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"B COMMISSION DECISION
of 28 October 1998
on State aid implemented by Spain in favour of SNIACE SA, located in Torrelavega, Cantabria
(notified under document number C(1998) 3437)
(Only the Spanish text is authentic)
(Text with EEA relevance)
(1999/395/EC)
(OJ L 149, 16.6.1999, p. 40)
Amended by:
Official Journal
No page date
"M1 Commission Decision 2001/43/EC of 20 September 2000 L 11 46 16.1.20011999D0395 — EN — 16.01.2001 — 001.001 — 1
COMMISSION DECISION
of 28 October 1998
on State aid implemented by Spain in favour of SNIACE SA, located in
Torrelavega, Cantabria
(notified under document number C(1998) 3437)
(Only the Spanish text is authentic)
(Text with EEA relevance)
(1999/395/EC)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Communities and, in
particular, the first subparagraph of Article 93(2) thereof,
Having called on interested parties to submit their comments pursuant to the
provisions cited above (1), and having regard to their comments,
Whereas:
I.PROCEDURE
(1) By letter dated 17 April 1997 the Commission received a detailed
complaint from a law firm representing the Austrian company Lenzing
AG, the largest Community producer of viscose fibres, concerningvarious elements of illegal aid awarded to its Spanish competitor
‘Sociedad Nacional de Industrias y Aplicaciones de Celulosa
Espanola’ SA (hereinafter referred to as SNIACE). The complaintincluded new information not provided with its original complaintdated 4 July 1996, in respect of which the Commission had found that
there was insufficient evidence of State aid. The new information
provided to the Commission included a copy of a viability plan forSNIACE produced by a private consultancy firm. The complainantalleged that SNIACE had received significant sums of State aid over a
period of several years, stretching back to the late 1980s. That aid had
not been notified to the Commission in accordance with Article 93(3)of the EC Treaty nor with the Code on aid to the synthetic fibres
industry. The aid had distorted competition in a sector suffering from
structural overcapacity and had served to keep SNIACE aliveartificially.
(2) There followed a lengthy preliminary investigation, which included
meetings between DG IV , the complainant, and the Spanish authoritieson 17 May 1997 and 16 June 1997 respectively. The complaint was
registered as non-notified aid under NN 118/97 on 17 July 1997.
(3) By letter dated 7 November 1997 the Commission informed the
Spanish Government of its decision to initiate the procedure laid downin Article 93(2) of the Treaty in respect of several elements ofpresumed aid (see below).
(4) The Commission decision to initiate the procedure was published in
theOfficial Journal of the European Communities (
1). The Commis-
sion invited interested parties to submit their comments on thepresumed aid.
(5) By letter dated 19 December 1997, the Spanish Government replied to
the Commission’ s letter opening the procedure which provided further
information in support of its view that none of the matters under
investigation constituted aid within the meaning of Article 92(1) of theEC Treaty.
(6) By letter dated 23 February 1997, the Commission requested
clarification on certain points. The Spanish Government replied byletter dated 16 April 1998.
(7) The Commission received comments from interested parties. It
forwarded them to the Spanish authorities, which was given the!B
(1) OJ C 49, 14.2.1998, p. 2.1999D0395 — EN — 16.01.2001 — 001.001 — 2
opportunity to react; its comments were received by letter dated 24
June 1998.
II. SNIACE
(8) SNIACE was founded in 1939 and is a producer of cellulose, paper,
viscose fibres, synthetic fibres and sodium sulphate. It is based inTorrelavega, Cantabria, which since September 1995 has been a region
eligible for aid pursuant to Article 92(3) (a). Before that date it had
been a region eligible for aid pursuant to Article 92(3)(c).
(9) SNIACE currently has approximately 600 employees. It is one of five
viscose fibres producers in the European Union with a capacity of
approximately 32 000 tonnes (about 9 % of Community capacity).
SNIACE also produces synthetic fibres, including polyamide filamentyarn. SNIACE has obtained the following results in recent years:
(ESP million)
1994 1995 1996 1997
Turnover 6 540 10 970 5 750 5 600
Profit (loss) (1 780) 153 (1 951) (500)
(10) When opening the Article 93(2) procedure, the Commission noted that
the company had suffered financial difficulties for several years, which
had featured in numerous press reports. Following an application made
by the company in 1992, the Spanish Courts ordered suspension ofpayments in March 1993. This was lifted following a creditors’
agreement in October 1996, whereby SNIACE’ s private creditors
agreed to convert 40 % of their debts into shares. The public creditorsdid not participate in the agreement.
(11) At the end of 1997 the company’ s current liabilities totalled ESP 8,37
billion compared with ESP 4,54 billion of current assets and the net
worth of the company was ESP 1,73 billion. In recent years theproblems facing the company, which have included industrial relationsdisputes, have led to periodic shut-downs of production. The company
ceased production for much of 1993. Production was again stopped for
much of 1996 and early 1997. Production resumed in February 1997and the company is currently trading as a going concern.
III. DETAILED DESCRIPTION OF THE AID MEASURES
(12) The Commission opened Article 93(2) proceedings in respect of the
following elements of presumed aid:
(a)the non payment of environmental levies owed by SNIACE since
1987. The Commission noted the possibility of an element of State
aid arising from the withholding over a period of several years ofenvironmental levies owed by the company to the public Water
Authority (Confederation Hidrogràfica del Norte). Given that the
company appeared to have been in financial difficulties for someyears, the effect of not paying these levies may have been to avoid
the liquidation of the company;
(b)non-enforcement of social security contributions since 1991. The
Commission expressed doubted whether the terms and conditionsof two debt rescheduling agreements with the Social Security
Treasury reflected market conditions:
(i) an agreement dated 8 March 1996 covering rescheduled debts
totalling ESP 2,9 billion for the period February 1991 toFebruary 1995 and imposing terms of 96 monthly payments
from 1996 to March 2004 at the legal interest rate of 9 %; and
(ii) an agreement dated 7 May 1996 allowing a first year’ s grace
and 84 monthly payments at the legal interest rate of 9 %;
(c)a loan guarantee approved totalling ESP I billion approved by law
7/93. The Commission expressed doubts that law 7/93 by which
the Cantabrian regional government authorised a loan guarantee ofESP l billion to SNIACE contains a degree of State aid;!B1999D0395 — EN — 16.01.2001 — 001.001 — 3
(d)the financing arrangements for the planned construction of a
waste treatment plant. The Commission said it could not state with
certainty that there would be no aid involved in the financingarrangements for a planned waste water treatment plant;
(e)partial cancellation by Torrelavega City Council of debts totalling
ESP 116 million. The Commission noted that the actions taken by
the Torrelavega City Council appeared to have reduced de facto
the company’ s debts by ESP 116 million and that the fact that theCity Council had reached a ‘special agreement’ with the company
implied that it has used discretionary powers and that con-
sequently State aid could be involved; and
(f)agreements between SNIACE and the wages guarantee fund
FOGASA covering the repayment of an amount totalling ESP1,702 billion, corresponding to overdue salaries of the workforcepaid by FOGASA on behalf of SNIACE:
Date of agreement Principal (ESP) Interest (ESP)Rate of interest
(legal interest)Other terms/conditions
5.11.1993 897 million 465 million 10 % Eight years repayment; mortgage on
SNIACE’ s assets
31.10.1995 229 million 110 million 9 % Eight years repayment; mortgage on
SNIACE’ s assets
(13) The Commission doubted whether the terms and conditions of the
above agreements reflected market conditions.
