EN Official Journal of the European Union L 86/1

COMMISSION DECISION (EU) 2016/449

of 28 July 2015

on State aid SA.38544 2014/C (ex 2014/N) which France is planning to implement in favour of Kem One

(notified under document C(2015) 5169)

(Only the French version is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(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 those articles (1), and having regard to their comments,

Whereas:

1. PROCEDURE

(1) On 30 July 2014, after pre-notification contacts, France notified to the Commission three financial support measures (an FDES loan, grants and repayable advances, and a possible write-off of tax and social security debts) included in the restructuring plan to ensure the continued existence of Kem One SAS (‘Kem One’ or ‘the company’).

(2) By letter dated 1 October 2014, the Commission informed France that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’) in respect of these measures (‘the opening decision’). France submitted its comments by letter dated 3 November 2014.

(3) 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 measures in question.

(4) The Commission received comments from six interested parties and forwarded them to France, giving it the opportunity to comment on them, and received its observations by letter dated 25 February 2015.

(5) On 20 March 2015, France submitted additional information in support of its observations. On the same day, the Commission requested additional information, which France provided on 8 May 2015. The Commission subsequently requested additional information on 23 June 2015, which France provided on 2 July 2015.

(6) In addition, several conference calls and meetings took place between the Commission and the French authorities.

2. BACKGROUND

2.1. THE BENEFICIARY: KEM ONE

(7) Kem One was a wholly owned subsidiary of Kem One Holding, which had been set up in 2012 to enable Arkema's vinyl business to be transferred to a subsidiary and taken over by the Klesch Group, a financial group based in Switzerland. In 2012, Kem One and its subsidiaries (Kem One Italia and Kem One Hernani) generated total turnover of EUR […] (*) million, of which EUR […] million in France, the main centre of production and sales. They employ 1 315 staff in France and approximately 80 in Spain and Italy. Diagram 1 Structure of the Kem One group before the takeover Source: Disclosure

(8) Kem One engages in several activities in a vertically integrated chain from the production of salt to the processing of polyvinyl chloride (PVC). Thus, Kem One combines under one roof the upstream activities of production and marketing of chlorochemicals and PVC for use in many economic sectors: the car industry, construction, agriculture and health. Diagram 2 Kem One activities in the PVC production chain Source: Commission, on the basis of the information provided by France and the comments by interested parties

(9) Kem One's main business object is the production ([…] % of turnover) and marketing of PVC. Kem One produces three types of PVC: (i) general-purpose PVC (M-PVC and S-PVC), which accounts for […] % of its PVC output; (ii) emulsion PVC (E-PVC), which accounts for […] % of its PVC output but […] % of its total margin associated with its PVC business; and (iii) chlorinated PVC (PVC-C), which accounts for […] % of its PVC output. It has already been established by previous Commission decisions (3) that the PVC market comprises two separate market segments: S-PVC and E-PVC. The S-PVC segment must be further subsegmented by type of S-PVC: commodity S-PVC, specialty S-PVC and extender S-PVC. The same applies to the E-PVC segment (E-PVC paste, specialty E-PVC).

(10) Furthermore, the Commission found that these markets were likely to be Europe-wide (as big as the European Economic Area, EEA) but that it was possible for the S-PVC segment to cover a narrower geographical area, corresponding to western Europe or even north-western Europe (Germany, Belgium, Denmark, France, Ireland, Luxembourg, the Netherlands, Norway, Sweden and the United Kingdom taken together).

(11) Today, Kem One is present mainly in the market for commodity S-PVC. Kem One estimates its market shares and those of its competitors as follows: Table 1 Market share for commodity S-PVC in north-western Europe (2012-2014) S-PVC — north-western Europe 2012 2013 2014 Market share (Volume) (%) Market share (Value) (%) Market share (Volume) (%) Market share (Value) (%) Market share (Volume) (%) Market share (Value) (%) Kem One [10-20] [5-20] [5-10] [5-20] [10-20] [5-20] Ineos [30-40] [30-40] [30-40] [30-40] [30-40] [30-40] SolVin [20-30] [20-30] [20-30] [20-30] [20-30] [20-30] ShinEtsu [10-20] [10-20] [10-20] [10-20] [10-20] [10-20] Vinnolit [0-10] [0-10] [0-10] [0-10] [0-10] [0-10] Vestolit [0-10] [0-10] [0-10] [0-10] [0-10] [0-10] Source: Reply from France dated 7 July 2015

(12) On the E-PVC market, France takes the view that the joint venture between INEOS and Solvay has a market share in capacity terms of around [20-30] %, while Vinnolit's market share is some [30-40] %, Vestolit's [10-20] % and Kem One's [10-20] %. Thus, the three leading competitors (Vinnolit, the INEOS/Solvay joint venture and Vestolit) together account for almost [80-90] % of output and sales of E-PVC in western Europe.

