of equity capital, July 2005

÷ 1 116,2

÷ 431,9

6,0

674,2

Value in DKK millions of equity capital current (10 % disc.)

÷ 693,1

÷ 268,2

3,7

418,6

Source: Indicative valuation from the financial advisers.

| (57) | The following additional observations are necessary for the understanding of this evaluation: ‘Unchanged turnover’ assumes that the contracts in the Copenhagen region are not replaced by new contracts when they expire, while contracts in the regions continue unchanged. ‘Increasing turnover’ assumes that turnover in the other regions is increasing as the existing contracts in the Copenhagen region expire. The result of the effects of improvement measures adopted by the new management was assumed to be DKK 48,7 million annually from 2002. The table shows that the value of Combus had to be assessed as very negative, particularly because the assumptions regarding rising turnover and gross earnings and the implementation of improvement measures within such a short period had to be regarded as difficult. |
| --- | --- |

(57)

The following additional observations are necessary for the understanding of this evaluation: ‘Unchanged turnover’ assumes that the contracts in the Copenhagen region are not replaced by new contracts when they expire, while contracts in the regions continue unchanged. ‘Increasing turnover’ assumes that turnover in the other regions is increasing as the existing contracts in the Copenhagen region expire. The result of the effects of improvement measures adopted by the new management was assumed to be DKK 48,7 million annually from 2002. The table shows that the value of Combus had to be assessed as very negative, particularly because the assumptions regarding rising turnover and gross earnings and the implementation of improvement measures within such a short period had to be regarded as difficult.

| (58) | An important issue for the privatisation process was the political debate on the introduction of market caps for bus operators. The Danish Parliamentary Transport Committee had requested a report on concentration and competition in the Danish bus market, which had been drafted in autumn 1999 by a working group consisting of representatives from the Danish Competition Authority, the Ministry of Finance, and the Ministry of Transport. The report found that the majority of regional and local bus services were subject to public tenders, that the market was characterised by tough competition between contractors, despite an on-going concentration process, and that there were no signs that a single or individual contractor was dominating the market to the detriment of the competition. The working group concluded that their assessment of the Danish bus market had revealed no need to introduce market caps. In reaction to the report, the Transport Committee issued a statement in the autumn 1999, in which it approved the conclusions in the report and re-iterated that it was inappropriate to introduce market caps. |
| --- | --- |

(58)

An important issue for the privatisation process was the political debate on the introduction of market caps for bus operators. The Danish Parliamentary Transport Committee had requested a report on concentration and competition in the Danish bus market, which had been drafted in autumn 1999 by a working group consisting of representatives from the Danish Competition Authority, the Ministry of Finance, and the Ministry of Transport. The report found that the majority of regional and local bus services were subject to public tenders, that the market was characterised by tough competition between contractors, despite an on-going concentration process, and that there were no signs that a single or individual contractor was dominating the market to the detriment of the competition. The working group concluded that their assessment of the Danish bus market had revealed no need to introduce market caps. In reaction to the report, the Transport Committee issued a statement in the autumn 1999, in which it approved the conclusions in the report and re-iterated that it was inappropriate to introduce market caps.

| (59) | The Danish government then contacted again a number of potential buyers. After a presentation of Combus’ finances, two potential buyers announced that they were interested in acquiring 100 % of the shares in Combus. A third buyer made a more cautious expression of interest. |
| --- | --- |

(59)

The Danish government then contacted again a number of potential buyers. After a presentation of Combus’ finances, two potential buyers announced that they were interested in acquiring 100 % of the shares in Combus. A third buyer made a more cautious expression of interest.

| (60) | One of the interested buyers was Arriva, whose indicative offer corresponded to a negative sales price of DKK 200-250 million. |
| --- | --- |

(60)

One of the interested buyers was Arriva, whose indicative offer corresponded to a negative sales price of DKK 200-250 million.

| (61) | The other interested buyer was Metroline. Its offer was, at first sight, more attractive, as it proposed to buy the shares for a positive price in the range of DKK 10-24 million. Metroline had added, however, that during the financial presentation of the company it had become aware of a number of matters that they wished to examine in greater detail. |
| --- | --- |

(61)

The other interested buyer was Metroline. Its offer was, at first sight, more attractive, as it proposed to buy the shares for a positive price in the range of DKK 10-24 million. Metroline had added, however, that during the financial presentation of the company it had become aware of a number of matters that they wished to examine in greater detail.

| (62) | On 18 October 2000, Alfred Berg informed the Danish government that it had received a revised offer from Metroline, which now proposed to acquire Combus for a negative price of DKK 500 million. In addition, Metroline requested a number of guarantees. |
| --- | --- |

(62)

On 18 October 2000, Alfred Berg informed the Danish government that it had received a revised offer from Metroline, which now proposed to acquire Combus for a negative price of DKK 500 million. In addition, Metroline requested a number of guarantees.

| (63) | Following the submission of this offer, Alfred Berg recommended cancelling the on-going general discussions with the third interested buyer, as Alfred Berg did not consider the buyer sufficiently interested. The steering group asked Alfred Berg to contact Arriva, whose indicative offer was now clearly better than Metroline’s, in order to investigate options for a sale. |
| --- | --- |

(63)

Following the submission of this offer, Alfred Berg recommended cancelling the on-going general discussions with the third interested buyer, as Alfred Berg did not consider the buyer sufficiently interested. The steering group asked Alfred Berg to contact Arriva, whose indicative offer was now clearly better than Metroline’s, in order to investigate options for a sale.

| (64) | On 3 November 2000, Arriva announced in a letter to Alfred Berg that the company had carried out the due diligence process, and that they could now suggest how to proceed. In the letter, Arriva pointed out that they had cooperated with Connex in their assessment. Arriva had previously informed the financial advisers of the two bus companies’ joint interest. |
| --- | --- |

(64)

On 3 November 2000, Arriva announced in a letter to Alfred Berg that the company had carried out the due diligence process, and that they could now suggest how to proceed. In the letter, Arriva pointed out that they had cooperated with Connex in their assessment. Arriva had previously informed the financial advisers of the two bus companies’ joint interest.

| (65) | According to the proposal, Arriva offered to pay DKK 100 for all the shares in Combus. The offer was subject to the condition that the loan capital of DKK 100 million injected by the Ministry of Transport in 1999 was converted into equity capital, and that a further injection of capital amounting to DKK 290 million was being made into Combus. The offer was furthermore subject to the condition that all necessary adjustments to the company’s balance sheet items identified during the subsequent due diligence process would be covered by the injection of funds. Arriva mentioned a number of examples for such adjustments, which already amounted to approx. DKK 109 million. Arriva set the Danish government a deadline of 8 November 2000 to reach agreement. |
| --- | --- |

(65)

According to the proposal, Arriva offered to pay DKK 100 for all the shares in Combus. The offer was subject to the condition that the loan capital of DKK 100 million injected by the Ministry of Transport in 1999 was converted into equity capital, and that a further injection of capital amounting to DKK 290 million was being made into Combus. The offer was furthermore subject to the condition that all necessary adjustments to the company’s balance sheet items identified during the subsequent due diligence process would be covered by the injection of funds. Arriva mentioned a number of examples for such adjustments, which already amounted to approx. DKK 109 million. Arriva set the Danish government a deadline of 8 November 2000 to reach agreement.

| (66) | An examination of Arriva’s proposal by the financial advisers showed that the offer involved DKK 399 million of new funds being injected into Combus and that the Ministry of Transport was also to convert the subordinated loan of DKK 100 million to equity capital and therefore a total loss of DKK 499 million for the State. In addition, there was the loss of the remainder of the equity capital in Combus, which was estimated at DKK 38 million on 30 September 2000. |
| --- | --- |

(66)

An examination of Arriva’s proposal by the financial advisers showed that the offer involved DKK 399 million of new funds being injected into Combus and that the Ministry of Transport was also to convert the subordinated loan of DKK 100 million to equity capital and therefore a total loss of DKK 499 million for the State. In addition, there was the loss of the remainder of the equity capital in Combus, which was estimated at DKK 38 million on 30 September 2000.

| (67) | The Ministry of Transport and the Ministry of Finance considered Arriva’s offer to be low. On the other hand, no other previous serious offer had been better than Arriva’s. Metroline had requested the same negative price as Arriva, i.e. approximately DKK 500 million, and the third interested buyer had only made a loose and non-binding offer for a negative price of approx. DKK 350 million. |
| --- | --- |

(67)

The Ministry of Transport and the Ministry of Finance considered Arriva’s offer to be low. On the other hand, no other previous serious offer had been better than Arriva’s. Metroline had requested the same negative price as Arriva, i.e. approximately DKK 500 million, and the third interested buyer had only made a loose and non-binding offer for a negative price of approx. DKK 350 million.

| (68) | It was decided that, as a first step, the Ministry of Transport should contact Arriva with a view to increasing the company’s price for taking over Combus. At the same time, the Ministry went over several scenarios for winding up/developing Combus. The scenarios were not a direct evaluation of the company, but a calculation of the company’s liquidity needs under various conditions compared with Arriva’s offer. The result of the calculation, which was approved by Combus, the company’s auditors and solicitors, is shown in the following table:
  Table 5
  Scenarios for winding up/developing Combus







  Scenario | Liquidity at the end of the period in DKK million | Comment |
| --- | --- | --- | --- |
| Gradual winding up over 5 years | – 331 | Uncertain scenario |
| Continuation with newer, better contracts for 6 years | – 315 | More uncertain scenario |
| Continuation for 1 year without refinancing of due debt | 71 | Would require, among other things, new bank debts of DKK 107 million. Would win time, but the sales situation thereafter would presumably be unchanged. |
| Bankruptcy | – 649 | Total deficit, dividend 35-40 %. Lenders would lose DKK 280-300 million. |
| Arriva's offer | – 399 | |
| Source: The Ministry of Transport |

(68)

It was decided that, as a first step, the Ministry of Transport should contact Arriva with a view to increasing the company’s price for taking over Combus. At the same time, the Ministry went over several scenarios for winding up/developing Combus. The scenarios were not a direct evaluation of the company, but a calculation of the company’s liquidity needs under various conditions compared with Arriva’s offer. The result of the calculation, which was approved by Combus, the company’s auditors and solicitors, is shown in the following table:

Table 5

Scenarios for winding up/developing Combus

Scenario

Liquidity at the end of the period in DKK million

Comment

Gradual winding up over 5 years

– 331

Uncertain scenario

Continuation with newer, better contracts for 6 years

– 315

More uncertain scenario

Continuation for 1 year without refinancing of due debt

71

Would require, among other things, new bank debts of DKK 107 million. Would win time, but the sales situation thereafter would presumably be unchanged.

Bankruptcy

– 649

Total deficit, dividend 35-40 %. Lenders would lose DKK 280-300 million.

Arriva's offer

– 399

Source: The Ministry of Transport

| (69) | According to an internal memo, the Ministry considered that the scenarios illustrated that the creditors had nothing to gain from continuing the company, either with a view to a gradual winding up or continued operation, as none of the scenarios was significantly better than Arriva’s offer. The uncertainty for the future would probably lead to the creditors preferring to bring about a quick sale. |
| --- | --- |

(69)

According to an internal memo, the Ministry considered that the scenarios illustrated that the creditors had nothing to gain from continuing the company, either with a view to a gradual winding up or continued operation, as none of the scenarios was significantly better than Arriva’s offer. The uncertainty for the future would probably lead to the creditors preferring to bring about a quick sale.

| (70) | In addition, the scenarios illustrated, in the opinion of the Ministry, that Arriva’s offer was probably based on Combus’ financial situation in the short term rather than an actual evaluation of the company. In summary, against this background, it would probably be difficult to convince Arriva that the Ministry had better alternatives in reserve in the form of a gradual winding up or continued operation. |
| --- | --- |

(70)

In addition, the scenarios illustrated, in the opinion of the Ministry, that Arriva’s offer was probably based on Combus’ financial situation in the short term rather than an actual evaluation of the company. In summary, against this background, it would probably be difficult to convince Arriva that the Ministry had better alternatives in reserve in the form of a gradual winding up or continued operation.

| (71) | It was emphasised in the memo that it could not be entirely ruled out that a gradual winding up, combined with the gradual disposal of the bus service contracts in small — geographical — packages to local bus companies, could be a relevant alternative to the scenarios outlined. This scenario was not investigated, but was also very uncertain as, according to Combus, there would probably be several interested local bus companies but, at best, only a few would have sufficient financial strength to take over even smaller parts. |
| --- | --- |

(71)

It was emphasised in the memo that it could not be entirely ruled out that a gradual winding up, combined with the gradual disposal of the bus service contracts in small — geographical — packages to local bus companies, could be a relevant alternative to the scenarios outlined. This scenario was not investigated, but was also very uncertain as, according to Combus, there would probably be several interested local bus companies but, at best, only a few would have sufficient financial strength to take over even smaller parts.

| (72) | The Ministry concluded that, if Arriva’s offer could be reduced to a negative price of DKK 290 million, it would clearly be the best alternative to pursue with the creditors. |
| --- | --- |

(72)

The Ministry concluded that, if Arriva’s offer could be reduced to a negative price of DKK 290 million, it would clearly be the best alternative to pursue with the creditors.

| (73) | These negotiations resulted, on 21 November 2000, in the agreement of a Letter of Intent regarding the sale of Combus to Arriva, which was signed between the Danish Ministry of Transport, acting as seller of Combus, Arriva, acting as buyer of Combus, and the private commercial creditors of Combus. |
| --- | --- |

(73)

These negotiations resulted, on 21 November 2000, in the agreement of a Letter of Intent regarding the sale of Combus to Arriva, which was signed between the Danish Ministry of Transport, acting as seller of Combus, Arriva, acting as buyer of Combus, and the private commercial creditors of Combus.

| (74) | The letter of intent contained the following main elements:






  — | The State would receive DKK 100 for the transfer of all shares in Combus (100 %). |
| --- | --- | --- |

(74)

The letter of intent contained the following main elements:

—

The State would receive DKK 100 for the transfer of all shares in Combus (100 %).

| — | The State would convert in advance the subordinated loan capital of DKK 100 million into share capital. |
| --- | --- |

—

The State would convert in advance the subordinated loan capital of DKK 100 million into share capital.

| — | Combus’ capital base would be strengthened by a further DKK 240 million, either in the form of an injection of new equity capital or the writing down/conversion of bank debt. |
| --- | --- |

—

Combus’ capital base would be strengthened by a further DKK 240 million, either in the form of an injection of new equity capital or the writing down/conversion of bank debt.

| — | The State would additionally provide limited guarantees amounting to a total of DKK 57,5 million in the form of (i) a guarantee for potential environmental costs of DKK 22,5 million, which would be released to the extent that such costs exceeded the amount of DKK 10 million already allocated in the company for environmental costs and (ii) a guarantee of up to DKK 35 million for all matters including the regulation of the company’s equity capital in relation to the balance presented by the management as at the end of September 2000 and further commitments. |
| --- | --- |

—

The State would additionally provide limited guarantees amounting to a total of DKK 57,5 million in the form of (i) a guarantee for potential environmental costs of DKK 22,5 million, which would be released to the extent that such costs exceeded the amount of DKK 10 million already allocated in the company for environmental costs and (ii) a guarantee of up to DKK 35 million for all matters including the regulation of the company’s equity capital in relation to the balance presented by the management as at the end of September 2000 and further commitments.

| — | The State would provide unlimited guarantees to Arriva in connection with any tax demands that could result from the period prior to the transfer, for losses as a result of any claims from former employees, for any losses that could result from Combus previous sale of Combus International, and for any financial losses that Arriva could establish originated from the forthcoming audit report. |
| --- | --- |

—

The State would provide unlimited guarantees to Arriva in connection with any tax demands that could result from the period prior to the transfer, for losses as a result of any claims from former employees, for any losses that could result from Combus previous sale of Combus International, and for any financial losses that Arriva could establish originated from the forthcoming audit report.

| — | The transfer would take place with effect as from 1 January 2001. |
| --- | --- |

—

The transfer would take place with effect as from 1 January 2001.

| — | The deal was conditional on both the transport companies and Denmark’s Road Safety and Transport Agency approving Combus’ bus service contracts being taken over by the new owner and also on the approval of the competition authorities. |
| --- | --- |

—

The deal was conditional on both the transport companies and Denmark’s Road Safety and Transport Agency approving Combus’ bus service contracts being taken over by the new owner and also on the approval of the competition authorities.

| (75) | The further process, agreed in the letter of intent, meant that the Ministry of Transport and Arriva — after prior approval from the Finance Committee of the Danish Parliament and Arriva’s board — subsequently entered into a final agreement in accordance with the above guidelines. The conclusion of the deal would not take place until all necessary external approvals had been obtained, but no later than 1 February 2001. |
| --- | --- |

(75)

The further process, agreed in the letter of intent, meant that the Ministry of Transport and Arriva — after prior approval from the Finance Committee of the Danish Parliament and Arriva’s board — subsequently entered into a final agreement in accordance with the above guidelines. The conclusion of the deal would not take place until all necessary external approvals had been obtained, but no later than 1 February 2001.

| (76) | As an extension of the letter of intent, the Ministry of Transport negotiated with the creditors on the distribution of the injection of DKK 240 million. Agreement was reached that the Danish government would inject new equity capital of DKK 140 million and that the creditors would either convert debts to share capital to an amount equivalent to DKK 100 million or write down the debt by this amount. |
| --- | --- |

(76)

As an extension of the letter of intent, the Ministry of Transport negotiated with the creditors on the distribution of the injection of DKK 240 million. Agreement was reached that the Danish government would inject new equity capital of DKK 140 million and that the creditors would either convert debts to share capital to an amount equivalent to DKK 100 million or write down the debt by this amount.

| (77) | In the memorandum, the Danish government had engaged to adjust the sales price (limited to a maximum amount of DKK 35 million), provided the company’s balance sheet as per 31 December 2000 revealed a capital reserve of less than DKK 31,8 million, which was the management’s expectation when the Letter of Intent between the parties was signed. The capital reserves as per 31 December 2000 turned out to be DKK 10,3 million. Hence, the Danish government was obliged to make a payment of DKK 20,5 million to fulfil its obligations under this guarantee. |
| --- | --- |

(77)

In the memorandum, the Danish government had engaged to adjust the sales price (limited to a maximum amount of DKK 35 million), provided the company’s balance sheet as per 31 December 2000 revealed a capital reserve of less than DKK 31,8 million, which was the management’s expectation when the Letter of Intent between the parties was signed. The capital reserves as per 31 December 2000 turned out to be DKK 10,3 million. Hence, the Danish government was obliged to make a payment of DKK 20,5 million to fulfil its obligations under this guarantee.

| (78) | Arriva took over the remaining liabilities of Combus, which at the time amounted to DKK 208 million. Arriva paid off these liabilities immediately upon purchasing Combus, and replaced them by a loan contracted from its mother company, Arriva plc. |
| --- | --- |

(78)

Arriva took over the remaining liabilities of Combus, which at the time amounted to DKK 208 million. Arriva paid off these liabilities immediately upon purchasing Combus, and replaced them by a loan contracted from its mother company, Arriva plc.

| (79) | Compared to the initial offer of Arriva, the Danish government had negotiated the following significant changes:






  — | Combus’s lenders had agreed to participate in the restructuring process, by writing down parts of their debt (in total DKK 100 million); |
| --- | --- | --- |

(79)

Compared to the initial offer of Arriva, the Danish government had negotiated the following significant changes:

—

Combus’s lenders had agreed to participate in the restructuring process, by writing down parts of their debt (in total DKK 100 million);

| — | The requirement for an injection of DKK 290 million was reduced to DKK 240 million; |
| --- | --- |

—

The requirement for an injection of DKK 290 million was reduced to DKK 240 million;

| — | The agreement contained guarantees limited in coverage for a total of DKK 57,5 million and a number of unlimited guarantees; |
| --- | --- |

—

The agreement contained guarantees limited in coverage for a total of DKK 57,5 million and a number of unlimited guarantees;

| — | The Danish government guaranteed for Combus’ net assets value as of 31 December 2000, after adjustment for write-offs etc. under the agreement, amounting to DKK 31,8 million; |
| --- | --- |

—

The Danish government guaranteed for Combus’ net assets value as of 31 December 2000, after adjustment for write-offs etc. under the agreement, amounting to DKK 31,8 million;

| — | Arriva agreed that the requests for adjustments totalling DKK 109 million (mentioned in the proposal of 3 November 2000) were no longer relevant. |
| --- | --- |

—

Arriva agreed that the requests for adjustments totalling DKK 109 million (mentioned in the proposal of 3 November 2000) were no longer relevant.

| (80) | In conclusion, the Ministry of Transport was thereby successful in the negotiations on the content of the letter of intent in significantly reducing Arriva’s price demands in relation to the proposal of 3 November 2000. |
| --- | --- |

(80)

In conclusion, the Ministry of Transport was thereby successful in the negotiations on the content of the letter of intent in significantly reducing Arriva’s price demands in relation to the proposal of 3 November 2000.

| (81) | In a confidential bill of 13 December 2000, the Ministry of Transport requested the Finance Committee’s approval for the State to dispose of all shares in Combus. The majority of the Finance Committee approved the confidential bill on the same day. |
| --- | --- |

(81)

In a confidential bill of 13 December 2000, the Ministry of Transport requested the Finance Committee’s approval for the State to dispose of all shares in Combus. The majority of the Finance Committee approved the confidential bill on the same day.

| (82) | The ‘Share Sale Agreement’ was signed on 15 January 2001; Combus was transferred to Arriva on 2 April 2001, after the initial Commission decision had been adopted, with retrospective effect from 1 January 2001. ‘Closing’ took place on 2 April 2001 between the Ministry of Transport and Arriva. |
| --- | --- |

(82)

The ‘Share Sale Agreement’ was signed on 15 January 2001; Combus was transferred to Arriva on 2 April 2001, after the initial Commission decision had been adopted, with retrospective effect from 1 January 2001. ‘Closing’ took place on 2 April 2001 between the Ministry of Transport and Arriva.

| (83) | An earlier draft of the share sale agreement, sent by the Danish government to the Commission on 18 December 2000, contained a clause, according to which the Danish government was to guarantee Arriva for possible claims from public institutions (e.g. competition authorities and the EU Commission). The Danish government informed the Commission in its letter of 23 January 2001 that this clause had not been included in the final share sale agreement. The reason for this change was that ‘the Danish government has chosen to demand approval from the relevant authorities prior to the closing’. |
| --- | --- |

(83)

An earlier draft of the share sale agreement, sent by the Danish government to the Commission on 18 December 2000, contained a clause, according to which the Danish government was to guarantee Arriva for possible claims from public institutions (e.g. competition authorities and the EU Commission). The Danish government informed the Commission in its letter of 23 January 2001 that this clause had not been included in the final share sale agreement. The reason for this change was that ‘the Danish government has chosen to demand approval from the relevant authorities prior to the closing’.

| (84) | The sales process has also been the object of a special report of the Office of the Auditor General of Denmark (21). |
| --- | --- |

(84)

The sales process has also been the object of a special report of the Office of the Auditor General of Denmark (21).

| (85) | The conclusion (page 60) of the report states that:
  ‘The investigation of the Office of the Auditor General of Denmark has shown that Arriva's offer was low, but that no serious offer was better.
  The Office of the Auditor General of Denmark has established that the Ministry of Transport’s investigations showed that the total sale of shares in Combus was preferable to a gradual dismantling of the company or going into administration.
  The Office of the Auditor General of Denmark has established that the Ministry of Transport’s considerations, when preparing and conducting the sale of shares, were well founded. The Ministry of Transport managed, by negotiation, to have Arriva’s price for taking over the shares reduced and the Ministry also managed, by negotiation, to involve the company’s lenders in the shares deal. On the basis of the assessments and information available, the Office of the Auditor General of Denmark conclude that the agreement should be regarded as satisfactory. It was therefore necessary for the State to inject DKK 140 million into Combus and provide guarantees of approx. DKK 58 million for the company in connection with the sales agreement.’ |
| --- | --- |

(85)

The conclusion (page 60) of the report states that:

‘The investigation of the Office of the Auditor General of Denmark has shown that Arriva's offer was low, but that no serious offer was better.

The Office of the Auditor General of Denmark has established that the Ministry of Transport’s investigations showed that the total sale of shares in Combus was preferable to a gradual dismantling of the company or going into administration.

The Office of the Auditor General of Denmark has established that the Ministry of Transport’s considerations, when preparing and conducting the sale of shares, were well founded. The Ministry of Transport managed, by negotiation, to have Arriva’s price for taking over the shares reduced and the Ministry also managed, by negotiation, to involve the company’s lenders in the shares deal. On the basis of the assessments and information available, the Office of the Auditor General of Denmark conclude that the agreement should be regarded as satisfactory. It was therefore necessary for the State to inject DKK 140 million into Combus and provide guarantees of approx. DKK 58 million for the company in connection with the sales agreement.’

| (86) | In recital 66 of the decision to initiate the procedure, the Commission had raised doubts as to whether the sales price of Combus to Arriva was the market price. These doubts were in particular founded on the observation that according to the Danish press, the sale of 50 % of Combus to Connex, which took place on 1 May 2001, less than a month after the signing of the sales agreement between the Danish government and Arriva, took place at a sales price of DKK 223 million. |
| --- | --- |

(86)

In recital 66 of the decision to initiate the procedure, the Commission had raised doubts as to whether the sales price of Combus to Arriva was the market price. These doubts were in particular founded on the observation that according to the Danish press, the sale of 50 % of Combus to Connex, which took place on 1 May 2001, less than a month after the signing of the sales agreement between the Danish government and Arriva, took place at a sales price of DKK 223 million.

| (87) | The Danish government and Arriva have transmitted additional factual information on this point to the Commission. |
| --- | --- |

(87)

The Danish government and Arriva have transmitted additional factual information on this point to the Commission.

| (88) | The process of the negotiations between Arriva and Connex started in 2000. Arriva and Connex agreed on a ‘Memorandum of Understanding’ at European management level on 10 October 2000, which established the principles for cooperation between the parties in the run-up to the take-over of Combus. The initial idea was that both companies submitted a joint bid. |
| --- | --- |

(88)

The process of the negotiations between Arriva and Connex started in 2000. Arriva and Connex agreed on a ‘Memorandum of Understanding’ at European management level on 10 October 2000, which established the principles for cooperation between the parties in the run-up to the take-over of Combus. The initial idea was that both companies submitted a joint bid.

| (89) | Prior to the drawing up of this declaration of intent, Connex, as well as Arriva, had taken part in the screening process controlled by Alfred Berg, but the company had chosen not to go further on its own. In accordance with the ‘Memorandum of Understanding’, both parties were given access to the data room in order to assess the company’s value and the risks associated with the purchase. |
| --- | --- |

(89)

Prior to the drawing up of this declaration of intent, Connex, as well as Arriva, had taken part in the screening process controlled by Alfred Berg, but the company had chosen not to go further on its own. In accordance with the ‘Memorandum of Understanding’, both parties were given access to the data room in order to assess the company’s value and the risks associated with the purchase.

| (90) | Arriva and Connex exchanged experiences from the data room and it was clear that there were great differences in the two companies’ expectations and assessment of Combus. Thus, Arriva assessed the company as having a negative value of approx DKK 300 million and Connex assessed Combus as having a negative value of approximately DKK 700-1 000 million. |
| --- | --- |

(90)

Arriva and Connex exchanged experiences from the data room and it was clear that there were great differences in the two companies’ expectations and assessment of Combus. Thus, Arriva assessed the company as having a negative value of approx DKK 300 million and Connex assessed Combus as having a negative value of approximately DKK 700-1 000 million.

| (91) | As the parties therefore fundamentally disagreed on the risks associated with the purchase, negotiations on a division of the company were broken off and Arriva continued the negotiations with the Danish State on its own. As described above, these negotiations eventually led to the successful sale of Combus to Arriva in May 2001. |
| --- | --- |

(91)

As the parties therefore fundamentally disagreed on the risks associated with the purchase, negotiations on a division of the company were broken off and Arriva continued the negotiations with the Danish State on its own. As described above, these negotiations eventually led to the successful sale of Combus to Arriva in May 2001.

| (92) | At the end of December 2000, the negotiations between Arriva and Connex were resumed, this time with a view to the sale of certain assets (i.e. contracts and busses) of Combus to Connex. Connex was given full access to the due diligence material that had been compiled and Arriva initiated Connex in the details of a business case drawn up by Arriva. Against this background, the parties entered into an agreement, ‘Head of Terms’, which was signed on 21 February 2001 with an agreed price of DKK 230 million. This value corresponded to the book value of the actives involved (busses, infrastructure and existing loss-making public service contracts, in particular in the Copenhagen area). |
| --- | --- |

(92)

At the end of December 2000, the negotiations between Arriva and Connex were resumed, this time with a view to the sale of certain assets (i.e. contracts and busses) of Combus to Connex. Connex was given full access to the due diligence material that had been compiled and Arriva initiated Connex in the details of a business case drawn up by Arriva. Against this background, the parties entered into an agreement, ‘Head of Terms’, which was signed on 21 February 2001 with an agreed price of DKK 230 million. This value corresponded to the book value of the actives involved (busses, infrastructure and existing loss-making public service contracts, in particular in the Copenhagen area).

| (93) | Following further negotiations, which involved in particular a detailed cash-flow analysis, the final price in the sales agreement signed on 30 April 2001 was DKK 113,9 million. The downward adjustment of the sales price is due to the fact that the cash-flow analysis showed that losses from on-going public service contracts were much higher than initially foreseen. As a consequence, Arriva had to make full use of the provisions made in Combus’ accounts for the loss-making public service contracts. |
| --- | --- |

(93)

Following further negotiations, which involved in particular a detailed cash-flow analysis, the final price in the sales agreement signed on 30 April 2001 was DKK 113,9 million. The downward adjustment of the sales price is due to the fact that the cash-flow analysis showed that losses from on-going public service contracts were much higher than initially foreseen. As a consequence, Arriva had to make full use of the provisions made in Combus’ accounts for the loss-making public service contracts.

| (94) | In response to recital 118 of the decision to initiate the procedure, where the Commission wonders whether Arriva could sell the contracts, when there were legal clauses to prevent the contracts being terminated, the Danish government explains that the sale of the contracts means a straightforward change in the provider, which requires the consent of the recipient (municipalities and counties) and involves bus operations being maintained at the previously fixed price and on the previously agreed terms. In the case of the transfer of contracts from Arriva to Connex, the municipalities and counties involved gave their consent. |
| --- | --- |

(94)

In response to recital 118 of the decision to initiate the procedure, where the Commission wonders whether Arriva could sell the contracts, when there were legal clauses to prevent the contracts being terminated, the Danish government explains that the sale of the contracts means a straightforward change in the provider, which requires the consent of the recipient (municipalities and counties) and involves bus operations being maintained at the previously fixed price and on the previously agreed terms. In the case of the transfer of contracts from Arriva to Connex, the municipalities and counties involved gave their consent.