IV . COMMENTS FROM INTERESTED PARTIES
(14) Comments were r eceived from one Member State (the United
Kingdom), several Community competitors of SNIACE and the
International Rayon and Synthetic Fibres Committee (CIRFS).
Comments by the Bavarian Ministry of Economy, Transport andTechnology were submitted well after the expiry of the deadline and
consequently may not be taken into account in the context of this
procedure.
(15) Säteri, a producer of viscose staple fibres, stated it had experienced
unfair competition from SNIACE, particularly in Italy, the UnitedKingdom, Germany and France. As a result of illegal aid SNIACE hadbeen able to set its prices at 10 to 20 % below those of Säteri. Svenska
Rayon, a producer of viscose staple fibre, stated that in its view
SNIACE had disturbed the viscose staple-fibre market over severalyears by selling at artificially low prices. This had particularly affected
Svenska Rayon in the Italian market.
(16) Nylstar said it had been hit by unfair competition from SNIACE in the
polyamide textile filament sector, particularly in the Spanish market.
Textil Finanz, part of the Radici Group, said it was also particularlyconcerned about the possibility of the effect of illegal aid to SNIACEin the polyamide textile filament yarn sector. Bemberg referred to
unfair competition from SNIACE in the polyamide textile filament
yarn sector, especially in Italy, Germany, the United Kingdom, Spain,France and Switzerland due to the loss of sales and contracts caused byyarn price levels quoted by SNIACE which did not reflect current
market conditions.
(17) Courtaulds plc, the second largest producer of viscose staple fibre in
Europe, referred to overcapacity in the industry and to the action it hadtaken over the previous 10 years to reduce capacity and costs whichhad led to job losses in the United Kingdom, Germany and France. It
stated that the migration of textile manufacturing to lower-cost
economies had resulted in a long-term reduction in mill consumptionin Europe of between 1,5 and 2 % per annum. This consumption hadbeen replaced by imports of yarns, fabrics and garments, primarily
from Asia and India. As a result, capacity had fallen in Europe from
687 000 tonnes in 1980 to 355 000 tonnes in 1998. Courtaulds alonehad reduced capacity by 195 000 tonnes over the last 20 years,including a reduction of 30 000 tons at its Grimsby site in 1997.
Courtaulds stated that there was clear evidence from trade data that
SNIACE priced below other competitors. It stated that in the United!B1999D0395 — EN — 16.01.2001 — 001.001 — 4
Kingdom, Germany, Italy, Spain, France and Belgium SNIACE’ s
prices were at least 20 % below Courtaulds’ average prices. Moreover,it believed that the size of SNIACE’ s plant was uneconomic.
(18) The law firm representing Lenzing AG, whose original complaint had
led to the opening of the proceedings, reiterated its view that thevarious elements of aid were illegal and incompatible with the
common market. In particular it stressed that they were discretionary
measures and did not constitute, as was claimed by the SpanishGovernment, general measures. It also reiterated its view that the aidmeasures had served to keep the company alive artificially.
(19) CIRFS stated that it was the representative body for the European
man-made fibres industry. Its membership accounted for 92 % of
production of viscose staple fibre and 76 % of production of
polyamide textile filament yarn (the two main fibre types producedby SNIACE). It favoured the strict application of the State aid rules bythe Commission. It emphasised that the viscose staple market in the
Community is a mature market, with consumption in long-term
decline. It forecast a further 7 % fall in consumption by 2002. Capacitywas continuing to be reduced by European producers to bring it more
closely into line with demand. Furthermore, capacity utilisation was at
an unsatisfactory level for such a capital-intensive sector at about 81and 84 % in 1996 and 1997 respectively. Viscose staple producersnormally aimed for at least 90 % capacity utilisation in order to
achieve a reasonable return on capital. It believed that in 1997 all of
the five European Community producers had made losses on theirviscose production. With regard to the polyamide textile filament yarnsector, CIRFS stated that this, too, was in a gradually declining
long-term trend. Capacity in the Community was being gradually
reduced, by a market-driven process of rationalisation and restructur-ing, to bring it more closely into line with demand. Capacity utilisation
remained at below the 90 % level required to achieve satisfactory
levels of profitability.
(20) The United Kingdom Representation to the European Union supported
the view that aid had been used to allow SNIACE to continue in
business and that this would inevitably lead to unemploymentelsewhere in Europe, given the existing overcapacity in the synthetic
fibres industry.
(21) In addition, Lenzing and Courtaulds expressed their concern, based on
press reports, that a further new aid measure had been granted to
SNIACE by a State-owned savings bank Caja de Cantabria, in the formof a loan with profit participation amounting to ESP 2 000 millionwhich did not conform to normal market conditions.
V.COMMENTS FROM THE SPANISH GOVERNMENT
(22) In general terms, the Spanish Government reiterated the views it had
expressed prior to the opening of the procedure, notably that the
various public authorities concerned had followed the normalprocedures laid down in Spanish law for the management of tax andsocial security debts and that they had in no way granted the company
preferential treatment.
Non-payment of environmental levies owed by SNIACE since 1987
(23) The Spanish Government stated that in accordance with the provisions
of the Water Act (Law 29/1985 of 2 August 1985) and implementing
regulations, the Confederacion Hidrografica del Norte began in 1988issuing assessments of the amount of waste levy payable for dischargesmade in 1987 and subsequent years, by individuals and businesses
discharging waste water in the catchment area for which it was
responsible. It issued SNIACE in 1988 with assessment No 282/1988,which calculated the company’ s tax liability at ESP 210 million in
respect of effluents generated by its production processes during 1987.
(24) The company brought an economic/administrative complaint against
this assessment before the Regional Economic Administrative Court of
Asturias (TEARA), contesting its legality.
(25) Article 81 of the Rules of Procedure for Economic/Administrative
Complaints, which were approved by Decree 1999/1981 of 20 August
1981 and were in force in 1988, provides that enforcement of decisions!B1999D0395 — EN — 16.01.2001 — 001.001 — 5
which have been challenged is to be suspended if the complainant
lodges with the economic court a bank guarantee covering payment ofthe debt. In accordance with that provision, SNIACE provided TEARAwith a guarantee amounting to ESP 210 million issued by Banco
Espanol de Credito and covering assessment No 282/1988. The
TEARA considered this to constitute a sufficient guarantee andsuspended enforcement of the tax assessment pending its decision onthe complaint. It eventually adopted a decision in which it upheld
SNIACE’ s complaint and revoked and cancelled the effects of the tax
assessment, returning the bank guarantee which the company hadpresented. The Confederacion Hidrografica del Norte refused to accept
this decision and brought an appeal before the Central Economic
Administrative Court (TEAC).
(26) In 1989 the Confederacion Hidrografica del Norte issued an assess-
ment for 1988 which put SNIACE’ s tax liability in respect of that year
at ESP 315 million (assessment No 271/89) and SNIACE, as in the
case of the levy for the previous year, lodged a complaint with theTEARA and provided a bank guarantee issued by Banco Espanol deCrédito, as a result of which enforcement was suspended in accordance
with the above rules of procedure. On the basis of the same legal
arguments, the TEARA upheld SNIACE’ s complaint and revoked andcancelled the effects of tax assessment No 271/89 and, as in theprevious case, returned the bank guarantee which SNIACE had
presented. The Confederacion Hidrografica del Norte in turn brought
an appeal against this second decision before the TEAC.