(13) In addition to PVC, Kem One produces and markets caustic soda, chloromethanes and chlorine used in the manufacture of PVC (4).

2.2. THE DIFFICULTIES ENCOUNTERED BY KEM ONE

(14) The difficulties encountered arise from both structural disadvantages and the global crisis which led to substantial financial losses between the second half of 2012 and the beginning of 2013.

2.2.1. Kem One's structural handicaps

2.2.1.1. The vertical disintegration of the ethylene chain

(15) The French authorities consider that the competitiveness of the players in the PVC sector depends on various factors, including the price of energy and raw materials, the integration and size of the units in any vinyl chain, their geographical location and the associated logistics, the technologies employed by the units and the possibility for certain players to use chlorine twice.

(16) Kem One's current activities developed within Arkema's vinyl division, which became an independent group in 2006. These activities were then sold to the Klesch Group in 2012. The current structure of Kem One is the result of several carve-outs during different disposals of existing activities in the chemical sector in France, which led to a vertical disintegration of the ethylene chain that was unfavourable to Kem One because of the part played by the cost of purchasing ethylene in the production of PVC. Kem One does not, therefore, have integrated access to ethylene, in particular because of the loss of the link with the Total steam cracker, its source of ethylene supplies. Kem One's main competitors are partially integrated thanks to integrated ethylene production for part of their needs (INEOS steam cracker in Norway and Solvay steam cracker in France) or to long-term agreements tantamount to a form of integration (e.g. Shin-Etsu in the Netherlands for access to the Shell steam cracker).

2.2.1.2. The heart of the production process (electrolysis) is dated and underperforming

(17) Of four electrolysis units, only one can be considered technologically modern and three are energy-intensive (the diaphragm cell plants at Fos-sur-Mer and Lavéra and the mercury cell plant at Lavéra). Kem One's main competitors embarked on conversion of their mercury cell and diaphragm cell plants to membrane cell electrolysis in the period 2003-2013.

(18) Kem One therefore has only […] % of the most modern capacity (membrane electrolysis), whereas this technology accounts for almost […] % of existing capacity.

2.2.1.3. High production costs

(19) The transfer of Arkema's vinyl business to Klesch was not preceded by the setting-up of a subsidiary and internal restructuring, which would have optimised the structural costs. Those costs amounted to EUR […] million in 2013.

(20) Furthermore, many services and performance contracts had to be established between Arkema and Kem One, which resulted in competitiveness gaps.

2.2.1.4. A commercial policy too geared to southern Europe

(21) The geographical location of Kem One, whose main production units have direct access to the Mediterranean, has led to the establishment of a sales policy (PVC and caustic soda) largely geared to the countries of southern Europe, whose markets were directly affected by the crisis of 2008-2009 and by the import of low-priced products, in particular caustic soda, compared with prices in the markets of north-western Europe. This commercial policy approach has contributed to the deterioration in Kem One's margin.

2.2.2. Kem One's financial difficulties

(22) The poor economic climate in the second half of 2012 and in early 2013 soon led to substantial financial losses for Kem One.

(23) The negative effects of the crisis were reinforced by a number of events which resulted in a significant drop in sales and affected the company's margin: the five-yearly shutdown of the Fos-sur-Mer site in 2012 lasted longer than planned; a problem with the quality of the ethylene supplied by Total; a major incident at the Total steam cracker in Lavéra at the end of December 2012, which resulted in its complete shut-down until March 2013, then its operating at half capacity.

2.2.3. Insolvency and the opening of the court-supervised administration procedure

(24) The recurring difficulties encountered by Kem One prompted it to request the opening of a conciliation procedure before Lyon Commercial Court in January 2013. Since no agreement had been reached, on 27 March 2013 the court held that Kem One was insolvent and opened the court-supervised administration procedure.

(25) By judgment of 20 December 2013, Lyon Commercial Court accepted the joint bid from Mr Alain de Krassny and the investment firm OpenGate Capital (‘OpenGate’) and approved the recovery plan. The objective of the recovery plan was business continuity.

(26) A new company, K1 Group SAS (‘K1’), was set up for the purposes of the recovery plan; the company object is to acquire and hold the shares in Kem One and Kem One Innovative Vinyls. K1 is 50 % owned by AK1, a company controlled by Mr de Krassny, and 50 % owned by K1 International, a company controlled by OpenGate.

2.3. DESCRIPTION OF THE PUBLIC SUPPORT MEASURES

(27) […] (5): — a loan from the Economic and Social Development Fund (‘the FDES loan’) for a maximum amount in principal of EUR 30 million, — a grant of EUR 15 million and repayable advances of up to EUR 80 million, — a possible write-off of social security and tax debts at the request of the buyer.