2.1.3.   THE 1999 AND 2001 RESTRUCTURING MEASURES

| (95) | The capital injections of 1999 and 2001 have been accompanied by restructuring measures. These are described in detail in the following sections. |
| --- | --- |

(95)

The capital injections of 1999 and 2001 have been accompanied by restructuring measures. These are described in detail in the following sections.

| (96) | The Danish authorities submitted to the Commission in April 2007 four separate notes. Three of the notes, dated 26 April 1999, 15 May 1999, and 18 May 1999, had been written by Kromann and Münter, one, dated 18 May 1999, by KPMG. The Danish authorities consider that the note of KPMG constitutes the operational restructuring plan for the 1999 capital injection, and that the three notes of Kromann and Münter constitute the financial restructuring plan. |
| --- | --- |

(96)

The Danish authorities submitted to the Commission in April 2007 four separate notes. Three of the notes, dated 26 April 1999, 15 May 1999, and 18 May 1999, had been written by Kromann and Münter, one, dated 18 May 1999, by KPMG. The Danish authorities consider that the note of KPMG constitutes the operational restructuring plan for the 1999 capital injection, and that the three notes of Kromann and Münter constitute the financial restructuring plan.

| (97) | KPMG, one of Combus’s accountancy firms, had carried out an examination of the profitability of selected bus contracts in May 1999. In a memo of 18 May 1999, entitled ‘Profitability of selected transport service contracts in the period 1999/2001’, it transmitted its results. |
| --- | --- |

(97)

KPMG, one of Combus’s accountancy firms, had carried out an examination of the profitability of selected bus contracts in May 1999. In a memo of 18 May 1999, entitled ‘Profitability of selected transport service contracts in the period 1999/2001’, it transmitted its results.

| (98) | The examination was based on the operating budgets for Combus for the years 1999-2001, as approved by the board of Combus in November 1998, and corrected with a budget estimate drawn up by the management in April 1999. The accountants stated in the memo that the work carried out was not a budget examination. According to the memo, this meant that the accountants had not assessed whether the budgets as a whole contained all the information that was necessary for an independent assessment of Combus’ anticipated development, nor had they assessed whether the budgets reflected the most probable development. |
| --- | --- |

(98)

The examination was based on the operating budgets for Combus for the years 1999-2001, as approved by the board of Combus in November 1998, and corrected with a budget estimate drawn up by the management in April 1999. The accountants stated in the memo that the work carried out was not a budget examination. According to the memo, this meant that the accountants had not assessed whether the budgets as a whole contained all the information that was necessary for an independent assessment of Combus’ anticipated development, nor had they assessed whether the budgets reflected the most probable development.

| (99) | In their memo, the accountants stated that profitability could not be assessed by contract, but rather by bus area. An assessment of the profitability of a bus area was thereby at the same time an indirect assessment of the bus service contracts associated with the bus area. The accountants had examined the operating budgets for 5 bus areas. |
| --- | --- |

(99)

In their memo, the accountants stated that profitability could not be assessed by contract, but rather by bus area. An assessment of the profitability of a bus area was thereby at the same time an indirect assessment of the bus service contracts associated with the bus area. The accountants had examined the operating budgets for 5 bus areas.

| (100) | The accountants’ summary of the examination is shown in Table 6.
  Table 6
  Accumulated budgets for the period 1999-2001









  (in DKK million) |
| --- | --- |
| | Net turnover | Result prior to offsetting provisions | Provisions 1998 | Result before tax |
| Copenhagen Bus Area | 927,1 | –90,0 | 60,0 (22) | –30,0 |
| Sjælland Bus Area | 230,4 | 4,8 | | 4,8 |
| Århus Bus Area | 353,3 | 19,8 | | 19,8 |
| Vejle Bus Area | 351,0 | 0,5 | | 0,5 |
| Fyn Bus Area | 371,6 | 4,7 | | 4,7 |
| Total selected bus areas | 2 233,4 | –60,2 | | –0,2 |
| Other bus areas in total | 725,2 | 34,4 | | 34,4 |
| Overheads | | –77,4 | | –77,4 |
| Bus areas + overheads in total | 2 958,6 | – 103,2 | 60 | 43,2 |
| Streamlining and rationalisation | | 105,9 | | 105,9 |
| Anticipated subsequent result | 2 958,6 | 2,7 | 60 | 62,7 |
| Source: Memo on the profitability of selected bus service contracts in the period 1999-2001. |

(100)

The accountants’ summary of the examination is shown in Table 6.

Table 6

Accumulated budgets for the period 1999-2001

(in DKK million)

Net turnover

Result prior to offsetting provisions

Provisions 1998

Result before tax

Copenhagen Bus Area

927,1

–90,0

60,0 (22)

–30,0

Sjælland Bus Area

230,4

4,8

4,8

Århus Bus Area

353,3

19,8

19,8

Vejle Bus Area

351,0

0,5

0,5

Fyn Bus Area

371,6

4,7

4,7

Total selected bus areas

2 233,4

–60,2

–0,2

Other bus areas in total

725,2

34,4

34,4

Overheads

–77,4

–77,4

Bus areas + overheads in total

2 958,6

– 103,2

60

43,2

Streamlining and rationalisation

105,9

105,9

Anticipated subsequent result

2 958,6

2,7

60

62,7

Source: Memo on the profitability of selected bus service contracts in the period 1999-2001.

| (101) | The table shows that the board of Combus expected the total result for the period 1999-2001 to be a profit of DKK 62,7 million. |
| --- | --- |

(101)

The table shows that the board of Combus expected the total result for the period 1999-2001 to be a profit of DKK 62,7 million.

| (102) | As shown in the table, the operating budgets for the bus areas and for overheads revealed a total deficit of DKK 103,2 million. The management estimated in April 1999, against the background of implemented or planned streamlining and rationalisation measures, that savings of approx. DKK 105,9 could be realised between 1999 and 2001. These cost-saving measures were the following:






  — | Savings related to civil servants as a result of the change of status from civil servants to normal contracts, |
| --- | --- | --- |

(102)

As shown in the table, the operating budgets for the bus areas and for overheads revealed a total deficit of DKK 103,2 million. The management estimated in April 1999, against the background of implemented or planned streamlining and rationalisation measures, that savings of approx. DKK 105,9 could be realised between 1999 and 2001. These cost-saving measures were the following:

—

Savings related to civil servants as a result of the change of status from civil servants to normal contracts,

| — | Reduced sickness pay; |
| --- | --- |

—

Reduced sickness pay;

| — | Improved logistics amongst civil servants; |
| --- | --- |

—

Improved logistics amongst civil servants;

| — | Improved planning of duties; |
| --- | --- |

—

Improved planning of duties;

| — | Reductions in administrative personnel; |
| --- | --- |

—

Reductions in administrative personnel;

| — | Reductions in maintenance costs; |
| --- | --- |

—

Reductions in maintenance costs;

| — | Reductions in purchase costs; |
| --- | --- |

—

Reductions in purchase costs;

| — | Restructuring of head office. |
| --- | --- |

—

Restructuring of head office.

| (103) | The estimated savings were not divided into bus areas but, according to the memo, the board considered that a very significant part of the savings could be made in the Copenhagen bus area. |
| --- | --- |

(103)

The estimated savings were not divided into bus areas but, according to the memo, the board considered that a very significant part of the savings could be made in the Copenhagen bus area.

| (104) | The three notes by Kromann and Münter state that the law firm and the accountants had examined the profitability of a representative selection of the company’s contracts with a view to an assessment of the company’s operations, and that following the examination, it was deemed necessary to undertake a further provision of approx. DKK 65 million to cover loss-making contracts for the rest of their term. The company’s equity capital accordingly amounted to DKK 47 million. It was therefore obvious that the company could not satisfy the terms in its loan agreements and that the annual accounts could not be presented without reservations from the accountants regarding the going concern principle, unless the situation changed significantly. |
| --- | --- |

(104)

The three notes by Kromann and Münter state that the law firm and the accountants had examined the profitability of a representative selection of the company’s contracts with a view to an assessment of the company’s operations, and that following the examination, it was deemed necessary to undertake a further provision of approx. DKK 65 million to cover loss-making contracts for the rest of their term. The company’s equity capital accordingly amounted to DKK 47 million. It was therefore obvious that the company could not satisfy the terms in its loan agreements and that the annual accounts could not be presented without reservations from the accountants regarding the going concern principle, unless the situation changed significantly.

| (105) | In the opinion of the adviser, a reconstruction of the company would require a capital injection in the range of DKK 300 million. This amount was justified as follows:






  — | The solidity requirement in the different bank loans would increase from 10 % to 20 % on 31 December 1999, rendering necessary an increase in capital (23); |
| --- | --- | --- |

(105)

In the opinion of the adviser, a reconstruction of the company would require a capital injection in the range of DKK 300 million. This amount was justified as follows:

—

The solidity requirement in the different bank loans would increase from 10 % to 20 % on 31 December 1999, rendering necessary an increase in capital (23);

| — | A capital increase of this amount would lead to an appropriate debt/equity ratio. |
| --- | --- |

—

A capital increase of this amount would lead to an appropriate debt/equity ratio.

| (106) | A capital injection of the amount mentioned would, in the opinion of the adviser, make it possible to resolve the company’s financial situation. |
| --- | --- |

(106)

A capital injection of the amount mentioned would, in the opinion of the adviser, make it possible to resolve the company’s financial situation.

| (107) | In parallel with the preparation of the sale of Combus to Arriva, the Danish government had requested Arriva to draw up a business and restructuring plan for Combus. In January 2001, the Danish government submitted this restructuring plan to the Commission. The submission took place in two steps, on 8 and 23 January 2001. These submissions formed part of the on-going Case NN 127/00, which led eventually to the Commission’s initial decision. |
| --- | --- |

(107)

In parallel with the preparation of the sale of Combus to Arriva, the Danish government had requested Arriva to draw up a business and restructuring plan for Combus. In January 2001, the Danish government submitted this restructuring plan to the Commission. The submission took place in two steps, on 8 and 23 January 2001. These submissions formed part of the on-going Case NN 127/00, which led eventually to the Commission’s initial decision.

| (108) | This restructuring plan consists of the following elements:






  — | A market study; |
| --- | --- | --- |

(108)

This restructuring plan consists of the following elements:

—

A market study;

| — | A detailed description of all circumstances that lead to the severe financial difficulties of Combus; |
| --- | --- |

—

A detailed description of all circumstances that lead to the severe financial difficulties of Combus;

| — | A detailed description of all changes planned in order to safeguard that the company, on its own, will be able to cover all its costs, inter alia, instalment and financial costs, and to face competition after the restructuring process has been finalised; |
| --- | --- |

—

A detailed description of all changes planned in order to safeguard that the company, on its own, will be able to cover all its costs, inter alia, instalment and financial costs, and to face competition after the restructuring process has been finalised;

| — | A detailed description of the financing of the restructuring. |
| --- | --- |

—

A detailed description of the financing of the restructuring.

| (109) | The market study states that the Danish bus market has stabilised after the deregulation started back in 1990. |
| --- | --- |

(109)

The market study states that the Danish bus market has stabilised after the deregulation started back in 1990.

| (110) | Prices for providing transport services by bus had fallen constantly between 1990 and 1997. This development is most likely due to the market opening that started in the early 1990ies. The lowest point of prices seems to have been achieved in 1997; since then, prices have recovered and show a slight, but regularly increase. |
| --- | --- |

(110)

Prices for providing transport services by bus had fallen constantly between 1990 and 1997. This development is most likely due to the market opening that started in the early 1990ies. The lowest point of prices seems to have been achieved in 1997; since then, prices have recovered and show a slight, but regularly increase.

| (111) | The overall Danish market for public bus transport was dominated, in 1999, by four large operators. Together these four operators hold approximately two thirds of the tendered contracts (24). |
| --- | --- |

(111)

The overall Danish market for public bus transport was dominated, in 1999, by four large operators. Together these four operators hold approximately two thirds of the tendered contracts (24).

| (112) | According to a report of the Danish Competition Authority from 2000, which the market study refers to, the Danish bus market is not likely to be characterised by over-capacity. Due to the fact that regional and local authorities subsidise bus routes to an extent of more than 50 %, a bus transport operator will only offer a bus service if it wins a call for tender. Hence, an operator only concludes a deal regarding the amount of buses and bus drivers necessary to perform bus transport, once it has won a public service contract following a tender procedure. |
| --- | --- |

(112)

According to a report of the Danish Competition Authority from 2000, which the market study refers to, the Danish bus market is not likely to be characterised by over-capacity. Due to the fact that regional and local authorities subsidise bus routes to an extent of more than 50 %, a bus transport operator will only offer a bus service if it wins a call for tender. Hence, an operator only concludes a deal regarding the amount of buses and bus drivers necessary to perform bus transport, once it has won a public service contract following a tender procedure.

| (113) | The report of the Danish Competition Authority also concludes that barriers to entry are low; this is due to two factors:






  — | First, all public service contracts are put up for tender every five years. Accordingly, every year approximately 20 % of the market can be contested by new entrants. |
| --- | --- | --- |

(113)

The report of the Danish Competition Authority also concludes that barriers to entry are low; this is due to two factors:

—

First, all public service contracts are put up for tender every five years. Accordingly, every year approximately 20 % of the market can be contested by new entrants.

| — | Second, both buses and employees are not too expensive, and can be easily found on the Danish market. |
| --- | --- |

—

Second, both buses and employees are not too expensive, and can be easily found on the Danish market.

| (114) | Consequently, the Danish Competition Authority concluded that the market was characterised by buyer power, a conclusion that was illustrated by the price development subsequent to the deregulation of the Danish bus market. |
| --- | --- |

(114)

Consequently, the Danish Competition Authority concluded that the market was characterised by buyer power, a conclusion that was illustrated by the price development subsequent to the deregulation of the Danish bus market.

| (115) | The detailed description of all circumstances that led to the severe financial difficulties of Combus indicates that the company’s financial problems were due to Combus’ aggressive expansion policy on the Danish bus market, in particular in the Copenhagen area. Combus won contracts at excessively low prices, thus creating financial problems. Consequently to the expansion policy, Combus came to operate a large number of loss-making bus services (25). |
| --- | --- |

(115)

The detailed description of all circumstances that led to the severe financial difficulties of Combus indicates that the company’s financial problems were due to Combus’ aggressive expansion policy on the Danish bus market, in particular in the Copenhagen area. Combus won contracts at excessively low prices, thus creating financial problems. Consequently to the expansion policy, Combus came to operate a large number of loss-making bus services (25).

| (116) | The submission of 8 January 2001 states, among other things, the measures Arriva would take and the contributions it would make in connection with the purchase of Combus. |
| --- | --- |

(116)

The submission of 8 January 2001 states, among other things, the measures Arriva would take and the contributions it would make in connection with the purchase of Combus.

| (117) | In so far as the detailed description of planned changes is concerned, the restructuring plan outlines 6 cost-cutting measures to be taken by Arriva subsequently to Arriva’s purchase of Combus. The restructuring plan also foresees an increase in maintenance and fuel costs, as well as some extraordinary costs relating to the restructuring of Combus. |
| --- | --- |

(117)

In so far as the detailed description of planned changes is concerned, the restructuring plan outlines 6 cost-cutting measures to be taken by Arriva subsequently to Arriva’s purchase of Combus. The restructuring plan also foresees an increase in maintenance and fuel costs, as well as some extraordinary costs relating to the restructuring of Combus.

| (118) | As regards the outlined changes, costs have been divided into operational, financial and exceptional costs in relation to the restructuring of Combus. |
| --- | --- |

(118)

As regards the outlined changes, costs have been divided into operational, financial and exceptional costs in relation to the restructuring of Combus.

| (119) | Table 7 provides a brief overview of increases and decreases with regards to operational costs.
  Table 7
  Increases and reductions with regard to foreseen operational costs (DKK p/a)






  (DKK million) |
| --- | --- |
| Cost increases |
| Increase in maintenance costs | –28,0 |
| Increased fuel prices | –3,0 |
| | –31,0 |
| Cost reductions |
| Reduction in sickness | 3,5 |
| Reduction in the costs of repairs | 7,0 |
| Reduction in insurance costs | 2,0 |
| Closing and disposal of business premises | 3,0 |
| Merger of headquarters | 39,0 |
| | +54,5 |
| Annual net effect | +23,5 |
| Source: Arriva |

(119)

Table 7 provides a brief overview of increases and decreases with regards to operational costs.

Table 7

Increases and reductions with regard to foreseen operational costs (DKK p/a)

(DKK million)

Cost increases

Increase in maintenance costs

–28,0

Increased fuel prices

–3,0

–31,0

Cost reductions

Reduction in sickness

3,5

Reduction in the costs of repairs

7,0

Reduction in insurance costs

2,0

Closing and disposal of business premises

3,0

Merger of headquarters

39,0

+54,5

Annual net effect

+23,5

Source: Arriva

| (120) | As disclosed in Table 7, overall operational costs will be reduced by reductions in staff sick days, in the costs of repairs of buses, insurance costs, administrative costs and sales of superfluous infrastructures. |
| --- | --- |

(120)

As disclosed in Table 7, overall operational costs will be reduced by reductions in staff sick days, in the costs of repairs of buses, insurance costs, administrative costs and sales of superfluous infrastructures.

| (121) | As regards the staff sick days, the restructuring plan confirms that Combus’ employees are sick more frequently than Arriva’s employees. Arriva intends to introduce its own methods to following up on employees with high sick absence. By doing so, Arriva expects to reduce costs up to an amount of DKK 3,5 million. |
| --- | --- |

(121)

As regards the staff sick days, the restructuring plan confirms that Combus’ employees are sick more frequently than Arriva’s employees. Arriva intends to introduce its own methods to following up on employees with high sick absence. By doing so, Arriva expects to reduce costs up to an amount of DKK 3,5 million.

| (122) | As regards the reduction in costs for repairs on buses and insurances, Arriva intends to introduce its own methods and insurance contracts in order to cut Combus’ costs on those areas. Thereby, Arriva expects to reduce costs for employees insurances up to an amount of DKK 2 million and as for vehicles insurances up to an amount of DKK 7 million. |
| --- | --- |

(122)

As regards the reduction in costs for repairs on buses and insurances, Arriva intends to introduce its own methods and insurance contracts in order to cut Combus’ costs on those areas. Thereby, Arriva expects to reduce costs for employees insurances up to an amount of DKK 2 million and as for vehicles insurances up to an amount of DKK 7 million.

| (123) | In so far as reduction in administrative costs is concerned, Arriva expects the merger of the companies’ headquarters will result in cost cuts amounting to DKK 39 million as from 2002. |
| --- | --- |

(123)

In so far as reduction in administrative costs is concerned, Arriva expects the merger of the companies’ headquarters will result in cost cuts amounting to DKK 39 million as from 2002.

| (124) | Finally, Arriva intends to sell four depots which will be superfluous after the merger. By doing so, Arriva expects to cut costs to a level of DKK 3 million p/a. In total, the cost cuts foreseen by Arriva will amount to DKK 54,5 million p/a. |
| --- | --- |

(124)

Finally, Arriva intends to sell four depots which will be superfluous after the merger. By doing so, Arriva expects to cut costs to a level of DKK 3 million p/a. In total, the cost cuts foreseen by Arriva will amount to DKK 54,5 million p/a.

| (125) | Arriva, however, foresees an increase in maintenance costs. According to information provided by Combus, Combus had maintenance costs amounting to DKK 70 000 per bus in 2000. Arriva anticipates an increase up to DKK 120 000 per city bus and DKK 80 000 per regional bus, resulting in an increase in maintenance costs amounting to DKK 28 million. Furthermore, Arriva foresees a fuel costs increase amounting to DKK 3 million p/a. |
| --- | --- |

(125)

Arriva, however, foresees an increase in maintenance costs. According to information provided by Combus, Combus had maintenance costs amounting to DKK 70 000 per bus in 2000. Arriva anticipates an increase up to DKK 120 000 per city bus and DKK 80 000 per regional bus, resulting in an increase in maintenance costs amounting to DKK 28 million. Furthermore, Arriva foresees a fuel costs increase amounting to DKK 3 million p/a.

| (126) | As to the expected reduction in financial costs, Arriva is contractually obliged to reimburse the total outstanding debt of Combus to its private lenders. |
| --- | --- |

(126)

As to the expected reduction in financial costs, Arriva is contractually obliged to reimburse the total outstanding debt of Combus to its private lenders.

| (127) | In this respect, the sales agreement foresees that the Danish State and the private commercial debtors of Combus shall partially write off Combus’ debt prior to the sale to Arriva, leaving the undertaking with a debt of DKK 208 million. Arriva then, upon purchase, has to pay immediately this outstanding debt. |
| --- | --- |

(127)

In this respect, the sales agreement foresees that the Danish State and the private commercial debtors of Combus shall partially write off Combus’ debt prior to the sale to Arriva, leaving the undertaking with a debt of DKK 208 million. Arriva then, upon purchase, has to pay immediately this outstanding debt.

| (128) | The restructuring plan foresees that Arriva replaces the debt from private lenders by an intra-group loan. The annual interest payments for this intra-group loan amount to DKK 13,5 million. |
| --- | --- |

(128)

The restructuring plan foresees that Arriva replaces the debt from private lenders by an intra-group loan. The annual interest payments for this intra-group loan amount to DKK 13,5 million.

| (129) | As regards the exceptional costs relating to the restructuring of Combus, Arriva estimates that they will be DKK 35,6 million for the period 2001/02. Approximately DKK 15 million relates to necessary dismissals in order to reduce general expenses (26). The outstanding amount relates to the integration of the respective companies IT systems (DKK 5 million), to the purchase of new bus driver uniforms (DKK 7,2 million), to legal and economical expenses related to the merger and the restructuring (DKK 7 million) and finally to other small expenses (DKK 2,5 million). |
| --- | --- |

(129)

As regards the exceptional costs relating to the restructuring of Combus, Arriva estimates that they will be DKK 35,6 million for the period 2001/02. Approximately DKK 15 million relates to necessary dismissals in order to reduce general expenses (26). The outstanding amount relates to the integration of the respective companies IT systems (DKK 5 million), to the purchase of new bus driver uniforms (DKK 7,2 million), to legal and economical expenses related to the merger and the restructuring (DKK 7 million) and finally to other small expenses (DKK 2,5 million).

| (130) | Arriva also intends to cut costs by successively terminating all of Combus’ loss-making contracts. Furthermore, Arriva proposes to make reserves in relation to the expiration of the contracts in Copenhagen and Aalborg, due to the risk that these city buses cannot be used to traffic other routes, as they are either out of date (as for Copenhagen, the reserve will amount to DKK 45 million) or too specific to be used in another city (as for Aalborg, the reserve will amount to DKK 18 million). |
| --- | --- |

(130)

Arriva also intends to cut costs by successively terminating all of Combus’ loss-making contracts. Furthermore, Arriva proposes to make reserves in relation to the expiration of the contracts in Copenhagen and Aalborg, due to the risk that these city buses cannot be used to traffic other routes, as they are either out of date (as for Copenhagen, the reserve will amount to DKK 45 million) or too specific to be used in another city (as for Aalborg, the reserve will amount to DKK 18 million).

| (131) | The restructuring plan foresees that Combus will return to economic viability as from 2006, thanks to the measures taken by Arriva. Table 8 shows the forecasts for the turnover and the profits/losses of Combus for the period 2000 to 2007.
  Table 8
  Forecasts for the turnover and the profits/losses for period 2000-2007













  (in DKK million) |
| --- | --- |
| Year | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
| Turnover | 1 089 | 1 055 | 934 | 824 | 696 | 440 | 206 | 60 |
| Profit/Loss | – 118 | –66 | –59 | –53 | –43 | –21 | +6 | +2 |

(131)

The restructuring plan foresees that Combus will return to economic viability as from 2006, thanks to the measures taken by Arriva. Table 8 shows the forecasts for the turnover and the profits/losses of Combus for the period 2000 to 2007.

Table 8

Forecasts for the turnover and the profits/losses for period 2000-2007

(in DKK million)

Year

2000

2001

2002

2003

2004

2005

2006

2007

Turnover

1 089

1 055

934

824

696

440

206

60

Profit/Loss

– 118

–66

–59

–53

–43

–21

+6

+2

| (132) | The financing of the restructuring costs is achieved through:






  — | The restructuring aid granted by the Danish government, |
| --- | --- | --- |

(132)

The financing of the restructuring costs is achieved through:

—

The restructuring aid granted by the Danish government,

| — | The restructuring of Combus’ debt, and |
| --- | --- |

—

The restructuring of Combus’ debt, and

| — | The own contribution of Combus and Arriva. |
| --- | --- |

—

The own contribution of Combus and Arriva.

| (133) | The details of the contribution of the Danish government are explained in the description of the privatisation process above. A table summarising the contributions can be found in the next section. |
| --- | --- |

(133)

The details of the contribution of the Danish government are explained in the description of the privatisation process above. A table summarising the contributions can be found in the next section.

| (134) | The contribution of Combus’ private creditors consisted in a write-off of debts of DKK 100 million. |
| --- | --- |

(134)

The contribution of Combus’ private creditors consisted in a write-off of debts of DKK 100 million.

| (135) | The own contribution of Combus and Arriva consisted in the following elements:
  Arriva






  — | The pay-off of the remaining loans immediately after the purchase, |
| --- | --- | --- |

(135)

The own contribution of Combus and Arriva consisted in the following elements:

Arriva

—

The pay-off of the remaining loans immediately after the purchase,

| — | Direct contribution to the restructuring costs of DKK 33,6 million, |
| --- | --- |

—

Direct contribution to the restructuring costs of DKK 33,6 million,

| — | The sale, at a price of DKK 113,9 million, of 50 % of Combus to Connex by Arriva, |
| --- | --- |

—

The sale, at a price of DKK 113,9 million, of 50 % of Combus to Connex by Arriva,

| — | The sales price of DKK 100. |
| --- | --- |

—

The sales price of DKK 100.

Combus

| — | The savings foreseen in the restructuring plan, explained above. |
| --- | --- |

—

The savings foreseen in the restructuring plan, explained above.

2.1.4.   SUMMARY OF THE FINANCIAL SUPPORT OF THE DANISH STATE TO COMBUS

| (136) | In table 11 of the initial decision and in recital 68 and Table 8 in the decision to initiate the procedure, the Commission summarised the restructuring measure paid to Combus by the Danish State. There is an apparent discrepancy between the numbers, which is explained by the fact that table 7 in the initial decision expresses the amounts in 2001 in net present value, whereas table 8 of the decision to initiate the procedure expresses the amounts in real terms. |
| --- | --- |

(136)

In table 11 of the initial decision and in recital 68 and Table 8 in the decision to initiate the procedure, the Commission summarised the restructuring measure paid to Combus by the Danish State. There is an apparent discrepancy between the numbers, which is explained by the fact that table 7 in the initial decision expresses the amounts in 2001 in net present value, whereas table 8 of the decision to initiate the procedure expresses the amounts in real terms.

| (137) | The Danish government, in its observations, drew the Commission’s attention to the fact that DKK 100 million being shown twice in table 8 of the decision to initiate the procedure was misleading as Combus had only received this amount once (27). The Commission, in view of this observation of the Danish government, has adjusted the table, as can be seen in Table 9 below.
  Table 9
  Corrected summary of the financial support of the Danish State to Combus, in real terms







  Type of support | Year | Amount
  (in DKK million) |
| --- | --- | --- | --- |
| Provision in the opening accounts for civil servants (this payment has been authorised through the part of the initial decision that the CFI upheld) | 1995 | 140 |
| One time payment to civil servants for statute change (this payment has been authorised through the part of the initial decision that the CFI upheld) | 1999 | 100 |
| Capital increase | 1999 | 200 |
| Subordinated loan
  (This subordinated loan has been written off in 2001) | 1999 | 100 |
| Capital increase | 2001 | 140 |
| Guarantees (see detailed description below table 9) | 2001 and following | 37,1 |
| Total | 1995 to 2001 | 717,1 |

(137)

The Danish government, in its observations, drew the Commission’s attention to the fact that DKK 100 million being shown twice in table 8 of the decision to initiate the procedure was misleading as Combus had only received this amount once (27). The Commission, in view of this observation of the Danish government, has adjusted the table, as can be seen in Table 9 below.

Table 9

Corrected summary of the financial support of the Danish State to Combus, in real terms

Type of support

Year

Amount

(in DKK million)

Provision in the opening accounts for civil servants (this payment has been authorised through the part of the initial decision that the CFI upheld)

1995

140

One time payment to civil servants for statute change (this payment has been authorised through the part of the initial decision that the CFI upheld)

1999

100

Capital increase

1999

200

Subordinated loan

(This subordinated loan has been written off in 2001)

1999

100

Capital increase

2001

140

Guarantees (see detailed description below table 9)

2001 and following

37,1

Total

1995 to 2001

717,1

| (138) | In Table 8 of the decision to initiate the procedure, the Commission stated the maximum amount of the guarantees provided in 2001 in connection with the conclusion of the sales agreement with Arriva. |
| --- | --- |

(138)

In Table 8 of the decision to initiate the procedure, the Commission stated the maximum amount of the guarantees provided in 2001 in connection with the conclusion of the sales agreement with Arriva.

| (139) | In Table 10 below, in addition to the maximum cover, the Commission shows also for information the actual amounts paid in relation to the guarantees at the end of February 2005.
  Table 10
  Summary of claims and payments from the guarantees provided







  Guarantee | Maximum cover | Amount paid |
| --- | --- | --- | --- |
| Environmental costs | DKK 22,5 million | No payments |
| Reduction in equity capital | DKK 35,5 million | DKK 20,5 million |
| Further commitments in relation to the equity capital guarantee | DKK 0,9 million | DKK 0,9 million |
| Tax demand from the period prior to the transfer of Combus | Unlimited | Claims for payment of DKK 6,2 million have been submitted (current case at the National Tax Tribunal) |
| Losses as a result of civil servants previously employed | Unlimited | No claims or payments |
| Losses in connection with the sale of Combus International (Comfort Bus Danmark A/S) | Unlimited | DKK 9,5 million (partial repayment of the payment of dividends from Comfort Bus Denmark A/S u/k) |
| Any losses related to the audit investigation into Combus A/S | Unlimited | No claims or payments |
| Total | | DKK 37,1 million |

(139)

In Table 10 below, in addition to the maximum cover, the Commission shows also for information the actual amounts paid in relation to the guarantees at the end of February 2005.

Table 10

Summary of claims and payments from the guarantees provided

Guarantee

Maximum cover

Amount paid

Environmental costs

DKK 22,5 million

No payments

Reduction in equity capital

DKK 35,5 million

DKK 20,5 million

Further commitments in relation to the equity capital guarantee

DKK 0,9 million

DKK 0,9 million

Tax demand from the period prior to the transfer of Combus

Unlimited

Claims for payment of DKK 6,2 million have been submitted (current case at the National Tax Tribunal)

Losses as a result of civil servants previously employed

Unlimited

No claims or payments

Losses in connection with the sale of Combus International (Comfort Bus Danmark A/S)

Unlimited

DKK 9,5 million (partial repayment of the payment of dividends from Comfort Bus Denmark A/S u/k)

Any losses related to the audit investigation into Combus A/S

Unlimited

No claims or payments

Total

DKK 37,1 million

| (140) | The two previous tables can be summarised as follows:
  Table 11
  Summary of State support







  Measure and year | Amount
  (in DKK million) | Comment |
| --- | --- | --- | --- |
| Capital increase, 1999 | 200 | |
| Subordinated loan, 1999 | 100 | Written off in 2001 |
| Capital increase, 2001 | 140 | |
| Total amount paid under guarantees, 2001 | 37,1 | The cap of limited guarantees was DKK 58,9 million, out of which DKK 21,4 million have been drawn upon; for the unlimited guarantees, a total of DKK 15,7 million has been drawn |
| Total 1999 | 300 | Expressed in real 1999 terms |
| Total 2001 | 177,1 | Expressed in real 2001 terms |

(140)

The two previous tables can be summarised as follows:

Table 11

Summary of State support

Measure and year

Amount

(in DKK million)

Comment

Capital increase, 1999

200

Subordinated loan, 1999

100

Written off in 2001

Capital increase, 2001

140

Total amount paid under guarantees, 2001

37,1

The cap of limited guarantees was DKK 58,9 million, out of which DKK 21,4 million have been drawn upon; for the unlimited guarantees, a total of DKK 15,7 million has been drawn

Total 1999

300

Expressed in real 1999 terms

Total 2001

177,1

Expressed in real 2001 terms

| (141) | The above figures slightly deviate from both the figures set out in the initial decision, table 7, and the figures set out in the decision to initiate the procedure. These deviations are explained by the fact that the initial decision had converted the numbers into 2001 net present value, and that both the initial decision and the decision to initiate proceedings were not coherent as to the calculation of the monetary value of the guarantees. |
| --- | --- |

(141)

The above figures slightly deviate from both the figures set out in the initial decision, table 7, and the figures set out in the decision to initiate the procedure. These deviations are explained by the fact that the initial decision had converted the numbers into 2001 net present value, and that both the initial decision and the decision to initiate proceedings were not coherent as to the calculation of the monetary value of the guarantees.