(27) The TEAC joined the two appeals and ruled on them in a single
judgment which it delivered on 28 November 1990 and which upheld
and confirmed the legality of the assessments for 1987 and 1988
(assessments Nos 282/88 and 271/89). Since the bank guarantees hadbeen returned to SNIACE pursuant to the earlier decisions of theTEARA, the Confederacion Hidrografica handed over the two
assessments to the State Tax Agency (Agencia Tributaria del Estado)
for collection through the enforcement procedure.
(28) In April 1990 SNIACE was issued with waste levy assessment No
421/90, which put its liability in respect of 1989 at ESP 525 million
and against which, as in the case of the assessments for 1987 and 1988,
it lodged a complaint with the TEARA and provided a bank guaranteeissued by Banco Espanol de Crédito.
(29) In the light of the ruling by the TEAC of 28 November 1990, the
TEARA rejected the company’ s complaint on this occasion (on 8
March 1991 ) and confirmed the legality of assessment No 421/90,retaining the bank guarantee pending the outcome of the appeal
brought by SNIACE. Since the bank guarantee presented had been
retained, once the Court had dismissed SNIACE’ s appeal BancoEspanol de Crédito made over to the Confederacion Hidrografica theESP 525 million covered by the guarantee plus the corresponding
interest on late payment.
(30) The Spanish Government emphasised that the Rules of Procedure for
Economic/Administrative Complaints, approved by Decree 1999/1981of 20 August 1981 leaves the decision on whether or not to provide a
guarantee to the discretion of the complainant; the advantage of the
guarantee is that, once it has been accepted, enforcement of thecontested decision is suspended until the court rules on the complaint.
(31) Given this situation, it was in the Spanish Government’s view
reasonable, from a legal standpoint, for SNIACE to provide bank
guarantees when contesting the waste levy assessments issued in 1988,1989 and 1990, since there was no uniform view of their legality.However, once the TEAC had ruled on 28 November 1990 that the
assessments were lawful and the Confederación Hidrográfica had
called in the guarantee covering assessment No 421/90 (amounting toESP 525 million plus interest), this being the only guarantee that couldbe put into effect since, as mentioned above, those corresponding to
1987 and 1988 had been returned by the TEARA, it can be assumed
that SNIACE would have found it difficult to persuade banks to issueguarantees in respect of complaints that would probably be rejected.
(32) Consequently, the assessments issued in 1991 and subsequent years,
although challenged before the TEARA, were not guaranteed, nor was
the enforcement procedure suspended: once the periods of time!B1999D0395 — EN — 16.01.2001 — 001.001 — 6
allowed for voluntary payment had expired, the assessments were in
every case handed over to the State Tax Agency for collection throughtthe enforcement procedure.
(33) According to the Spanish authorities, the debts run up by SNIACE are
as follows:
(ESP)
Period Principal Surcharge Collected Interest Total due
1987 210 000 000 42 000 000 54 129 095 167 318 219 473 447 314
1988 315 000 000 63 000 000 31 254 644 250 977 329 628 977 3291990 525 000 000 105 000 000 400 172 260 1 030 172 2601991 525 000 000 105 000 000 339 761 301 969 761 3011992 525 000 000 105 000 000 263 470 890 893 470 8901993 525 000 000 105 000 000 200 327 055 830 327 0551994 525 000 000 105 000 000 147 323 630 777 323 6301995 525 000 000 105 000 000 89 415 411 719 415 411
Total 3 675 000 000 735 000 000 85 383 739 1 858 766 095 6 354 149 834
(34) Interest for late payment has been calculated up to 1 March 1998. This
interest is calculated from the due date for payment at the official
interest rate for each year; interest is payable on repayment of the debt.
(35) All debts arising from waste disposal levies to be paid by SNIACE and
entrusted to the State Tax Agency for collection are now subject to
compulsory collection procedure, in accordance with Book III of theGeneral Regulations for Collection (Royal Decree 1684/1990 of 20
December, amended by Royal Decree 448/1995 of 24 March).
(36) The compulsory collection procedure for the payments has now
reached the attachment (embargo) stage. This means that measures
have been implemented ordering the attachment of goods and titlesbelonging to the debtor, to an amount sufficient to cover the total debtto be collected.
(37) The proceeds from the attachment of monies and short-term credits
have already been applied to repayment of the debts and are included
in the ‘collected’ column of the debts table above. The next step in thecompulsory collection procedure is execution, by means of publicauction, against immovable goods, including the factory and its plant
and equipment belonging to SNIACE and subject to attachment.
(38) The Spanish authorities have stated that execution against attached
immovable goods belonging to SNIACE creates problems deriving
both from the company’ s situation and from the nature of the goodsattached:
(a) The site of the attached factory and its plant and equipment are
officially classified as land for industrial use, and both the factory
and its plant and equipment are designed for SNIACE activities.
This means the market for any sale is very limited, given that theland may not be utilised otherwise than for industrial purposes andthat the modification of the facilities for any other activity would
be too costly. Besides, the property has already been mortgaged
for over ESP 5 000 million with a number of banking institutionsas a result of trading loans granted to SNIACE prior to the
institution of procedures for the redemption of debts for waste
disposal levies. These mortgages, which date from beforeattachment, would remain effective in case of the sale ofimmovable goods, which very much diminishes the chances of
sale.
(b) SNIACE is a going concern with a large workforce. The sale of
the factory and its plant and equipment would very probably mean
ending production and closing down the company. This in turnwould lead to the creation of further debts for unpaid wages and
compensation paid out for extinguishment of work contracts. Even
if a purchaser were to be found for SNIACE’ s immovable goods,the proceeds would go to paying off these wage credits, which!B1999D0395 — EN — 16.01.2001 — 001.001 — 7
have priority over amounts due to the tax authorities in accordance
with Spanish regulations.
(c) The debts which resulted in the attachment of the company’ s
immovable goods are at present the subject of a number of
administrative and legal proceedings and, as such, are not sound.
Even though execution has not been suspended because SNIACEhas not offered a guarantee before the courts, the tax authoritiesmust at least act with due caution before proceeding with the sale
of the immovable goods, since this is an irreversible action which
could be declared invalid if the courts were to find in SNIACE’ sfavour. Due caution has, indeed, characterised administrativebehaviour in such cases up to now. Law 1 of 26 February 1998 on
Rights and Duties of Tax Payers expressly covers this question,
furnishing further proof of the sensitivity with which the taxauthorities should proceed when taking irreversible decisions in
regard to debts which are not definitive. This rule, which came
into effect on 19 March 1998, limits the powers of the taxauthorities to proceed with the disposal of goods attached in caseswhere repayment of the debt justifying attachment has been
guaranteed. As for the steps taken by the Agenda Tributaria in
order to ensure the payment of debts, the Spanish authorities stressthat in this case the Agenda Tributaria has implemented allpossible actions provided for in the law. Credits and titles have
been attached, along with the factory, plant and equipment used
for company activities.
(39) According to the Spanish authorities, the difficulties which have arisen
during the execution procedure for the collection of the debt have led
to discussions with the company and with the Confederacion
Hidrografica del Norte, the body charged with redemption of thewaste disposal levies owed by SNIACE, in order to reach a negotiatedsettlement for repayment of the debt in accordance with the
stipulations of the General Collection Regulations in regard to
deferred payment and payment in instalments. The terms andconditions for payment in instalments and the guarantees which
SNIACE would have to pledge are at present under discussion.
(40) The Spanish authorities stressed that the fact that payment in
instalments is being discussed with the company does not necessarilymean that this option will be adopted; the outcome will depend on
conformity with relevant legal requirements, especially those regard-
ing guarantees.
