B. STEEL RESTRUCTURING

Treaty establishing the European Community: Title VI, Chapter 1, Rules on Competition

1. Notwithstanding Articles 87 and 88 of the EC Treaty, State aid granted by Romania for restructuring purposes to specified parts of the Romanian steel industry from 1993 to 2004 shall be deemed to be compatible with the common market provided that:

- the period provided for in Article 9(4) of Protocol 2 on ECSC products to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Romania, of the other part [8], has been extended until 31 December 2005,

- the terms set out in the national restructuring programme and the individual business plans on the basis of which the above mentioned Protocol was extended are adhered to throughout the period 2002-2008,

- the conditions set out in these provisions and in Appendix A are met,

- no State aid in any form is granted or paid to the steel mills covered by the national restructuring programme from 1 January 2005 to 31 December 2008, the end of the restructuring period, and

- no State aid for restructuring is granted or paid to the Romanian steel sector after 31 December 2004. For the purpose of these provisions and Appendix A, State aid for restructuring is to be understood as any measure concerning steel companies that constitutes State aid within the meaning of Article 87(1) of the EC Treaty and that cannot be held to be compatible with the common market in accordance with the normal rules applied in the Community.

2. Only the companies listed in Appendix A, Part I, (hereinafter referred to as the "benefiting companies") shall be eligible for State aid in the framework of the Romanian steel restructuring programme.

3. Restructuring of the Romanian steel sector, as described in the individual business plans of the benefiting companies and in the national restructuring programme, and in line with the conditions set out in these provisions and in Appendix A, shall be completed no later than 31 December 2008 (hereinafter referred to as "the end of the restructuring period").

4. A benefiting company may not:

(a) in the case of a merger with a company not listed in Appendix A, Part I, pass on the benefit of the aid granted to the benefiting company;

(b) take over the assets of any company not listed in Appendix A, Part I, and pass on the benefit of aid granted to it in the period up to 31 December 2008.

5. Any subsequent changes in the ownership of any of the benefiting companies shall respect the conditions and principles regarding viability, State aids and capacity reduction defined in these provisions and in Appendix A.

6. Companies not listed as "benefiting companies" under Appendix A, Part I, shall not benefit from State aid for restructuring or any other aid not deemed compatible with Community State aid rules and shall not be required to reduce capacity in this context. Any capacity cuts within these companies shall not count towards the minimum reduction.

7. The total amount of gross restructuring aid to be approved for the benefiting companies shall be determined by the justifications for each and every aid measure provided in the final national restructuring programme and individual business plans to be approved by the Romanian authorities and subject to final verification of fulfilment of the criteria laid out in Article 9(4) of Protocol 2 to the Europe Agreement and approval by the Council. In any case, the total amount of gross restructuring aid granted and paid in the period 1993-2004 shall not exceed ROL 49985 billion. Within this overall ceiling, the following sub-ceilings or maximum amounts of State aid granted and paid to each benefiting company in the period 1993-2004 shall apply:

Ispat Sidex Galaţi | ROL 30598 billion |

Siderurgica Hunedoara | ROL 9975 billion |

CS Reşiţa | ROL 4707 billion |

IS Câmpia Turzii | ROL 2234 billion |

COS Târgovişte | ROL 2399 billion |

Donasid (Siderca) Călăraşi | ROL 72 billion |

The State aid shall lead to the viability of the benefiting companies under normal market conditions at the end of the restructuring period. The amount and intensity of such aid are to be strictly limited to what is absolutely necessary in order to restore such viability. The viability shall be determined taking into account the benchmarks described in Appendix A, Part III.

No further State aid shall be granted by Romania for restructuring purposes to the Romanian steel industry.

8. The total net capacity reductions for finished products to be achieved by the benefiting companies during the period 1993-2008 shall be a minimum of 2,05 million tonnes.

These capacity reductions shall be measured on the basis of permanent closure by physical destruction of the hot-rolled steel facilities concerned, such that the facilities cannot be restored to service. A declaration of bankruptcy of a benefiting company shall not qualify as a capacity reduction [9].

The minimum net capacity reduction of 2,05 million tonnes and the dates for both cessation of production and the permanent closure of the facilities covered, shall be achieved in line with the timetable set out in Appendix A, Part II.