2.1.5.   DEVELOPMENT OF ARRIVA/COMBUS AFTER THE PRIVATISATION

| (142) | After the share sale agreement had been entered into on 2 April 2001 (28), Arriva proceeded as follows:






  — | Combus became a 100 % subsidiary of Arriva. |
| --- | --- | --- |

(142)

After the share sale agreement had been entered into on 2 April 2001 (28), Arriva proceeded as follows:

—

Combus became a 100 % subsidiary of Arriva.

| — | In an agreement of 11 April 2001, Arriva Scandinavia A/S, another 100 % subsidiary of Arriva, acquired from Combus assets and financial liabilities in exchange of one share in Arriva Scandinavia, which has a nominal value of DKK 1 000. The assets and liabilities included in this agreement are listed and specified in the sales contract. They cover all assets and all liabilities on the books of Combus on that day. |
| --- | --- |

—

In an agreement of 11 April 2001, Arriva Scandinavia A/S, another 100 % subsidiary of Arriva, acquired from Combus assets and financial liabilities in exchange of one share in Arriva Scandinavia, which has a nominal value of DKK 1 000. The assets and liabilities included in this agreement are listed and specified in the sales contract. They cover all assets and all liabilities on the books of Combus on that day.

| — | On 1 May 2001, 50 % of the assets (i.e. contracts, busses, and infrastructure), owned by Combus at the time of the sale of the company to Arriva, were transferred to Connex by Arriva Scandinavia A/S for a cash price of DKK 113,9 million (see detailed explanation above). |
| --- | --- |

—

On 1 May 2001, 50 % of the assets (i.e. contracts, busses, and infrastructure), owned by Combus at the time of the sale of the company to Arriva, were transferred to Connex by Arriva Scandinavia A/S for a cash price of DKK 113,9 million (see detailed explanation above).

3.   THE COMMISSION’S DOUBTS

| (143) | In recital 121 of the decision to initiate the procedure, the Commission stated five doubts. The first concerns the question of whether the 1999 and the 2001 restructuring measures constitute two separate measures, or whether they should be assessed as one single measure. The subsequent four doubts concern the private investor test, and the assessment of the restructuring measures under the 1994 and/or 1999 restructuring guidelines, in case they constitute State aid. |
| --- | --- |

(143)

In recital 121 of the decision to initiate the procedure, the Commission stated five doubts. The first concerns the question of whether the 1999 and the 2001 restructuring measures constitute two separate measures, or whether they should be assessed as one single measure. The subsequent four doubts concern the private investor test, and the assessment of the restructuring measures under the 1994 and/or 1999 restructuring guidelines, in case they constitute State aid.

4.   COMMENTS FROM DENMARK AND INTERESTED PARTIES

4.1.   REPLY OF THE DANISH GOVERNMENT

| (144) | The comments of the Danish government concern the possibility to terminate Combus’ public service contracts, the private investor principle and the compatibility of the aid with the 1999 restructuring guidelines. |
| --- | --- |

(144)

The comments of the Danish government concern the possibility to terminate Combus’ public service contracts, the private investor principle and the compatibility of the aid with the 1999 restructuring guidelines.

4.1.1.   THE TERMINATION OF COMBUS’ PUBLIC SERVICE CONTRACTS

| (145) | The Danish government considers that, contrary to what the Commission had stated in its decision to initiate the procedure, public service contracts concluded according to Article 14 of Regulation (EEC) No 1191/69 cannot be terminated before their expiry. |
| --- | --- |

(145)

The Danish government considers that, contrary to what the Commission had stated in its decision to initiate the procedure, public service contracts concluded according to Article 14 of Regulation (EEC) No 1191/69 cannot be terminated before their expiry.

| (146) | The Danish government points out in this respect that the Commission had obviously misinterpreted Article 14(4) of Regulation (EEC) No 1191/69 in its decision to initiate the procedure. It draws the Commission’s attention to the fact that, as expressly stated in the provision, a transport service may be terminated in accordance with Article 14(4) only if the transport service is not covered by the contract system or the public service obligation. The contracts that Combus had entered into were covered by the contract system, as they were general contracts won during tendering rounds. This was confirmed by the CFI in paragraph 78 and following of the Combus judgment. The contracts could not, therefore, be terminated on the basis of Article 14(4). |
| --- | --- |

(146)

The Danish government points out in this respect that the Commission had obviously misinterpreted Article 14(4) of Regulation (EEC) No 1191/69 in its decision to initiate the procedure. It draws the Commission’s attention to the fact that, as expressly stated in the provision, a transport service may be terminated in accordance with Article 14(4) only if the transport service is not covered by the contract system or the public service obligation. The contracts that Combus had entered into were covered by the contract system, as they were general contracts won during tendering rounds. This was confirmed by the CFI in paragraph 78 and following of the Combus judgment. The contracts could not, therefore, be terminated on the basis of Article 14(4).

| (147) | If Combus however had interrupted, discontinued or in any other way sought to end the transport agreements entered into without having any legal basis for doing so in the contracts, the company would in fact have been liable for breach of contract under Danish civil law. |
| --- | --- |

(147)

If Combus however had interrupted, discontinued or in any other way sought to end the transport agreements entered into without having any legal basis for doing so in the contracts, the company would in fact have been liable for breach of contract under Danish civil law.

4.1.2.   APPLICATION OF THE MARKET ECONOMY INVESTOR PRINCIPLE

| (148) | The Danish government considers that the measures taken by the Danish government in the present case should be regarded as investments made in accordance with the Market Economy Investor Principle. |
| --- | --- |

(148)

The Danish government considers that the measures taken by the Danish government in the present case should be regarded as investments made in accordance with the Market Economy Investor Principle.

| (149) | In reply to recital 89 of the decision to initiate the procedure, where the Commission had stated that a private investor might have conducted itself as the Danish State did, if it was going to be less costly to restructure the company with a view to a sale than to allow it to go bankrupt, the Danish government concedes that in the case at issue, the direct losses in the event of bankruptcy would not have exceeded the loss made in the sale. |
| --- | --- |

(149)

In reply to recital 89 of the decision to initiate the procedure, where the Commission had stated that a private investor might have conducted itself as the Danish State did, if it was going to be less costly to restructure the company with a view to a sale than to allow it to go bankrupt, the Danish government concedes that in the case at issue, the direct losses in the event of bankruptcy would not have exceeded the loss made in the sale.

| (150) | However, despite the fact that at face value, the sale was therefore ‘more expensive’ than a bankruptcy, a sale was nevertheless preferred by the Danish government. Indeed, the Danish government, following the analysis provided by its advisers, considered that it would probably have been more costly in the long term to allow Combus to go bankrupt than to sell the company, due to latent indirect losses and damage to future privatisations. In order to underline these considerations, the Danish government presents a ‘group assessment’ of the decision to privatise Combus and argues that, with regard to the prospect of future privatisations, it was important to preserve the State’s reputation. |
| --- | --- |

(150)

However, despite the fact that at face value, the sale was therefore ‘more expensive’ than a bankruptcy, a sale was nevertheless preferred by the Danish government. Indeed, the Danish government, following the analysis provided by its advisers, considered that it would probably have been more costly in the long term to allow Combus to go bankrupt than to sell the company, due to latent indirect losses and damage to future privatisations. In order to underline these considerations, the Danish government presents a ‘group assessment’ of the decision to privatise Combus and argues that, with regard to the prospect of future privatisations, it was important to preserve the State’s reputation.

| (151) | In the view of the Danish government, Member States’ investments cannot simply be compared with those of ordinary private investors, as the latter normally require a return on the investment in a far shorter time. In this connection, it considers that the Court of Justice has accepted in many cases that the State as an investor is more likely to act in the same manner as holding companies or private business groups which pursue a more long-term investment policy taking account of a global or sectoral company strategy (29). The Danish government quotes in particular Case C-305/89, Italy v Commission
   (30):
  ‘Although the conduct of a private investor with which the intervention of the public investor pursuing economic policy aims must be compared need not be the conduct of an ordinary investor laying out capital with a view to realising a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy — whether general or sectoral — and guided by prospects of profitability in the longer term.’ |
| --- | --- |

(151)

In the view of the Danish government, Member States’ investments cannot simply be compared with those of ordinary private investors, as the latter normally require a return on the investment in a far shorter time. In this connection, it considers that the Court of Justice has accepted in many cases that the State as an investor is more likely to act in the same manner as holding companies or private business groups which pursue a more long-term investment policy taking account of a global or sectoral company strategy (29). The Danish government quotes in particular Case C-305/89, Italy v Commission
   (30):

‘Although the conduct of a private investor with which the intervention of the public investor pursuing economic policy aims must be compared need not be the conduct of an ordinary investor laying out capital with a view to realising a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy — whether general or sectoral — and guided by prospects of profitability in the longer term.’

| (152) | The Danish government argues that it was taking the same approach when assessing whether to allow Combus to go bankrupt. |
| --- | --- |

(152)

The Danish government argues that it was taking the same approach when assessing whether to allow Combus to go bankrupt.

| (153) | The Danish government maintains its position, set out in recitals 86 and 87 of the decision to initiate the procedure, with regard to consideration for the State’s reputation and the references to Case C-303/88, Italy v Commission, made in that connection. |
| --- | --- |

(153)

The Danish government maintains its position, set out in recitals 86 and 87 of the decision to initiate the procedure, with regard to consideration for the State’s reputation and the references to Case C-303/88, Italy v Commission, made in that connection.

| (154) | The Danish government recalls that the Commission has previously noted — for example in its intervention at the CFI, quoted in the last point of paragraph 106 of the Combus judgment — that ‘a rollback of public-sector involvement generally serves to promote free trade’. |
| --- | --- |

(154)

The Danish government recalls that the Commission has previously noted — for example in its intervention at the CFI, quoted in the last point of paragraph 106 of the Combus judgment — that ‘a rollback of public-sector involvement generally serves to promote free trade’.

| (155) | For the Danish government, the connection between the State’s image as a company owner and the privatisation of public companies is therefore clear: only if the State is allowed to protect its reputation as a company owner and a serious and responsible investor can future privatisation be ensured, leading to increased competition and an improvement in the market situation for operators on that market throughout the EU. |
| --- | --- |

(155)

For the Danish government, the connection between the State’s image as a company owner and the privatisation of public companies is therefore clear: only if the State is allowed to protect its reputation as a company owner and a serious and responsible investor can future privatisation be ensured, leading to increased competition and an improvement in the market situation for operators on that market throughout the EU.

| (156) | The aid measures in connection with restructuring and privatisation of Combus were, according to the Danish government, very much based on consideration for the State’s reputation as an employer, investor and company owner. If the State had allowed Combus to become bankrupt, it would probably have had a negative impact on interest rates and general loan terms for State-owned companies as regards financial institutions in both Denmark and abroad. |
| --- | --- |

(156)

The aid measures in connection with restructuring and privatisation of Combus were, according to the Danish government, very much based on consideration for the State’s reputation as an employer, investor and company owner. If the State had allowed Combus to become bankrupt, it would probably have had a negative impact on interest rates and general loan terms for State-owned companies as regards financial institutions in both Denmark and abroad.

| (157) | In this respect, the Danish government explains that over the last few years, Denmark has privatised a number of State-owned companies, and plans further privatisations. One of the companies converted into a public limited company with a view to privatisation after the privatisation of Combus is Post Danmark A/S (31). The Danish State has just entered into a conditional agreement for the sale of 25 % of the shares in the company. The selling price for 22 % of the shares (the last 3 % will be offered to employees) which were sold to Post Invest (part of the CVC Group) is DKK 1,27 billion. |
| --- | --- |

(157)

In this respect, the Danish government explains that over the last few years, Denmark has privatised a number of State-owned companies, and plans further privatisations. One of the companies converted into a public limited company with a view to privatisation after the privatisation of Combus is Post Danmark A/S (31). The Danish State has just entered into a conditional agreement for the sale of 25 % of the shares in the company. The selling price for 22 % of the shares (the last 3 % will be offered to employees) which were sold to Post Invest (part of the CVC Group) is DKK 1,27 billion.

| (158) | Prior to the conversion into a public limited company and the partial privatisation, the company’s civil servants were bought out in 2001. At that time, Post Danmark had a total of approx. 30 000 employees, approx. 11 800 of whom were civil servants. The civil servants were given the offer of moving to employment on a group contract basis, while retaining the right to a civil servant pension. A large majority of 96 % accepted this. This meant that more than 10 500 civil servants chose employment on a group contract basis in accordance with a model that meant a lump sum of DKK 50 000 before tax from Post Danmark. At the same time, they accepted a broader interpretation of the duties they could be transferred to. The other approx. 650 civil servants wanted employment on a group contract basis in accordance with a model that to all intents and purposes gave them the same terms as their civil servant status. This model did not lead to any lump sums. A smaller percentage of the civil servants, approx. 480, wished to retain their civil servant status with the State. When Post Danmark A/S was established, they were therefore seconded from the State to the public limited company. |
| --- | --- |

(158)

Prior to the conversion into a public limited company and the partial privatisation, the company’s civil servants were bought out in 2001. At that time, Post Danmark had a total of approx. 30 000 employees, approx. 11 800 of whom were civil servants. The civil servants were given the offer of moving to employment on a group contract basis, while retaining the right to a civil servant pension. A large majority of 96 % accepted this. This meant that more than 10 500 civil servants chose employment on a group contract basis in accordance with a model that meant a lump sum of DKK 50 000 before tax from Post Danmark. At the same time, they accepted a broader interpretation of the duties they could be transferred to. The other approx. 650 civil servants wanted employment on a group contract basis in accordance with a model that to all intents and purposes gave them the same terms as their civil servant status. This model did not lead to any lump sums. A smaller percentage of the civil servants, approx. 480, wished to retain their civil servant status with the State. When Post Danmark A/S was established, they were therefore seconded from the State to the public limited company.

| (159) | In connection with the establishment of Post Danmark A/S, an opening balance of approx. DKK 1,7 billion (DKK 1,190 billion after tax) was set aside for an actuarially calculated lump sum payment to the State to bring down future annual pension contributions from 20 % to 12 % of salaries for former and remaining civil servants for whom the company still had to pay pension contributions, etc. The amount was paid in 2002. Equality of treatment regarding pensions was thereby achieved between former civil servants and those employed on a group contract basis. |
| --- | --- |

(159)

In connection with the establishment of Post Danmark A/S, an opening balance of approx. DKK 1,7 billion (DKK 1,190 billion after tax) was set aside for an actuarially calculated lump sum payment to the State to bring down future annual pension contributions from 20 % to 12 % of salaries for former and remaining civil servants for whom the company still had to pay pension contributions, etc. The amount was paid in 2002. Equality of treatment regarding pensions was thereby achieved between former civil servants and those employed on a group contract basis.

| (160) | In the Danish Government’s opinion, its negotiating position with the civil servants in Post Danmark would have been extremely difficult, and the outcome of the negotiations much more costly, if the Danish State had allowed Combus to go bankrupt, thereby leading to massive unemployment of those civil servants who had given up their civil servants status prior to the privatisation of Combus. |
| --- | --- |

(160)

In the Danish Government’s opinion, its negotiating position with the civil servants in Post Danmark would have been extremely difficult, and the outcome of the negotiations much more costly, if the Danish State had allowed Combus to go bankrupt, thereby leading to massive unemployment of those civil servants who had given up their civil servants status prior to the privatisation of Combus.

| (161) | In this context, the Danish government points out that employment as a civil servant means that the individual civil servant basically has a guarantee of employment until pension age and a subsequent lifelong pension. These rights are surrendered in transferring to employment on a group contract basis. When State companies are placed under private control, civil servants may regard it as an unjustified transfer and thereby request redundancy. This triggers off a particularly large amount of compensation to the individual civil servant. |
| --- | --- |

(161)

In this context, the Danish government points out that employment as a civil servant means that the individual civil servant basically has a guarantee of employment until pension age and a subsequent lifelong pension. These rights are surrendered in transferring to employment on a group contract basis. When State companies are placed under private control, civil servants may regard it as an unjustified transfer and thereby request redundancy. This triggers off a particularly large amount of compensation to the individual civil servant.

| (162) | This makes it extremely important for Denmark, from a financial point of view, that an agreement can be reached with any civil servants on a transfer to employment on a group contract basis in return for a reasonable amount of compensation prior to privatisation of State-owned companies. |
| --- | --- |

(162)

This makes it extremely important for Denmark, from a financial point of view, that an agreement can be reached with any civil servants on a transfer to employment on a group contract basis in return for a reasonable amount of compensation prior to privatisation of State-owned companies.

| (163) | The Danish government considers that the amount of compensation demanded by civil servants is largely dependent on whether they feel reasonable job security after the transfer to employment on a group contract basis. The effect of the State leaving the former civil servants in the lurch by letting the company become bankrupt, shortly after concluding agreements with the civil servants on a transfer to employment on a group contract basis, would most likely be that all civil servants in a similar situation in the future would demand significantly higher compensation before surrendering their status. |
| --- | --- |

(163)

The Danish government considers that the amount of compensation demanded by civil servants is largely dependent on whether they feel reasonable job security after the transfer to employment on a group contract basis. The effect of the State leaving the former civil servants in the lurch by letting the company become bankrupt, shortly after concluding agreements with the civil servants on a transfer to employment on a group contract basis, would most likely be that all civil servants in a similar situation in the future would demand significantly higher compensation before surrendering their status.

| (164) | In this context, the Danish government also mentions the example of the sale of certain divisions of Banedanmark (32). Banedanmark’s Advisory Division was sold to WS Atkins International Limited on 1 July 2001 (33). The cash selling price was DKK 70 million. In addition to the selling price, the State acquired a cash payment of approx. DKK 35 million. |
| --- | --- |

(164)

In this context, the Danish government also mentions the example of the sale of certain divisions of Banedanmark (32). Banedanmark’s Advisory Division was sold to WS Atkins International Limited on 1 July 2001 (33). The cash selling price was DKK 70 million. In addition to the selling price, the State acquired a cash payment of approx. DKK 35 million.

| (165) | Banedanmark’s advisory division employed 326 employees, 66 of whom were civil servants. In the transfer of the Advisory Division, the civil servants basically remained civil servants in Banedanmark, as, according to their status as civil servants, they had no obligation to transfer to the new employer. There was, however, the option of the individual civil servants voluntarily being seconded to the buyer. |
| --- | --- |

(165)

Banedanmark’s advisory division employed 326 employees, 66 of whom were civil servants. In the transfer of the Advisory Division, the civil servants basically remained civil servants in Banedanmark, as, according to their status as civil servants, they had no obligation to transfer to the new employer. There was, however, the option of the individual civil servants voluntarily being seconded to the buyer.

| (166) | Civil servants who wanted to transfer to employment on a group contract basis with the buyer were offered 15 months’ salary from Banedanmark at the time of severance. The offer to buy them out applied for up to a year after the date of transfer. The cost of buying out the civil servants, which was to be defrayed from the proceeds of the sale, could have come to DKK 23 million if all the civil servants had transferred to employment on a group contract basis. |
| --- | --- |

(166)

Civil servants who wanted to transfer to employment on a group contract basis with the buyer were offered 15 months’ salary from Banedanmark at the time of severance. The offer to buy them out applied for up to a year after the date of transfer. The cost of buying out the civil servants, which was to be defrayed from the proceeds of the sale, could have come to DKK 23 million if all the civil servants had transferred to employment on a group contract basis.

| (167) | At the moment, Denmark is aiming at the total sale of Banedanmark’s Civil Engineering Division (34). The civil engineering division had a turnover of approx. DKK 1,3 million in 2004 and employed about 1 470 staff at the end of the year, 740 of whom were civil servants. In the event of a sale of the civil engineering division, the civil servants would not be obliged to transfer to employment with the buyer and a solution to the civil servant issue will therefore have to be found, as with other privatisations. |
| --- | --- |

(167)

At the moment, Denmark is aiming at the total sale of Banedanmark’s Civil Engineering Division (34). The civil engineering division had a turnover of approx. DKK 1,3 million in 2004 and employed about 1 470 staff at the end of the year, 740 of whom were civil servants. In the event of a sale of the civil engineering division, the civil servants would not be obliged to transfer to employment with the buyer and a solution to the civil servant issue will therefore have to be found, as with other privatisations.

| (168) | Another option for privatisation under consideration is the sale of the Danish railway company DSB. DSB is an independent public company that operates passenger transport as a public service after negotiations on the basis of a transport contract entered into with the Danish State. Around half of the company’s 8 500 employees are civil servants. The privatisation of DSB would mean the transfer to group contract conditions for all these civil servants. |
| --- | --- |

(168)

Another option for privatisation under consideration is the sale of the Danish railway company DSB. DSB is an independent public company that operates passenger transport as a public service after negotiations on the basis of a transport contract entered into with the Danish State. Around half of the company’s 8 500 employees are civil servants. The privatisation of DSB would mean the transfer to group contract conditions for all these civil servants.

| (169) | Denmark considers that, if the State had allowed Combus to become bankrupt after having compensated the civil servants for transferring to group contracts, it would have been impossible to persuade civil servants to go over to group contracts instead of civil service employment in the event of future privatisations. |
| --- | --- |

(169)

Denmark considers that, if the State had allowed Combus to become bankrupt after having compensated the civil servants for transferring to group contracts, it would have been impossible to persuade civil servants to go over to group contracts instead of civil service employment in the event of future privatisations.

| (170) | The State would thereby be prevented from, or in any case have significantly reduced options for privatising State-owned companies with civil servants. Denmark considers that at best, bankruptcy of Combus would have damaged the State’s credibility and the civil servants would, as a result, have demanded better terms in the form of significantly higher amounts of compensation to transfer to employment on a group contract basis and renounce their civil servant rights. Using Post Danmark as an example, a doubling of the amount of compensation to individual civil servants in relation to that company alone would have meant a further outlay for the Danish State of DKK 500 million. |
| --- | --- |

(170)

The State would thereby be prevented from, or in any case have significantly reduced options for privatising State-owned companies with civil servants. Denmark considers that at best, bankruptcy of Combus would have damaged the State’s credibility and the civil servants would, as a result, have demanded better terms in the form of significantly higher amounts of compensation to transfer to employment on a group contract basis and renounce their civil servant rights. Using Post Danmark as an example, a doubling of the amount of compensation to individual civil servants in relation to that company alone would have meant a further outlay for the Danish State of DKK 500 million.

| (171) | The Danish government also points out in this context that it had already allowed a company, converted to a public limited company a short time before, to become bankrupt, namely Statens Konfektion, which was converted into a public limited company in 1992. Prior to the conversion, all the civil servants were offered employment on a group contract basis in return for financial compensation. When the Armed Forces, which were the company’s biggest customer, subsequently decided to invite tenders for their supply contracts, the company’s business base disappeared. The company therefore went bankrupt in 1992, which led to harsh criticism of the Danish government including by those now employed on a group contract basis. |
| --- | --- |

(171)

The Danish government also points out in this context that it had already allowed a company, converted to a public limited company a short time before, to become bankrupt, namely Statens Konfektion, which was converted into a public limited company in 1992. Prior to the conversion, all the civil servants were offered employment on a group contract basis in return for financial compensation. When the Armed Forces, which were the company’s biggest customer, subsequently decided to invite tenders for their supply contracts, the company’s business base disappeared. The company therefore went bankrupt in 1992, which led to harsh criticism of the Danish government including by those now employed on a group contract basis.

| (172) | The Danish government considers that in the light of experiences from Statens Konfektion, it had no choice in connection with the sale of Combus, as yet another bankruptcy would have been devastating for negotiations with civil servants in connection with preparations for future privatisations. |
| --- | --- |

(172)

The Danish government considers that in the light of experiences from Statens Konfektion, it had no choice in connection with the sale of Combus, as yet another bankruptcy would have been devastating for negotiations with civil servants in connection with preparations for future privatisations.

| (173) | The Danish government furthermore explains that if it is not possible to transfer civil servants to a group contract in connection with privatisation, making the civil servants redundant is often the only real alternative because it would not be possible to offer them other work within their areas of employment which they would be obliged to accept. It has been estimated in connection with the sale of shares in Post Danmark that it costs DKK 2 million to make a civil servant redundant. Such expenditure per civil servant for future privatisations would be devastating for the State’s privatisation plans and the expenditure on this would, to a great extent, undermine the financial benefits of privatisation. It is clear that such expenditure would far exceed the financial burden to the State of the capital injections into Combus. |
| --- | --- |

(173)

The Danish government furthermore explains that if it is not possible to transfer civil servants to a group contract in connection with privatisation, making the civil servants redundant is often the only real alternative because it would not be possible to offer them other work within their areas of employment which they would be obliged to accept. It has been estimated in connection with the sale of shares in Post Danmark that it costs DKK 2 million to make a civil servant redundant. Such expenditure per civil servant for future privatisations would be devastating for the State’s privatisation plans and the expenditure on this would, to a great extent, undermine the financial benefits of privatisation. It is clear that such expenditure would far exceed the financial burden to the State of the capital injections into Combus.

| (174) | Beyond the issue of changing the status of civil servants in order to prepare companies for privatisation, Denmark considers that a bankruptcy of Combus would have damaged the State’s reputation as a responsible investor and would have had a negative influence on all the State’s financial activities and future investment options. In particular, the Danish government considers that a bankruptcy would have had a negative effect on interest rates and general loan terms for other State-owned companies. |
| --- | --- |

(174)

Beyond the issue of changing the status of civil servants in order to prepare companies for privatisation, Denmark considers that a bankruptcy of Combus would have damaged the State’s reputation as a responsible investor and would have had a negative influence on all the State’s financial activities and future investment options. In particular, the Danish government considers that a bankruptcy would have had a negative effect on interest rates and general loan terms for other State-owned companies.

| (175) | In conclusion, it is the Danish government’s view that the State — particularly in the light of the special problem that manifested itself in relation to the civil servants — would not have been acting as a responsible and loyal investor if it had chosen to allow Combus to become bankrupt. |
| --- | --- |

(175)

In conclusion, it is the Danish government’s view that the State — particularly in the light of the special problem that manifested itself in relation to the civil servants — would not have been acting as a responsible and loyal investor if it had chosen to allow Combus to become bankrupt.

| (176) | With respect to recital 88 of the decision to initiate the procedure, where the Commission stated that the ECJ only accepts consideration for the State’s reputation as grounds for an injection of capital if there is a prospect of the company becoming profitable enough to convince a private investor in the same situation to assume the risk at the time of carrying it out, the Danish government observes that Arriva actually assumed the risk for the undertaking when the company purchased Combus. |
| --- | --- |

(176)

With respect to recital 88 of the decision to initiate the procedure, where the Commission stated that the ECJ only accepts consideration for the State’s reputation as grounds for an injection of capital if there is a prospect of the company becoming profitable enough to convince a private investor in the same situation to assume the risk at the time of carrying it out, the Danish government observes that Arriva actually assumed the risk for the undertaking when the company purchased Combus.