Non-enforcement of social security contributions since 1991
(41) The Spanish Government stated that a further rescheduling agreement
for the outstanding debt to the social security system had been made,in accordance with the provisions of Article 40 and following theGeneral Regulations on Collection of Social Security Contributions,
approved by Royal Decree 1637/1995, of 6 October (Official State
Gazette of 24.10.1995), namely an agreement dated 30 September1997 covering rescheduled debts totalling ESP 3 510 387 323 for theperiod February 1991 to February 1997 plus surcharges of ESP
615 056 349 and imposing terms of 120 monthly instalments with
interest payments only payable in the first and second years at the legalinterest rate of 7,5 % followed by repayments in years three to 10 of the
principal plus interest at increasing annual rates of 5, 5, 10, 10, 15, 15,
20 and 20 % respectively.
(42) As at April 1998 SNIACE, SA had made ESP 216 118 863 in
repayments to Social Security under the new deferment Agreement.
(43) The Spanish Government stated that this new deferral of debt
repayment incorporates the debt referred to in the aforementioned
agreement of 8 March 1996, amended by the deferral granted on 7May 1996, which was rendered invalid due to non-payment of therepayment schedule instalments, no sum relating to the same having
been deposited by the company.
(44) The Spanish Government reiterated that the General Social Security
Treasury had acted in accordance with the applicable rules andregulations and that their behaviour cannot be deemed to involve the
grant of State aid. The rules and regulations in question are generally
applicable to all firms in any of the situations specified therein, and do!B1999D0395 — EN — 16.01.2001 — 001.001 — 8
not relate to specific companies or sectors. Action taken by the Social
Security authorities with a view to collecting the monies owed bySNIACE had at all times followed the procedure laid down by law inthe General Regulations for the Collection of Social Security Revenue.
(45) The Spanish Government stressed that postponement of debt is allowed
for as a general measure and is not decided on a discretionary basis by
the authorities. The procedure for such postponement is laid down inArticles 40 to 43 of the General Regulations for the Collection ofSocial Security Revenue, which were approved by Royal Decree No
1637/1995 of 6 October 1995. According to those Regulations, social
security debts may be postponed or paid in instalments, at the requestof those liable for payment, where their economic or financial situationprevents them from paying their debts (Article 40). In other words,
postponement is granted whenever a firm so requests and fulfils the
conditions laid down in the Regulations. Postponement decisions are inthe interests of recovery of the debt by the social security system, since
any other course of action would result in closure of the firm
concerned, destroying any chances of securing payment.
(46) The Spanish Government added that as a guarantee for the repayment
of the debt, the company offered to take out a first mortgage on thefactory, plant and equipment located at Torrelavega in favour of the
General Treasury for Social Security and the Salary Guarantee Fund
(FOGASA), jointly. According to an evaluation made by AmericanAppraisal Espana SA on 31 December 1996, the real value of theassets concerned amounted to ESP 25 580 000 000 However, because
of the complexity and difficulty of the measures required to ensure that
the security offered had full legal effect, SNIACE requested anextension to the deadline for setting up the guarantee. This extensionwas granted by the Director-General of the General Social Security
Treasury on 19 December 1997, for a maximum of six months, in
accordance with the provisions of Article 21 of the Order of 22February 1996, during which time the notices of seizure issued by the
General Social Security Treasury would not be acted upon.
(47) During the extension period, since the difficulties mentioned above
persisted and the enterprise could not specify a definite date for finalsettlement, the company made a request for ‘substitution of thesecurity’ in order to ensure that notices of seizure would not be acted
upon. According to the Spanish authorities, an examination is
underway to determine whether the new security would sufficientlycover the deferred debt.
(48) According to the Spanish authorities, this postponement cannot be
deemed to constitute State aid to the company concerned since the
terms under which the debt has to be paid, with interest payable at the
statutory rate applicable on the date the postponement was granted, arein accordance with generally applicable and mandatory rules laid downin Spanish legislation.
(49) However, by letter dated 24 June 1998 the Spanish authorities stated
that their position did not contradict the view of the complainant that
deferment of debt is a discretionary government measure adopted afterexamination of each individual case; but while they accept that Article20 of the General Social Security Law uses the word ‘podran’ (may)
when referring to the authority’s power to grant a deferment of
payment of social security debts, only by an absolutely literalinterpretation could the authority be said in the Spanish Government’s
view to have discretionary power. It argued that discretionary is not the
same as arbitrary, which would imply the capricious and nonuniformapplication of the law to similar situations. The reality was thatwhenever an enterprise requested deferment because it is in an
economic or financial situation that makes it impossible for it to pay its
debts, and provided that it complies with the legal requirements laiddown by current law (which would, of course, imply individualexamination of the case), such a deferment is granted. In this context,
the Spanish authorities argue that this measure is general practice and
that the same criteria are applied in all cases.
(50) Finally, the Spanish Government maintains its argument that the
granting of deferments protects the interests of the social securitysystem, in terms of recovering debts, better than any other form of
action that would imply the closure of enterprises, thus making it
absolutely impossible for all, or even a significant part, of the debts!B1999D0395 — EN — 16.01.2001 — 001.001 — 9
involved to be recovered. Hence, preference is given to the method that
is most advantageous to the social security system.
Loan guarantee approved totalling ESP 1 billion approved by Law
No 7/93
(51) The Spanish Government maintained its view that there was no aid
involved since the loan guarantee had never been formalised. It
reiterated that Article 2 of Law No 7/1993 of 16 September 1993simply authorised the Regional Government to award SNIACE aguarantee covering an ESP l billion loan. This had not in fact occurred,
since the Law laid down a number of strict conditions that had to be
met if the Regional Government was to provide the guarantee andwhich had not so far been met. Thus the guarantee had not beengranted and had not been put into effect. Indeed, the company had not
even requested it. The Spanish Government repeated that prior to any
possible formalisation of this guarantee, it would submit a priornotification to the European Commission.
(52) The Spanish Government further argued that under Spanish private law
(Article 440 of the Commercial Code and Articles 1822 to 1856 of theCivil Code) a guarantee is defined as a formal transaction: this meansthat, if a guarantee document is not supplied to the entity which is to
undertake the risk, the guarantee does not exist and no rights or
obligations are created by it. A guarantee is more than a meredeclaration of intent. In order for the guarantee in question to be
implemented, the following conditions would have to be fulfilled:
(a) confirmation of conformity with provisions of Law 7/93;(b) a legal report on the guarantee document to be drawn up;
(c) a general audit report;
(d) a proposal for offering a guarantee by the Regional Government
Minister for the Economy and Taxation;
(e) regional Government approval of the guarantee;
(f) drawing up of the guarantee document.
Financing arrangements for the planned construction of a waste
treatment plant
(53) The Spanish Government stated that the construction of a treatment
line is planned as part of the integrated water treatment plan for theRiver Besaya and not for the exclusive use of SNIACE, but that theproject was currently only at the planning stage.
(54) The company is currently taking steps to install a waste recovery plant.
Any action taken with regard to the treatment of discharges made bythe company into the River Besaya is linked to measures taken under
the general plan for waste water treatment in the Saja/Besaya basin,
which has been declared as being in the national interest and iscurrently undergoing technical appraisal. Until this phase has beencompleted it is impossible to indicate what measures will ultimately
have to be taken by firms making discharges into the River Besaya.