2.3.1. The FDES loan (EUR 30 million)

(28) The FDES is used by the French authorities as a tool accompanying the restructuring of certain undertakings in difficulty. The guidelines for using the FDES are currently based on the circular of 26 November 2004 on state action in the prevention and resolution of business difficulties (6). The FDES intervenes in the form of loans that are limited to undertakings whose viability is assured at the end of the restructuring period and whose disappearance would have a substantial effect on an entire sector or a region. In any event, the state intervenes in co-financing with the private sector. In November 2013 the French Minister for Economic Regeneration introduced an exceptional package to provide specific help, under the FDES, to viable intermediate-sized enterprises (7), which are often placed in collective insolvency proceedings.

(29) The FDES loan of EUR 30 million is intended to be used as a guarantee for the granting of supplier credits to Kem One and to participate in the financing of its working capital requirements and its short-term cash flow needs.

(30) The loan will be granted to Kem One after the signature of the loan contract and will be conditional on the contribution by the buyers to a fully paid-up cash capital increase of at least EUR 10 million.

(31) The loan will generate interest at the fixed annual rate of 3,5 %. Kem One will repay the FDES loan in seven annual instalments.

(32) The state has a first-rank pledge agreed by Kem One on its plant and equipment. The net book value of the plant and equipment included in the accounts prepared on 31 December 2013 was EUR 138,49 million. Given the validation of the contributions by an auditor in July 2012 and the absence of exceptional circumstances that might call into question the depreciation periods, the French authorities consider that the net book values reflect the actual value of those assets.

2.3.2. The grant (EUR 15 million) and repayable advances (EUR 80 million)

(33) These financing measures are intended to implement the SAM project to convert the industrial plant (mercury electrolysis unit at the Lavéra site) under the ‘Support for re-industrialisation’ investment plan for the future.

(34) In its notification, France agreed that the grant constituted State aid.

(35) The advances will be reimbursed over seven years. They include a grace period of two years and comprise two tranches: (i) EUR 65 million at an annual fixed rate of 3,5 %; and (ii) EUR 15 million at an annual fixed rate of 10 %.

(36) As part of the arrangements for the provision of such funding, a Monitoring Committee comprising representatives of the state, Kem One and the buyers will be set up. It will be responsible for sanctioning expenditure under the SAM project, validating continued activity and employment at the Lavéra site and monitoring the conformity of any management fees received by Mr de Krassny.

2.3.3. Possible write-off of tax and social security debts

(37) In its notification, France assessed the tax and social security debts owed by Kem One at EUR 42 million.

(38) On 20 February 2014, Kem One referred itself to the Committee of Heads of Financial Services (Commission des Chefs de Services Financiers — CCSF), which is responsible for waivers of tax and social security debts.

(39) […], Kem One lodged with Lyon Commercial Court an application for a substantial modification of the company's recovery plan in accordance with Article 626-26 of the Commercial Code (8), with a request for a sizeable remission of the legally remissible public debts. In accordance with the judgment of Lyon Commercial Court, Kem One's request for remission covers 90 % of the remissible part of the debts. The French authorities agreed to EUR […], which corresponds to […] % of the tax and social security debts. The request for remission had not yet been formally examined by the CSSF when the aid measures were notified to the Commission.

2.4. KEM ONE'S RESTRUCTURING PLAN

2.4.1. The planned measures

(40) The restructuring plan is based on the continued existence of Kem One, grouped together with the other subsidiaries owned by Kem One Innovative Vinyls SASU in order to reconfigure the upstream and downstream businesses.

(41) The restructuring plan involves three types of measure: industrial, commercial and financial.

2.4.1.1. Industrial measures: Modernisation of the production process, in particular the electrolysis cells at Lavéra

(42) The project has three main objectives: — to comply with the voluntary commitment made by the chlorine producers in Eurochlor to phase out mercury cell technology for chlorine production by 2020, — to restore the competitiveness of the Lavéra site in the chlorine-caustic soda-chloromethanes-VCM sector to the level of that of its European competitors through the production of chlorine using membrane cell technology, — to retain the site's upstream vertical integration, through access to brine from Vauvert, and downstream, by business opportunities for VCM and chloromethane.

(43) Kem One's estimate of the cost saving of closing its competitiveness gap is in the order of EUR [20-40] million per year in production costs. Commissioning is planned for 2016. The total cost of the SAM project is EUR [150-250] million.

2.4.1.2. Commercial measures: reorientation of commercial policy towards value-added markets

(44) Kem One intends to use most of its production capacity for the most profitable markets, in particular PVC-C, E-PVC and the liquid chlorine business, thereby enabling it to increase its margin for a constant chlorine capacity.