4.1.3.   COMPATIBILITY WITH THE 1999 RESTRUCTURING GUIDELINES

| (177) | The Danish government considers that the contested measures fulfil all conditions set out in the 1999 restructuring guidelines. With respect to the points where the Commission had raised doubts in its decision to initiate the formal proceedings, the Danish government presents the following observations: |
| --- | --- |

(177)

The Danish government considers that the contested measures fulfil all conditions set out in the 1999 restructuring guidelines. With respect to the points where the Commission had raised doubts in its decision to initiate the formal proceedings, the Danish government presents the following observations:

| (178) | As regards the question of whether the aid measures in 1999 and 2001 respectively constitute one or two separate measures, the Danish government asserts that the measures were connected so closely chronologically and in purpose that they should be regarded as one aid measure. As a result of this, the 1999 restructuring guidelines should apply to this aid measure. Denmark justifies this point of view with several arguments. |
| --- | --- |

(178)

As regards the question of whether the aid measures in 1999 and 2001 respectively constitute one or two separate measures, the Danish government asserts that the measures were connected so closely chronologically and in purpose that they should be regarded as one aid measure. As a result of this, the 1999 restructuring guidelines should apply to this aid measure. Denmark justifies this point of view with several arguments.

| (179) | The Danish government notes in connection with this that the Commission stated the following in point 3.4.6 of the initial decision with regard to the question of ‘one time, last time’ aid:
  ‘In the case of Combus, the chronology and the purpose of the capital injections made by the Danish government, as well as Combus’ situation also suggest that the two measures should be treated as part of a continuing restructuring process. In particular, the first injection of capital in 1999 served to reduce the debts of the company that had resulted from the heavy losses in previous years. There had also been efforts to modify drivers’ contracts. The clear intention was the privatisation of the company, which forms the final part of the restructuring strategy.’ |
| --- | --- |

(179)

The Danish government notes in connection with this that the Commission stated the following in point 3.4.6 of the initial decision with regard to the question of ‘one time, last time’ aid:

‘In the case of Combus, the chronology and the purpose of the capital injections made by the Danish government, as well as Combus’ situation also suggest that the two measures should be treated as part of a continuing restructuring process. In particular, the first injection of capital in 1999 served to reduce the debts of the company that had resulted from the heavy losses in previous years. There had also been efforts to modify drivers’ contracts. The clear intention was the privatisation of the company, which forms the final part of the restructuring strategy.’

| (180) | The Commission maintained this opinion in paragraphs 50 and 54 of the defence it submitted to the CFI. In this connection, the Danish government would point out that the Commission’s assessment of the measures as being ‘one time, last time’ does not appear to have given rise to criticism in the Combus judgment (35). |
| --- | --- |

(180)

The Commission maintained this opinion in paragraphs 50 and 54 of the defence it submitted to the CFI. In this connection, the Danish government would point out that the Commission’s assessment of the measures as being ‘one time, last time’ does not appear to have given rise to criticism in the Combus judgment (35).

| (181) | The Danish government recalls that in Case T-11/95, BP Chemicals
   (36), the CFI found that the assessment as to whether it is reasonable to separate one payment from another is to be made taking into account the chronology of the injections of capital, their purpose and the company’s situation at the date when the decisions on the individual injections were made. |
| --- | --- |

(181)

The Danish government recalls that in Case T-11/95, BP Chemicals
   (36), the CFI found that the assessment as to whether it is reasonable to separate one payment from another is to be made taking into account the chronology of the injections of capital, their purpose and the company’s situation at the date when the decisions on the individual injections were made.

| (182) | The two measures had the same purpose. A political agreement on the reorganisation and sale of shares in Combus was entered into on 26 November 1998 when the then government reached an agreement with the opposition on the Budget for 1999) As expressly stated in the Finance Committee’s bill of 27 May 1999, the purpose of the injection of capital in 1999 was to reorganise Combus prior to selling the shares, i.e. fully privatising the company. |
| --- | --- |

(182)

The two measures had the same purpose. A political agreement on the reorganisation and sale of shares in Combus was entered into on 26 November 1998 when the then government reached an agreement with the opposition on the Budget for 1999) As expressly stated in the Finance Committee’s bill of 27 May 1999, the purpose of the injection of capital in 1999 was to reorganise Combus prior to selling the shares, i.e. fully privatising the company.

| (183) | The reason there was a need for reorganisation with a view to privatisation because a significant deterioration had taken place in the company’s economy. This was how it was established that Combus’ equity capital as at 31 December 1999 would come to approx. DKK 47 million, which should be seen in relation to a requirement for equity capital of at least DKK 125 million on the part of the company’s lenders. |
| --- | --- |

(183)

The reason there was a need for reorganisation with a view to privatisation because a significant deterioration had taken place in the company’s economy. This was how it was established that Combus’ equity capital as at 31 December 1999 would come to approx. DKK 47 million, which should be seen in relation to a requirement for equity capital of at least DKK 125 million on the part of the company’s lenders.

| (184) | The political agreement on privatisation could therefore only be carried out if the Danish government ensured that Combus had a sufficient capital base to continue operating until a buyer was found. |
| --- | --- |

(184)

The political agreement on privatisation could therefore only be carried out if the Danish government ensured that Combus had a sufficient capital base to continue operating until a buyer was found.

| (185) | The aid in 2001 had exactly the same purpose as the injection of capital in 1999. In 2000, a potential buyer was found and the writing off of the subordinated loan from 1999 and the guarantees provided were intended as the last piece in the economic puzzle that would allow the sale of all shares in Combus. The measure in 2001 was therefore the final stage in making the company more saleable. |
| --- | --- |

(185)

The aid in 2001 had exactly the same purpose as the injection of capital in 1999. In 2000, a potential buyer was found and the writing off of the subordinated loan from 1999 and the guarantees provided were intended as the last piece in the economic puzzle that would allow the sale of all shares in Combus. The measure in 2001 was therefore the final stage in making the company more saleable.

| (186) | The purpose of the two measures was therefore exactly the same: to make Combus more saleable with a view to privatisation. There was therefore a direct and obvious connection — legally, financially and logically — between the measures in 1999 and 2001. |
| --- | --- |

(186)

The purpose of the two measures was therefore exactly the same: to make Combus more saleable with a view to privatisation. There was therefore a direct and obvious connection — legally, financially and logically — between the measures in 1999 and 2001.

| (187) | The two measures have a close chronological connection. As a result of the political agreement on the privatisation of Combus, the Finance Committee’s bill of 27 May 1999 was passed. The Danish government hereby injected capital amounting to a total of DKK 300 million, DKK 100 million of which was subordinated loan capital. The subordinated loan capital was established through a loan agreement of 30 May 1999. |
| --- | --- |

(187)

The two measures have a close chronological connection. As a result of the political agreement on the privatisation of Combus, the Finance Committee’s bill of 27 May 1999 was passed. The Danish government hereby injected capital amounting to a total of DKK 300 million, DKK 100 million of which was subordinated loan capital. The subordinated loan capital was established through a loan agreement of 30 May 1999.

| (188) | The Finance Committee’s bill of 13 December 2000 authorised the Ministry of Transport to sell all shares in the public limited company, Combus, which was fully owned by the Danish State. |
| --- | --- |

(188)

The Finance Committee’s bill of 13 December 2000 authorised the Ministry of Transport to sell all shares in the public limited company, Combus, which was fully owned by the Danish State.

| (189) | The Minister of Transport was also authorised to provide a number of guarantees to buyers in connection with the conclusion of a sales agreement. The guarantees, mentioned in the bill, were part of the basis of the sales agreement of 15 January 2001. The Danish Parliament’s Finance Committee was informed of these guarantees in bill 190 of 25 June 2002. |
| --- | --- |

(189)

The Minister of Transport was also authorised to provide a number of guarantees to buyers in connection with the conclusion of a sales agreement. The guarantees, mentioned in the bill, were part of the basis of the sales agreement of 15 January 2001. The Danish Parliament’s Finance Committee was informed of these guarantees in bill 190 of 25 June 2002.

| (190) | Little more than 18 months passed between the date of the decision to pay the first injection of capital and the sale of Combus. Considering the size and importance of the company to the Danish State and the complicated procedures required to obtain tenders from interested buyers etc., the Danish government is of the opinion that the two capital injections were so closely connected chronologically that there can be no doubt that this was one — and only one — financial measure. |
| --- | --- |

(190)

Little more than 18 months passed between the date of the decision to pay the first injection of capital and the sale of Combus. Considering the size and importance of the company to the Danish State and the complicated procedures required to obtain tenders from interested buyers etc., the Danish government is of the opinion that the two capital injections were so closely connected chronologically that there can be no doubt that this was one — and only one — financial measure.

| (191) | In the opinion of the Danish government, it must be significant that the date of the decision to implement the measure in 2001 depended solely on when the Danish government had a sufficient basis for assessing the need for a capital injection and guarantees etc. in connection with a sale. The date of the measures in 2001 was therefore completely dependent on the duration and result of the sales process. |
| --- | --- |

(191)

In the opinion of the Danish government, it must be significant that the date of the decision to implement the measure in 2001 depended solely on when the Danish government had a sufficient basis for assessing the need for a capital injection and guarantees etc. in connection with a sale. The date of the measures in 2001 was therefore completely dependent on the duration and result of the sales process.

| (192) | In this context, the Danish government recalls also the facts of BP Chemicals, where the first injection was made on 1 October 1992, the second injection was approved by the Board on 2 December 1993 and the third injection was approved by the Board on 29 June 1994. |
| --- | --- |

(192)

In this context, the Danish government recalls also the facts of BP Chemicals, where the first injection was made on 1 October 1992, the second injection was approved by the Board on 2 December 1993 and the third injection was approved by the Board on 29 June 1994.

| (193) | The Court referred, in paragraph 178 of the judgement, to the decisions on the three capital injections being made over a relatively short period from October 1992 to July 1994. As regards the chronological relationship between the second and third capital injections, the Court commented that these were chronologically very close to each other. |
| --- | --- |

(193)

The Court referred, in paragraph 178 of the judgement, to the decisions on the three capital injections being made over a relatively short period from October 1992 to July 1994. As regards the chronological relationship between the second and third capital injections, the Court commented that these were chronologically very close to each other.

| (194) | In this context, the Danish government points out that the injection of capital in 2001 could not have been made earlier as the negotiations with the buyer had to be concluded before the extent of the need for capitalisation in connection with the sale could be determined. |
| --- | --- |

(194)

In this context, the Danish government points out that the injection of capital in 2001 could not have been made earlier as the negotiations with the buyer had to be concluded before the extent of the need for capitalisation in connection with the sale could be determined.

| (195) | Combus’s situation at the dates of the capital injections. The Danish government endorses the Commission’s description in recital 75 of the decision to initiate the procedure, according to which Combus was in serious financial difficulties in 1999 and 2001, which was mainly due to the company having entered into unprofitable contracts for bus transport in previous years. The Commission concludes that the financial situation in Combus was therefore unchanged at the stated dates. |
| --- | --- |

(195)

Combus’s situation at the dates of the capital injections. The Danish government endorses the Commission’s description in recital 75 of the decision to initiate the procedure, according to which Combus was in serious financial difficulties in 1999 and 2001, which was mainly due to the company having entered into unprofitable contracts for bus transport in previous years. The Commission concludes that the financial situation in Combus was therefore unchanged at the stated dates.

| (196) | The Danish government explains furthermore that, in 1998-2000, Combus had a significant accounting deficit, which can be almost exclusively attributed to the loss-making contracts in the Copenhagen area. In addition, in 1998 and 1999, significant amounts of DKK 65 000 000 and DKK 53 637 000 respectively were allocated to the accounts to cover future losses from the loss-making contracts. The requirement for provisions for loss-making contracts was due to the company being bound by the bus service contracts until their expiry. |
| --- | --- |

(196)

The Danish government explains furthermore that, in 1998-2000, Combus had a significant accounting deficit, which can be almost exclusively attributed to the loss-making contracts in the Copenhagen area. In addition, in 1998 and 1999, significant amounts of DKK 65 000 000 and DKK 53 637 000 respectively were allocated to the accounts to cover future losses from the loss-making contracts. The requirement for provisions for loss-making contracts was due to the company being bound by the bus service contracts until their expiry.

| (197) | The Danish government considers that, when the Court in BP Chemicals states that the decision as to whether it is one and the same aid measure has to take into account the ‘situation at the date when the decisions on the individual injections were made’, this must be because it is to be investigated whether, in the period between the individual injections, changes occurred in the company’s financial situation that demonstrate that the injections — despite any chronological and relative connection — actually cover different needs. In the view of the Danish government, this is not the case here, for the following reasons: |
| --- | --- |

(197)

The Danish government considers that, when the Court in BP Chemicals states that the decision as to whether it is one and the same aid measure has to take into account the ‘situation at the date when the decisions on the individual injections were made’, this must be because it is to be investigated whether, in the period between the individual injections, changes occurred in the company’s financial situation that demonstrate that the injections — despite any chronological and relative connection — actually cover different needs. In the view of the Danish government, this is not the case here, for the following reasons:

| (198) | The injections of capital in both 1999 and 2001 were intended to cover the need for capital that had arisen because the company had entered into loss-making contracts in the period prior to 1999. The fact that this was done in two stages is only because it was not until the conclusion of negotiations with the buyer Arriva that it became clear what the real extent of the need for capital was, although, seen objectively, this need already existed at the time of the first injection of capital in 1999. |
| --- | --- |

(198)

The injections of capital in both 1999 and 2001 were intended to cover the need for capital that had arisen because the company had entered into loss-making contracts in the period prior to 1999. The fact that this was done in two stages is only because it was not until the conclusion of negotiations with the buyer Arriva that it became clear what the real extent of the need for capital was, although, seen objectively, this need already existed at the time of the first injection of capital in 1999.

| (199) | Conclusion: It is therefore the Danish government’s opinion that all the criteria to which importance was attached in BP Chemicals as regards the assessment of whether several chronologically separate injections of capital constitute one and the same financial measure are met. Therefore the requirement for ‘one time, last time’ aid laid down in the restructuring guidelines is met in relation to the total injections of capital in 1999 and 2001. |
| --- | --- |

(199)

Conclusion: It is therefore the Danish government’s opinion that all the criteria to which importance was attached in BP Chemicals as regards the assessment of whether several chronologically separate injections of capital constitute one and the same financial measure are met. Therefore the requirement for ‘one time, last time’ aid laid down in the restructuring guidelines is met in relation to the total injections of capital in 1999 and 2001.

| (200) | It is the opinion of the Government that, following the injections of capital in 1999 and 2001, Combus was economically viable. The fact that it was not possible to achieve a profit prior to 2006 was only due to the loss-making contracts that Combus had entered into in connection with the licensing rounds. |
| --- | --- |

(200)

It is the opinion of the Government that, following the injections of capital in 1999 and 2001, Combus was economically viable. The fact that it was not possible to achieve a profit prior to 2006 was only due to the loss-making contracts that Combus had entered into in connection with the licensing rounds.

| (201) | The sale of all shares in Combus to Arriva is, in the opinion of the Danish government, proof that Combus was entirely viable after the provision of restructuring aid. A private investor such as Arriva would not have taken the significant financial risk of buying Combus unless Arriva had, following an extensive due diligence process, found that Combus was a viable company with a satisfactory future earnings potential in relation to standard market economy terms. |
| --- | --- |

(201)

The sale of all shares in Combus to Arriva is, in the opinion of the Danish government, proof that Combus was entirely viable after the provision of restructuring aid. A private investor such as Arriva would not have taken the significant financial risk of buying Combus unless Arriva had, following an extensive due diligence process, found that Combus was a viable company with a satisfactory future earnings potential in relation to standard market economy terms.

| (202) | The Government notes that, in recitals 107 and 108 of the decision to initiate the procedure, the Commission raised a question regarding, firstly, the termination of contracts and, secondly, the difference between the accumulated deficit and the aid paid. |
| --- | --- |

(202)

The Government notes that, in recitals 107 and 108 of the decision to initiate the procedure, the Commission raised a question regarding, firstly, the termination of contracts and, secondly, the difference between the accumulated deficit and the aid paid.

| (203) | The comments of the Danish government with respect to the possibility of terminating public service contracts have already been outlined above. |
| --- | --- |

(203)

The comments of the Danish government with respect to the possibility of terminating public service contracts have already been outlined above.

| (204) | As regards the question of the difference between the accumulated deficit of DKK 360 million in the period 2000-2005 and the total aid of DKK 291 million paid in 2001, the Government observes that the Commission’s statement must be due to a misunderstanding. |
| --- | --- |

(204)

As regards the question of the difference between the accumulated deficit of DKK 360 million in the period 2000-2005 and the total aid of DKK 291 million paid in 2001, the Government observes that the Commission’s statement must be due to a misunderstanding.

| (205) | The amount stated for the accumulated deficit in the period 2000-2005 is correct but funds were provided to Combus in 2001 exceeding this accumulated deficit. As regards the funds provided by the Government, these amounted to DKK 291 million, cf. the comments that, when calculating the amount of aid paid, it is clearly the actual amount paid under the guarantees that is to be included. |
| --- | --- |

(205)

The amount stated for the accumulated deficit in the period 2000-2005 is correct but funds were provided to Combus in 2001 exceeding this accumulated deficit. As regards the funds provided by the Government, these amounted to DKK 291 million, cf. the comments that, when calculating the amount of aid paid, it is clearly the actual amount paid under the guarantees that is to be included.

| (206) | A more important consideration, however, is that the amount paid by the Government should be added to the creditor’s debt remission of DKK 100 million. The capital provided in 2001 therefore exceeded the estimated accumulated deficit for the period 2000-2005. |
| --- | --- |

(206)

A more important consideration, however, is that the amount paid by the Government should be added to the creditor’s debt remission of DKK 100 million. The capital provided in 2001 therefore exceeded the estimated accumulated deficit for the period 2000-2005.

| (207) | The Danish government first considers that the 1999 restructuring guidelines must be interpreted to mean that the use of measures to mitigate the competition distorting effect of the aid on competitors is optional and is only to be demanded where such measures are necessary. This is emphasised by the use of the word ‘ought’ in point 35 of the guidelines and the whole of point 39 ii). Moreover, the Danish government points out that the Commission did not request or demand that Arriva make counter-concessions or implement measures that could mitigate potential distortion of competition in connection with the sale when adopting its initial decision. |
| --- | --- |

(207)

The Danish government first considers that the 1999 restructuring guidelines must be interpreted to mean that the use of measures to mitigate the competition distorting effect of the aid on competitors is optional and is only to be demanded where such measures are necessary. This is emphasised by the use of the word ‘ought’ in point 35 of the guidelines and the whole of point 39 ii). Moreover, the Danish government points out that the Commission did not request or demand that Arriva make counter-concessions or implement measures that could mitigate potential distortion of competition in connection with the sale when adopting its initial decision.

| (208) | Secondly, the Danish government points out that there is no structural overcapacity in the bus transport sector. In addition, it recalls that the Danish competition authorities have stated that there is particularly active and effective competition on the market and that the market is very accessible due to the low access barriers guaranteed by the European rules on tendering. Accordingly, the Danish government considers that there was no need to mitigate the potential adverse effects of the aid as there is no evidence of such adverse effects. |
| --- | --- |

(208)

Secondly, the Danish government points out that there is no structural overcapacity in the bus transport sector. In addition, it recalls that the Danish competition authorities have stated that there is particularly active and effective competition on the market and that the market is very accessible due to the low access barriers guaranteed by the European rules on tendering. Accordingly, the Danish government considers that there was no need to mitigate the potential adverse effects of the aid as there is no evidence of such adverse effects.

| (209) | Thirdly, the Danish government points out that the injection of capital into Combus corresponded to the company’s negative market price, established in an entirely open round of tenders, where all interested purchasers were able to submit bids, and that the aid measure did not therefore create distortion of competition on the market. |
| --- | --- |

(209)

Thirdly, the Danish government points out that the injection of capital into Combus corresponded to the company’s negative market price, established in an entirely open round of tenders, where all interested purchasers were able to submit bids, and that the aid measure did not therefore create distortion of competition on the market.

| (210) | Fourthly, the Danish government considers that the subsequent sale of a number of assets and liabilities to Connex constituted a measure capable of mitigating potential adverse effects on market conditions. By selling at least 50 % of the assets in Combus to Connex, Arriva certainly offset any potential competitive advantages that the company obtained through the purchase of Combus. Through the sale to Connex, Arriva also restricted its market share in the Copenhagen area significantly. |
| --- | --- |

(210)

Fourthly, the Danish government considers that the subsequent sale of a number of assets and liabilities to Connex constituted a measure capable of mitigating potential adverse effects on market conditions. By selling at least 50 % of the assets in Combus to Connex, Arriva certainly offset any potential competitive advantages that the company obtained through the purchase of Combus. Through the sale to Connex, Arriva also restricted its market share in the Copenhagen area significantly.

| (211) | Finally, the Danish government argues that the loss-making contracts will expire in 2006 at the latest and will subsequently be subject to public tenders open to all players on the market. Even if there were to be a negative effect on competition — which in the Danish government’s opinion would in any case be minimal — it would be limited in duration. |
| --- | --- |

(211)

Finally, the Danish government argues that the loss-making contracts will expire in 2006 at the latest and will subsequently be subject to public tenders open to all players on the market. Even if there were to be a negative effect on competition — which in the Danish government’s opinion would in any case be minimal — it would be limited in duration.

| (212) | The Danish government considers that the aid measures were limited to the absolute minimum and hence consistent with the relevant conditions in the 1999 restructuring guidelines. |
| --- | --- |

(212)

The Danish government considers that the aid measures were limited to the absolute minimum and hence consistent with the relevant conditions in the 1999 restructuring guidelines.

| (213) | The amount of the capital injection in 1999 was suggested by the law firm, Kromann Münter, after a survey by KPMG was carried out in connection with the restructuring of Combus and the Danish government’s financial adviser, Alfred Berg, concurred with this assessment. |
| --- | --- |

(213)

The amount of the capital injection in 1999 was suggested by the law firm, Kromann Münter, after a survey by KPMG was carried out in connection with the restructuring of Combus and the Danish government’s financial adviser, Alfred Berg, concurred with this assessment.

| (214) | As regards the injections of capital in 2001, the Danish government clarifies that the amounts were determined both by the company’s financial condition and the negotiations the Danish government had with Arriva and other potential buyers. As the amount of capital injection required was established after negotiations with interested buyers — who had registered as part of an open, transparent and non-discriminatory sales procedure — the aid measures were in line with the market price for the company and therefore naturally limited to what was strictly necessary. |
| --- | --- |

(214)

As regards the injections of capital in 2001, the Danish government clarifies that the amounts were determined both by the company’s financial condition and the negotiations the Danish government had with Arriva and other potential buyers. As the amount of capital injection required was established after negotiations with interested buyers — who had registered as part of an open, transparent and non-discriminatory sales procedure — the aid measures were in line with the market price for the company and therefore naturally limited to what was strictly necessary.

| (215) | In recital 119 of the decision to initiate the procedure, the Commission stated that the beneficiary itself must make a contribution to the restructuring plan. The Commission has stated that Arriva’s take-over of part of Combus’ debt constituted such a contribution. In this connection, the Commission asked for information on other contributions made by Combus and/or Arriva. |
| --- | --- |

(215)

In recital 119 of the decision to initiate the procedure, the Commission stated that the beneficiary itself must make a contribution to the restructuring plan. The Commission has stated that Arriva’s take-over of part of Combus’ debt constituted such a contribution. In this connection, the Commission asked for information on other contributions made by Combus and/or Arriva.

| (216) | The Danish government considers that the savings and rationalisations foreseen in the restructuring plans constitute a contribution from the beneficiary pursuant to point 40 of the Restructuring guidelines. Other contributions are, in the view of the Danish government, the sales price of DKK 100, the revenues from the sale of 50 % of Combus to Connex (DKK 113,9 million), and Arriva’s direct contribution to the restructuring costs of DKK 33,6 million. |
| --- | --- |

(216)

The Danish government considers that the savings and rationalisations foreseen in the restructuring plans constitute a contribution from the beneficiary pursuant to point 40 of the Restructuring guidelines. Other contributions are, in the view of the Danish government, the sales price of DKK 100, the revenues from the sale of 50 % of Combus to Connex (DKK 113,9 million), and Arriva’s direct contribution to the restructuring costs of DKK 33,6 million.

4.2.   COMMENTS SUBMITTED BY DANSKE BUSVOGNMAEND

4.2.1.   RESPECT OF THE MARKET ECONOMY INVESTOR PRINCIPLE

| (217) | Danske Busvognmaend considers that the prospect of Combus achieving viability and profitability has not been demonstrated. Rather to the contrary, Danske Busvognmaend, referring to paragraph 19 of the Combus judgment, finds it clear that a private investor would not have acted in the way the Danish government did when granting the aid. |
| --- | --- |

(217)

Danske Busvognmaend considers that the prospect of Combus achieving viability and profitability has not been demonstrated. Rather to the contrary, Danske Busvognmaend, referring to paragraph 19 of the Combus judgment, finds it clear that a private investor would not have acted in the way the Danish government did when granting the aid.

| (218) | In addition to the factual circumstances provided for by the Commission, Danske Busvognmaend refers to three reports presented subsequently to the Combus judgment in Denmark (37). According to Danske Busvognmaend, these reports affirm that a private investor would not have acted as the Danish government did in a similar situation. |
| --- | --- |

(218)

In addition to the factual circumstances provided for by the Commission, Danske Busvognmaend refers to three reports presented subsequently to the Combus judgment in Denmark (37). According to Danske Busvognmaend, these reports affirm that a private investor would not have acted as the Danish government did in a similar situation.

| (219) | Danske Busvognmaend recalls that when, in May 1999, the Danish government granted Combus economic aid of DKK 300 million, it based its action on the principle of the investor in a market economy (see page 22, note 36, of the application). The Transport Minister at the time made the following statement:
  ‘In summary, I consider that the injection of capital in Combus A/S by the Transport Minister does not constitute State aid and that this operation therefore does not have to be notified to the Commission, since the Minister had an assessment carried out which showed that the injection was necessary and sufficient, that the undertaking could be restructured to operate profitably, and that the additional capital invested could be expected to provide a return in the form of profit or interest and a repayment. I therefore consider this investment to be in line with the principle of the investor in a market economy’. |
| --- | --- |

(219)

Danske Busvognmaend recalls that when, in May 1999, the Danish government granted Combus economic aid of DKK 300 million, it based its action on the principle of the investor in a market economy (see page 22, note 36, of the application). The Transport Minister at the time made the following statement:

‘In summary, I consider that the injection of capital in Combus A/S by the Transport Minister does not constitute State aid and that this operation therefore does not have to be notified to the Commission, since the Minister had an assessment carried out which showed that the injection was necessary and sufficient, that the undertaking could be restructured to operate profitably, and that the additional capital invested could be expected to provide a return in the form of profit or interest and a repayment. I therefore consider this investment to be in line with the principle of the investor in a market economy’.

| (220) | Danske Busvognmaend states that the matter was then considered by the Danish Court of Auditors (see Annex A 22) and refers to the Court’s conclusions (Chapter V, pages 37 and 39 and, especially, pages 41 and 43) in which the Court explained in particular that:
  ‘The Court of Auditors’ investigation has shown that, when the file on the injection of capital into Combus was drawn up, the Transport Minister must have been aware of the undertaking’s poor management and the lack of a solid basis for taking any economic decisions, especially as regards monitoring the profitability of the bus transport contracts and the control of general cost trends.’ |
| --- | --- |

(220)

Danske Busvognmaend states that the matter was then considered by the Danish Court of Auditors (see Annex A 22) and refers to the Court’s conclusions (Chapter V, pages 37 and 39 and, especially, pages 41 and 43) in which the Court explained in particular that:

‘The Court of Auditors’ investigation has shown that, when the file on the injection of capital into Combus was drawn up, the Transport Minister must have been aware of the undertaking’s poor management and the lack of a solid basis for taking any economic decisions, especially as regards monitoring the profitability of the bus transport contracts and the control of general cost trends.’

| (221) | Danske Busvognmaend considers that the uncertainty as to whether the investment would return a profit was such that it is impossible to apply the principle of the investor in a market economy. It takes the view that the injection of DKK 300 million was made in May 1999 to prevent the undertaking from going bankrupt, which it was about to do (see point 38 of the reply and the citations therein). |
| --- | --- |

(221)

Danske Busvognmaend considers that the uncertainty as to whether the investment would return a profit was such that it is impossible to apply the principle of the investor in a market economy. It takes the view that the injection of DKK 300 million was made in May 1999 to prevent the undertaking from going bankrupt, which it was about to do (see point 38 of the reply and the citations therein).

| (222) | Danske Busvognmaend takes the view that the subsequent course of events was not that officially stated by the Transport Minister. From spring 2001 onwards, it was necessary to inject new capital and to cancel debt totalling DKK 240 million. Furthermore, private creditors had to find an arrangement for their loans which amounted to DKK 100 million. |
| --- | --- |

(222)

Danske Busvognmaend takes the view that the subsequent course of events was not that officially stated by the Transport Minister. From spring 2001 onwards, it was necessary to inject new capital and to cancel debt totalling DKK 240 million. Furthermore, private creditors had to find an arrangement for their loans which amounted to DKK 100 million.

| (223) | Danske Busvognmaend concludes that no investor in a market economy would have acted like the State had done since the capital could not be expected to be repaid. According to Danske Busvognmaend, a normal private investor would have tried to terminate the loss-making contracts and would have let other undertakings take them over, thus ensuring that Combus remained profitable. |
| --- | --- |

(223)

Danske Busvognmaend concludes that no investor in a market economy would have acted like the State had done since the capital could not be expected to be repaid. According to Danske Busvognmaend, a normal private investor would have tried to terminate the loss-making contracts and would have let other undertakings take them over, thus ensuring that Combus remained profitable.

| (224) | In support of this theory, Danske Busvognmaend points out that, in Case T-157/01, the Court of First Instance considers, in paragraph 94, that the Danish bus transport market is capable of adapting quickly to demands from the transport authorities and that, in the event of liquidation of an undertaking which has secured a contract, recourse may easily be had to other undertakings until a new round of tenders has been initiated. Consequently, in the eventuality that Combus were to be liquidated, its contracts could be taken over by other operators. |
| --- | --- |

(224)

In support of this theory, Danske Busvognmaend points out that, in Case T-157/01, the Court of First Instance considers, in paragraph 94, that the Danish bus transport market is capable of adapting quickly to demands from the transport authorities and that, in the event of liquidation of an undertaking which has secured a contract, recourse may easily be had to other undertakings until a new round of tenders has been initiated. Consequently, in the eventuality that Combus were to be liquidated, its contracts could be taken over by other operators.

| (225) | For Danske Busvognmaend, it is therefore clear that a private investor would have considered as carefully as possible whether it could transfer the existing contracts or declare the undertaking bankrupt. No such evaluation took place. A whole series of other operators in the bus transport market would clearly have been interested in taking over the bus routes. In the capital region especially, Combus was penalised because its bid was particularly low, and also because it would have to build the facilities which it did not have at its disposal (garages, etc.). It is conceivable that Arriva would have been interested in taking over contracts which Combus prevented it from obtaining since Arriva had the necessary installations at its disposal (garages, infrastructures, etc.), and could therefore run the transport operations at lower cost. |
| --- | --- |

(225)

For Danske Busvognmaend, it is therefore clear that a private investor would have considered as carefully as possible whether it could transfer the existing contracts or declare the undertaking bankrupt. No such evaluation took place. A whole series of other operators in the bus transport market would clearly have been interested in taking over the bus routes. In the capital region especially, Combus was penalised because its bid was particularly low, and also because it would have to build the facilities which it did not have at its disposal (garages, etc.). It is conceivable that Arriva would have been interested in taking over contracts which Combus prevented it from obtaining since Arriva had the necessary installations at its disposal (garages, infrastructures, etc.), and could therefore run the transport operations at lower cost.

| (226) | Danske Busvognmaend considers that certain statements by the Court of Justice of the European Communities suggest that it may be consistent with the principle of the investor in a market economy to provide help for an undertaking when trying to sell it since having the undertaking file for bankruptcy would cost more. However, for such a measure to be justifiable from the point of view of the investor in a market economy, there has to be documentation in the form of reliable economic figures to show that such a measure will provide better results for the public authorities than winding up or bankruptcy. According to Danske Busvognmaend, the Danish authorities have not provided any documents showing that it would have cost the State more to wind up Combus or declare it to be bankrupt than to keep it alive and sell it the way it was sold. On the contrary, it considers that it would have been more beneficial for the State to wind up Combus or declare it bankrupt. Transferring the contracts to other transport undertakings would have allowed the major losses and substantial debts which ensued to be avoided, and equipment and installations could have been sold to the other party at realistic prices. |
| --- | --- |

(226)

Danske Busvognmaend considers that certain statements by the Court of Justice of the European Communities suggest that it may be consistent with the principle of the investor in a market economy to provide help for an undertaking when trying to sell it since having the undertaking file for bankruptcy would cost more. However, for such a measure to be justifiable from the point of view of the investor in a market economy, there has to be documentation in the form of reliable economic figures to show that such a measure will provide better results for the public authorities than winding up or bankruptcy. According to Danske Busvognmaend, the Danish authorities have not provided any documents showing that it would have cost the State more to wind up Combus or declare it to be bankrupt than to keep it alive and sell it the way it was sold. On the contrary, it considers that it would have been more beneficial for the State to wind up Combus or declare it bankrupt. Transferring the contracts to other transport undertakings would have allowed the major losses and substantial debts which ensued to be avoided, and equipment and installations could have been sold to the other party at realistic prices.