(55) According to the technical studies carried out so far under the general
plan for waste water treatment in the Saja/Besaya basin, waste water
discharged by industrial firms in the area, including SNIACE, will
have to be treated at source by the firms themselves, and treatedeffluents will be allowed to be fed into the waste water system in
accordance with the limits laid down in the Regulations on Discharges
and subject to the payment of user charges reflecting the permissiblepollutant load. The option of treating all the industrial waste water in aspecific treatment line alongside the municipal water treatment plant
has been rejected on the grounds of the complexity of such a solution.
(56) By letter dated 16 April 1998 the Spanish authorities added that
SNIACE had already acquired the constituent parts of the waste water
treatment plant without any form of public assistance and that there are
consequently no concrete plans for the granting of any assistance ofthis nature.!B1999D0395 — EN — 16.01.2001 — 001.001 — 10
Partial cancellation by the Torrelavega City Council of debts
totalling ESP 116 million
(57) The Spanish authorities stated that the Municipality of Torrelavega had
acted in all respects within its powers and that the ‘release’ of the saidamount of taxes did not constitute in Spanish law a ‘cancellation’ of
debt.
(58) The Torrelavega City Council had not participated in the Creditors’
Agreement of October 1996 within the framework of the suspension of
payments procedure, but had instead reached a separate special
agreement based on the ‘release’ (‘quita’) and postponement (‘espera’)provisions of Spanish tax law and by which they accepted the samesacrifices as private creditors. That is, they agreed to grant the
reduction of amount and extension of time laid down in the creditors’
agreement and to allow payment in instalments over a period of fiveyears, with a grace period and interest rates as laid down in the
Creditors Agreement. The sole purpose of signing the special
agreement was to guarantee the recovery of SNIACE’ s tax liabilitywith regard to the municipal authorities, since the amounts ‘released’were not covered by any form of guarantee and there were no assets
free of lien. The agreement was strictly in accordance with Article 129,
paragraph 4 of the General Tax Law.
(59) According to the Spanish authorities, Spanish bankruptcy law draws a
clear distinction between the concept of cancellation and that of
reduction of amount and extension of time. Cancellation may begranted only by law and usually concerns disaster situations that makeit appropriate to waive taxes. Reductions of amount and extensions of
time are granted purely with a view to the recovery or possibility of
enforcing payment of at least part of a debt and are granted only inrespect of bankruptcy proceedings in which, as in the case in question,the incontestable preference of mortgage creditors (Banco Espanol de
Crédito) with a lien on land and buildings renders impossible any
recovery measures.
(60) The Spanish authorities supplied the Commission with a copy of
Mayoral Decision of the Torrelavega City Council No 4358/97 of 15
December 1997, which states inter alia that the amount of SNIACE’ s
tax debts reached, at that date, a principal of ESP 216 245 424 plusbusiness tax for 1996 of ESP 37 523 859 to which surcharges and
statutory interest payments may be added. An amount of ESP
10 193 800 was guaranteed by distraint and some ESP 45 000 000is pending compensation; under Article 73 of the General Tax Law,
property tax has special preference under an Implicit Legal Mortgage.
(61) The Spanish authorities emphasised that the ‘release’ of debts relates
to tax assessments not covered by priority claims or prior distraint andthose which, like business tax (impuesto sobre actividades economicos
— IAE), could and should have been annulled since they are based on
a complete year’ s activity (circumstances which do not apply in thecase of 1995 and 1996 when the company was closed down for many
months):
(ESP)
Water and refuse collection fourth quarter 1994 3 808 525
Water and refuse collection first quarter 1995 1 230 231Water and refuse collection second quarter 1995 1 410 205Water and refuse collection third quarter 1995 1 205 407Water and refuse collection fourth quarter 1995 1 217 353Business tax 1995 37 854 610Surcharges for enforced collection 24 837 978Water and refuse collection first quarter 1996 1 254 510Water and refuse collection second quarter 1996 1 404 795Road tax 1996 6 700Business tax 1996 37 523 859Direct assessment of business tax 1995 4 449 635
Total 116 197 108!
B1999D0395 — EN — 16.01.2001 — 001.001 — 11
(62) According to the Spanish Government, the release from debt of ESP
116 million cannot be deemed to constitute direct or indirect aidbecause the City Council’ s decision was confined to eliminating, so tospeak, those debts that could not be collected, some of which (such as
the assessments of business tax for 1995 and 1996 and the surcharges
for enforced collection) must be partly cancelled since the assessmentwas made on the basis of a year’ s full activity, whereas the companywas hardly active at all in 1995 and 1996. Business tax is a tax whose
rate is set by Central Government and is based on full economic
activity. That is, they assume a full workforce and energy consumptionin line with the enterprise’ s normal level of activity. In fact, production
was suspended during this period and the amounts for both years
should be automatically cancelled.
(63) Consequently, of the total amount covered by the agreement to
‘release’ debts, ESP 100 216 447 represented unenforceable debts —the amount for business tax because of the invalidity of the charge, and
the surcharges which were an accounting item relating to the actual tax
debt concerned by the release, so that the amount of this item shouldbe understood as nothing more than accounting information withoutany practical effects whatsoever.
(64) The remaining amounts, for water rates and waste-collection charges,
were also the subject of serious miscalculation, since the rate charged
for waste collection, at least, is based on the assumption of fulleconomic activity, which did not apply in the years 1994, 1995 and1996. Those assessments will consequently be replaced with new
assessments reflecting the real level of activity. The assessments of
business tax for the years 1995 and 1996, amounting to ESP79 497 353 were therefore completely unrealistic and ultimately have
to be partly cancelled.
(65) The remainder of the debt included in the decision could under no
circumstances be recovered through enforcement procedures since itenjoys no priority, and the City Council’ s decision therefore has nopractical effect on the company since it relates to amounts that cannot
be collected and amounts that had to be cancelled on account of the
firm’ s lack of real economic activity.
(66) The Spanish authorities concluded that the municipal authorities of
Torrelavega acted simply to ensure real and effective protection oftheir financial interests, doing everything possible to recover the
SNIACE debt. Their actions had been in full compliance with the law
and had never had the effect of diminishing the Municipality ofTorrelavega’ s funds; neither could they be deemed to involve direct or
indirect aid to SNIACE, since the release from debt was confined to
amounts which, for a variety of reasons, could not actually berecovered.
Agreements between SNIACE and the wages guarantee fund
FOGASA covering the repayment of an amount totalling ESP1,702 billion, corresponding to overdue salaries of the workforcepaid by FOGASA on behalf of SNIACE
(67) The Spanish Government reiterated that FOGASA pays to employees
the amounts owing to them for wages and compensation from
enterprises that are insolvent or involved in bankruptcy proceedings.
These benefits are paid to the workers, which means that entitlement towage guarantees is exclusive to workers and never involves the
provision of aid or loans to enterprises with labour-related debts. the
Ministerial Order of 20 August 1985 governs the conclusion ofagreements for the repayment of amounts paid by the WagesGuarantee Fund and expressly includes the possibility of agreements
for the deferment and payment in instalments of debts, which may be
entered into by the Wages Guarantee Fund, subject to the regulationslaid down by the Order.