(45) Kem One also intends to expand its sales of caustic soda and commodity S-PVC in France and north-western Europe.

(46) The recovery plan forecasts an increase of EUR [10-30] million by 2016, i.e. an increase of approximately [0-10] % in the gross margin on turnover.

2.4.1.3. Financial measures: reduction in structural costs

(47) The plan provides for [90-110] job losses. Substantial amendments were made to the employment contracts of [1-15] staff as a result of the closure of the Aix-en-Provence site. As regards regrading, [80-100] jobs have been identified within Kem One and the Group. The redundancy plan will result in wage cost savings of EUR [0-10] million.

(48) The plan also provides for structural cost savings of EUR [10-20] million linked to a reduction in insurance costs, the closure of the head office branch in Aix-en-Provence and the postponement of IT projects.

(49) Finally, the plan is intended to make savings of EUR [15-25] million resulting from improved productivity: reduction in fixed and variable costs, improvement in yields. These measures are independent of the SAM project and are scheduled for 2014 and 2015.

2.4.2. Estimate of restructuring costs and financing of the restructuring plan

(50) The restructuring costs total EUR 222 million: the project for converting the electrolysis installations in Lavéra (EUR [150-210] million) and the sinking of two doublets at the Vauvert saltworks (EUR [15-30] million).

(51) In order to finance the restructuring costs, the plan provides for the following financing: Table 2 Sources of financing provided for in the restructuring plan, as set out in the notification Private contributions (EUR million) Public contributions (EUR million) Self-financing [30-40] Grants 15 Bank loan [60-70] (9) Reimbursable advances 80 Financing (private operator 1) [35-45] FDES loan 30 Financing (private operator 2) (financing by factoring) [40-50] Capital increase 10 Total 187,5 Total 125 Total financing 312,5 Source: Notification

(52) The financing of the restructuring is completed by measures to write off claims by private creditors amounting to EUR 158,8 million and by public creditors amounting to EUR […].

(53) Finally, in the context of the transfer of shares in Kem One to K1, Kem One Trésorerie repaid EUR [10-19] million, corresponding to the ‘Seveso’ guarantee which had been set up by Kem One Holding through Kem One Trésorerie for Kem One's sites in France when they were transferred by Arkema, pursuant to Article L 515-8 of the Environmental Code (10) relating to facilities classified for the protection of the environment. The French authorities explained that, although the release and transfer to Kem One of the amount of the Seveso guarantee initially set up by the Klesch Group have an immediate positive effect on its cash flow, the corresponding amount has not been booked as a private contribution because it will have to be gradually allocated to the reconstitution of the financial guarantees in question.

2.4.3. Kem One's business plan

(54) Kem One's business plan covers the period 2013-2017, with a return to viability expected in 2017 on the basis of realistic assumptions, according to the French authorities. In the base-case scenario, Kem One returns to a satisfactory level of cash flow in 2014, a level of gross margin of [25-35] % of turnover from 2017 and an EBITDA of around [4-12] % from 2018, in line with the benchmarks in the chemical commodities sector.

(55) The improvement in profitability stems in particular from the following five measures: significant private contributions for an immediate recovery of cash balances; investments to secure reliable electrolysis and drilling operations in order to improve the competitiveness of the undertaking; renegotiation of contracts for access to raw materials and industrial platforms; an internal restructuring accompanied by a performance and productivity plan and a review of Kem One's commercial policy of market positioning.

(56) The French authorities consider that the assumptions used are realistic: the expected gains are already taken into account by new contracts; with the exception of the electrolysis units, the size of the VCM and S-PVC units is on a par with the best competing plants in western Europe; finally, the market price assumptions are not based on a recovery in demand or an improvement in the balance between supply and demand for PVC, which was none the less expected by the main industry consultants.

(57) The business plan also takes alternative scenarios into consideration. Under the pessimistic scenario, the French authorities assume that repeated incidents affecting production cut production and sales by [8-14] % in relation to the base-case scenario, as well as variable costs and the gains identified on the supply contracts. EBITDA remains impaired over the period 2014-2016 ([1-5] % of turnover). The cash position returns to a satisfactory level at the end of 2014 but does not enable Kem One to reduce its debt. However, the return to long-term viability is assured even in this scenario thanks to the project to convert the electrolysis installations.

(58) The optimistic scenario assumes a gradual increase in sales prices of commodity PVC and caustic soda in the years ahead. Under this scenario, the cash position returns to a satisfactory level in 2014 (+ EUR [40-60] million). The plan also enables Kem One to finance some of its investments (EUR [300-500] million between 2014 and 2020), reduce its debt over the period 2017-2020 and achieve EBITDA of [10-15] % from 2018 onwards.