9. The individual business plans shall have the written endorsement of the benefiting companies. They shall be implemented and in particular include:

(a) For Ispat Sidex Galaţi:

(i) the implementation of the investment programme for the modernisation of the works, improvement of yields, reduction of costs (especially energy consumption), and improvement of quality

(ii) the move into higher-value added steel flat product market segments

(iii) the improvement of operational efficiency and organisational management

(iv) the completion of the financial restructuring of the company

(v) the implementation of the investments necessary to comply with environmental legislation

(b) For Siderurgica Hunedoara:

(i) the modernisation of the facilities in order to achieve the envisaged sales plan

(ii) the improvement of operational efficiency and organisational management

(iii) the implementation of the investments necessary to comply with environmental legislation

(c) For IS Câmpia Turzii:

(i) the increase of the output of higher value-added and transformed products

(ii) the implementation of the investment programme in order to improve production quality

(iii) the improvement of operational efficiency and organisational management

(iv) the implementation of the investments necessary to comply with environmental legislation

(d) For CS Reşiţa:

(i) the specialisation on semi-finished products to supply the local pipe sector

(ii) the closure of inefficient capacities

(iii) the implementation of the investments necessary to comply with environmental legislation

(e) For COS Târgovişte:

(i) the increase of the share of higher value-added products

(ii) the implementation of the investment programme in order to achieve cost reductions, higher efficiency and quality improvement

(iii) the implementation of the investments necessary to comply with environmental legislation

(f) For Donasid Călăraşi:

(i) the implementation of the investment programme for the modernisation of the works

(ii) the increase of the share of finished products

(iii) the implementation of the investments necessary to comply with environmental legislation.

10. Any subsequent changes in the national restructuring programme and the individual business plans must be agreed by the Commission, and where appropriate, by the Council.

11. The implementation of the restructuring shall take place under conditions of full transparency and on the basis of sound market economy principles.

12. The Commission and the Council shall closely monitor the implementation of the restructuring programme and individual business plans, as well as the fulfilment of the conditions set out in these provisions and in Appendix A before and after accession until 2009. In particular, the Commission shall monitor the main commitments and provisions set out in paragraphs 7 and 8 concerning State aid, viability and capacity reductions, using in particular the restructuring benchmarks set out in paragraph 9 and in Appendix A, Part III. For this purpose, the Commission shall report to the Council.

13. Monitoring shall include an independent evaluation to be carried out annually in each of the years 2005 to 2009.

14. Romania shall cooperate fully with all the arrangements for monitoring. In particular:

- Romania shall submit 6-monthly reports to the Commission no later than 15 March and 15 September of each year, unless the Commission decides otherwise. The first report is to be submitted on 15 March 2005 and the last on 15 March 2009;

- these reports shall contain all the information necessary to monitor the restructuring process and the reduction and use of capacity and shall provide sufficient financial data to allow an assessment to be made of whether the conditions and requirements contained in these provisions and in Appendix A have been fulfilled. The reports shall at the least contain the information set out in Appendix A, Part IV, which the Commission reserves the right to modify in line with its experience during the monitoring process. In addition to the individual business reports of the benefiting companies, there shall also be a report on the overall situation of the Romanian steel sector, including recent macroeconomic developments.

- Romania shall oblige the benefiting companies to disclose all relevant data which might, under other circumstances, be considered as confidential. In its reporting to the Council, the Commission shall ensure that company-specific confidential information is not disclosed.

15. A Consultative Committee consisting of representatives of the Romanian authorities and of the Commission shall meet on a 6-monthly basis. Meetings of this Consultative Committee may also take place on an ad hoc basis if deemed necessary by the Commission.

16. If the Commission establishes, on the basis of the monitoring, that substantial deviations from the forecasts of the macroeconomic developments, the financial situation of the benefiting companies or the viability assessment have occurred, it may require Romania to take appropriate measures to reinforce or modify the restructuring measures of the benefiting companies concerned.

17. Should the monitoring show that:

(a) any of the conditions laid down in these provisions and in Appendix A have not been fulfilled, or

(b) any of the commitments made by Romania in the framework of the extension of the period during which Romania may exceptionally grant State aid for the restructuring of its steel industry under the Europe Agreement have not been fulfilled, or

(c) in the course of the restructuring period Romania has granted additional incompatible State aid to the benefiting companies or to any steel company,

the Commission shall take the appropriate steps requiring any company concerned to reimburse any aid granted in breach of the conditions laid down in these provisions and in Appendix A. Where necessary, recourse to the safeguard clauses as laid down in Article 37 of the Act or under Article 39 of the Act shall be made.

[8] OJ L 357, 31.12.1994, p. 2. Agreement as last amended by Decision No 2/2003 of the EU/Romania Association Council of 25.9.2003 (not yet published in the Official Journal).

[9] Capacity reductions shall be permanent as defined in Commission Decision No 3010/91/ECSC (OJ L 286, 6.10.1991, p. 20.)

--------------------------------------------------