(68) In accordance with the Order of 20 August 1985, which enforces
Article 32 of Royal Decree 505/85 of 6 March 1985, FOGASA signed
two repayment agreements with SNIACE:
(a) dated 5 November 1993
Total amount including interest: ESP 1 362 708 700Payment period: eight years!B1999D0395 — EN — 16.01.2001 — 001.001 — 12
Instalments due: every six months
Interest rate: 10 %, which was the legal interest rate for 1993, in
accordance with the provisions of the Order of20 August 1985
Security: property mortgage
(b) dated 31 October 1995
Total amount including interest: ESP 339 459 878
Payment period: eight years
Instalments due: every six months
Interest rate: 9 %, which was the legal interest rate for 1995,
inaccordance with the provisions of the Order of 20 August 1985
Security: property mortgage
(69) The amount repaid by the enterprise under the two agreements as at
June 1998 amounted to ESP 186 963 594.
(70) According to the Spanish authorities, the agreements do not involve an
aid or subsidy granted by the State, as defined in Article 81 of the
revised text of the General Budget Law: that is to say any free
provision of public funds by the State or its autonomous bodies topublic or private individuals or bodies to promote an activity of socialinterest or to facilitate the achievement of a public aim, or, in a more
general sense, as in the case of any form of aid that is granted and
charged to the State budget or the budget of any of its autonomousbodies, as well as subsidies or aids financed, in whole or in part, by
European Union funds. Rather, they concern credits to which the body
in question is entitled with regard to enterprises because of subrogationof the rights and actions of workers who have received benefits.
(71) Finally, the Spanish Government argued that the rules and regulations
in question are generally applicable to all firms in any of the situations
specified therein, and do not relate to specific companies or sectors.Fogasa pays employees the amounts that are owed to them and nevermakes any payment to the companies concerned; it is forbidden from
doing so by the applicable legislation.
(72) In addition to commenting on the issues under investigation under the
procedure, the Spanish Government also reacted to the observations bythird parties that the reported loan of ESP 2 000 million by the Caja
Cantabria in favour of SNIACE contained State aid. It refuted the
allegations and stated inter alia that the Caja is a credit institution
governed by private law which has to take its investment decisions onthe basis of profitability and solvency criteria. In the light of the
information available at this stage, the Commission accepts that the
alleged aid awarded by the Caja Cantabria does not fall within thescope of the procedure. However it can by no means exclude the
possibility that aid may be involved and reserves the right to continue
its investigation into this matter outside the context of this procedure.
VI. ASSESSMENT OF THE PRESUMED AID
(73) The Commission must first determine whether or not the various
measures subject to the procedure contain State aid within the meaningof Article 92(1) of the EC Treaty. In the light of the information
available the Commission’ s assessment is as follows.
(74) SNIACE is one of five viscose fibres producers in the Community. Its
products are traded between Member States, and there is competitionamong producers. Intra-Community trade for viscose fibre (Combined
Nomenclature number 5504 10 00) amounted to approximately
101 000 tonnes in 1997. SNIACE operates in a sector in decline,which has resulted in rationalisations in capacity being made by some
of its competitors. Production in the EEA of these fibres declined from
760 000 tonnes in 1992 to 684 000 tonnes in 1997 (a reduction of10 %) and consumption fell in the same period by 11 %. The averagecapacity utilisation rate in that period was about 84 %, which is low for
such a capital-intensive sector. In addition to supplying the Spanish
market, SNIACE has traditionally supplied other European markets,notably Italy and France. In addition SNIACE produces syntheticfibres, namely polyamide filament yarn. This is a sector which also
suffers from substantial overcapacity, with an average capacity
utilisation rate in 1995 to 1997 of only 76 %.!B1999D0395 — EN — 16.01.2001 — 001.001 — 13
Non-payment of environmental levies owed by SNIACE since 1987
(75) As at l March 1998, it appears that the total value of unpaid debts on
environmental levies for waste, including surcharges and interestcharges for the period 1987 to 1995 had risen to about ESP
6 268 766 095 (rather than the ESP 6 354 149 834 stated by the
Spanish authorities, which did not take account of the amounts alreadycollected in 1987 and 1988). Y et the enforcement procedure for the
collection of these debts was apparently instituted some eight years
ago, following the ruling made on 28 November 1990 by the CentralEconomic Administrative Court on the legality of the assessments for1987 and 1988. As the Spanish authorities themselves admit, the
enforcement procedure has no suspensory effect in this case, since
SNIACE has not secured bank guarantees against the contestedenvironmental levy assessments (except for 1988).
(76) However, the Commission accepts that under Spanish law it is the tax
authority and not the Confederación Hidrográfica del Norte which isthe responsible body for managing the collection of these debts from
SNIACE. As at June 1998 ESP 85 383 739 had been recovered, which
represents little more than a mere 1 % of the total claim. Meanwhilethe amount of debts, including interest at the legal interest rate andsurcharges, continues to rise.
(77) The Commission notes that it has proved difficult to execute the
collection of the debts, notably because of the serious financial
situation facing SNIACE and the legal challenges brought by SNIACE
against the annual assessments. By not proceeding to execution so farand thereby possibly provoking the liquidation of the company, the taxauthority may have acted in such a way as to maximise its prospects of
recovering at least a proportion of the unpaid environmental levies
which would otherwise have been impossible due to the existence ofother creditors with a higher priority.
(78) In conclusion, the investigation carried out by the Commission has not
allowed it to conclude at this stage that the non-payment ofenvironmental levies definitely constitutes State aid. In view of the
complex legal issues surrounding the question of whether or not the
public authorities have offered SNIACE preferential treatment by notrecovering the unpaid levies, the Commission intends to defer a
decision on this element until a later stage.
Non-enforcement of social security contributions since 1991
(79) The Commission does not dispute the Spanish authorities’ argument
that the Social Security Treasury has acted in such a way as to protect
its claims. The Commission must also stress that it in no way questions
the general social security system in Spain.
(80) Nevertheless the Spanish authorities have acknowledged that if the
Social Security Treasury had proceeded to enforce its claims, theconsequence could have been the closure of the company. It is thusevident that in this case tolerance by the Social Security Treasury of
deferred payment of SNIACE’ s social security contributions over a
period of many years has conferred an appreciable advantage on thecompany.
(81) It is also evident that the applicable Social Security regulations afford
the authorities a margin of discretion in the treatment of individualcases and that this is precisely what has occurred in this case. The
Commission must stress that it is the degree of discretion which the
Social Security Treasury was able to exercise in this particular case,and moreover to a firm which appeared to be suffering from a lack ofviability, which leads the Commission to reject the Spanish authorities’
contention that the action taken by the Social Security Treasury with
regard to SNIACE constitutes general measures (
1).
(82) Notwithstanding the fact that the Social Security Treasury has acted in
accordance with the applicable legislation, the treatment of SNIACE’ s!B
(1) Advocate-General Jacobs indicates in his opinion of 24 September 1998 in Case
C-256/97 D. M. Transport SA that ‘it is clear that in certain circumstances
continued and generous tolerance of late payment of social security contributions
may confer an appreciable commercial advantage on the recipient undertaking and
in extreme cases be tantamount to relief from those contributions’ (point 33).1999D0395 — EN — 16.01.2001 — 001.001 — 14
debts, through various rescheduling agreements, does not seem to have
been consistent with prevailing market conditions. The Commission’ spractice has been to make a comparison with the value at the relevanttime of the reference rate fixed for the Member State concerned.
However, no such rate was fixed for Spain until August 1996.