3. DOUBTS RAISED IN THE OPENING DECISION

(59) By decision of 1 October 2014, the Commission initiated the formal investigation procedure. In the opening decision, the Commission raised doubts about both the classification of the measures in question as State aid and their possible compatibility with the internal market under the rules on State aid granted to firms in difficulty.

3.1. CLASSIFICATION AS STATE AID

(60) In relation to the three notified measures, i.e. (i) the FDES loan; (ii) the grant and the repayable advances; and (iii) the write-off of claims, the Commission had concerns about the existence of an economic advantage and, if there were one, its amount.

3.1.1. FDES loan

3.1.1.1. Value of collateral

(61) The Commission had doubts, firstly, about the terms of the FDES loan. The Commission voiced several reservations on the estimate of the value of the collateral. Firstly, the French authorities did not indicate which plant and equipment was pledged. The Commission also noted that the French authorities presented the dated and under-performing, or even obsolete, state of certain production facilities as one of Kem One's major difficulties; that was the case in particular of the mercury cell and diaphragm cell units. The Commission therefore had doubts about the real value of the pledged plant and equipment and doubted that the net book value used to estimate the collateral was the most relevant value, in particular in comparison with the alternative solution, which would be to estimate the value of the pledges on the basis of the net income that can be achieved by operating them.

3.1.1.2. Level of remuneration of the loan

(62) In the light of these doubts, increasing the reference rate for France at the time the loan was granted (0,53 %) by 400 basis points in order to calculate the remuneration of the loan was insufficient.

(63) The Commission also had concerns about the conditions of remuneration of the loan. Indeed, the French authorities, by applying the communication from the Commission on the revision of the method for setting the reference and discount rates (‘the 2008 Reference Rate Communication’) (11), arrive at a remuneration of 4,53 %, but set a rate of 3,5 %.

(64) The Commission considered on the contrary that the increase in relation to the quality of the collateral was insufficient and that the rate should instead be in the range between 6,53 % and 10,53 % (12).

(65) The Commission also noted that, in the absence of a loan granted to Kem One by a private bank on the same terms, in the context of the undertaking's difficulties and restructuring, the entire loan could be considered aid.

3.1.2. Grant and repayable advances

(66) The Commission was of the opinion that a subsidy constitutes an economic advantage that the beneficiary would not obtain under market conditions. A grant is a financial instrument whose capital is not repayable and which does not generate interest to be paid by the beneficiary. A private lender, who has a cost of financing and has to remunerate its capital, would not have agreed to finance a company by grants.

(67) With regard to the repayable advances, the Commission noted the presence of certain conditions relating to the granting of the advances that a private lender would probably not have required. These included in particular the condition relating to the maintenance of activity and jobs at the Lavéra site for five years after project completion, the sustainability of Kem One permitting, and with the prior agreement of the state. Furthermore, in the absence of the demonstration by the French authorities that private lenders would have been willing to lend such a sum on the same terms to an undertaking in difficulty, the Commission considered that the full amount of the repayable advances could be classified as aid.

3.1.3. Possible write-off of social security and tax debts

(68) The Commission observed first that the percentages of debt write-off were not the same for the private creditors (70 %) as for the public creditors ([…] %), even though it was not certain that the state was in the same position as the private creditors which had long-standing relationships with Kem One.

(69) Moreover, with regard to the principle of the private creditor in a market economy, a write-off of debts a priori constitutes aid since it provides an advantage to an undertaking over its competitors by reducing its costs. This is all the more true when the undertaking is in difficulty and subject to collective proceedings. In the case at hand, the Commission had doubts about the motives behind the write-off of tax and social security debts, which gave precedence to the offer from one buyer. The Commission did not discount the possibility that the amount of aid was equal to the total amount of the planned write-off.

3.2. COMPATIBILITY ASSESSMENT

(70) With regard to the compatibility of the measures with the applicable State aid rules, the Commission considered that the applicable legal basis was the 2004 Community guidelines on State aid for rescuing and restructuring firms in difficulty (‘the 2004 Guidelines’) (13). By that yardstick, the Commission raised doubts about: (i) the restoration of Kem One's long-term viability; (ii) the avoidance of any distortion of competition; and (iii) the limitation of aid to the minimum necessary.

3.2.1. Restoration of Kem One's long-term viability

(71) First, the Commission questioned the precise duration of the restructuring plan, given the lack of clarity on this point by France.

(72) The Commission then noted that the French authorities had included in the restructuring costs only the costs of modernising the production facilities [project to convert the electrolysis units in Lavéra (EUR [150-210] million) and sinking two doublets at the Vauvert saltworks (EUR [15-30] million)]. The Commission considered that Kem One's internal restructuring necessarily had to create additional costs linked to the reduction in structural costs and the reorientation of the commercial policy.