4.2.2.   RESPECT OF THE 1999 RESTRUCTURING GUIDELINES

| (227) | Danske Busvognmaend considers that the conditions set out in the 1999 restructuring guidelines are not fulfilled. |
| --- | --- |

(227)

Danske Busvognmaend considers that the conditions set out in the 1999 restructuring guidelines are not fulfilled.

| (228) | Danske Busvognmaend considers the aid measures to constitute two separate aid measures. According to them, neither the Danish government nor Arriva has demonstrated that the aid measures should form two tranches of the same aid. Rather, the present case clearly indicates that Combus was a poorly managed company to the well awareness of the Danish government and that the financial support in 1999 was granted to Combus without a proper evaluation and follow-up, hence the need to grant further financial support in 2001. |
| --- | --- |

(228)

Danske Busvognmaend considers the aid measures to constitute two separate aid measures. According to them, neither the Danish government nor Arriva has demonstrated that the aid measures should form two tranches of the same aid. Rather, the present case clearly indicates that Combus was a poorly managed company to the well awareness of the Danish government and that the financial support in 1999 was granted to Combus without a proper evaluation and follow-up, hence the need to grant further financial support in 2001.

| (229) | Danske Busvognmaend considers that no restructuring plan has been provided by the Danish government prior to the first capital injection in 1999. In their view, it is not possible to submit a restructuring plan in arrears (38). Danske Busvognmaend opposes in this respect the Commission’s position as outlined in recitals 36, 48 and 49 of the decision to initiate the procedure. |
| --- | --- |

(229)

Danske Busvognmaend considers that no restructuring plan has been provided by the Danish government prior to the first capital injection in 1999. In their view, it is not possible to submit a restructuring plan in arrears (38). Danske Busvognmaend opposes in this respect the Commission’s position as outlined in recitals 36, 48 and 49 of the decision to initiate the procedure.

| (230) | Danske Busvognmaend contests that Combus would ever have been profitable and, hence, economically viable as a public enterprise. It considers that the economic viability could only be achieved through the sale to Arriva. It refers in this respect to the Commission’s decision to initiate the proceedings and the CFI’s stance in the Combus judgment, paragraphs 115 to 116. |
| --- | --- |

(230)

Danske Busvognmaend contests that Combus would ever have been profitable and, hence, economically viable as a public enterprise. It considers that the economic viability could only be achieved through the sale to Arriva. It refers in this respect to the Commission’s decision to initiate the proceedings and the CFI’s stance in the Combus judgment, paragraphs 115 to 116.

| (231) | It is Danske Busvognmaend position that the aid measures granted to Combus did de facto distort competition on the market, as they created the opportunity for Arriva to acquire market shares of up to approximately 70 % via the purchase of Combus. Consequently, Arriva came to hold a dominant position on the Danish market. Meanwhile, many bus companies found themselves on the verge of bankruptcy. In Danske Busvognmaend perspective, the Danish government did nothing to avoid distortions of competition; Combus did not renounce from any of its contracts when granted aid in 1999, while the aid measures in 2001 even awarded Arriva a profit. As a consequence, Arriva made a profit when selling a part of Combus to Connex, to the disadvantage of its competitors. |
| --- | --- |

(231)

It is Danske Busvognmaend position that the aid measures granted to Combus did de facto distort competition on the market, as they created the opportunity for Arriva to acquire market shares of up to approximately 70 % via the purchase of Combus. Consequently, Arriva came to hold a dominant position on the Danish market. Meanwhile, many bus companies found themselves on the verge of bankruptcy. In Danske Busvognmaend perspective, the Danish government did nothing to avoid distortions of competition; Combus did not renounce from any of its contracts when granted aid in 1999, while the aid measures in 2001 even awarded Arriva a profit. As a consequence, Arriva made a profit when selling a part of Combus to Connex, to the disadvantage of its competitors.

| (232) | In light of the guidelines and the condition to mitigate as far as possible any undue distortions on competition, Combus should at least have renounced from its contracts. In this respect, Danske Busvognmaend shares the stance of the Commission as outlined in the decision to initiate the procedure, recital 112. |
| --- | --- |

(232)

In light of the guidelines and the condition to mitigate as far as possible any undue distortions on competition, Combus should at least have renounced from its contracts. In this respect, Danske Busvognmaend shares the stance of the Commission as outlined in the decision to initiate the procedure, recital 112.

| (233) | Danske Busvognmaend considers that no consideration of this point at all was taken by the Danish government in relation to the sale of Combus and that there is no certainty that the sale took place at the market price, which would be the best way to ensure that the aid was limited to a minimum. |
| --- | --- |

(233)

Danske Busvognmaend considers that no consideration of this point at all was taken by the Danish government in relation to the sale of Combus and that there is no certainty that the sale took place at the market price, which would be the best way to ensure that the aid was limited to a minimum.

| (234) | Danske Busvognmaend considers that the Danish government has clearly recognised that there was no monitoring of the measure whereby the aid granted is limited to the minimum necessary. In this regard, it quotes page 6 of Annex K to the Combus case in which the Danish government states: ‘The negotiated capital injection, which Arriva has required in order to take over the shares, is based on a business case which is of course not known to the seller’. In Annex I, page 6, it also states: ‘The government finds that the required capital injection by Arriva reflects the present market value of the company, etc.’. |
| --- | --- |

(234)

Danske Busvognmaend considers that the Danish government has clearly recognised that there was no monitoring of the measure whereby the aid granted is limited to the minimum necessary. In this regard, it quotes page 6 of Annex K to the Combus case in which the Danish government states: ‘The negotiated capital injection, which Arriva has required in order to take over the shares, is based on a business case which is of course not known to the seller’. In Annex I, page 6, it also states: ‘The government finds that the required capital injection by Arriva reflects the present market value of the company, etc.’.

| (235) | Danske Busvognmaend believes there are good reasons for seriously doubting whether the aid granted to Combus in conjunction with the sale to Arriva was restricted to the minimum. On the contrary, it takes the view that Arriva got a good deal and refers in this regard to Chapter 8 of its memo of 24 February 2003. It comments that the Danish government should have called in independent experts during the sale, as the Commission often provides for during the divestiture of assets, and that the sale was not on transparent terms, nor were the procedures open to all competitors in a given field. |
| --- | --- |

(235)

Danske Busvognmaend believes there are good reasons for seriously doubting whether the aid granted to Combus in conjunction with the sale to Arriva was restricted to the minimum. On the contrary, it takes the view that Arriva got a good deal and refers in this regard to Chapter 8 of its memo of 24 February 2003. It comments that the Danish government should have called in independent experts during the sale, as the Commission often provides for during the divestiture of assets, and that the sale was not on transparent terms, nor were the procedures open to all competitors in a given field.

4.3.   COMMENTS SUBMITTED BY ARRIVA

| (236) | The Commission received also comments from Arriva Denmark A/S. These concerned only a factual point, namely the sales price agreed between Arriva and Connex, and are thus outlined in part II of the present decision. |
| --- | --- |

(236)

The Commission received also comments from Arriva Denmark A/S. These concerned only a factual point, namely the sales price agreed between Arriva and Connex, and are thus outlined in part II of the present decision.

5.   REPLY OF THE DANISH GOVERNMENT TO THE COMMENTS SUBMITTED BY DANSKE BUSVOGNMAEND AND ARRIVA

5.1.   THE MARKET ECONOMY INVESTOR PRINCIPLE

| (237) | First of all, the Danish government considers that by quoting the passage of the report of the Office of the Auditor General of Denmark out of context, Danske Busvognmaend is giving a distorted impression. According to the Danish government, the quoted passage is from page 47 of the report, under the heading ‘Remarks by the Office of the Auditor General of Denmark’, and relates to the factual information which formed the basis for the bill presented by the Ministry of Transport to the Parliamentary Finance Committee, which was the legal basis for the capital injection of DKK 300 million being made into Combus. |
| --- | --- |

(237)

First of all, the Danish government considers that by quoting the passage of the report of the Office of the Auditor General of Denmark out of context, Danske Busvognmaend is giving a distorted impression. According to the Danish government, the quoted passage is from page 47 of the report, under the heading ‘Remarks by the Office of the Auditor General of Denmark’, and relates to the factual information which formed the basis for the bill presented by the Ministry of Transport to the Parliamentary Finance Committee, which was the legal basis for the capital injection of DKK 300 million being made into Combus.

| (238) | On page 47, the Office of the Auditor General says of the basis for the bill:
  ‘From the information in the bill, it must be understood that, after factoring in a provision of DKK 65 million in the company's annual accounts for 1998, the impression of Combus’ financial situation at the end of 1998 was reasonably accurate and thereby also a reasonable starting point for establishing the company’s need for capital. But the Ministry of Transport did not state that the financial information on the basis of which the provision of DKK 65 million was fixed was merely derived from budgets, estimates and planned savings according to the company’s board.
  The Office of the Auditor General of Denmark takes the view that the Ministry of Transport was responsible for assessing the material presented with a view to providing the Minister and the Finance Committee with all relevant information in connection with the bill. The Ministry of Transport should not have introduced a bill on the existing basis. Alternatively, the Ministry should have emphasised, taking into account the need for a quick injection of capital into Combus, that the bill was only based on general budgets and estimates drawn up by the company.’ |
| --- | --- |

(238)

On page 47, the Office of the Auditor General says of the basis for the bill:

‘From the information in the bill, it must be understood that, after factoring in a provision of DKK 65 million in the company's annual accounts for 1998, the impression of Combus’ financial situation at the end of 1998 was reasonably accurate and thereby also a reasonable starting point for establishing the company’s need for capital. But the Ministry of Transport did not state that the financial information on the basis of which the provision of DKK 65 million was fixed was merely derived from budgets, estimates and planned savings according to the company’s board.

The Office of the Auditor General of Denmark takes the view that the Ministry of Transport was responsible for assessing the material presented with a view to providing the Minister and the Finance Committee with all relevant information in connection with the bill. The Ministry of Transport should not have introduced a bill on the existing basis. Alternatively, the Ministry should have emphasised, taking into account the need for a quick injection of capital into Combus, that the bill was only based on general budgets and estimates drawn up by the company.’

| (239) | According to the Danish government, the Office of the Auditor General was not therefore criticising the fact that the Ministry recommended the capital injection of DKK 300 million, but rather the fact that it did not emphasise to the Finance Committee that the bill was based on budgets and estimates drawn up by Combus’ board. As an injection of capital was urgently required, the Ministry of Transport had no choice but to recommend the capital injection which was considered necessary to avoid bankruptcy and therefore also necessary if Combus was to be sold. |
| --- | --- |

(239)

According to the Danish government, the Office of the Auditor General was not therefore criticising the fact that the Ministry recommended the capital injection of DKK 300 million, but rather the fact that it did not emphasise to the Finance Committee that the bill was based on budgets and estimates drawn up by Combus’ board. As an injection of capital was urgently required, the Ministry of Transport had no choice but to recommend the capital injection which was considered necessary to avoid bankruptcy and therefore also necessary if Combus was to be sold.

| (240) | Secondly, the Danish government points out that the comments by Danske Busvognmaend focus exclusively on the question of the extent to which a private investor would have made a similar capital injection in 1999 based on the expectation that a future profit from Combus in itself would give a suitable return on the investment. |
| --- | --- |

(240)

Secondly, the Danish government points out that the comments by Danske Busvognmaend focus exclusively on the question of the extent to which a private investor would have made a similar capital injection in 1999 based on the expectation that a future profit from Combus in itself would give a suitable return on the investment.

| (241) | However, the Danish government’s view on the market economy investor principle is not merely based on the direct return which could reasonably be expected on the State’s investment. On the contrary, account must be taken of the latent indirect losses and damaging effects on, amongst other things, future privatisations, which bankruptcy would entail. |
| --- | --- |

(241)

However, the Danish government’s view on the market economy investor principle is not merely based on the direct return which could reasonably be expected on the State’s investment. On the contrary, account must be taken of the latent indirect losses and damaging effects on, amongst other things, future privatisations, which bankruptcy would entail.

| (242) | Thirdly, the Danish government refutes the assertion that there were buyers interested in acquiring the loss-making contracts. Even if there had been any such buyers, a transfer would merely have meant immediate confirmation of the losses on the contracts and thereby immediate, incalculable financial consequences for Combus. |
| --- | --- |

(242)

Thirdly, the Danish government refutes the assertion that there were buyers interested in acquiring the loss-making contracts. Even if there had been any such buyers, a transfer would merely have meant immediate confirmation of the losses on the contracts and thereby immediate, incalculable financial consequences for Combus.

| (243) | The Danish government also disagrees that any bus operator would have taken on the loss-making contracts at anything above the contracts’ negative value. A sale of the contracts would therefore only have been possible for a negative purchase price. In any case, the sale of individual contracts and/or individual fixed assets or operating assets would not be a more profitable solution than an overall sale. This view is supported by the Office of the Auditor General of Denmark (39). |
| --- | --- |

(243)

The Danish government also disagrees that any bus operator would have taken on the loss-making contracts at anything above the contracts’ negative value. A sale of the contracts would therefore only have been possible for a negative purchase price. In any case, the sale of individual contracts and/or individual fixed assets or operating assets would not be a more profitable solution than an overall sale. This view is supported by the Office of the Auditor General of Denmark (39).

| (244) | With reference to paragraph 94 in the Combus judgment, Danske Busvognmaend states that other operators could have taken over Combus’ transport contracts at short notice in the event of the company going bankrupt. The Danish government considers that this may be correct, but that this has no bearing on the legal assessment of whether the State acted in accordance with the market economy investor principle. The information may, however, be useful with regard to the question of the extent to which Combus going bankrupt would affect the management of public transport and any disruptions to transport services. |
| --- | --- |

(244)

With reference to paragraph 94 in the Combus judgment, Danske Busvognmaend states that other operators could have taken over Combus’ transport contracts at short notice in the event of the company going bankrupt. The Danish government considers that this may be correct, but that this has no bearing on the legal assessment of whether the State acted in accordance with the market economy investor principle. The information may, however, be useful with regard to the question of the extent to which Combus going bankrupt would affect the management of public transport and any disruptions to transport services.

5.2.   RESTRUCTURING AID

| (245) | With respect to the arguments presented by Danske Busvognmaend, the Danish government states that any reservation regarding the payment of aid on subsequent occasions does not affect whether more than one amount of aid can be regarded as a single aid measure paid out in more than one instalment. On the contrary, the decisive factor in this connection is an overall assessment of whether the individual amounts of aid are connected in time and purpose in such a way that they can be regarded as a single aid measure. |
| --- | --- |

(245)

With respect to the arguments presented by Danske Busvognmaend, the Danish government states that any reservation regarding the payment of aid on subsequent occasions does not affect whether more than one amount of aid can be regarded as a single aid measure paid out in more than one instalment. On the contrary, the decisive factor in this connection is an overall assessment of whether the individual amounts of aid are connected in time and purpose in such a way that they can be regarded as a single aid measure.

| (246) | The Danish government concedes that no restructuring plan had been submitted to the Commission when the capital injection of DKK 300 million was made, or when agreement was reached with Arriva in November 2000 on the principles of the sale. |
| --- | --- |

(246)

The Danish government concedes that no restructuring plan had been submitted to the Commission when the capital injection of DKK 300 million was made, or when agreement was reached with Arriva in November 2000 on the principles of the sale.

| (247) | However, the Danish government does not share the interpretation Danske Busvognmaend makes of the judgment of the Court of Justice in Case C-17/99, France v Commission, namely that a restructuring plan cannot be submitted to the Commission any longer, once the Member State has granted the aid. |
| --- | --- |

(247)

However, the Danish government does not share the interpretation Danske Busvognmaend makes of the judgment of the Court of Justice in Case C-17/99, France v Commission, namely that a restructuring plan cannot be submitted to the Commission any longer, once the Member State has granted the aid.

| (248) | The Danish government first points out that the 1999 restructuring guidelines contain no rules or instructions on the question of when a restructuring plan has to be submitted to the Commission. The only clear condition is that the Commission cannot approve restructuring aid unless it has previously received a restructuring plan. |
| --- | --- |

(248)

The Danish government first points out that the 1999 restructuring guidelines contain no rules or instructions on the question of when a restructuring plan has to be submitted to the Commission. The only clear condition is that the Commission cannot approve restructuring aid unless it has previously received a restructuring plan.

| (249) | The Danish government considers that even in cases where an aid measure is implemented without first notifying the Commission, the Commission must check that the aid satisfies the conditions for approval. This is provided for, inter alia, in Article 13(2) of Regulation (EC) No 659/1999 (hereinafter referred to as ‘the Procedural Regulation’). It considers that it is therefore perfectly satisfactory for the Commission to receive a restructuring plan which is approved before the Commission decides whether the State aid is compatible with the common market. |
| --- | --- |

(249)

The Danish government considers that even in cases where an aid measure is implemented without first notifying the Commission, the Commission must check that the aid satisfies the conditions for approval. This is provided for, inter alia, in Article 13(2) of Regulation (EC) No 659/1999 (hereinafter referred to as ‘the Procedural Regulation’). It considers that it is therefore perfectly satisfactory for the Commission to receive a restructuring plan which is approved before the Commission decides whether the State aid is compatible with the common market.

| (250) | With respect to paragraph 43 in Case C-17/99, France v Commission
   (40), the Danish government points out that according to paragraph 41, the Commission stated, in the decision which was the subject of the case, that ‘the French Government did not submit a credible restructuring plan to the Commission’ and ‘[n]or has any such plan been submitted to the Commission by the French authorities since the proceedings were initiated.’ |
| --- | --- |

(250)

With respect to paragraph 43 in Case C-17/99, France v Commission
   (40), the Danish government points out that according to paragraph 41, the Commission stated, in the decision which was the subject of the case, that ‘the French Government did not submit a credible restructuring plan to the Commission’ and ‘[n]or has any such plan been submitted to the Commission by the French authorities since the proceedings were initiated.’

| (251) | For the Danish government, it is clear from the wording used by the Commission that it would have been sufficient to satisfy the conditions in the 1999 restructuring guidelines for a restructuring plan to submit a restructuring plan after the initiation of formal proceedings. The decisive factor was therefore not the point in time when the restructuring plan is submitted, but the fact that it is submitted before the Commission reaches its final decision. |
| --- | --- |

(251)

For the Danish government, it is clear from the wording used by the Commission that it would have been sufficient to satisfy the conditions in the 1999 restructuring guidelines for a restructuring plan to submit a restructuring plan after the initiation of formal proceedings. The decisive factor was therefore not the point in time when the restructuring plan is submitted, but the fact that it is submitted before the Commission reaches its final decision.

| (252) | The Danish government therefore considers that the restructuring plans of 8 and 23 January 2001 were submitted in time, and that they satisfied the conditions in the 1999 restructuring guidelines. |
| --- | --- |

(252)

The Danish government therefore considers that the restructuring plans of 8 and 23 January 2001 were submitted in time, and that they satisfied the conditions in the 1999 restructuring guidelines.

| (253) | In its submissions of February and April 2007, the Danish government points out that a financial and an operational restructuring plan have been available when the Danish parliaments’ finance committee approved the 1999 capital injection. |
| --- | --- |

(253)

In its submissions of February and April 2007, the Danish government points out that a financial and an operational restructuring plan have been available when the Danish parliaments’ finance committee approved the 1999 capital injection.

| (254) | The Danish government considers that Arriva’s sale to Connex did not result in a profit which exceeded the expectations and calculations of the Danish government and Arriva at the moment of the sale of Combus to Arriva. |
| --- | --- |

(254)

The Danish government considers that Arriva’s sale to Connex did not result in a profit which exceeded the expectations and calculations of the Danish government and Arriva at the moment of the sale of Combus to Arriva.

| (255) | In response to the claim of Danske Busvognmaend, according to which the sale was not subject to a public tender, the Danish government argues that the sales process was particularly protracted, competitive, non-discriminatory and transparent, and the final price did not differ significantly from the original bid. |
| --- | --- |

(255)

In response to the claim of Danske Busvognmaend, according to which the sale was not subject to a public tender, the Danish government argues that the sales process was particularly protracted, competitive, non-discriminatory and transparent, and the final price did not differ significantly from the original bid.

| (256) | In response to the claim that there were no independent checks of the market price, the Danish government points out that the sale had to be approved by the Parliamentary Finance Committee on the basis of financial analyses carried out by the financial adviser to the State, Alfred Berg. The Danish government considers that this constitutes a sufficient check. In the view of the Danish government, the passages from the Annex to the CFI case, cited by Danske Busvognmaend, contain no acknowledgement of any failure to check that the aid was kept to a minimum. |
| --- | --- |

(256)

In response to the claim that there were no independent checks of the market price, the Danish government points out that the sale had to be approved by the Parliamentary Finance Committee on the basis of financial analyses carried out by the financial adviser to the State, Alfred Berg. The Danish government considers that this constitutes a sufficient check. In the view of the Danish government, the passages from the Annex to the CFI case, cited by Danske Busvognmaend, contain no acknowledgement of any failure to check that the aid was kept to a minimum.

| (257) | The Danish government furthermore explains that after the sale, three independent investigations have been carried out on the sales price, namely the ‘Report on the investigation of Combus A/S’, the ‘Solicitor's investigation on the State’s management of the ownership of Combus A/S’ and the ‘Report from the Auditor General’. |
| --- | --- |

(257)

The Danish government furthermore explains that after the sale, three independent investigations have been carried out on the sales price, namely the ‘Report on the investigation of Combus A/S’, the ‘Solicitor's investigation on the State’s management of the ownership of Combus A/S’ and the ‘Report from the Auditor General’.

| (258) | Against this background the Danish government disagrees that no checks were carried out as to whether the aid was limited to a minimum. The reference to Annexes K and I to the case by Danske Busvognmaend has no bearing whatsoever on the matter of whether the aid was limited to a minimum. However, the quotes clearly show that the sale to Arriva was prepared on the basis of a business case, and that the sales price reflected the market price. |
| --- | --- |

(258)

Against this background the Danish government disagrees that no checks were carried out as to whether the aid was limited to a minimum. The reference to Annexes K and I to the case by Danske Busvognmaend has no bearing whatsoever on the matter of whether the aid was limited to a minimum. However, the quotes clearly show that the sale to Arriva was prepared on the basis of a business case, and that the sales price reflected the market price.

| (259) | Finally, the Danish government does not consider that using independent auditors would have resulted in a different assessment or in a different sale price for the Combus shares. For the Danish government, the decisive test was the market test. |
| --- | --- |

(259)

Finally, the Danish government does not consider that using independent auditors would have resulted in a different assessment or in a different sale price for the Combus shares. For the Danish government, the decisive test was the market test.

6.   LEGAL ASSESSMENT OF THE COMMISSION

6.1.   ASSESSMENT OF THE EXISTENCE OF AID WITHIN THE MEANING OF ARTICLE 87(1) EC TREATY

| (260) | Article 87(1) EC foresees that, ‘save as otherwise provided in the EC Treaty, any aid granted by a Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market’. |
| --- | --- |

(260)

Article 87(1) EC foresees that, ‘save as otherwise provided in the EC Treaty, any aid granted by a Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market’.

6.1.1.   PRELIMINARY QUESTION: DO THE 1999 AND THE 2001 MEASURES CONSTITUTE ONE SINGLE OR TWO SEPARATE MEASURES TO BE ASSESSED UNDER ARTICLE 87(1) EC TREATY?

| (261) | As described above, Combus received financial support from the Danish government in the form of capital injections (in 1999 and in 2001), of a subordinated loan (in 1999), of the subsequent conversion of the subordinated loan into share capital and of guarantees given to the buyer (in 2001). It is therefore important for the application of Article 87(1) EC treaty to establish whether the financial support granted during the privatisation process in 1999 and 2001 respectively constitutes two tranches of a single measure or two separate measures. |
| --- | --- |

(261)

As described above, Combus received financial support from the Danish government in the form of capital injections (in 1999 and in 2001), of a subordinated loan (in 1999), of the subsequent conversion of the subordinated loan into share capital and of guarantees given to the buyer (in 2001). It is therefore important for the application of Article 87(1) EC treaty to establish whether the financial support granted during the privatisation process in 1999 and 2001 respectively constitutes two tranches of a single measure or two separate measures.

| (262) | The CFI has in BP Chemicals considered the following considerations to be relevant in making such a determination:






  — | The chronology of the capital injections in question; |
| --- | --- | --- |

(262)

The CFI has in BP Chemicals considered the following considerations to be relevant in making such a determination:

—

The chronology of the capital injections in question;

| — | Their purpose; |
| --- | --- |

—

Their purpose;

| — | The situation of the company at the time when the decision to make an injection was made (41). |
| --- | --- |

—

The situation of the company at the time when the decision to make an injection was made (41).

| (263) | The Commission, in the light of the observations of the Danish government and third parties, will hereinafter assess whether the criteria established by the CFI in BP Chemicals are fulfilled in the present case. |
| --- | --- |

(263)

The Commission, in the light of the observations of the Danish government and third parties, will hereinafter assess whether the criteria established by the CFI in BP Chemicals are fulfilled in the present case.

| (264) | The measures were taken respectively on 27 May 1999 and 15 January 2001. Therefore, approximately 18 months elapsed between the two decisions. |
| --- | --- |

(264)

The measures were taken respectively on 27 May 1999 and 15 January 2001. Therefore, approximately 18 months elapsed between the two decisions.

| (265) | The Danish government argues that in the light of the complexity of the privatisation process, 18 months constitute a reasonably short period of time. It also refers in this context to BP Chemicals, where the time between the first and the last tranche of the aid was 22 months. |
| --- | --- |

(265)

The Danish government argues that in the light of the complexity of the privatisation process, 18 months constitute a reasonably short period of time. It also refers in this context to BP Chemicals, where the time between the first and the last tranche of the aid was 22 months.

| (266) | The Commission is not convinced by the arguments put forward by the Danish government. First of all, there is an important factual difference between the BP Chemicals file and the present case. In BP Chemicals, the public undertaking ENI made three capital injections into ENIChem, which took place in 1992, 1993 and 1994. The CFI had to verify whether the Commission had rightly qualified the third capital injection as fulfilling the private investor test, whereas the first two had been qualified as State aid. The CFI found with respect to the chronology of the measures that the third capital injection was already foreseen by a restructuring plan, which had been adopted by the board of ENI the same day as the second capital injection, in December 1993. The actual decision to authorise the third capital injection had been taken less than a month later, in January 1994. |
| --- | --- |

(266)

The Commission is not convinced by the arguments put forward by the Danish government. First of all, there is an important factual difference between the BP Chemicals file and the present case. In BP Chemicals, the public undertaking ENI made three capital injections into ENIChem, which took place in 1992, 1993 and 1994. The CFI had to verify whether the Commission had rightly qualified the third capital injection as fulfilling the private investor test, whereas the first two had been qualified as State aid. The CFI found with respect to the chronology of the measures that the third capital injection was already foreseen by a restructuring plan, which had been adopted by the board of ENI the same day as the second capital injection, in December 1993. The actual decision to authorise the third capital injection had been taken less than a month later, in January 1994.

| (267) | In the present case, on the contrary, nothing indicates that the Danish authorities planned in 1999, when they decided the first capital injection, to proceed with a second capital injection at a later stage of the restructuring. On the contrary: the first capital injection had been calculated in a way that it should be sufficient to restore in itself the economic viability of Combus. The second capital injection has been decided more than one year and six months after the first capital injection in December 2000, when it became clear that the first capital injection had not been sufficient. |
| --- | --- |

(267)

In the present case, on the contrary, nothing indicates that the Danish authorities planned in 1999, when they decided the first capital injection, to proceed with a second capital injection at a later stage of the restructuring. On the contrary: the first capital injection had been calculated in a way that it should be sufficient to restore in itself the economic viability of Combus. The second capital injection has been decided more than one year and six months after the first capital injection in December 2000, when it became clear that the first capital injection had not been sufficient.

| (268) | There are, in conclusion, two important arguments from a chronological point of view for considering that the two capital injections constitute two separate measures:






  — | The second capital injection has not been foreseen by the Danish authorities at the point in time when they decided to make the first capital injection, whereas this had been the case in BP Chemicals; |
| --- | --- | --- |

(268)

There are, in conclusion, two important arguments from a chronological point of view for considering that the two capital injections constitute two separate measures:

—

The second capital injection has not been foreseen by the Danish authorities at the point in time when they decided to make the first capital injection, whereas this had been the case in BP Chemicals;

| — | The second capital injection was decided one year and six months after the first capital injection, whereas in BP Chemicals, there was only one month between the two measures. |
| --- | --- |

—

The second capital injection was decided one year and six months after the first capital injection, whereas in BP Chemicals, there was only one month between the two measures.

| (269) | The Danish government is of the opinion that the 1999 and the 2001 measures had the same purpose, namely to restructure and to recapitalise Combus in view of its successful privatisation. |
| --- | --- |

(269)

The Danish government is of the opinion that the 1999 and the 2001 measures had the same purpose, namely to restructure and to recapitalise Combus in view of its successful privatisation.

| (270) | The Commission does not share this point of view. The detailed description of the facts above shows that the capital injection in 1999 was decided in order to avoid the imminent bankruptcy of Combus. It did not have as a purpose the privatisation of Combus, but rather had become necessary because the first attempt to privatising Combus had failed. |
| --- | --- |

(270)

The Commission does not share this point of view. The detailed description of the facts above shows that the capital injection in 1999 was decided in order to avoid the imminent bankruptcy of Combus. It did not have as a purpose the privatisation of Combus, but rather had become necessary because the first attempt to privatising Combus had failed.

| (271) | The second capital injection served the purpose of increasing the capital of Combus to a level where the purchaser, Arriva, was willing to pay a symbolic price for the undertaking. |
| --- | --- |

(271)

The second capital injection served the purpose of increasing the capital of Combus to a level where the purchaser, Arriva, was willing to pay a symbolic price for the undertaking.

| (272) | The Commission recognises that both capital injections have been accompanied by restructuring measures, and that both capital injections have been linked to absorbing the losses generated by the contracts for which Combus had made offers which were too low. |
| --- | --- |

(272)

The Commission recognises that both capital injections have been accompanied by restructuring measures, and that both capital injections have been linked to absorbing the losses generated by the contracts for which Combus had made offers which were too low.

| (273) | Nevertheless, it takes the view that the primary purpose of the two capital injections was different, namely the prevention of bankruptcy in the first case and the preparation of privatisation in the second case. |
| --- | --- |

(273)

Nevertheless, it takes the view that the primary purpose of the two capital injections was different, namely the prevention of bankruptcy in the first case and the preparation of privatisation in the second case.

| (274) | The situation of Combus at the time of the measures had not significantly changed, as it was experiencing losses, mainly due to the public-service contracts concluded at a price at which it could not produce the services. |
| --- | --- |

(274)

The situation of Combus at the time of the measures had not significantly changed, as it was experiencing losses, mainly due to the public-service contracts concluded at a price at which it could not produce the services.

| (275) | In conclusion, the Commission, having taken the submissions of the parties into consideration, and applying the reasoning of the CFI in BP Chemicals, finds that the two tranches of restructuring measures taken in 1999 and 2001 respectively constitute two separate measures for the assessment under Article 87(1) EC treaty. Three main reasons motivate this assessment:






  — | The 2001 capital injection was not foreseen at the time the 1999 capital injection was decided. On the contrary: the Danish authorities assumed that the 1999 capital injection was sufficient. |
| --- | --- | --- |

(275)

In conclusion, the Commission, having taken the submissions of the parties into consideration, and applying the reasoning of the CFI in BP Chemicals, finds that the two tranches of restructuring measures taken in 1999 and 2001 respectively constitute two separate measures for the assessment under Article 87(1) EC treaty. Three main reasons motivate this assessment:

—

The 2001 capital injection was not foreseen at the time the 1999 capital injection was decided. On the contrary: the Danish authorities assumed that the 1999 capital injection was sufficient.

| — | There has been a period of one year and six months between the decision to proceed with the first capital injection and the decision to proceed with the second capital injection. |
| --- | --- |

—

There has been a period of one year and six months between the decision to proceed with the first capital injection and the decision to proceed with the second capital injection.

| — | The purpose of the first capital injection was to avoid the imminent bankruptcy of Combus, whereas the purpose of the second capital injection was to render the privatisation for a symbolic positive value possible. |
| --- | --- |

—

The purpose of the first capital injection was to avoid the imminent bankruptcy of Combus, whereas the purpose of the second capital injection was to render the privatisation for a symbolic positive value possible.

| (276) | Accordingly, they will be analysed as two different measures in the reminder of the legal assessment. |
| --- | --- |

(276)

Accordingly, they will be analysed as two different measures in the reminder of the legal assessment.

6.1.2.   STATE RESOURCES AND SPECIFICITY

| (277) | Denmark financed both measures from its budget. The measures were thus financed from State resources. |
| --- | --- |

(277)

Denmark financed both measures from its budget. The measures were thus financed from State resources.

| (278) | The measures concern one single undertaking, Combus, and are thus specific. |
| --- | --- |

(278)

The measures concern one single undertaking, Combus, and are thus specific.