Therefore, in determining whether or not such a rate is consistent withmarket conditions, in previous cases involving rescheduling of socialsecurity debts (
1), the Commission has made a comparison with the
prevailing average rate of interest charged by private banks in Spain on
loans over more than three years. In this case, according to statisticspublished by the Spanish Central Bank, the average rate of interest
charged by private banks on loans longer than three years during the
period in question was as follows: 1991 18,24 %; 1992 17,28 %; 199316,19 %; 1994: 12,51 %; 1995: 13,09 %; 1996: 11,06 % (
2). The other
conditions of the rescheduling agreements, with the bulk of the
repayments of principal and interest timed towards the end (apparently
in order to facilitate the company’ s recovery) are also not in confomitywith credits under normal market conditions.
(83) It must therefore be concluded that the agreements contained State aid
within the meaning of Article 92(1) of the Treaty which was illegal not
having been been notified to the Commission pursuant to Article 93(3)of the Treaty. It is difficult to quantify the precise amount of illegal aidinvolved but it is at least equal to the financial advantage arising from
the reduced interest rate applied and effective from when the debts
were incurred.
Loan guarantee approved totalling ESP 1 billion approved by Law
No 7/93
(84) While it is unfortunate that the Spanish authorities did not notify the
Commission of the intention of the Cantabrian regional assembly to
authorise the granting of the guarantee in question, especially bearing
in mind the fact that the company produces inter alia polyamide fibre,
a product falling within the scope of control of the Code on aid to thesynthetic fibres industry, the Commission can accept that the regional
assembly itself does not grant guarantees and that a number of separate
additional administrative steps would have been required to put theguarantee into effect. In addition, the Commission is unaware of anyevidence demonstrating that the passing of the Law conferred a
commercial advantage on SNIACE. Consequently, on condition that
the Spanish Government notifies the Commission in advance of anyproposal to formalise the guarantee, the Commission concludes that
Law 7/93 of itself does not confer any special advantage on SNIACE
and does not therefore constitute a State aid.
Financing arrangements for the planned construction of a waste
treatment plant
(85) The Commission notes that according to the information provided by
the Spanish Government the implementation of the regional plan fortreatment of waste in the Saja/Besaya basin is at the technical appraisal
stage and that until this phase has been completed it will not be known
what measures may ultimately have to be taken with regard todischarges made by firms (including SNIACE) into the River Besaya.The Commission also notes the assurances given by the Spanish
Government that action already taken by SNIACE with regard to the
installation of waste water treatment facilities has been made withoutany form of public intervention and moreover that no such public
assistance is envisaged. Accordingly, the investigation by the
Commission has not allowed it to establish the existence of aidelements in this respect.
Partial cancellation by the Torrelavega City Council of debts
totalling ESP 116 million
(86) On the basis of the information provided by the Spanish Government,
Torrelavega City Council appears to have acted in such a manner as to!B
(1) For example in the Tubacex Case; OJ L 8, 11.1.1997.
(2) The reference rates which have subsequently applied to Spain are as follows:
1.8.1996 to 1.11.1996: 13,45 %; 1.11.1996 to 1.1.1997: 11,40 %; 1.1.1997 to
1.8.1997: 10,56 %; 1.8.1997 to 1.1.1998: 6,22 %; 1.1.1999 to date 0,620 %.1999D0395 — EN — 16.01.2001 — 001.001 — 15
protect all those claims against SNIACE which it is legally able to
enforce under Spanish law. The Commission has also examinedwhether the public creditor’s behaviour in this case was determined bythe intention to maximise the chances of recovery of the unpaid taxes
and whether its actions were comparable to those of the private
creditors. As the Commission acknowledged when opening theprocedure, by not subscribing to the private creditors’ agreement ofOctober 1996 (which stipulated inter alia the conversion of 40 % of the
debts into shares) within the framework of the suspension of payments
procedure, the public authorities were able, in principle, to protect theirentire claims. In addition, the Commission can accept that the separate
agreement between Torrelavega City Council and SNIACE, which
effectively went in parallel with the creditors’ agreement, does notappear to have accorded SNIACE any more generous treatment thanthat reached in the private creditors’ agreement. On the contrary, the
‘release’ from debts was confined essentially to amounts which could
not actually be recovered, notably since the company was noteconomically active for much of 1995 and 1996 and that the amountsdue have consequently to be reassessed, though no details of the
modified assessments have yet been provided to the Commission.
(87) Accordingly, on the basis of the available information the Commission
can accept that the actions of the municipal authorities in Torrelavega
coming within the scope of the proceedings did not confer any undueadvantage on SNIACE or result in the cancellation of debts and did not
therefore constitute State aid.
Agreements between SNIACE and the wages guarantee fund
FOGASA covering the repayment of an amount totalling ESP1,702 billion, corresponding to overdue salaries of the workforce
paid by FOGASA on behalf of SNIACE
(88) The Commission reiterates, as it stated in the opening of the procedure,
that it does not object to the intervention of FOGASA in so far as it
settles on behalf of the company, in accordance with its (FOGASA’ s)regulations, the valid claims of employees of SNIACE that they wouldnot otherwise have received. However, in accordance with constant
Commission practice any discretionary contribution by the State to
these costs must be regarded as aid and not as a general measure if itconferred financial advantages on the company regardless of whetherthe payments are directly to the company or are administered to the
employees through a government agency.
(89) According to the Commission’ s understanding of these arrangements,
FOGASA has discretionary power to postpone or split up the
repayments up to a period of eight years. The deferred paymentsaccrue at the legal interest rate. Notwithstanding that these
arrangements are in accordance with the applicable legislation, they
do not seem to have been consistent with the prevailing marketconditions. For the same reasons as given in relation to the socialsecurity debts above (the fact that there was no reference rate fixed for
Spain until August 1996), the Commission has made a comparison
with the average rate of interest charged by private banks on loanslonger than three years during the period in question, which was asfollows:- 1993: 16,19 %; 1994: 12,51 %; 1995: 13,09 %; 1996:
11,06 %. These rates are considerably more than the rates payable
under the agreements. Furthermore, the Commission continues to havedoubts that the company is able to meet the terms of the agreements inthe light of its financial difficulties. Despite repeated requests, the
Spanish Government failed to provide specific details of the nature of
the mortgage put up as security to FOGASA.
(90) Consequently, following the approach adopted above in relation to
social security debts it must therefore be concluded that therescheduling agreements with FOGASA contained State aid within
the meaning of Article 92(1) of the EC Treaty which was illegal, not
having been notified to the Commission. As in the case of the socialsecurity debts, quantification of the precise amount of the illegal aid isdifficult, but the aid is at least equal to the financial advantage arising
from the fact that the interest rate payable under the rescheduling
agreements were only 10 and 9 % respectively.
(91) Having established that illegal State aid is contained in the
non-payment of environmental levies, rescheduling of the social!B1999D0395 — EN — 16.01.2001 — 001.001 — 16
security debt and the FOGASA repayment agreements, the Commis-
sion must decide whether or not such aid is incompatible with thecommon market and the working of the EEA Agreement.
(92) Article 92(1) of the EC Treaty lays down the principle that aid having
the characteristics specified therein is incompatible with the commonmarket. The derogations from that principle set out in Article 92(2) of
the EC Treaty do not apply to the case in point, given the nature and
objectives of the aid.
(93) With regard to the exceptions provided for in Article 92(3)(a) and (c)
for aid that promotes or facilitates the development of certain areas,the Commission notes that the region in which SNIACE is located hassince September 1995 been a region eligible for regional aid pursuant
to Article 92(3)(a) and prior to that date was eligible for regional aid
pursuant to Article 92(3)(c). However, the assistance afforded toSNIACE does not have the requisite features to facilitate the
development of certain economic areas within the meaning of this
Article, inasmuch as it was granted in the form of operating aid, that isto say, not conditional on investment or job creation. Furthermore,operating aid in Article 92(3)(a) areas could only exceptionally be
covered by this exception when granted under restricted and controlled
conditions in relation to firms in difficulty (see below).