(73) Moreover, the Commission had doubts about the credibility of certain aspects of the scenarios for the restoration of long-term viability presented by France. Thus, the restoration of the cash position seemed uncertain, whether under the base-case scenario or the pessimistic scenario.

(74) The three scenarios proposed by France in the notification included the obtaining of a bank loan of EUR [60-70] million in 2016 from private financial institutions. However, at this stage, the French authorities did not appear to have any guarantee that the loan would be granted. This uncertainty therefore undermined the realistic nature of the three scenarios.

3.2.2. Prevention of distortion of competition

(75) In the absence of any compensatory measures proposed by France, the Commission pointed out that the presence of compensatory measures is one of the criteria for the compatibility of restructuring aid. Accordingly, it called on the French authorities to propose compensatory measures taking into account all of their arguments.

3.2.3. Aid limited to the minimum

(76) The Commission had doubts about the data used by the French authorities to calculate the amount of Kem One's own contribution, and therefore about compliance with the rule that the own contribution by a large firm to the costs of its restructuring must be 50 % of the total amount.

4. RESPONSE BY FRANCE TO THE OPENING DECISION

(77) By letter dated 3 November 2014, France presented its observations on the opening decision.

4.1. ON THE CLASSIFICATION AS STATE AID

4.1.1. FDES loan

4.1.1.1. Value of collateral

(78) France stresses that the book value of the pledged assets corresponds to their market value. The net book value is the gross book value less depreciation. The gross book value is the acquisition cost of the assets or their transfer value. Thus, at the time of the partial transfer of assets from Arkema to Kem One on 2 July 2012, the transfer was valued by independent experts at EUR [110-120] million. Furthermore, France pointed out that two transactions that had recently taken place in the PVC sector involving companies smaller than Kem One had been concluded at much higher amounts than the book value of Kem One's assets. In addition, although Kem One's activities were valued using the net present value method, their amount would be EUR [80-90] million in 2014, EUR [110-130] million in 2015 and EUR [330-340] million in 2016. Finally, France noted that the collateral was first-rank, ensuring that the state would be satisfied before all other creditors.

(79) France concluded therefore that it should be considered that the state had a sound guarantee that was very high in relation to the amount of the FDES loan.

4.1.1.2. Level of remuneration

(80) First of all, France takes the view that the methodology for calculating the interest rate on the basis of a sample of companies for which four-year credit default swap (CDS) contracts are negotiated and with a CCC rating, as set out in paragraph 92 of the opening decision, resulting in a rate of 20,95 %, is not able to provide an approximation of actual market rates. These cannot be borrowing operations comparable to those of Kem One in relation to FDES, since there is no identification of the guarantees or the level of collateral attached to the operations taken as a benchmark for determining the rate of 20,95 %.

(81) Furthermore, given Kem One's financial situation and the level of collateral, application of the 2008 Reference Rate Communication results in a remuneration of 4,53 % (reference rate of France of 0,53 % + 400 basis points), and not 6,53 % as stated by the Commission in the opening decision.

(82) In any event, the rate calculated on the basis of the 2008 Reference Rate Communication serves only as an indication. In the case at hand, Kem One's low risk of insolvency, taking account in particular of the effective implementation of the recovery plan enabling the company's viability to be restored by 2017 and sound financial management, and the high level of collateral, justified a rate of 3,5 % consistent with the market.

(83) Lastly, the financing contract with [private operator 2] provides for a financing rate of Euribor 3 months + […] % with a minimum of […] %. Although this is not a bank rate, the conditions for granting the financing are such that they confirm that the FDES loan is consistent with market conditions.

4.1.1.3. Amount of aid

(84) As stated in the notification, France considers that the amount of aid, if any, should be equal to the difference between the rate calculated on the basis of the 2008 Reference Rate Communication and the rate applied, i.e. 4,53 % and 3,5 %, and not the total amount of the loan.

(85) France highlights the fact that, in the past, the Commission has applied this approach on several occasions.

4.1.2. Grant and repayable advances

(86) As already pointed out, France acknowledges that the entire grant constitutes State aid.

(87) With regard to the repayable advances, France takes the view that they cannot be considered State aid in their entirety. The repayment of the advances is certain since it becomes automatic two years after the end of the modernisation work. Therefore, the advances should be equated to loans and, consequently, the amount of aid is the grant equivalent, i.e. EUR 14,4 million.

4.1.3. Possible write-off of tax and social security debts

(88) First of all, France notes that, contrary to what was stated in the notification, the amount of the tax and social security debts is EUR […] and not EUR 42 million. The EUR […] is broken down as follows: EUR […] million in debts contracted before the opening of the court-supervised administration procedure and EUR […] in debts contracted after the opening of the procedure. The relevant authorities intend to grant a write-off of […] % of the remissible debts contracted before the opening of the procedure (14), i.e. EUR […] out of a total public liability of EUR […] ([…] % of the total public liability).