6.1.3.   EXISTENCE OF AN ADVANTAGE FOR THE BENEFICIARY UNDERTAKING

| (279) | In order to be qualified as State aid, the measures must confer an advantage on the firm. In this connection, two questions arise:






  (i) | The measures do not confer an advantage to Combus if the Danish government behaved as a private investor in a market economy. |
| --- | --- | --- |

(279)

In order to be qualified as State aid, the measures must confer an advantage on the firm. In this connection, two questions arise:

(i)

The measures do not confer an advantage to Combus if the Danish government behaved as a private investor in a market economy.

| (ii) | The measures do not confer an advantage for Combus, if they serve only to compensate the company for obligations of public service and respect the four Altmark criteria. |
| --- | --- |

(ii)

The measures do not confer an advantage for Combus, if they serve only to compensate the company for obligations of public service and respect the four Altmark criteria.

| (280) | The essence of the market economy investor principle was established by the Commission in its Communication to the Member States on the application of Articles 92 and 93 of the EU Treaty and Article 5 of Commission Directive 80/723/EEC concerning public companies in the manufacturing sector, (hereinafter referred to as ‘the Communication’) (42). In addition hereto, judgments by the ECJ and the CFI have given the notion further precision (43). |
| --- | --- |

(280)

The essence of the market economy investor principle was established by the Commission in its Communication to the Member States on the application of Articles 92 and 93 of the EU Treaty and Article 5 of Commission Directive 80/723/EEC concerning public companies in the manufacturing sector, (hereinafter referred to as ‘the Communication’) (42). In addition hereto, judgments by the ECJ and the CFI have given the notion further precision (43).

| (281) | According to these texts and judgments, the Commission shall take into account the genuine possibilities for a beneficiary undertaking to obtain equivalent financial resources by having recourse to the normal capital market. State aid is not involved where it is a question of new capital being contributed in conditions which would be acceptable for a private investor operating under the normal conditions of a market economy (44). |
| --- | --- |

(281)

According to these texts and judgments, the Commission shall take into account the genuine possibilities for a beneficiary undertaking to obtain equivalent financial resources by having recourse to the normal capital market. State aid is not involved where it is a question of new capital being contributed in conditions which would be acceptable for a private investor operating under the normal conditions of a market economy (44).

| (282) | Paragraph 35 of the Communication applies to capital injections. It states that aid is present where the financial position of the company, and particularly the structure and volume of its debt, is such that a normal return on investment (in dividends or capital gains) cannot be expected within a reasonable timeframe from the capital invested. |
| --- | --- |

(282)

Paragraph 35 of the Communication applies to capital injections. It states that aid is present where the financial position of the company, and particularly the structure and volume of its debt, is such that a normal return on investment (in dividends or capital gains) cannot be expected within a reasonable timeframe from the capital invested.

| (283) | Paragraph 39 of the Communication sets out similar criteria for loans stating that where an unsecured loan is given to a company which under normal circumstances would be unable to obtain finance (for example because its prospects of repaying the loan are poor) then the loan effectively equates a grant payment and the Commission would evaluate it as such. |
| --- | --- |

(283)

Paragraph 39 of the Communication sets out similar criteria for loans stating that where an unsecured loan is given to a company which under normal circumstances would be unable to obtain finance (for example because its prospects of repaying the loan are poor) then the loan effectively equates a grant payment and the Commission would evaluate it as such.

| (284) | The conduct of the public investor should therefore be compared with the hypothetical conduct of a private investor, such as a private holding company or a private group of undertakings pursuing a structural, global or sectoral policy and attracted by prospects of longer-term profitability (45). A capital contribution necessary in order to ensure the survival of an undertaking experiencing temporary difficulties but which, where appropriate, following the implementation of the necessary measures would be in a position to return to profitability does not necessarily constitute aid if a private investor would have made the same analysis. |
| --- | --- |

(284)

The conduct of the public investor should therefore be compared with the hypothetical conduct of a private investor, such as a private holding company or a private group of undertakings pursuing a structural, global or sectoral policy and attracted by prospects of longer-term profitability (45). A capital contribution necessary in order to ensure the survival of an undertaking experiencing temporary difficulties but which, where appropriate, following the implementation of the necessary measures would be in a position to return to profitability does not necessarily constitute aid if a private investor would have made the same analysis.

| (285) | Accordingly, the Commission needs to assess whether a private investor and owner of a company similar to Combus would have acted as the Danish government did when granting the measures under assessment. If the Commission finds that the Danish government did act in accordance with the market economy investor principle for one or for both of the measures, the measure, respectively the measures, do not constitute State aid within the meaning of Article 87(1) EC. |
| --- | --- |

(285)

Accordingly, the Commission needs to assess whether a private investor and owner of a company similar to Combus would have acted as the Danish government did when granting the measures under assessment. If the Commission finds that the Danish government did act in accordance with the market economy investor principle for one or for both of the measures, the measure, respectively the measures, do not constitute State aid within the meaning of Article 87(1) EC.

| (286) | In recitals 82 to 89 of the decision to initiate the procedure, the Commission raised doubts as to whether a private investor would have acted as the Danish government did in a similar situation. |
| --- | --- |

(286)

In recitals 82 to 89 of the decision to initiate the procedure, the Commission raised doubts as to whether a private investor would have acted as the Danish government did in a similar situation.

| (287) | The Danish government argues that the 1999 measure respects the private investor principle. This is also the reason why it had not been notified to the Commission prior to its realisation. |
| --- | --- |

(287)

The Danish government argues that the 1999 measure respects the private investor principle. This is also the reason why it had not been notified to the Commission prior to its realisation.

| (288) | The Commission notes that Denmark has at no point in time presented an economic analysis which would demonstrate that it could reasonably expect on this measure a return on investment comparable to the return on investment a private investor in the bus sector would expect. |
| --- | --- |

(288)

The Commission notes that Denmark has at no point in time presented an economic analysis which would demonstrate that it could reasonably expect on this measure a return on investment comparable to the return on investment a private investor in the bus sector would expect.

| (289) | The Commission furthermore observes that the financial adviser of the Danish government, Alfred Berg, has expressed both in its memo of November 1998 and in its memo of April 1999 its concern that there was ‘no guarantee for a positive return on investment’ if Denmark decided to continue its ownership of Combus with a view of restructuring it following a capital injection. Also the bill adopted by the Danish Parliament in May 1999, authorising the capital increase, sets out that it was unlikely that the State would be able to recoup the capital it was about to invest in Combus. |
| --- | --- |

(289)

The Commission furthermore observes that the financial adviser of the Danish government, Alfred Berg, has expressed both in its memo of November 1998 and in its memo of April 1999 its concern that there was ‘no guarantee for a positive return on investment’ if Denmark decided to continue its ownership of Combus with a view of restructuring it following a capital injection. Also the bill adopted by the Danish Parliament in May 1999, authorising the capital increase, sets out that it was unlikely that the State would be able to recoup the capital it was about to invest in Combus.

| (290) | The Commission concludes that Denmark has not provided convincing evidence that the State could reasonably expect a return on its investment comparable to the return a private investor would have requested. |
| --- | --- |

(290)

The Commission concludes that Denmark has not provided convincing evidence that the State could reasonably expect a return on its investment comparable to the return a private investor would have requested.

| (291) | As regards the ‘group assessment’ reasoning, in accordance with the jurisprudence cited above (Case 303/88), the Commission does not exclude that the State or public companies may bear the losses of one of their subsidiaries in order to enable it to close down its operations under the best possible conditions, if they can prove that the associated cost they bear is lower than the economic damage they would have suffered in other scenarios. For example, the Commission has applied this reasoning in Case C 53/03, ABX
   (46), point 196 to 216, in which the Commission took into account costs supported by activities of the rest of the group which were in direct business link with the ailing subsidiary, and for which the relation between the closure of the subsidiary and the effect on the rest of the group had been actually proven. The Commission considers that this is not the case in the present situation, since the Danish authorities have not proven that the link between the economic activity of Combus and the other economic activities of the State (especially as owner of other companies which have no proven particular connection with Combus) is strong enough to reach such a conclusion. In particular, in the absence of other arguments, the Commission is not convinced that the ratings of other public companies, which are normally based on the merits of each individual company, would have been significantly affected by the fate of Combus. |
| --- | --- |

(291)

As regards the ‘group assessment’ reasoning, in accordance with the jurisprudence cited above (Case 303/88), the Commission does not exclude that the State or public companies may bear the losses of one of their subsidiaries in order to enable it to close down its operations under the best possible conditions, if they can prove that the associated cost they bear is lower than the economic damage they would have suffered in other scenarios. For example, the Commission has applied this reasoning in Case C 53/03, ABX
   (46), point 196 to 216, in which the Commission took into account costs supported by activities of the rest of the group which were in direct business link with the ailing subsidiary, and for which the relation between the closure of the subsidiary and the effect on the rest of the group had been actually proven. The Commission considers that this is not the case in the present situation, since the Danish authorities have not proven that the link between the economic activity of Combus and the other economic activities of the State (especially as owner of other companies which have no proven particular connection with Combus) is strong enough to reach such a conclusion. In particular, in the absence of other arguments, the Commission is not convinced that the ratings of other public companies, which are normally based on the merits of each individual company, would have been significantly affected by the fate of Combus.

| (292) | The Commission is not either convinced by the argument that the bankruptcy of Combus would have damaged the reputation of the State as an investor, or would have unduly endangered its privatisation programme by casting a doubt on the job security of its former civil servants. Indeed, as regards the first point, reasonable investors sometimes come to the conclusion that they have to close down unprofitable activities; as regards the second point, it seems rather contradictory to argue that the State had to pay for civil servants to accept private contracts, and, in addition, still had to keep on bearing the costs of ensuring the permanency of their jobs. |
| --- | --- |

(292)

The Commission is not either convinced by the argument that the bankruptcy of Combus would have damaged the reputation of the State as an investor, or would have unduly endangered its privatisation programme by casting a doubt on the job security of its former civil servants. Indeed, as regards the first point, reasonable investors sometimes come to the conclusion that they have to close down unprofitable activities; as regards the second point, it seems rather contradictory to argue that the State had to pay for civil servants to accept private contracts, and, in addition, still had to keep on bearing the costs of ensuring the permanency of their jobs.

| (293) | With respect to the 2001 measure, the Commission notes that the Danish government, following the receipt of Arriva’s initial offer in autumn 2000, carried out an evaluation of the different options available to Denmark with respect to Combus, namely a gradual wind-up over 5 years, a continuation with better contracts for 6 years, a continuation for one year without re-financing of debts, an immediate bankruptcy, and Arriva’s offer for sale. The results of this study, set out in table 5 of the present decision, show that the option ‘continuation for one year’ (positive value of DKK 71 million) was by far the most attractive, followed by the gradual wind up over 5 years (DKK – 331 million) and the continuation with newer better contracts for 6 years (DKK – 315 million). The sale at Arriva’s initial offer was valued at DKK – 390 million. |
| --- | --- |

(293)

With respect to the 2001 measure, the Commission notes that the Danish government, following the receipt of Arriva’s initial offer in autumn 2000, carried out an evaluation of the different options available to Denmark with respect to Combus, namely a gradual wind-up over 5 years, a continuation with better contracts for 6 years, a continuation for one year without re-financing of debts, an immediate bankruptcy, and Arriva’s offer for sale. The results of this study, set out in table 5 of the present decision, show that the option ‘continuation for one year’ (positive value of DKK 71 million) was by far the most attractive, followed by the gradual wind up over 5 years (DKK – 331 million) and the continuation with newer better contracts for 6 years (DKK – 315 million). The sale at Arriva’s initial offer was valued at DKK – 390 million.

| (294) | There is no indication that the Danish government did again this evaluation following the improvement of the offer of Arriva. Given that the amount of money invested by the Danish government through the 2001 measure, namely DKK 140 million, coupled with unlimited guarantees and guarantees capped to 58,9 million, is substantially higher than the first option assessed in the study, the Commission considers that the Danish authorities, when deciding the 2001 measures, could not reasonably expect that a private investor would have acted in the same manner. |
| --- | --- |

(294)

There is no indication that the Danish government did again this evaluation following the improvement of the offer of Arriva. Given that the amount of money invested by the Danish government through the 2001 measure, namely DKK 140 million, coupled with unlimited guarantees and guarantees capped to 58,9 million, is substantially higher than the first option assessed in the study, the Commission considers that the Danish authorities, when deciding the 2001 measures, could not reasonably expect that a private investor would have acted in the same manner.

| (295) | With respect to the group assessment and the protection of the image of the Danish government, the Commission rejects the arguments for the same reason as for the 1999 measures. |
| --- | --- |

(295)

With respect to the group assessment and the protection of the image of the Danish government, the Commission rejects the arguments for the same reason as for the 1999 measures.

| (296) | In conclusion, the Commission considers that a private investor would not have acted as the Danish government did with respect to the 2001 measure. |
| --- | --- |

(296)

In conclusion, the Commission considers that a private investor would not have acted as the Danish government did with respect to the 2001 measure.

| (297) | According to the Altmark judgment ‘public subsidies intended to enable the operation of urban, suburban or regional scheduled transport services are not caught by that provision where such subsidies are to be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations’ (47). In relation hereto, the ECJ has defined four conditions to be fulfilled in order for a public subsidy to constitute ‘a compensation for a public service obligation’. |
| --- | --- |

(297)

According to the Altmark judgment ‘public subsidies intended to enable the operation of urban, suburban or regional scheduled transport services are not caught by that provision where such subsidies are to be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations’ (47). In relation hereto, the ECJ has defined four conditions to be fulfilled in order for a public subsidy to constitute ‘a compensation for a public service obligation’.

| (298) | The CFI, however, in its Combus judgment, declared that at least one of these conditions were not fulfilled in the present case, as the factors on the basis of which the restructuring measure had been calculated had not been established prior to the conclusion of the public service contracts in an objective and transparent manner (48). |
| --- | --- |

(298)

The CFI, however, in its Combus judgment, declared that at least one of these conditions were not fulfilled in the present case, as the factors on the basis of which the restructuring measure had been calculated had not been established prior to the conclusion of the public service contracts in an objective and transparent manner (48).

| (299) | Accordingly, the Altmark jurisprudence cannot be applied in relation to the restructuring measure granted by the Danish government to Combus (49). |
| --- | --- |

(299)

Accordingly, the Altmark jurisprudence cannot be applied in relation to the restructuring measure granted by the Danish government to Combus (49).

| (300) | Accordingly, both the 1999 and the 2001 measure did confer an economic advantage to Combus. |
| --- | --- |

(300)

Accordingly, both the 1999 and the 2001 measure did confer an economic advantage to Combus.

6.1.4.   EFFECT ON INTRA-COMMUNITY TRADE AND COMPETITION

| (301) | Furthermore, the measure must distort competition and affect trade between Member States to be qualified as aid. |
| --- | --- |

(301)

Furthermore, the measure must distort competition and affect trade between Member States to be qualified as aid.

| (302) | In this respect, it must be observed, first, that a public subsidy granted to an undertaking which provides only local or regional transport services and does not provide transport services outside its State of origin may nonetheless have an effect on trade between Member States. |
| --- | --- |

(302)

In this respect, it must be observed, first, that a public subsidy granted to an undertaking which provides only local or regional transport services and does not provide transport services outside its State of origin may nonetheless have an effect on trade between Member States.

| (303) | In its Altmark judgment, the Court held that ‘[w]here a Member State grants a public subsidy to an undertaking, the supply of transport services by that undertaking may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of providing their transport services in the market in that Member State (see, to that effect, Case 102/87 France v Commission [1988] ECR I-4067, paragraph 19; Case C-305/89 Italy v Commission [1991] ECR I-1603, paragraph 26; and Spain v Commission, paragraph 40)’ (50). |
| --- | --- |

(303)

In its Altmark judgment, the Court held that ‘[w]here a Member State grants a public subsidy to an undertaking, the supply of transport services by that undertaking may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of providing their transport services in the market in that Member State (see, to that effect, Case 102/87 France v Commission [1988] ECR I-4067, paragraph 19; Case C-305/89 Italy v Commission [1991] ECR I-1603, paragraph 26; and Spain v Commission, paragraph 40)’ (50).

| (304) | Indeed, several Member States have since 1995 started unilaterally to open certain transport markets to competition from undertakings established in other Member States, so that a number of undertakings are already offering their urban, suburban or regional transport services in Member States other than their State of origin (51). |
| --- | --- |

(304)

Indeed, several Member States have since 1995 started unilaterally to open certain transport markets to competition from undertakings established in other Member States, so that a number of undertakings are already offering their urban, suburban or regional transport services in Member States other than their State of origin (51).

| (305) | In Denmark, the deregulation of the bus market since 1990 has changed the nature of the provision of bus services from a reserved market to one in which competition between undertakings is possible. Both Danish and other EU companies can compete to provide services tendered by regional and local government authorities. Similar conditions apply in other Member States; Arriva operates for example also in Sweden and the Netherlands. |
| --- | --- |

(305)

In Denmark, the deregulation of the bus market since 1990 has changed the nature of the provision of bus services from a reserved market to one in which competition between undertakings is possible. Both Danish and other EU companies can compete to provide services tendered by regional and local government authorities. Similar conditions apply in other Member States; Arriva operates for example also in Sweden and the Netherlands.

| (306) | The liberalisation of the bus market in Denmark and other Member States has been accompanied at the Community level by Directive 92/50/EEC, which obliges Member States to tender out public service bus contracts. In the light of Directive 92/50/EEC, the ECJ, in the Concordia case, has held that the purpose of coordinating at Community level the procedures for the award of public contracts is to eliminate barriers to the free movement of services and goods (52). |
| --- | --- |

(306)

The liberalisation of the bus market in Denmark and other Member States has been accompanied at the Community level by Directive 92/50/EEC, which obliges Member States to tender out public service bus contracts. In the light of Directive 92/50/EEC, the ECJ, in the Concordia case, has held that the purpose of coordinating at Community level the procedures for the award of public contracts is to eliminate barriers to the free movement of services and goods (52).

| (307) | As the bus market is partially liberalised within the Community due to the unilateral decision of several Member States to open up their bus markets, which has been accompanied by the entry into force of Directive 92/50/EEC, competition between the bus market suppliers exists. |
| --- | --- |

(307)

As the bus market is partially liberalised within the Community due to the unilateral decision of several Member States to open up their bus markets, which has been accompanied by the entry into force of Directive 92/50/EEC, competition between the bus market suppliers exists.

| (308) | Consequently, the restructuring measure may improve the position of Combus and its buyer in relation to its competitors in the EU, thereby affecting both competition between undertakings and trade between Member States. |
| --- | --- |

(308)

Consequently, the restructuring measure may improve the position of Combus and its buyer in relation to its competitors in the EU, thereby affecting both competition between undertakings and trade between Member States.

6.1.5.   CONCLUSION: PRESENCE OF STATE AID

| (309) | The Commission concludes that the restructuring measure constitutes State aid in the meaning of Article 87(1) EC treaty. |
| --- | --- |

(309)

The Commission concludes that the restructuring measure constitutes State aid in the meaning of Article 87(1) EC treaty.

6.2.   ASSESSMENT OF THE COMPATIBILITY OF THE AID WITH THE COMMON MARKET

6.2.1.   COMPATIBILITY OF THE AID WITH THE COMMON MARKET

| (310) | According to Article 87(1) EC State aid is in principle incompatible with the common market. The State aid in the present case could nevertheless be compatible with the common market by virtue of Regulation (EEC) No 1191/69 or Article 87(3)(c) EC, as specified by the 1999 Community guidelines on State aid for rescuing and restructuring firms in difficulty. No other compatibility provision is applicable in the present case. |
| --- | --- |

(310)

According to Article 87(1) EC State aid is in principle incompatible with the common market. The State aid in the present case could nevertheless be compatible with the common market by virtue of Regulation (EEC) No 1191/69 or Article 87(3)(c) EC, as specified by the 1999 Community guidelines on State aid for rescuing and restructuring firms in difficulty. No other compatibility provision is applicable in the present case.

6.2.2.   COMPATIBILITY OF THE 1999 AND/OR THE 2001 MEASURE BY VIRTUE OF REGULATION (EEC) No 1191/69

| (311) | The decision to initiate the procedure offers (recitals 90 to 96) a brief description why the restructuring measure granted by the Danish State to Combus cannot be considered compatible with the common market by virtue of Article 73 EC and Regulation (EEC) No 1169/91. Neither the Danish government nor third parties have contested the reasoning of the Commission on this point. |
| --- | --- |

(311)

The decision to initiate the procedure offers (recitals 90 to 96) a brief description why the restructuring measure granted by the Danish State to Combus cannot be considered compatible with the common market by virtue of Article 73 EC and Regulation (EEC) No 1169/91. Neither the Danish government nor third parties have contested the reasoning of the Commission on this point.

| (312) | The Commission therefore concludes, for the reasons set out in the decision to initiate the procedure, that the restructuring measure cannot be considered compatible with the common market by virtue of Article 73 EC and Regulation (EEC) No 1169/91. |
| --- | --- |

(312)

The Commission therefore concludes, for the reasons set out in the decision to initiate the procedure, that the restructuring measure cannot be considered compatible with the common market by virtue of Article 73 EC and Regulation (EEC) No 1169/91.

6.2.3.   COMPATIBILITY OF THE 1999 MEASURE BY VIRTUE OF ARTICLE 87(3)(C) EC

| (313) | Article 87(3)(c) EC foresees that, ‘aid to facilitate the development of certain economic activities or of certain economic areas, may be considered to be compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest’. |
| --- | --- |

(313)

Article 87(3)(c) EC foresees that, ‘aid to facilitate the development of certain economic activities or of certain economic areas, may be considered to be compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest’.

| (314) | On the basis of this article, the Commission has adopted guidelines for State aid for rescuing and restructuring firms in difficulty. The Commission adopted its original guidelines on State aid for rescuing and restructuring firms in difficulty in 1994 (53). A new version of the guidelines was adopted in 1999 (4) followed by the latest version of the guidelines dating from 2004 (54). |
| --- | --- |

(314)

On the basis of this article, the Commission has adopted guidelines for State aid for rescuing and restructuring firms in difficulty. The Commission adopted its original guidelines on State aid for rescuing and restructuring firms in difficulty in 1994 (53). A new version of the guidelines was adopted in 1999 (4) followed by the latest version of the guidelines dating from 2004 (54).

| (315) | As regards the ratione temporis application of these guidelines, points 103 and 104 of the 2004 guidelines state, as regards non-notified aid:
  ‘The Commission will examine the compatibility with the common market of any rescue or restructuring aid granted without its authorisation and therefore in breach of Article 88(3) of the Treaty on the basis of these Guidelines if some or all of the aid is granted after their publication in the Official Journal of the European Union.’ |
| --- | --- |

(315)

As regards the ratione temporis application of these guidelines, points 103 and 104 of the 2004 guidelines state, as regards non-notified aid:

‘The Commission will examine the compatibility with the common market of any rescue or restructuring aid granted without its authorisation and therefore in breach of Article 88(3) of the Treaty on the basis of these Guidelines if some or all of the aid is granted after their publication in the Official Journal of the European Union.’

| (316) | Points 100 and 101 of the guidelines of 1999 have the same content as the guidelines of 2004. |
| --- | --- |

(316)

Points 100 and 101 of the guidelines of 1999 have the same content as the guidelines of 2004.

| (317) | The 1999 measure granted to Combus constitutes non-notified aid. It was granted prior to the coming into force of the 1999 guidelines. Consequently, the 1994 restructuring guidelines apply to the 1999 measure. |
| --- | --- |

(317)

The 1999 measure granted to Combus constitutes non-notified aid. It was granted prior to the coming into force of the 1999 guidelines. Consequently, the 1994 restructuring guidelines apply to the 1999 measure.

| (318) | Section 3.2.2 of the 1994 restructuring guidelines sets out the following conditions for authorising restructuring aid:






  — | Restructuring plan. The restructuring aid must be linked to a viable restructuring/recovery programme submitted in all relevant detail to the Commission. |
| --- | --- | --- |

(318)

Section 3.2.2 of the 1994 restructuring guidelines sets out the following conditions for authorising restructuring aid:

—

Restructuring plan. The restructuring aid must be linked to a viable restructuring/recovery programme submitted in all relevant detail to the Commission.

| — | Economic viability. The viability of the company must be restored. |
| --- | --- |

—

Economic viability. The viability of the company must be restored.

| — | Mitigation of adverse effects on competitors. Measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors. |
| --- | --- |

—

Mitigation of adverse effects on competitors. Measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors.

| — | Proportionality. The aid must be in proportion to the restructuring costs and benefits. |
| --- | --- |

—

Proportionality. The aid must be in proportion to the restructuring costs and benefits.

| — | Annual report and monitoring. The Member State must provide an annual report on the aid to allow the Commission to monitor that the restructuring plan is being implemented properly. |
| --- | --- |

—

Annual report and monitoring. The Member State must provide an annual report on the aid to allow the Commission to monitor that the restructuring plan is being implemented properly.

| — | One time, last time. Restructuring aid should be granted once only. |
| --- | --- |

—

One time, last time. Restructuring aid should be granted once only.

| (319) | With respect to the restructuring plan, point 3.2.2.A of the 1994 restructuring guidelines set out the following requirements:
  ‘The sine qua non of all restructuring plans is that they must restore the long-term viability and health of the firm within a reasonable time scale and on the basis of realistic assumptions as to its future operating conditions. Consequently, restructuring aid must be linked to a viable restructuring/recovery programme submitted in all relevant detail to the Commission. The plan must restore the firm to competitiveness within a reasonable period. The improvement in viability must mainly result from internal measures contained in the restructuring plan and may only be based on external factors such as price and demand increases over which the company has no great influence, if the market assumptions made are generally acknowledged. Successful restructuring should involve the abandonment of structurally loss-making activities.
  To fulfil the viability criterion, the restructuring plan must be considered capable of putting the company into a position of covering all its costs including depreciation and financial charges and generating a minimum return on capital such that, after completing its restructuring, the firm will not require further injections of State aid and will be able to compete in the market place on its own merits.’ |
| --- | --- |

(319)

With respect to the restructuring plan, point 3.2.2.A of the 1994 restructuring guidelines set out the following requirements:

‘The sine qua non of all restructuring plans is that they must restore the long-term viability and health of the firm within a reasonable time scale and on the basis of realistic assumptions as to its future operating conditions. Consequently, restructuring aid must be linked to a viable restructuring/recovery programme submitted in all relevant detail to the Commission. The plan must restore the firm to competitiveness within a reasonable period. The improvement in viability must mainly result from internal measures contained in the restructuring plan and may only be based on external factors such as price and demand increases over which the company has no great influence, if the market assumptions made are generally acknowledged. Successful restructuring should involve the abandonment of structurally loss-making activities.

To fulfil the viability criterion, the restructuring plan must be considered capable of putting the company into a position of covering all its costs including depreciation and financial charges and generating a minimum return on capital such that, after completing its restructuring, the firm will not require further injections of State aid and will be able to compete in the market place on its own merits.’

| (320) | In 1999, prior to the capital injection, Kromann and Münter had presented to the Danish government a plan for achieving the financial turn-around of Combus, and the management of Combus had prepared an operational restructuring plan, formalised in a memo from KPMG. As Denmark considered at the time that the decision respected the private investor principle, it did not submit these documents to the Commission. |
| --- | --- |

(320)

In 1999, prior to the capital injection, Kromann and Münter had presented to the Danish government a plan for achieving the financial turn-around of Combus, and the management of Combus had prepared an operational restructuring plan, formalised in a memo from KPMG. As Denmark considered at the time that the decision respected the private investor principle, it did not submit these documents to the Commission.

| (321) | With respect to the restructuring plan and the economic viability of Combus, two questions have arisen in the course of the procedure:






  — | Danske Busvognmaend considers that no restructuring plan was available when the capital injection of 1999 was made. Further to this, Danske Busvognmaend claims that a restructuring plan cannot be drawn up in arrears, |
| --- | --- | --- |

(321)

With respect to the restructuring plan and the economic viability of Combus, two questions have arisen in the course of the procedure:

—

Danske Busvognmaend considers that no restructuring plan was available when the capital injection of 1999 was made. Further to this, Danske Busvognmaend claims that a restructuring plan cannot be drawn up in arrears,

| — | Are the conditions set out for a restructuring plan in the 1994 guidelines fulfilled? |
| --- | --- |

—

Are the conditions set out for a restructuring plan in the 1994 guidelines fulfilled?

| (322) | The Commission considers that with respect to the time of the availability of the restructuring plan, it is necessary to distinguish between the material existence of the plan and its submission to the Commission. |
| --- | --- |

(322)

The Commission considers that with respect to the time of the availability of the restructuring plan, it is necessary to distinguish between the material existence of the plan and its submission to the Commission.

| (323) | Material existence of the restructuring plan. The ECJ has decided in France v Commission that the authorities of the Member State granting the restructuring aid have to possess, ‘when the disputed aid was granted, a restructuring plan meeting the requirements [of the Rescue and Restructuring guidelines]’ (55). For the present case, this means that Denmark needed to have in its possession a restructuring plan meeting the requirements of the 1994 restructuring guidelines the latest when the first capital injection in 1999 was made. |
| --- | --- |

(323)

Material existence of the restructuring plan. The ECJ has decided in France v Commission that the authorities of the Member State granting the restructuring aid have to possess, ‘when the disputed aid was granted, a restructuring plan meeting the requirements [of the Rescue and Restructuring guidelines]’ (55). For the present case, this means that Denmark needed to have in its possession a restructuring plan meeting the requirements of the 1994 restructuring guidelines the latest when the first capital injection in 1999 was made.

| (324) | As described above, the capital injection in 1999 was based on a calculation of the capital needs of Combus and a restructuring plan, which had been drawn up by the law firm Kromann and Münter and the management of Combus. The restructuring plan foresaw that Combus would return to economic viability in 2001, if a capital injection of DKK 300 million took place and the management of the company would implement the foreseen restructuring measures. The restructuring plan formed the basis on which the Danish ministry for transport prepared the confidential bill of 27 may 1999, which approved the capital injection. |
| --- | --- |

(324)

As described above, the capital injection in 1999 was based on a calculation of the capital needs of Combus and a restructuring plan, which had been drawn up by the law firm Kromann and Münter and the management of Combus. The restructuring plan foresaw that Combus would return to economic viability in 2001, if a capital injection of DKK 300 million took place and the management of the company would implement the foreseen restructuring measures. The restructuring plan formed the basis on which the Danish ministry for transport prepared the confidential bill of 27 may 1999, which approved the capital injection.

| (325) | The Commission concludes that the restructuring aid to Combus was granted only after a restructuring plan was available to the Danish government. This leaves the question open as to whether this restructuring plan meets the requirements of the 1994 restructuring guidelines. |
| --- | --- |

(325)

The Commission concludes that the restructuring aid to Combus was granted only after a restructuring plan was available to the Danish government. This leaves the question open as to whether this restructuring plan meets the requirements of the 1994 restructuring guidelines.

| (326) | Submission of the restructuring plan to the Commission. The Commission has, as rightly pointed out by the Danish government, in its submission to the ECJ in France v Commission, stated that ‘the French Government did not submit a credible restructuring plan to the Commission’ and ‘[n]or has any such plan been submitted to the Commission by the French authorities since the proceedings were initiated’ (56). It results from this statement, which has not been contradicted by the Court, that the restructuring plan needs to be available to the Commission at the latest at the date the Commission takes its decision. |
| --- | --- |

(326)

Submission of the restructuring plan to the Commission. The Commission has, as rightly pointed out by the Danish government, in its submission to the ECJ in France v Commission, stated that ‘the French Government did not submit a credible restructuring plan to the Commission’ and ‘[n]or has any such plan been submitted to the Commission by the French authorities since the proceedings were initiated’ (56). It results from this statement, which has not been contradicted by the Court, that the restructuring plan needs to be available to the Commission at the latest at the date the Commission takes its decision.

| (327) | In the present case, the Danish authorities have submitted to the Commission in April 2007 a total of four notes dated 26 April 1999, 15 May 1999, and twice 18 May 1999. Three of the notes have been written by Kromann and Münter, one by KPMG. The Danish authorities consider that the three notes of Kromann and Münter constitute the financial restructuring plan, and the note of KPMG the operational restructuring plan. |
| --- | --- |

(327)

In the present case, the Danish authorities have submitted to the Commission in April 2007 a total of four notes dated 26 April 1999, 15 May 1999, and twice 18 May 1999. Three of the notes have been written by Kromann and Münter, one by KPMG. The Danish authorities consider that the three notes of Kromann and Münter constitute the financial restructuring plan, and the note of KPMG the operational restructuring plan.

| (328) | The Danish government has submitted to the Commission that the four memos of Kromann and Münter and KPMG constitute a restructuring plan meeting the requirements of the 1994 guidelines. |
| --- | --- |

(328)

The Danish government has submitted to the Commission that the four memos of Kromann and Münter and KPMG constitute a restructuring plan meeting the requirements of the 1994 guidelines.

| (329) | The Commission notes that the memo of KPMG merely restates the intentions of the board and the management of Combus, as they had been decided in November 1998 and April 1999. KPMG points out that they did not perform a budget examination, but worked on the assumptions made by Combus. In other words, KPMG had not verified whether the assumptions on which its work was based were realistic. Therefore, the Commission considers that the restructuring plan does not fulfil the criterion ‘based on realistic assumptions’, because the Danish government never verified whether the assumptions were realistic. |
| --- | --- |

(329)

The Commission notes that the memo of KPMG merely restates the intentions of the board and the management of Combus, as they had been decided in November 1998 and April 1999. KPMG points out that they did not perform a budget examination, but worked on the assumptions made by Combus. In other words, KPMG had not verified whether the assumptions on which its work was based were realistic. Therefore, the Commission considers that the restructuring plan does not fulfil the criterion ‘based on realistic assumptions’, because the Danish government never verified whether the assumptions were realistic.

| (330) | Furthermore, the Commission notes that the KPMG memo only analyses some of Combus’ areas of activity, and does so not based on the individual bus contracts, but based on summary assumptions about bus areas. The restructuring plan is hence incomplete, because it covers only part of Combus’ activities, and not detailed enough, as it is not based on the individual contracts, which form the basis of Combus’ business. |
| --- | --- |

(330)

Furthermore, the Commission notes that the KPMG memo only analyses some of Combus’ areas of activity, and does so not based on the individual bus contracts, but based on summary assumptions about bus areas. The restructuring plan is hence incomplete, because it covers only part of Combus’ activities, and not detailed enough, as it is not based on the individual contracts, which form the basis of Combus’ business.

| (331) | Finally, the Commission notes that the proposed restructuring measures are neither broken down by bus area, nor are individual saving targets allocated to the individual restructuring measure. In addition, the accountants did not verify whether the cost savings expected by the management were realistic. |
| --- | --- |

(331)

Finally, the Commission notes that the proposed restructuring measures are neither broken down by bus area, nor are individual saving targets allocated to the individual restructuring measure. In addition, the accountants did not verify whether the cost savings expected by the management were realistic.

| (332) | The three documents concerning the financial restructuring do not address the operational restructuring at all. Hence, they cannot remedy the missing parts of the KPMG memo. |
| --- | --- |

(332)

The three documents concerning the financial restructuring do not address the operational restructuring at all. Hence, they cannot remedy the missing parts of the KPMG memo.

| (333) | In view of these elements, the Commission concludes that the four documents presented by Denmark as restructuring plan do not meet the conditions set out in the 1994 guidelines for a restructuring plan. |
| --- | --- |

(333)

In view of these elements, the Commission concludes that the four documents presented by Denmark as restructuring plan do not meet the conditions set out in the 1994 guidelines for a restructuring plan.

| (334) | The existence of a restructuring plan meeting the requirements of the guidelines is a condition sine qua non for the approval of a restructuring aid. Hence, and without examining the other criteria, the Commission concludes that the 1999 measure cannot be authorised based on the 1994 restructuring guidelines. |
| --- | --- |

(334)

The existence of a restructuring plan meeting the requirements of the guidelines is a condition sine qua non for the approval of a restructuring aid. Hence, and without examining the other criteria, the Commission concludes that the 1999 measure cannot be authorised based on the 1994 restructuring guidelines.