(94) As far the derogation pursuant to Article 92(3)(b) is concerned, the aid
was clearly not intended to promote a project of common Europeaninterest or to remedy a serious disturbance in the Spanish economy.Nor has the Spanish Government attempted to justify the aid on such
grounds.
(95) As regards the derogation pursuant to Article 92(3)(d) of the Treaty,
the aid was clearly not intended to promote culture and heritage
conservation.
(96) Thus, for the measures in favour of SNIACE the Commission’ s
assessment concentrates on the non-regionally specific element ofArticle 92(3)(c) of the Treaty, which lays down an exception for ‘aid tofacilitate the development of certain activities’ where such aid does not
adversely affect trading conditions to an extent contrary to the
common interest. The aid to SNIACE could be categorised as an aid toa firm in difficulty, given its financial position during the period whenthe aid was awarded.
(97) The Commission considers that aid to firms in difficulties carries the
greatest risk of transferring unemployment and industrial problems
from one Member State to another; it acts as a means of preserving the
status quo by preventing forces at work in the market economy fromtheir normal consequences in terms of disappearance of uncompetitive
firms in their process of adaptation to changing conditions in
competition; at the same time, such aid may bring about disruptiveeffects on competition and trade through its influence upon the pricingpolicies of beneficiaries opting for undercutting strategies to stay on
the market.
(98) For this reason, the Commission has over the years developed a special
approach for the assessment of aid to firms in difficulty. The
Community guidelines on State aid for rescuing and restructuringfirms in difficulty (
1) define a number of conditions which such aid
must fulfil. They distinguish between rescue aid and restructuring aid.
(99) Rescue aid, that is, aid merely granted to keep a firm in business while
the causes of their difficulties are discovered and a remedy worked out,
can be authorised as compatible with the common market if it:
(a) consists of liquidity help in the form of loan guarantees or loans
bearing normal commercial interest rates;
(b) is restricted to the amount needed to keep the firm in business (for
example, covering wage and salary costs and routine supplies);
(c) is paid only for the time needed (generally not exceeding six
months) to devise the necessary and feasible recovery plan; and!B
(1) OJ C 368, 23.12.1994, p. 12.1999D0395 — EN — 16.01.2001 — 001.001 — 17
(d) is warranted on the grounds of serious social difficulties and
would not have any adverse effects on the industrial situation inother Member States.
(100) The general principle is that restructuring aid will only be authorised
where it is in the Community interest and is linked to a viable
restructuring/recovery programme submitted in detail to the Commis-sion. A restructuring plan must satisfy all of the following conditions:
(a) the plan must restore the long-term viability and health of the firm
within a reasonable timescale and on the basis of realisticforecasts of future operating conditions;
(b) the plan must offset as far as possible any potential adverse effects
on competitors;
(c) the amount and intensity of the restructuring aid must be restricted
to the minimum needed to enable the restructuring to take place
and be related to the benefits anticipated from the Community’s
perspective. Therefore, restructuring aid beneficiaries arenormally expected to make a significant contribution to therestructuring plan from internal resources or from external
commercial financing.
(101) Finally, since 1977, the freedom of Member States to award aid to the
synthetic fibres industry has been subject to constraints, which were
introduced to curb the provision of aid that would result in an increase
in capacity for the production of the main synthetic fibres. As SNIACEis a producer of synthetic fibres and as the aid in question appears inpart to be by way of support for such activities, the measures in
question could only be considered compatible with the common
market if they also conformed with the Code on aid to the syntheticfibres industry. Although the aid goes back over a period of several
years, it must be examined against the terms of the current version of
the Code. The Code covers inter alia investment aid for the extrusion
and texturisation of four fibres — polyester, polyamide, acrylic andpolypropylene. The Code states clearly that, with respect to larger
firms (that is, firms which are not SMEs), the Commission will only
authorise such aid (at up to 50 % of the applicable aid ceiling) if theaid would result in a significant reduction in the relevant capacity, or ifthe market for the relevant products was characterised by a structural
shortage of supply and the aid would not result in a significant increase
in capacity.
(102) In this case the Spanish Government did not seek to argue that the
measures constituted rescue or restructuring aid. Nor did it put forward
any evidence of any valid restructuring plan or a proposed reduction inSNIACE’ s market presence. This would appear to confirm that the aidhad the effect simply of allowing the company to continue in business.
(103) As far as the viability plan submitted to the Commission by the
complainant prior to the opening of the procedure is concerned, theSpanish Government merely confirmed its view that the consultant’s
conclusion ‘the viability of SNIACE is only possible through the
granting of subsidies which would enable investment projects to beundertaken and debts renegotiated’ was purely a private opinionreflected in a private study and did not necessarily reflect the views of
the Spanish authorities.
(104) Moreover, with regard to SNIACE’ s synthetic fibres activities, the
Commission is not aware of any plans which would lead to asignificant reduction in capacity. In addition, capacity utilisation rates
in this sector, in which there is substantial intra-Community trade,
remain unsatisfactory.
VII. CONCLUSIONS
(105) Accordingly, the Commission finds that Spain has unlawfully
implemented aid in the form of the rescheduling of the social security
debt and of two FOGASA repayment agreements contrary to Article93(3) of the Treaty and that it is incompatible with the common marketand the functioning of the EEA Agreement.
(106) Since the aid is illegal and incompatible with the common market, it
should be recovered and its economic effect annulled,!B1999D0395 — EN — 16.01.2001 — 001.001 — 18
HAS ADOPTED THIS DECISION:
Article 1
The following measures which Spain has implemented in favour of Sociedad
Nacional de Industrias y Aplicaciones de Celulosa Española SA (Sniace) do
not constitute State aid:
(a) the agreement of 8 March 1996 (as amended by the agreement of 7 May
1996) between Sniace and the Social Security Treasury to rescheduledebts covering ESP 2 903 381 848 (EUR 17 449 676,34) in principal, as
further amended by the agreement of 30 September 1997 to reschedule
debts covering ESP 3 510 387 323 (EUR 21 097 852,72) in principal;
(b) the agreements of 5 November 1993 and 31 October 1995 between
Sniace and the wage guarantee fund Fogasa covering ESP 1 362 708 700(EUR 8 190 044,23) and ESP 339 459 878 (EUR 2 040 194,96) re-spectively.
As regards the other matters that were the subject of the proceedings opened
pursuant to Article 93(2) of the EC Treaty, namely a loan guarantee approved
totalling ESP 1 billion approved by Law No 7/93, the financing arrangements
for the planned construction of a waste treatment plant and the partialcancellation of debts by the Torrelavega City Council, these measures do notconstitute aid and the procedure can be closed. However, Spain must inform
the Commission within a period of two months from the date of this decision
of the modified assessments made by Torrelavega City Council in respect ofSNIACE’ s business taxes for the years 1995 to date. As regards the unpaid
environmental levies during the period 1987 to 1995, the Commission will
take a separate decision in due course.
Article 3
The Kingdom of Spain shall inform the Commission within two months of the
date of notification of this Decision of the measures taken to comply with it.
Article 4
This Decision is addressed to the Kingdom of Spain.!B
!M1
!B
!M1
!B1999D0395 — EN — 16.01.2001 — 001.001 — 19