(89) Second, France points out that the write-off applicable to most of the debts owed to private creditors was 100 % or 70 %.

(90) Moreover, the waiver by France of part of its tax and social security claims against Kem One is such as to enable the company's recovery plan to be implemented smoothly. If Kem One were to disappear, France could lose an additional EUR […] million (15) if it does not grant a total write-off not exceeding EUR […] million.

(91) In the light of this information, France is therefore behaving like a prudent creditor.

(92) In any event, if the measure were to be considered State aid, the amount of aid would be the difference between the level of the write-off finally agreed to by France and the level of the minimum write-off accepted by all the private creditors.

4.2. COMPATIBILITY

4.2.1. Restoration of viability

(93) In the opening decision, the Commission called on France to comment on the statement that it had included in the restructuring costs only the costs of modernising the production facilities, whereas Kem One's restructuring necessarily had to generate additional costs linked to each restructuring measure (reduction in structural costs and reorientation of the commercial policy). In its observations, France stresses that the reduction in structural costs resulted in only 13 redundancies, with an associated financial cost of EUR […] million. This cost was not identified separately in the business plan or the cash flow plan attached to the notification, but was none the less deducted from the opening cash position. Furthermore, the other intense efforts associated with the reduction in central costs did not result in specific financial charges. The reorientation of the commercial policy did not result in any directly associated cost.

(94) In addition, a number of positive aspects confirm the realistic nature of the restoration of viability scenarios presented by the company. Thus, in the base-case scenario, the cash position was increased by EUR [30-40] million at the end of 2017, because of a reduction in the investments needed and an earlier than expected restart in activity, while the projected operating income has been revised to EUR [35-45] million per year instead of EUR [25-35] million. Furthermore, the involvement of a number of private companies, such as [private operator 1], [private operator 3], [private operator 4] and [private operator 5], which have agreed to write off all of their claims against Kem One, and of [private operator 2], which has agreed to increase Kem One's factoring capacity, demonstrate these companies' belief in the undertaking's return to long-term viability.

(95) The bank loan of EUR [60-70] million remains hypothetical and had not yet been applied for when France submitted its response. Under these conditions, France considers that the fact that there is no guarantee about the bank loan does not undermine the three scenarios relating to the undertaking's return to viability, nor does the amount of the undertaking's own contribution.

4.2.2. The company's own contribution

(96) It its observations, France does not challenge the decision not to include the bank loan of EUR [60-70] million in Kem One's own funds because it is a hypothetical element, given the lack of a firm commitment by a financial institution.

(97) A contrario, the debt write-offs agreed to by [private operator 3], [private operator 1], [private operator 4] and [private operator 5] should be considered to be genuine financial flows to the benefit of Kem One and therefore taken into account in the own contribution. These companies are long-standing commercial partners of Kem One, and it is in their interest that Kem One succeeds. Accordingly, the debt write-offs amounting to EUR 180,5 million correspond to prudent industrial decisions, with a direct interest in the success of the recovery plan adopted by Kem One and its buyers. The other debt write-offs follow the same logic and involve lower amounts.

(98) The private contributions therefore total EUR 282,5 million, broken down as follows: Table 3 Sources of the private contributions allowed for in the restructuring plan, according to France Source of contribution Amount (EUR m) Kem One self financing [30-40] Financing [private operator 1] [35-45] Financing [private operator 2] [55-65] Capital injection by the buyers [5-15] Satisfaction of debts [private operator 6] [0-10] Write-off of debts [private operator 1] [90-100] Write-off of debts [private operator 3] [25-35] Write-off of debts [private operator 4] [0-10] Write-off of debts [private operator 5] [0-10] Total 282,5 Source: Response by France to the opening decision

5. COMMENTS BY INTERESTED THIRD PARTIES AND OBSERVATIONS BY FRANCE

5.1. COMMENTS BY INTERESTED THIRD PARTIES

5.1.1. Comments by Ineos

5.1.1.1. Amount of State aid and own contribution by Kem One

(99) Ineos takes the view that the request by France severely underestimates the amount of State aid and does not envisage a sufficient contribution by Kem One and its shareholders.

(100) Amount of State aid. With regard, first, to the FDES loan, Ineos refutes France's analysis that only the difference between the actual rate on this loan (3,5 %) and a supposedly market rate of 4,53 % (i.e. 1,03 percentage points) may be considered aid. If the assertions by France were correct, Kem One should be able to obtain a loan from a private creditor on the same terms, which the firm was not able to do. Furthermore, the value of the collateral has been greatly overvalued. The book value of assets cannot be equated to the market value in the event of severe economic and financial difficulties, all the more so since the collateral only has value in an operating cycle that has proven to be fragile. In conclusion, according to Ineos, the entire FDES loan should be considered aid.

