(18)

In its decision to initiate the formal investigation procedure in the present case the Commission, noted that it had doubts on the compatibility of the aid with the common market based on Article 87(3)(a) of the EC Treaty and on the Guidelines on National Regional Aid (12) (hereinafter referred to as RAG 1998) for the following reasons. — First, the Commission had doubts as to whether the limitation of regional investment aid to initial investment, as laid down in point 4.4 of the RAG 1998, was respected. According to point 4.4 of RAG 1998, initial investment is defined as an investment in fixed capital relating to the setting-up of a new establishment, the extension of an existing establishment or the starting-up of an activity involving a fundamental change in the product or production process of an existing establishment (through rationalisation, diversification or modernisation). This definition excludes from its scope replacement investment. Aid to replacement investment is to be considered as operating aid, which is allowed only if specific conditions are met (cf. points 4.15, 4.16 and 4.17 of RAG 1998). — It appeared that in at least three establishments (Veľký Grob, Veľký Cetín and Kamenec pod Vtáčnikom) the beneficiary is purchasing the same type of machinery/equipment as it currently uses and rents. The improved quality of the purchased equipment or the significant increase in the production concerned may be questioned, although the beneficiary claimed that new equipment would be more modern than the one currently leased. — At its Nitra establishment, the beneficiary will offer its customers only a ‘complementary’ service in order to ‘maintain the company’s market share, cash flow and economic results’ (13). It seemed difficult to justify aid in a situation where no additional activity is to be carried out. — Second, the measure at issue constitutes individual aid, to be granted to a company active in a specific sector of extraction of raw materials. Consequently, this aid measure is to be considered selective with a greater impact on other companies active in the same sector. According to point 2 of RAG 1998, an individual ad hoc aid made to a single firm, or confined to one area of activity, may have a major impact on competition in the relevant market, and its effects on regional development are likely to be fairly limited. Such aid generally comes within the scope of specific sectoral industrial policies and is not in line with the spirit of regional aid policy as such. The latter must remain neutral towards the allocation of productive resources between the various economic sectors and activities. In conclusion, the RAG 1998 take a negative stance towards individual aid measures unless it can be proved that the regional contribution of the aid outweighs the distortion of competition and the effects on trade. In this case, the Commission had doubts whether the limited contribution to regional development can justify the relatively high amount of aid per job created. — It transpires from the information submitted that only 81 direct jobs would be newly created, whereas some 57 direct jobs created by the beneficiary in the past would be maintained by the aided investments. The new jobs would concern only five of the nine establishments of the project (see table above). The Commission noted that 34 out of the 81 newly created jobs should be created in the three new establishments envisaged (14). Consequently, the Commission had doubts as to whether the relatively high amount of aid per direct job created, in particular in a low wage sector (the aid per direct job created would correspond to around seven annual salaries), was justified. — Concerning the number of indirect jobs, in their letter dated 17 February 2007 the Slovak authorities initially indicated that 100 indirect jobs would be created. Later on, in their second letter of 4 June 2007 providing additional information, they referred to the statistics of the European Aggregates Association, claiming that indirect jobs would amount to 414-690. According to this study, in the sector in which the company is pursuing its business activities, approximately 3-5 jobs are created in respect of each newly created job. In the information submission dated 13 August 2007, the Slovak authorities referred finally to a survey furnished to Alas by the University of Leoben (Austria), according to which in the sector of processing of raw materials, each new direct job corresponds to 30-40 indirect jobs (15). The Commission had doubts as to whether this general statement on mineral extraction was transferable to the situation of building materials. — Moreover, the aid is granted to activities in the extraction industry whose location is determined not by the granting of aid, but by the availability of minerals; this is less affected by the regional handicaps that normally hamper regional development. Consequently, it can be assumed that it would be possible to exploit the resources even without the aid. In addition, since Alas was already operating in most of the establishments on the basis of long-term licences, the incentive effect of additional regional aid was doubtful. — Third, the likely limited contribution to regional development has to be balanced against the effect on trade and distortion of competition of the aid measure which, according to the Slovak authorities, is also expected to be small. The selling radius of the products concerned is limited (approximately 50 km by road or 150 km by rail) owing to their relatively small value with regard to the cost of transport. The Slovak authorities indicated that only one establishment (Hontianske Trsťany — Hrondín) would be in a position to export part of its production (up to 50 thousand tonnes of building stone annually worth SKK 9 million) to Hungary. Three other establishments (Veľký Cetín, Okoč and Komjatice) are expected to compete with imports from Hungary. Alas Slovakia, s.r.o. does not expect to compete with other companies mining and processing minerals from Austria or the Czech Republic. However, this seemed to be in contradiction with the information contained in the application for the first part of the aid, submitted to the Slovak authorities on 16 April 2003, where potential competitors from these two countries were mentioned. Taking into account the location of the establishments concerned, the Commission had doubts about the extent to which trade with other Member States (e.g. Austria or the Czech Republic) would be distorted. — Finally, as laid down in the Commission notice on the definition of the relevant market for the purposes of Community competition law (16), in certain cases, even if the deliveries from a given plant are limited to a certain area around that plant, the distribution of plants may be such that the areas around the different plants overlap significantly. If so, it is possible that the pricing of those products would be affected by a chain substitution effect, leading to impacts on a broader geographic market. As a result, the Commission had doubts as to whether the expected contribution of the aid to regional development would offset its negative effects on trade.