6.2.4.   COMPATIBILITY OF THE 2001 MEASURE BY VIRTUE OF ARTICLE 87(3)(C) EC

| (335) | Article 87(3)(c) EC foresees that, ‘aid to facilitate the development of certain economic activities or of certain economic areas, may be considered to be compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest’. |
| --- | --- |

(335)

Article 87(3)(c) EC foresees that, ‘aid to facilitate the development of certain economic activities or of certain economic areas, may be considered to be compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest’.

| (336) | On the basis of this article, the Commission has adopted guidelines for State aid for rescuing and restructuring firms in difficulty. The Commission adopted its original guidelines on State aid for rescuing and restructuring firms in difficulty in 1994 (57). A new version of the guidelines was adopted in 1999 (58) followed by the latest version of the guidelines dating from 2004 (59). |
| --- | --- |

(336)

On the basis of this article, the Commission has adopted guidelines for State aid for rescuing and restructuring firms in difficulty. The Commission adopted its original guidelines on State aid for rescuing and restructuring firms in difficulty in 1994 (57). A new version of the guidelines was adopted in 1999 (58) followed by the latest version of the guidelines dating from 2004 (59).

| (337) | As regards the ratione temporis application of these guidelines, points 103 and 104 of the 2004 guidelines state, as regards notified aid:
  ‘Notifications registered by the Commission prior to 10 October 2004 will be examined in the light of the criteria in force at the time of notification.’ |
| --- | --- |

(337)

As regards the ratione temporis application of these guidelines, points 103 and 104 of the 2004 guidelines state, as regards notified aid:

‘Notifications registered by the Commission prior to 10 October 2004 will be examined in the light of the criteria in force at the time of notification.’

| (338) | Points 100 and 101 of the guidelines of 1999 have the same content as the guidelines of 2004. |
| --- | --- |

(338)

Points 100 and 101 of the guidelines of 1999 have the same content as the guidelines of 2004.

| (339) | The 2001 measure granted to Combus constitutes notified aid. It was notified prior to the coming into force of the 2004 guidelines and after the entry into force of the 1999 guidelines. Consequently, the 1999 restructuring guidelines apply to the 2001 measure. |
| --- | --- |

(339)

The 2001 measure granted to Combus constitutes notified aid. It was notified prior to the coming into force of the 2004 guidelines and after the entry into force of the 1999 guidelines. Consequently, the 1999 restructuring guidelines apply to the 2001 measure.

| (340) | Section 3.2 of the 1999 restructuring guidelines sets out the following conditions for authorising restructuring aid:






  — | The company must qualify as a company in difficulty within the meaning of the Guidelines. |
| --- | --- | --- |

(340)

Section 3.2 of the 1999 restructuring guidelines sets out the following conditions for authorising restructuring aid:

—

The company must qualify as a company in difficulty within the meaning of the Guidelines.

| — | The viability of the company must be restored. Therefore, the granting of the aid is conditional on implementation of the restructuring plan which must be endorsed by the Commission. The company must fully implement the restructuring plan. |
| --- | --- |

—

The viability of the company must be restored. Therefore, the granting of the aid is conditional on implementation of the restructuring plan which must be endorsed by the Commission. The company must fully implement the restructuring plan.

| — | Measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors. |
| --- | --- |

—

Measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors.

| — | The aid must be limited to the minimum and a significant contribution is expected from the beneficiary. |
| --- | --- |

—

The aid must be limited to the minimum and a significant contribution is expected from the beneficiary.

| — | The Member State must provide an annual report on the aid to allow the Commission to monitor that the restructuring plan is being implemented properly. |
| --- | --- |

—

The Member State must provide an annual report on the aid to allow the Commission to monitor that the restructuring plan is being implemented properly.

| — | Restructuring aid should be granted once only. |
| --- | --- |

—

Restructuring aid should be granted once only.

| (341) | The Commission has established in its decision to initiate the procedure that Combus was a firm in difficulty in the sense of the 1999 restructuring guidelines. Neither the Danish government nor Danske Busvognmaend has contested this finding. Accordingly, the Commission concludes that Combus was a firm in difficulty. |
| --- | --- |

(341)

The Commission has established in its decision to initiate the procedure that Combus was a firm in difficulty in the sense of the 1999 restructuring guidelines. Neither the Danish government nor Danske Busvognmaend has contested this finding. Accordingly, the Commission concludes that Combus was a firm in difficulty.

| (342) | The grant of restructuring aid is conditional on implementation of the restructuring plan which must be endorsed by the Commission in the case of all individual aid measures. Restructuring aid must therefore be linked to a viable restructuring plan to which the Member State commits itself (60). |
| --- | --- |

(342)

The grant of restructuring aid is conditional on implementation of the restructuring plan which must be endorsed by the Commission in the case of all individual aid measures. Restructuring aid must therefore be linked to a viable restructuring plan to which the Member State commits itself (60).

| (343) | In particular, the restructuring plan must include:






  — | a market survey, |
| --- | --- | --- |

(343)

In particular, the restructuring plan must include:

—

a market survey,

| — | a description of the circumstances that led to the company’s difficulties, thereby providing a basis for assessing whether the proposed measures are appropriate. It must enable the firm to progress towards a new structure that offers it prospects for long-term viability and enables it to stand on its own feet, |
| --- | --- |

—

a description of the circumstances that led to the company’s difficulties, thereby providing a basis for assessing whether the proposed measures are appropriate. It must enable the firm to progress towards a new structure that offers it prospects for long-term viability and enables it to stand on its own feet,

| — | a description for a turnaround that will enable the company, after completing its restructuring, to cover all its costs including depreciation and financial charges. The expected return on capital must be enough to enable the restructured firm to compete in the marketplace on its own merits. |
| --- | --- |

—

a description for a turnaround that will enable the company, after completing its restructuring, to cover all its costs including depreciation and financial charges. The expected return on capital must be enough to enable the restructured firm to compete in the marketplace on its own merits.

| (344) | The Danish government has transmitted the restructuring plan for Combus on 8 and 23 January 2001 to the Commission (see detailed description in part II). |
| --- | --- |

(344)

The Danish government has transmitted the restructuring plan for Combus on 8 and 23 January 2001 to the Commission (see detailed description in part II).

| (345) | With respect to the 2001 restructuring plan and the economic viability of Combus, the Commission had raised in its decision to open the procedure doubts as to the economic viability of Combus. |
| --- | --- |

(345)

With respect to the 2001 restructuring plan and the economic viability of Combus, the Commission had raised in its decision to open the procedure doubts as to the economic viability of Combus.

| (346) | Points 31 to 34 of the 1999 restructuring guidelines set out in this respect that the restructuring plan ‘must restore the long-term viability of the firm within a reasonable timescale and on the basis of realistic assumptions as to future operating conditions’ and further that ‘[t]he improvement in viability must derive mainly from internal measures contained in the restructuring plan and may be based on external factors such as variations in prices and demand over which the company has no great influence if the market assumptions made are generally acknowledged’. Restructuring must involve ‘the abandonment of activities which would remain structurally loss-making even after restructuring’. |
| --- | --- |

(346)

Points 31 to 34 of the 1999 restructuring guidelines set out in this respect that the restructuring plan ‘must restore the long-term viability of the firm within a reasonable timescale and on the basis of realistic assumptions as to future operating conditions’ and further that ‘[t]he improvement in viability must derive mainly from internal measures contained in the restructuring plan and may be based on external factors such as variations in prices and demand over which the company has no great influence if the market assumptions made are generally acknowledged’. Restructuring must involve ‘the abandonment of activities which would remain structurally loss-making even after restructuring’.

| (347) | Danske Busvognmaend considers in its submission that Combus was not economically viable as a public company, but only after its sale to Arriva. |
| --- | --- |

(347)

Danske Busvognmaend considers in its submission that Combus was not economically viable as a public company, but only after its sale to Arriva.

| (348) | In its Combus judgment, the CFI found that ‘the Commission's reasoning must be considered as expressing serious doubt as to Combus’s viability for the purposes of that article [i.e. article 87 EC treaty] and the Guidelines, a doubt which the Commission did not, however, believe it was bound to clarify since article 73 EC seemed to be a sufficient legal basis for the authorisation of the aid in question. Since that latter provision may not be so relied on (...), the payment of DKK 300 million is no longer validly authorised in the contested decision. (...) Consequently, Combus’s viability cannot in any manner be considered as established (61).’ |
| --- | --- |

(348)

In its Combus judgment, the CFI found that ‘the Commission's reasoning must be considered as expressing serious doubt as to Combus’s viability for the purposes of that article [i.e. article 87 EC treaty] and the Guidelines, a doubt which the Commission did not, however, believe it was bound to clarify since article 73 EC seemed to be a sufficient legal basis for the authorisation of the aid in question. Since that latter provision may not be so relied on (...), the payment of DKK 300 million is no longer validly authorised in the contested decision. (...) Consequently, Combus’s viability cannot in any manner be considered as established (61).’

| (349) | These doubts, which the Commission has set out in its decision to initiate the procedure (recitals 106 to 109), related to the fact that the Commission had not established the economic viability of Combus without the part of the State aid which the Commission had authorised, in its initial decision, as public service compensation. As the CFI ruled that this aid could not be authorised as public service compensation, it concluded that the economic viability of Combus was no longer established in the initial decision of the Commission. |
| --- | --- |

(349)

These doubts, which the Commission has set out in its decision to initiate the procedure (recitals 106 to 109), related to the fact that the Commission had not established the economic viability of Combus without the part of the State aid which the Commission had authorised, in its initial decision, as public service compensation. As the CFI ruled that this aid could not be authorised as public service compensation, it concluded that the economic viability of Combus was no longer established in the initial decision of the Commission.

| (350) | As the Danish government points rightly out, the CFI has not carried out an economic analysis of the restructuring plan in order to annul the Commission’s initial decision. On the contrary, the reasoning is formal and logical: as the Commission in its initial decision had concluded on the issue of the economic viability on the basis of the part of the aid that it had authorised based on Article 73 EC Treaty (DKK 328 million) as a compensation for public service contracts, and as the CFI had found that this aid could not be authorised on this legal basis, it concluded that the payment of this part of the aid was no longer validly authorised and therefore that the reasoning leading to the conclusion of economic viability was logically deprived of its basis. |
| --- | --- |

(350)

As the Danish government points rightly out, the CFI has not carried out an economic analysis of the restructuring plan in order to annul the Commission’s initial decision. On the contrary, the reasoning is formal and logical: as the Commission in its initial decision had concluded on the issue of the economic viability on the basis of the part of the aid that it had authorised based on Article 73 EC Treaty (DKK 328 million) as a compensation for public service contracts, and as the CFI had found that this aid could not be authorised on this legal basis, it concluded that the payment of this part of the aid was no longer validly authorised and therefore that the reasoning leading to the conclusion of economic viability was logically deprived of its basis.

| (351) | Indeed, in its initial decision, the Commission had considered that DKK 328 million out of the DKK 490 million constituted compensation for public service obligations, and only DKK 162 million restructuring aid (62). Based on this assessment, the Commission concluded:
  ‘Taking into account the restructuring measures and the state aid already discussed under Regulation 1191/69, it could be considered that Combus returns to viability. Nevertheless this viability is not, strictly speaking, compliant with the guidelines because it depends on other state aid.’ |
| --- | --- |

(351)

Indeed, in its initial decision, the Commission had considered that DKK 328 million out of the DKK 490 million constituted compensation for public service obligations, and only DKK 162 million restructuring aid (62). Based on this assessment, the Commission concluded:

‘Taking into account the restructuring measures and the state aid already discussed under Regulation 1191/69, it could be considered that Combus returns to viability. Nevertheless this viability is not, strictly speaking, compliant with the guidelines because it depends on other state aid.’

| (352) | In the present decision, the Commission assesses the 1999 and the 2001 measures as two separate measures. The 1999 measure, a capital increase of DKK 200 million and a subordinated loan of DKK 100 million, have been found in the previous section as being unlawful and incompatible State aid, which has to be recovered from Combus. Hence, Combus could not rely on this money for demonstrating the restoration of its economic viability. |
| --- | --- |

(352)

In the present decision, the Commission assesses the 1999 and the 2001 measures as two separate measures. The 1999 measure, a capital increase of DKK 200 million and a subordinated loan of DKK 100 million, have been found in the previous section as being unlawful and incompatible State aid, which has to be recovered from Combus. Hence, Combus could not rely on this money for demonstrating the restoration of its economic viability.

| (353) | Even if the total aid (62), foreseen by the 1999 and the 2001 measures together, might have allowed that Combus returns to viability as of 2006 (see forecast of turnover and profits in table 7 above), the return to viability becomes unrealistic if Combus has to repay DKK 300 million to the Danish government, because they constitute illegal and incompatible State aid. |
| --- | --- |

(353)

Even if the total aid (62), foreseen by the 1999 and the 2001 measures together, might have allowed that Combus returns to viability as of 2006 (see forecast of turnover and profits in table 7 above), the return to viability becomes unrealistic if Combus has to repay DKK 300 million to the Danish government, because they constitute illegal and incompatible State aid.

| (354) | The Commission concludes that even if Combus could be expected to return to economic viability by 2006, based on the restructuring plan presented in 2001, this was no longer realistic once the 1999 measures constituted illegal and incompatible State aid. |
| --- | --- |

(354)

The Commission concludes that even if Combus could be expected to return to economic viability by 2006, based on the restructuring plan presented in 2001, this was no longer realistic once the 1999 measures constituted illegal and incompatible State aid.

| (355) | The Commission concludes that the restructuring plan does not ensure the economic viability of Combus, because it is based on the incorrect assumption that Combus does not have to pay back to the Danish government the illegal and incompatible State aid it received in 1999. |
| --- | --- |

(355)

The Commission concludes that the restructuring plan does not ensure the economic viability of Combus, because it is based on the incorrect assumption that Combus does not have to pay back to the Danish government the illegal and incompatible State aid it received in 1999.

| (356) | Point 35 to 39 of the 1999 restructuring guidelines set out the following conditions:
  ‘(c)   Avoidance of undue distortions of competition






  (35) | Measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors. Otherwise, the aid should be regarded as “contrary to the common interest” and therefore incompatible with the common market. |
| --- | --- | --- |

(356)

Point 35 to 39 of the 1999 restructuring guidelines set out the following conditions:

‘(c)   Avoidance of undue distortions of competition

(35)

Measures must be taken to mitigate as far as possible any adverse effects of the aid on competitors. Otherwise, the aid should be regarded as “contrary to the common interest” and therefore incompatible with the common market.

| (36) | This condition usually takes the form of a limitation on the presence which the company can enjoy on its market or markets after the end of the restructuring period.
  [...] |
| --- | --- |

(36)

This condition usually takes the form of a limitation on the presence which the company can enjoy on its market or markets after the end of the restructuring period.

[...]

| (37) | The compulsory limitation or reduction of the company's presence on the relevant market(s) represents a compensatory factor in favour of its competitors. It should be in proportion to the distortive effects of the aid and, in particular, to the relative importance of the firm on its market or markets. The Commission will determine the extent of the limitation or reduction on the basis of the market survey attached to there structuring plan and, where the procedure has been initiated, on the basis of information supplied by interested parties. The reduction in the firm’s presence is to be put into effect through the restructuring plan and any conditions attached thereto.
  [...] |
| --- | --- |

(37)

The compulsory limitation or reduction of the company's presence on the relevant market(s) represents a compensatory factor in favour of its competitors. It should be in proportion to the distortive effects of the aid and, in particular, to the relative importance of the firm on its market or markets. The Commission will determine the extent of the limitation or reduction on the basis of the market survey attached to there structuring plan and, where the procedure has been initiated, on the basis of information supplied by interested parties. The reduction in the firm’s presence is to be put into effect through the restructuring plan and any conditions attached thereto.

[...]

| (39) | Compensatory measures can take different forms according to whether or not the firm is operating in a market where there is excess capacity. [...] Where [...] there is no Community-wide or EEA-wide structural excess of production capacity in a market served by the recipient, the Commission will nevertheless examine whether compensatory measures should be required. Where any such compensatory measures involve a reduction in the capacity of the firm concerned, the necessary reduction could be achieved through the hiving-off of assets or subsidiaries. The Commission will have to examine the compensatory measures proposed by the Member State concerned, whatever form they take, and determine whether they are sufficient in scope to mitigate the potentially distortive effects of the aid on competition. In examining the necessary compensatory measures, the Commission will take account of the state of the market, and in particular its level of growth and the extent to which demand is met.’ |
| --- | --- |

(39)

Compensatory measures can take different forms according to whether or not the firm is operating in a market where there is excess capacity. [...] Where [...] there is no Community-wide or EEA-wide structural excess of production capacity in a market served by the recipient, the Commission will nevertheless examine whether compensatory measures should be required. Where any such compensatory measures involve a reduction in the capacity of the firm concerned, the necessary reduction could be achieved through the hiving-off of assets or subsidiaries. The Commission will have to examine the compensatory measures proposed by the Member State concerned, whatever form they take, and determine whether they are sufficient in scope to mitigate the potentially distortive effects of the aid on competition. In examining the necessary compensatory measures, the Commission will take account of the state of the market, and in particular its level of growth and the extent to which demand is met.’

| (357) | In its decision to initiate the procedure (recitals 110 to 115), the Commission raised doubts as to whether the particular circumstances of the case warrant not taking any measures to mitigate any adverse effects of the aid on competitors. |
| --- | --- |

(357)

In its decision to initiate the procedure (recitals 110 to 115), the Commission raised doubts as to whether the particular circumstances of the case warrant not taking any measures to mitigate any adverse effects of the aid on competitors.

| (358) | In particular, the Commission envisaged the possibility that Combus put part of its public service contracts on the market. Combus’ public service contracts expired gradually. Indeed, by the end of 2003, approximately 50 % of the contracts, measured in terms of contract value, were scheduled to expire. The last contract expired in 2006. |
| --- | --- |

(358)

In particular, the Commission envisaged the possibility that Combus put part of its public service contracts on the market. Combus’ public service contracts expired gradually. Indeed, by the end of 2003, approximately 50 % of the contracts, measured in terms of contract value, were scheduled to expire. The last contract expired in 2006.

| (359) | The Commission underlined in its decision to initiate the procedure (recital 113) that it is important to assess possible undue effects on competition ex tunc, i.e. at the moment of the granting of the restructuring aid. |
| --- | --- |

(359)

The Commission underlined in its decision to initiate the procedure (recital 113) that it is important to assess possible undue effects on competition ex tunc, i.e. at the moment of the granting of the restructuring aid.

| (360) | In this respect, the Commission has argued that Combus could have terminated its public service contracts pursuant to Article 14(4) of Regulation (EEC) No 1191/69, and that this might have constituted an appropriate compensatory measure. |
| --- | --- |

(360)

In this respect, the Commission has argued that Combus could have terminated its public service contracts pursuant to Article 14(4) of Regulation (EEC) No 1191/69, and that this might have constituted an appropriate compensatory measure.

| (361) | Denmark denies, in its reply to the opening letter, that this possibility existed. Indeed, Article 14(4) states:
  ‘Any undertaking which intends to discontinue or make substantial modifications to a transport service which it provides to the public on a continuous and regular basis and which is not covered by the contract system or the public service obligation shall notify the competent authorities of the Member State thereof at least three months in advance. The competent authorities may decide to waive such notification. This provision shall not affect other national procedures applicable as regards entitlement to terminate or modify transport services’ (63). |
| --- | --- |

(361)

Denmark denies, in its reply to the opening letter, that this possibility existed. Indeed, Article 14(4) states:

‘Any undertaking which intends to discontinue or make substantial modifications to a transport service which it provides to the public on a continuous and regular basis and which is not covered by the contract system or the public service obligation shall notify the competent authorities of the Member State thereof at least three months in advance. The competent authorities may decide to waive such notification. This provision shall not affect other national procedures applicable as regards entitlement to terminate or modify transport services’ (63).

| (362) | Hence, according to Article 14(4), a transport service may be terminated only if the transport service is not covered by the contract system or the imposed public service obligation system. It is clear from the facts of the present case that Combus’ contracts were covered by the contract system (64). Had Combus terminated its public service contracts unilaterally, it would have faced civil liability suits from the municipal and regional authorities, with which these contracts had been concluded. |
| --- | --- |

(362)

Hence, according to Article 14(4), a transport service may be terminated only if the transport service is not covered by the contract system or the imposed public service obligation system. It is clear from the facts of the present case that Combus’ contracts were covered by the contract system (64). Had Combus terminated its public service contracts unilaterally, it would have faced civil liability suits from the municipal and regional authorities, with which these contracts had been concluded.

| (363) | The Commission concludes that the Danish government’s argument that Combus could not terminate its contracts pursuant to Article 14(4) is valid. |
| --- | --- |

(363)

The Commission concludes that the Danish government’s argument that Combus could not terminate its contracts pursuant to Article 14(4) is valid.

| (364) | Nevertheless, the Commission observes that it was obviously possible for Combus to sell public service contracts, as Arriva sold approximately 50 % of the contracts to Connex only a few months after acquiring Combus. |
| --- | --- |

(364)

Nevertheless, the Commission observes that it was obviously possible for Combus to sell public service contracts, as Arriva sold approximately 50 % of the contracts to Connex only a few months after acquiring Combus.

| (365) | At the moment of granting the restructuring aid, Combus has not been obliged by the Danish government to cede a single public service contract, but could keep all its contracts. It results from the memos prepared by the financial adviser to the Danish government, Alfred Berg, that this has been done on purpose, as it was expected that the sale en bloc would trigger a higher sales price. |
| --- | --- |

(365)

At the moment of granting the restructuring aid, Combus has not been obliged by the Danish government to cede a single public service contract, but could keep all its contracts. It results from the memos prepared by the financial adviser to the Danish government, Alfred Berg, that this has been done on purpose, as it was expected that the sale en bloc would trigger a higher sales price.

| (366) | For the assessment of the file, it is without any relevance that Combus has been effectively split in two through the sale of 50 % of its assets to Connex in May 2001. For the reasons already explained in the decision to open the investigative procedure, this split cannot be seen as such as a sufficient compensatory measure (65), as Arriva was not legally obliged under the terms of the sales contract to sell part of its assets. In addition, the Commission notes that the sale did not take place through an open, transparent and fair procedure, but through exclusive negotiations between Arriva and Connex. |
| --- | --- |

(366)

For the assessment of the file, it is without any relevance that Combus has been effectively split in two through the sale of 50 % of its assets to Connex in May 2001. For the reasons already explained in the decision to open the investigative procedure, this split cannot be seen as such as a sufficient compensatory measure (65), as Arriva was not legally obliged under the terms of the sales contract to sell part of its assets. In addition, the Commission notes that the sale did not take place through an open, transparent and fair procedure, but through exclusive negotiations between Arriva and Connex.

| (367) | The Commission concludes that Denmark has not taken any compensatory measures to avoid undue distortions of competition, and this despite the fact that at least one possibility for such measures existed, namely the sale of a certain share of the public service contracts of Combus to competitors through an open, transparent and fair procedure. |
| --- | --- |

(367)

The Commission concludes that Denmark has not taken any compensatory measures to avoid undue distortions of competition, and this despite the fact that at least one possibility for such measures existed, namely the sale of a certain share of the public service contracts of Combus to competitors through an open, transparent and fair procedure.

| (368) | In the light of the important market share that both Combus and Arriva held on the Danish bus market at the time of the sale of Combus, the Commission considers that the complete absence of compensatory measures has created undue distortions of competitions on the Danish bus market. Hence, the Commission considers that the 2001 measure does not fulfil the conditions set out in points 35 to 39 of the 1999 restructuring guidelines. |
| --- | --- |

(368)

In the light of the important market share that both Combus and Arriva held on the Danish bus market at the time of the sale of Combus, the Commission considers that the complete absence of compensatory measures has created undue distortions of competitions on the Danish bus market. Hence, the Commission considers that the 2001 measure does not fulfil the conditions set out in points 35 to 39 of the 1999 restructuring guidelines.

| (369) | The Commission concludes that the 2001 measures fail to meet at least two of the conditions set out in the 1999 restructuring guidelines, namely the condition ‘economic viability’ and the condition ‘avoidance of undue distortions of competition’. |
| --- | --- |

(369)

The Commission concludes that the 2001 measures fail to meet at least two of the conditions set out in the 1999 restructuring guidelines, namely the condition ‘economic viability’ and the condition ‘avoidance of undue distortions of competition’.

| (370) | It is hence not necessary to analyse the remaining conditions for concluding that the 2001 measures are incompatible with the common market. |
| --- | --- |

(370)

It is hence not necessary to analyse the remaining conditions for concluding that the 2001 measures are incompatible with the common market.

6.3.   CONCLUSION: THE 1999 AND THE 2001 MEASURE CONSTITUTE INCOMPATIBLE STATE AID

| (371) | The Commission considers that the 1999 measure and the 2001 measure implemented by Denmark in favour of Combus are not compatible with the common market under any provision of the Treaty. |
| --- | --- |

(371)

The Commission considers that the 1999 measure and the 2001 measure implemented by Denmark in favour of Combus are not compatible with the common market under any provision of the Treaty.

7.   RECOVERY

| (372) | Article 14 of Regulation (EEC) No 659/1999 stipulates:
  ‘Where negative decisions are taken in cases of unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary (hereinafter referred to as a “recovery decision”). The Commission shall not require recovery of the aid if this would be contrary to a general principle of Community law.’ |
| --- | --- |

(372)

Article 14 of Regulation (EEC) No 659/1999 stipulates:

‘Where negative decisions are taken in cases of unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary (hereinafter referred to as a “recovery decision”). The Commission shall not require recovery of the aid if this would be contrary to a general principle of Community law.’

| (373) | Hence, it has to be verified whether recovery in the present case would be contrary to a general principle of Community law. In the present case, the question arises as to whether the initial decision of the Commission, which authorised the 1999 and the 2001 measure, might have created legitimate expectations for Combus. |
| --- | --- |

(373)

Hence, it has to be verified whether recovery in the present case would be contrary to a general principle of Community law. In the present case, the question arises as to whether the initial decision of the Commission, which authorised the 1999 and the 2001 measure, might have created legitimate expectations for Combus.

| (374) | In its Decision 2005/786/EC of 2 March 2005 on the State aid implemented by Germany for Chemische Werke Piesteritz
   (66), the Commission decided that where a positive Commission decision is challenged within the prescribed time-limits and annulled by the CFI, the general principles of Community law, and in particular the principles of legal certainty and protection of legitimate expectations, do not preclude recovery. |
| --- | --- |

(374)

In its Decision 2005/786/EC of 2 March 2005 on the State aid implemented by Germany for Chemische Werke Piesteritz
   (66), the Commission decided that where a positive Commission decision is challenged within the prescribed time-limits and annulled by the CFI, the general principles of Community law, and in particular the principles of legal certainty and protection of legitimate expectations, do not preclude recovery.

| (375) | To conclude otherwise would render ineffective the review conducted by the Community courts in accordance with Article 220, the first paragraph of Article 230 and Article 233 of the EC Treaty of the legality of measures adopted by the Community institutions. |
| --- | --- |

(375)

To conclude otherwise would render ineffective the review conducted by the Community courts in accordance with Article 220, the first paragraph of Article 230 and Article 233 of the EC Treaty of the legality of measures adopted by the Community institutions.

| (376) | The unlawful and incompatible aid must be recovered from the undertakings that actually benefited from it (67). In the present case, one beneficiary of the aid was clearly Combus, which continues to exist. |
| --- | --- |

(376)

The unlawful and incompatible aid must be recovered from the undertakings that actually benefited from it (67). In the present case, one beneficiary of the aid was clearly Combus, which continues to exist.

| (377) | The question then arises whether the recovery needs to be extended to other undertakings. In the present case, the shares of Combus have been sold to Arriva Denmark A/S, and Combus became a 100 % subsidiary of Arriva Denmark A/S. |
| --- | --- |

(377)

The question then arises whether the recovery needs to be extended to other undertakings. In the present case, the shares of Combus have been sold to Arriva Denmark A/S, and Combus became a 100 % subsidiary of Arriva Denmark A/S.

| (378) | Subsequent to that transaction, Combus has sold all the assets and liabilities on its books to another 100 % subsidiary of Arriva Denmark A/S, namely Arriva Scandinavia A/S, in exchange of one share in Arriva Scandinavia with a nominal value of DKK 1 000. Subsequent to this transaction, Arriva Scandinavia A/S has sold approximately 50 % of Combus’ assets to Connex. |
| --- | --- |

(378)

Subsequent to that transaction, Combus has sold all the assets and liabilities on its books to another 100 % subsidiary of Arriva Denmark A/S, namely Arriva Scandinavia A/S, in exchange of one share in Arriva Scandinavia with a nominal value of DKK 1 000. Subsequent to this transaction, Arriva Scandinavia A/S has sold approximately 50 % of Combus’ assets to Connex.

| (379) | The granting of the unlawful and incompatible aid has hence been followed by a share deal and then two subsequent asset deals. The following paragraphs set out the impact of deals on the recovery of the aid. |
| --- | --- |

(379)

The granting of the unlawful and incompatible aid has hence been followed by a share deal and then two subsequent asset deals. The following paragraphs set out the impact of deals on the recovery of the aid.

7.1.   SHARE DEAL BETWEEN ARRIVA DENMARK A/S AND THE DANISH STATE

| (380) | The European Courts have given some guidance on the conditions under which the recovery obligation must be extended to companies other than the original beneficiary of the unlawful and incompatible aid. As regards transfer of shares of a company that has to reimburse an illegal and incompatible aid (share deals), the ECJ held that the sale of shares in such a company to a third party does not affect the obligation of the beneficiary to reimburse such aid (68). When it can be established that the buyer of the shares paid the prevailing market price for the shares of that company, it cannot be regarded as having benefited from an advantage that could constitute a State aid (69). |
| --- | --- |

(380)

The European Courts have given some guidance on the conditions under which the recovery obligation must be extended to companies other than the original beneficiary of the unlawful and incompatible aid. As regards transfer of shares of a company that has to reimburse an illegal and incompatible aid (share deals), the ECJ held that the sale of shares in such a company to a third party does not affect the obligation of the beneficiary to reimburse such aid (68). When it can be established that the buyer of the shares paid the prevailing market price for the shares of that company, it cannot be regarded as having benefited from an advantage that could constitute a State aid (69).

| (381) | In the present case, the sale of Combus to Arriva Denmark A/S constituted such a share deal. Therefore, the question arises as to whether Arriva Denmark A/S paid the market price for Combus. |
| --- | --- |

(381)

In the present case, the sale of Combus to Arriva Denmark A/S constituted such a share deal. Therefore, the question arises as to whether Arriva Denmark A/S paid the market price for Combus.

| (382) | In this context, the Commission first of all notes that the sale was preceded by a transparent, open and non-discriminatory public tender, and Arriva Denmark A/S had submitted the best offer. This constitutes a first strong indication that Arriva Denmark A/S has indeed paid the market price for Combus. |
| --- | --- |

(382)

In this context, the Commission first of all notes that the sale was preceded by a transparent, open and non-discriminatory public tender, and Arriva Denmark A/S had submitted the best offer. This constitutes a first strong indication that Arriva Denmark A/S has indeed paid the market price for Combus.

| (383) | In addition, the Commission has asked an independent financial expert, Ecorys Netherlands BV (hereinafter: Ecorys), to assess the financial value of Combus at the time of the sale to Arriva Denmark A/S. Ecorys Netherlands BV has cooperated on this assignment with Cowi A/S, an independent Danish transportation consultancy. |
| --- | --- |

(383)

In addition, the Commission has asked an independent financial expert, Ecorys Netherlands BV (hereinafter: Ecorys), to assess the financial value of Combus at the time of the sale to Arriva Denmark A/S. Ecorys Netherlands BV has cooperated on this assignment with Cowi A/S, an independent Danish transportation consultancy.

| (384) | The valuation report for Combus drawn up by Ecorys is based on the discounted cash flow method, a standard practice for valuing companies. The value of Combus has been assessed as of 1 January 2001, based on the information available at the time to the buyer, that is Arriva Denmark A/S. The information includes in particular the due diligence reports established for Arriva Denmark A/S and the material that had been available in the data room during due diligence. |
| --- | --- |

(384)

The valuation report for Combus drawn up by Ecorys is based on the discounted cash flow method, a standard practice for valuing companies. The value of Combus has been assessed as of 1 January 2001, based on the information available at the time to the buyer, that is Arriva Denmark A/S. The information includes in particular the due diligence reports established for Arriva Denmark A/S and the material that had been available in the data room during due diligence.

| (385) | Ecorys has established three scenarios: a low case, a base case and a high case. These scenarios are defined as follows:
  ‘In the Base Case scenario it is assumed that the turnover level of Combus will remain stable, the operational efficiency will improve slightly with one percent per year and investments will be made for replacement of over aged buses (8 year for city buses, 12 year others). Banks are willing to finance 50 percent of the funding needs
  In the Low Case scenario the market size remains stable, but Combus will fail to win new tenders and Turnover will decline. As a result, no new investments are required as redundant buses will replace the over aged ones. It is furthermore assumed that banks are only willing to finance 25 percent of the funding needs.
  In the High Case scenario it is assumed that debt providers are willing to write off DKK 340 mln at the transaction date. The market size will temporarily increase due to the tendering of contract in the Aarhus and Odense region and as the market share of Combus will remain stable, the turnover will slightly increase with one percent per year. Combus will be able to improve operational performance indicators up to industry standards, resulting in an increase of operational efficiency and a reduction of costs. Investments are needed to replace over aged buses and for the expansion of the bus fleet. Banks are willing to fund 50 percent of funding needs.’ |
| --- | --- |

(385)

Ecorys has established three scenarios: a low case, a base case and a high case. These scenarios are defined as follows:

‘In the Base Case scenario it is assumed that the turnover level of Combus will remain stable, the operational efficiency will improve slightly with one percent per year and investments will be made for replacement of over aged buses (8 year for city buses, 12 year others). Banks are willing to finance 50 percent of the funding needs

In the Low Case scenario the market size remains stable, but Combus will fail to win new tenders and Turnover will decline. As a result, no new investments are required as redundant buses will replace the over aged ones. It is furthermore assumed that banks are only willing to finance 25 percent of the funding needs.

In the High Case scenario it is assumed that debt providers are willing to write off DKK 340 mln at the transaction date. The market size will temporarily increase due to the tendering of contract in the Aarhus and Odense region and as the market share of Combus will remain stable, the turnover will slightly increase with one percent per year. Combus will be able to improve operational performance indicators up to industry standards, resulting in an increase of operational efficiency and a reduction of costs. Investments are needed to replace over aged buses and for the expansion of the bus fleet. Banks are willing to fund 50 percent of funding needs.’

| (386) | Ecorys distinguishes in its valuation report between the firm value and the equity value of Combus. The firm value is defined as the value of Combus as a company under the assumption of efficient financing (in line with comparable companies). The equity value corresponds to the value of Combus’ shares, given the actual financing. Ecorys concludes with respect to the firm value:
  ‘The analysis illustrates that the value as per January 2001 of Combus as a company is between DKK 567 mln negative [low case] and DKK 1 297 mln positive [high case], with a most likely value of DKK 426 mln [base case].
  This indicates that Combus as a company is in itself viable under the assumption of efficient financing (in line with comparable companies), though certain conditions have to be met in order to achieve its expected return. These conditions are:






  1. | Combus has to maintain at least a comparable turnover level-a not unrealistic condition in view of its status at the time of being a market leader. Preferably its individual contracts should be profitable, though this is not a prerequisite as the key principle for profit optimisation is whether the marginal revenues exceed the marginal costs. The profitability of a contract needs to be assessed from this economic principle. This analysis is beyond the scope of the underlying study. |
| --- | --- | --- |

(386)

Ecorys distinguishes in its valuation report between the firm value and the equity value of Combus. The firm value is defined as the value of Combus as a company under the assumption of efficient financing (in line with comparable companies). The equity value corresponds to the value of Combus’ shares, given the actual financing. Ecorys concludes with respect to the firm value:

‘The analysis illustrates that the value as per January 2001 of Combus as a company is between DKK 567 mln negative [low case] and DKK 1 297 mln positive [high case], with a most likely value of DKK 426 mln [base case].

This indicates that Combus as a company is in itself viable under the assumption of efficient financing (in line with comparable companies), though certain conditions have to be met in order to achieve its expected return. These conditions are:

1.

Combus has to maintain at least a comparable turnover level-a not unrealistic condition in view of its status at the time of being a market leader. Preferably its individual contracts should be profitable, though this is not a prerequisite as the key principle for profit optimisation is whether the marginal revenues exceed the marginal costs. The profitability of a contract needs to be assessed from this economic principle. This analysis is beyond the scope of the underlying study.

| 2. | A second condition to be met is that Combus needs to improve its operating efficiency and bring it more in line with industry standards. Again, this not an unrealistic condition in view of the recent change in the status of its employees enhancing the operational flexibility and enabling cost reductions.’ |
| --- | --- |

2.

A second condition to be met is that Combus needs to improve its operating efficiency and bring it more in line with industry standards. Again, this not an unrealistic condition in view of the recent change in the status of its employees enhancing the operational flexibility and enabling cost reductions.’

| (387) | With respect to the equity value, Ecorys concludes:
  ‘The value of the shares of Combus at the time [i.e. on 1 January 2001] was in the range of DKK 845 negative [low case] and 140 mln positive [high case], with a most likely value of DKK 543 mln negative [base case].
  The main reason for the equity value being significantly less than the firm value is that the firm value assumes efficient financing. However, the rapid growth of Combus’ business was highly inefficiently financed, namely largely through debt, leading to a gearing which is far from comparable to industry standards.’ |
| --- | --- |

(387)

With respect to the equity value, Ecorys concludes:

‘The value of the shares of Combus at the time [i.e. on 1 January 2001] was in the range of DKK 845 negative [low case] and 140 mln positive [high case], with a most likely value of DKK 543 mln negative [base case].

The main reason for the equity value being significantly less than the firm value is that the firm value assumes efficient financing. However, the rapid growth of Combus’ business was highly inefficiently financed, namely largely through debt, leading to a gearing which is far from comparable to industry standards.’

| (388) | Arriva Denmark A/S acquired Combus at a negative purchase price of DKK 340 million. Hence, it accepted to pay a price that was DKK 203 million above the most likely value. Ecorys speculates about the motivation of Arriva, and observes:
  ‘Apparently, Arriva was convinced it would be able to achieve the operational performance improvements and maintain the turnover level, even beyond the most likely value of DKK 534 mln negative as assessed in this study. Most likely Arriva expected possible synergy gains which have not been assessed in this study.’ |
| --- | --- |

(388)

Arriva Denmark A/S acquired Combus at a negative purchase price of DKK 340 million. Hence, it accepted to pay a price that was DKK 203 million above the most likely value. Ecorys speculates about the motivation of Arriva, and observes:

‘Apparently, Arriva was convinced it would be able to achieve the operational performance improvements and maintain the turnover level, even beyond the most likely value of DKK 534 mln negative as assessed in this study. Most likely Arriva expected possible synergy gains which have not been assessed in this study.’

| (389) | In view of the above, the Commission concludes that the buyer of the shares of Combus, Arriva Denmark A/S, paid at least the prevailing market price for the shares. Accordingly, it cannot be regarded as having benefited from an advantage that could constitute a State aid. |
| --- | --- |

(389)

In view of the above, the Commission concludes that the buyer of the shares of Combus, Arriva Denmark A/S, paid at least the prevailing market price for the shares. Accordingly, it cannot be regarded as having benefited from an advantage that could constitute a State aid.

7.2.   ASSET DEAL BETWEEN COMBUS AND ARRIVA SCANDINAVIA A/S

| (390) | The ECJ considers that the recovery order can be extended to a third undertaking, if this undertaking has been set up to circumvent the recovery order (70). Typical cases of circumvention are cases where the transfer does not reflect any economic logic other than the invalidation of the recovery order (71). As the ECJ points out, ‘such is the case when, following a Commission investigation or decision, the assets and liabilities of the firm as an ongoing concern are transferred to another firm controlled by the same persons at below-market prices or by way of procedures that lack transparency. The purpose of such a transaction can be to place the assets out of reach of the Commission decision and to continue the economic activity in question indefinitely’ (72). |
| --- | --- |

(390)

The ECJ considers that the recovery order can be extended to a third undertaking, if this undertaking has been set up to circumvent the recovery order (70). Typical cases of circumvention are cases where the transfer does not reflect any economic logic other than the invalidation of the recovery order (71). As the ECJ points out, ‘such is the case when, following a Commission investigation or decision, the assets and liabilities of the firm as an ongoing concern are transferred to another firm controlled by the same persons at below-market prices or by way of procedures that lack transparency. The purpose of such a transaction can be to place the assets out of reach of the Commission decision and to continue the economic activity in question indefinitely’ (72).

| (391) | If the Commission finds that an asset deal has the purpose of circumventing State aid recovery, it has to require that the recovery is not restricted to the original firm but is extended to the firm which continues the activity of the original firm, using the transferred means of production, in cases where certain elements of the transfer point to economic continuity between the two firms. The analysis of the existence of a circumvention of the obligation to recover such aid is based on a set of objective criteria, including the purpose of the transfer (assets and liabilities, continuity of the workforce, bundled assets, etc.), the transfer price, the identity of the shareholders or owners of the acquiring firm and of the original firm, the moment at which the transfer was carried out (after the start of the investigation, the initiation of the procedure or the final decision) and, lastly, the economic logic of the transaction (73). |
| --- | --- |

(391)

If the Commission finds that an asset deal has the purpose of circumventing State aid recovery, it has to require that the recovery is not restricted to the original firm but is extended to the firm which continues the activity of the original firm, using the transferred means of production, in cases where certain elements of the transfer point to economic continuity between the two firms. The analysis of the existence of a circumvention of the obligation to recover such aid is based on a set of objective criteria, including the purpose of the transfer (assets and liabilities, continuity of the workforce, bundled assets, etc.), the transfer price, the identity of the shareholders or owners of the acquiring firm and of the original firm, the moment at which the transfer was carried out (after the start of the investigation, the initiation of the procedure or the final decision) and, lastly, the economic logic of the transaction (73).

| (392) | This has been confirmed by the CFI in a judgment delivered on 1 July 2009 in Case T-291/06 Operator ARP v Commission
   (74) in which it is stated that the widening of the group of entities required to repay the aid can be justified only if the transfer of assets leads to the risk of circumvention of the effects of the recovery order, and in particular if, as a result of the takeover of assets, the original beneficiary of the aid is left like an ‘empty shell’ from which it is not possible to secure repayment of the unlawful aid. |
| --- | --- |

(392)

This has been confirmed by the CFI in a judgment delivered on 1 July 2009 in Case T-291/06 Operator ARP v Commission
   (74) in which it is stated that the widening of the group of entities required to repay the aid can be justified only if the transfer of assets leads to the risk of circumvention of the effects of the recovery order, and in particular if, as a result of the takeover of assets, the original beneficiary of the aid is left like an ‘empty shell’ from which it is not possible to secure repayment of the unlawful aid.

| (393) | In its notice ‘Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid’ (75), the Commission stated that as long as the aid has not been fully recovered, the Member State concerned should oppose any transfer of assets that is not carried out on market terms and/or that is organised so as to circumvent the recovery decision. |
| --- | --- |

(393)

In its notice ‘Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid’ (75), the Commission stated that as long as the aid has not been fully recovered, the Member State concerned should oppose any transfer of assets that is not carried out on market terms and/or that is organised so as to circumvent the recovery decision.

| (394) | It is therefore necessary to verify, applying these criteria, whether the asset deal between Combus and Arriva Scandinavia A/S had the purpose of circumventing State aid recovery. |
| --- | --- |

(394)

It is therefore necessary to verify, applying these criteria, whether the asset deal between Combus and Arriva Scandinavia A/S had the purpose of circumventing State aid recovery.

| (395) | The Commission notes that all assets and liabilities were transferred as an on-going concern and that the transfer took place between two companies controlled by the same mother company, Arriva Denmark. In addition, the transfer took place 9 days after the share deal between the Danish State and Arriva Denmark A/S. |
| --- | --- |

(395)

The Commission notes that all assets and liabilities were transferred as an on-going concern and that the transfer took place between two companies controlled by the same mother company, Arriva Denmark. In addition, the transfer took place 9 days after the share deal between the Danish State and Arriva Denmark A/S.

| (396) | Although those indicia are of relevance in the context at hand, the Commission notes that at the time this transaction occurred, the Commission had adopted a decision not to raise objections concerning the notified measures. |
| --- | --- |

(396)

Although those indicia are of relevance in the context at hand, the Commission notes that at the time this transaction occurred, the Commission had adopted a decision not to raise objections concerning the notified measures.

| (397) | Therefore, at that time, any recovery decision by the Commission was purely hypothetical. |
| --- | --- |

(397)

Therefore, at that time, any recovery decision by the Commission was purely hypothetical.

| (398) | Moreover, Arriva had on its books no provisions in regard of possible State aid recovery claims, and that neither the share agreement between the Danish government and Arriva Denmark, nor the sales contract for the asset deal between Combus and Arriva Scandinavia mention possible State aid recovery claims, whereas they do list in exhaustive manner all other litigation-related risks. |
| --- | --- |

(398)

Moreover, Arriva had on its books no provisions in regard of possible State aid recovery claims, and that neither the share agreement between the Danish government and Arriva Denmark, nor the sales contract for the asset deal between Combus and Arriva Scandinavia mention possible State aid recovery claims, whereas they do list in exhaustive manner all other litigation-related risks.

| (399) | Finally, it has to be noted that at the moment the capital injections were granted to Combus, it was already considered that integrating Combus into another undertaking present in the market was the best way of introducing cost-reductions and efficiency-promoting measures which could not be implemented by Combus on its own. Full implementation of the restructuring plan presented to the Commission at the time of the notification of the second tranche of the capital injection, based, inter alia, on increased efficiency and reduced costs, was possible principally because of the integration of Combus activities into Arriva’s business, which given in addition the nature of the business in question (network industries) and the economies of scale possible was rational from Arriva’s perspective. This explains why the asset deal took place little after the share deal. |
| --- | --- |

(399)

Finally, it has to be noted that at the moment the capital injections were granted to Combus, it was already considered that integrating Combus into another undertaking present in the market was the best way of introducing cost-reductions and efficiency-promoting measures which could not be implemented by Combus on its own. Full implementation of the restructuring plan presented to the Commission at the time of the notification of the second tranche of the capital injection, based, inter alia, on increased efficiency and reduced costs, was possible principally because of the integration of Combus activities into Arriva’s business, which given in addition the nature of the business in question (network industries) and the economies of scale possible was rational from Arriva’s perspective. This explains why the asset deal took place little after the share deal.

| (400) | In the light of the above, taken into account the very specific circumstances of the case, the Commission therefore considers that there is insufficient indication to form the view that the purpose of the asset deal was to circumvent a recovery order. |
| --- | --- |

(400)

In the light of the above, taken into account the very specific circumstances of the case, the Commission therefore considers that there is insufficient indication to form the view that the purpose of the asset deal was to circumvent a recovery order.

| (401) | This conclusion is strengthened by the fact that at the time the sale agreements were concluded the Commission was consulted by the Danish authorities on their intention to introduce a liability clause according to which the Danish government was to guarantee Arriva for possible claims from public institutions regarding Combus (e.g. competition authorities and the EU Commission). The Danish authorities were however advised to wait for the adoption of a final decision before proceeding with the sale proceedings in question (76). |
| --- | --- |

(401)

This conclusion is strengthened by the fact that at the time the sale agreements were concluded the Commission was consulted by the Danish authorities on their intention to introduce a liability clause according to which the Danish government was to guarantee Arriva for possible claims from public institutions regarding Combus (e.g. competition authorities and the EU Commission). The Danish authorities were however advised to wait for the adoption of a final decision before proceeding with the sale proceedings in question (76).

| (402) | As a consequence, the Commission considers that there is no reason to extend the recovery order to Arriva Scandinavia. |
| --- | --- |

(402)

As a consequence, the Commission considers that there is no reason to extend the recovery order to Arriva Scandinavia.

7.3.   ASSET DEAL BETWEEN ARRIVA SCANDINAVIA A/S AND CONNEX

| (403) | The Commission also has no indication that the price paid by Connex to Arriva Scandinavia for the assets was below the market price. This price, which has been agreed between two privately owned undertakings on the marketplace, can be presumed to correspond to the market price. Hence, there is no reason to extend the recovery obligation to Connex. |
| --- | --- |

(403)

The Commission also has no indication that the price paid by Connex to Arriva Scandinavia for the assets was below the market price. This price, which has been agreed between two privately owned undertakings on the marketplace, can be presumed to correspond to the market price. Hence, there is no reason to extend the recovery obligation to Connex.

| (404) | As a conclusion, the Commission considers that the unlawful and incompatible aid must be recovered from Combus, |
| --- | --- |

(404)

As a conclusion, the Commission considers that the unlawful and incompatible aid must be recovered from Combus,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which the Kingdom of Denmark has implemented in 1999 and 2001, in the form of capital increase, subordinated loan and guarantees, is incompatible with the common market.

Article 2

1.   The Kingdom of Denmark shall take all necessary measures to recover from Combus the aid referred to in Article 1 and unlawfully made available to the latter.

2.   The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiary until their actual recovery.

3.   The interest shall be calculated on a compound basis in accordance with Chapter V of Commission Regulation (EC) No 794/2004 (77) and to Commission Regulation (EC) No 271/2008 (78) amending Regulation (EC) No 794/2004.

Article 3

1.   Recovery of the aid referred to in Article 1 shall be immediate and effective.

2.   The Kingdom of Denmark shall ensure that this decision is implemented within four months following the date of notification of this Decision.

Article 4

1.   Within two months following notification of this Decision, the Kingdom of Denmark shall submit the following information to the Commission:

| (a) | the total amount (principal and recovery interests) to be recovered from the beneficiary; |
| --- | --- |

(a)

the total amount (principal and recovery interests) to be recovered from the beneficiary;

| (b) | a detailed description of the measures already taken and planned to comply with this Decision; |
| --- | --- |

(b)

a detailed description of the measures already taken and planned to comply with this Decision;

| (c) | documents demonstrating that the beneficiary has been ordered to repay the aid. |
| --- | --- |

(c)

documents demonstrating that the beneficiary has been ordered to repay the aid.

2.   The Kingdom of Denmark shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid referred to in Article 1 has been completed. It shall immediately submit, on simple request by the Commission, information on the measures already taken and planned to comply with this Decision. It shall also provide detailed information concerning the amounts of aid and recovery interest already recovered from the beneficiary.

Article 5

This Decision is addressed to the Kingdom of Denmark.

Done at Brussels, 13 July 2009.

For the Commission

Antonio TAJANI

Vice-President

---

(1)  OJ C 233, 22.9.2005, p. 28.

1

(2)  This association represents more than 90 % (in terms of number of companies) of the regional public bus transport undertakings in Denmark.

2

(3)  See Table 7 of the initial decision; this sum is expressed in 2001 net present value.

3

(4)  OJ C 288, 9.10.1999, p. 2.

4

(5)  See footnote 3.

5

(6)  OJ L 156, 28.6.1969, p. 1.

6

(7)  OJ C 133, 5.5.2001, p. 21.

7

(8)  See Case T-157/01, Danske Busvognmaend v Commission [2004] ECR p. II-917 (hereinafter referred to as the ‘Combus Judgment’).

8

Danske Busvognmaend

Commission

(9)  Combus Judgment, paragraphs 83 and 99.

9

(10)  Case C-280/00 Altmark Trans and Regierungspräsidium Magdeburg [2003] ECR p. I-7747, paragraphs 107 and 108 (hereinafter referred to as the “Altmark Judgment”)’ ().

10

(11)  Combus Judgment, paragraphs 100 and 101.

(12)  Combus Judgment, paragraph 114 ff.

12

(13)  See footnote 1.

13

(14)  OJ L 83, 27.3.1999, p. 1.

14

(15)  OJ L 209, 24.7.1992, p. 1.

15

(16)  See Trafikredegorelse 2004, published by the Danish Ministry of Transport, p. 121, and the Court’s case law on in house procurement.

16

Trafikredegorelse 2004

(17)  See the decision to initiate procedure, paragraph 16 and Table 1.

17

(18)  Arriva acquired Unibus Rutetrafik A/S and Bus Danmark A/S, Connex acquired Liniebus A/S.

18

(19)  Act. No 1046 of 23 December 1998.

19

(20)  Bill of 21 May 1999 regarding the capital injection of DKK 300 million. Agreed by the Finance Committee on 27 May 1999.

20

(21)  Report 10/01 on Combus A/S 1995-2001. Pages 49-60 of the report give a detailed description of the sales process, Arriva’s offer and the guarantees provided in connection with it.

21

(22)  A further provision of EUR 5 million is to be made for 2002.

22

Source: Memo on the profitability of selected bus service contracts in the period 1999-2001.

Source:

(23)  These requirements foresaw that the companies equity capital had to be at least 10 % of its balance sheet until 1998, and at least 20 % of its balance sheet as of 1999. At the end of 1998, the company’s balance sheet was DKK 1,24 billion and the balance sheet was expected to increase that year (1999). With the expected deficit of around DKK 25 million in 1999, the equity capital would be reduced to DKK 20 million at the end of 1999. If the balance sheet at the end of 1999 was set, for example at DKK 1,3 billion, a requirement for 20 % solidity would mean equity capital of at least DKK 260 million. A capital injection of DKK 300 million would mean there was a reserve of DKK 60 million, which, with the inherent uncertainties, could hardly be considered too high, according to the adviser.

23

(24)  Combus 28 %, Arriva 25 %, City-Trafik 7 %, Linjebus 10 %.

24

(25)  See also Combus Judgment, paragraph 87.

25

(26)  These costs are split as follows: Redundancy costs management DKK 5,2 million, redundancy costs other headquarters DKK 6,7 million, redundancy costs other DKK 2,0 million.

26

(27)  See row 5, column 3, and row 6, column 3, in Table 8 of the decision to initiate the procedure.

27

(28)  See recital 83.

28

(29)  Case C-278/92 Spain v Commission [1994] ECR p. I-4103, paragraphs 13 and 14, and joined cases T-126/96 and T- 127/96 Breda Fucine Meridionali [1998] ECR p. II-3437, paragraph 79.

29

Spain

Commission

Breda Fucine Meridionali

(30)  Case C-305/89 Italy v Commission [1991] ECR p. I-1603, paragraph 20.

30

Italy

Commission

(31)  Post Danmark is one of the biggest employers in Denmark with a turnover of DKK 11 227 million (EUR 1 509 million) in 2004, a pre-tax profit of DKK 836 million (EUR 112 million) and earnings before interest, taxes, depreciation and amortisation (EBITDA) of DKK 1 115 million (DKK 244 million).

31

(32)  Prior to 1 March 2004, Banedanmark was called Banestyrelsen. Banedanmark manages the State’s railway infrastructure and also carries out duties as infrastructure manager on some other parts of the railway network.

32

(33)  Bill 273 of 27 June 2001.

33

(34)  The unit, which is called ‘Enterprise’ is today an independent organisational unit of Banedanmark. The unit sells railway-engineering services by means of turnkey contracts, major contracts, specialist contracts and sub-contracts.

34

(35)  Combus Judgment, paragraph 109.

35

(36)  Case T-11/95 BP Chemicals Ltd v Commission, [1998] ECR p. II-3235, paragraph 171.

36

BP Chemicals Ltd

Commission

(37)  ‘Beretning om Granskning af Combus A/S’, April 2001; ‘Advokatundersogelse om Statens Varetagelse af Ejerskabet til Combus A/S’, August 2001; ‘Beretning fra Rigsrevisionen, April 2002’.

37

(38)  See case C-17/99 France v Commission [2001] ECR p. I-2481, paragraph 43.

38

France

Commission

(39)  Page 60.

39

(40)  See Case C-17/99, cited above.

40

(41)  Case T-11/95, cited above, paragraph 171.

41

(42)  OJ C 307, 13.11.1993, p. 3. See also the earlier Communication to the Member States from the Commission on 17 September 1984 concerning public authorities holdings in company capital, published in the Bulletin September 1984.

42

(43)  Case C-482/99 France v Commission (Stardust) [2002] ECR I-4397, paragraph 56. See also the Opinion of Advocate-General Geelhoed in Joined Cases C-328/99 and C-399/00 Italy and Sim 2 Multimedia v Commission [2003] ECR I-4035.

43

France

Commission

Stardust

Italy and Sim 2 Multimedia

Commission

(44)  Joined Cases 296/82 and 318/82 Netherlands and Leeuwarder Papierwarenfabriek v Commission [1985] ECR I-809, paragraph 17.

44

Netherlands and Leeuwarder Papierwarenfabriek

Commission

(45)  Case C-305/89 Italy v Commission (Alfa Romeo) [1991] ECR I-1603, paragraph 20.

45

Italy

Commission

(46)  Commission Decision 2006/947/EC of 7 December 2005 concerning State aid granted by Belgium to ABX Logistics (OJ L 383, 28.12.2006, p. 21).

46

(47)  Altmark Judgment, paragraph 95.

47

Altmark

(48)  Combus Judgment, paragraph 98.

48

(49)  Combus Judgment, paragraph 99.

49

(50)  Altmark Judgment, paragraph 78.

50

Altmark

(51)  Altmark Judgment, paragraph 79.

51

Altmark

(52)  See, inter alia, Case C-513/99 Concordia Bus Finland v Helsingin kaupunki and HKL-Bussiliikenne, paragraph 56.

52

Concordia Bus Finland

Helsingin kaupunki and HKL-Bussiliikenne

(53)  OJ C 368, 23.12.1994, p. 12.

53

(54)  OJ C 244, 1.10.2004, p. 2.

54

(55)  See case C-17/99 France v Commission [2001] ECR I-2481, paragraph 46.

55

France

Commission

(56)  Case C-17/99 France v Commission [ECR] 2001, I-2481, paragraph 41.

56

France

Commission

(57)  See note 51.

57

(58)  See note 52.

58

(59)  See note 53.

59

(60)  Points 31 and 32 of the Guidelines.

60

(61)  Combus Judgment, paragraphs 114 and 115.

61

(62)  See Table 7 in the initial decision; as explained above, these figures are expressed in 2001 net present value, rather than real terms.

62

(63)  Underline added by the Commission.

63

(64)  Combus Judgment, paragraph 78 et seq., notably paragraph 88.

64

et seq

(65)  See recital 110 of the opening decision.

65

(66)  OJ L 296, 12.11.2005, p. 19.

66

(67)  Case C-303/88 Italy v Commission [1991] ECR I-1433, paragraph 57, and Case C-277/00, Germany v Commission [2004] ECR I-3925, paragraph 75.

67

Italy

Commission

Germany

Commission

(68)  Case C-328/99 and C-399/00, cited above, paragraph 83.

68

(69)  Case C-277/00, cited above, paragraph 80.

69

(70)  Case C-277/00, cited above, point 86.

70

(71)  Case C-415/03 Commission v Greece (‘Olympic Airways’) [2005] ECR I-3875 and Joined cases C-328/99 and C-399/00, cited above, paragraph 69.

71

Commission

Greece

Olympic Airways

(72)  Joined Cases C-328/99 and C-399/00, cited above, point 69.

72

(73)  Commission Decision 2000/536/EC of 2 June 1999 concerning State aid granted to Seleco SpA (OJ L 227, 7.9.2000, p. 24, recitals 116 and 117). See, in that sense, as regards the control by the CFI of the application of those criteria by the Commission, Case T-318/00 Freistaat Thüringen v Commission [2005] ECR II-4179.

73

Freistaat Thüringen

Commission

(74)  Not yet reported.

74

(75)  OJ C 272, 15.11.2007, p. 4.

75

(76)  Since the entry into force of the Commission recovery notice of 2007 (cited above), such a case cannot arise anymore. Indeed, it is stated in the latter that ‘in the event of a privatisation of a company that received State aid declared compatible by the Commission, the Member State can introduce a liability clause in the privatisation agreement to protect the buyer of the company against the risk that the initial Commission decision approving the aid would be overturned by the Community Courts and replaced by a Commission decision ordering the recovery of that aid from the beneficiary. Such a clause could provide for an adjustment of the price paid by the buyer for the privatised company to take due account of the new recovery liability.’

76

(77)  OJ L 140, 30.4.2004, p. 1.

77

(78)  OJ L 82, 25.3.2008, p. 1.

78

---