(101) With regard to the direct grant and the repayable advances, Ineos takes the view that the full amount constitutes aid. As to the repayable advances, the condition of maintaining activity at the Lavéra site would not be required by any private creditor. Furthermore, the rates are too low in comparison with those applied under the same conditions by a private creditor.

(102) With regard to the debt reduction, Ineos stresses that, although the commercial creditors have a legitimate commercial interest in Kem One's recovery, the French state itself is in the position of being a pure financial creditor. Thus, the debt reductions agreed by the French state cannot be likened to the reductions agreed by the private creditors.

(103) Ineos emphasises that Kem One benefits from advantageous contracts for the supply of electricity and ethylene. Ineos has no doubt that the decisions by EDF on this issue are imputable to the French state. Ineos calls on the Commission to look into the reasons underlying the granting of these reductions. These preferential tariffs are likely to improve the competitive position of Kem One.

(104) Own contribution by Kem One. Ineos believes that France has overestimated the amount of Kem One's own contribution to the restructuring costs. France includes in the own contribution three loans from private sources: a loan of between EUR 60 and 80 million and two further loans of, respectively, EUR 35 to 45 million and EUR 40 to 50 million. According to Ineos, there is no evidence that a private entity would consent to such a risk, and the hypothetical and improbable nature of these loans implies that they should not be taken into account when assessing the amount of Kem One's own contribution.

(105) First, Ineos stresses the fact that OpenGate, one of Kem One's parent companies, is in good financial health, so that it could participate in the restructuring costs. Ineos takes the view that France must demonstrate that Kem One's difficulties are too severe to be addressed by its shareholders (OpenGate in particular). Second, if the State aid is found to be admissible in the case of Kem One, the shareholders, and OpenGate in particular, must substantially increase the amount of their contribution.

5.1.1.2. Restructuring plan

(106) Ineos takes the view that France is not proposing a realistic restructuring plan capable of returning Kem One to economic viability within a reasonable time.

(107) First, the current restructuring plan is based on very substantial investments and cash injections but does not provide for rationalisation of Kem One's activities. Second, the restructuring plan assumes that Kem One will be able to increase significantly its market share and sales in markets for products which are already suffering from severe overcapacity problems and intense competition, and for which demand estimates are low.

(108) In the view of Ineos, the restructuring plan does not provide for the rationalisation of Kem One's loss-making activities. Kem One is suffering from a structural problem of overcapacity. In 2012, the ratio of its production to its total S-PVC capacity was only 60-70 %, well below the average utilisation rates of S-PVC producers in the north-western European market.

(109) Under the restructuring plan's underlying assumption, Kem One should increase considerably its production and sales in the north-western European market. Besides the fact that Kem One has traditionally concentrated its sales of S-PVC in southern Europe, this prospect seems implausible to Ineos. The PVC market in north-western Europe is already characterised by very high oversupply and the forecasts for this market are for weak demand growth over the next five years. Moreover, the acquisition of Vestolit and Vinnolit by two American PVC producers should provide those two players with a more efficient cost structure, which will make them more effective competitors. Lastly, Kem One has a bad reputation among customers in the north-western European market.

(110) The restructuring plan provides for the reorientation of commercial policy towards more profitable products, i.e. E-PVC, PVC-C and liquid chlorine. An increase in sales of caustic soda in the north-western European market is also planned. According to Ineos, this strategy is unlikely to succeed.

(111) First, the plan provides for growth of production and sales of E-PVC with the aim of utilising Kem One's excess capacity, and because the product is relatively more profitable. Yet the E-PVC market in the EEA is highly competitive and already suffering from overcapacity. No substantial increase in demand in the market is expected in the medium or long term. Ineos also stresses that other E-PVC producers who are more credible and better placed in the EEA have announced recent or future investments in their production capacity.

(112) With regard to the project to increase production of PVC-C with a view to benefiting from its higher profitability, Ineos insists that it is a niche product, for which European demand is very low. The French market for liquid chlorine is characterised by its small size and high degree of competition.

(113) Lastly, with regard to the project to increase sales of caustic soda in the north-western European market, Ineos points out that caustic soda is an inevitable by-product of chlorine production. The level of production of caustic soda (and hence the volume of sales) is determined by demand for chlorinated derivatives (such as PVC). Kem One cannot hope to increase its volume of sales of caustic soda without presenting a plausible plan to increase its sales of chlorinated derivatives downstream.

5.1.1.3. Compensatory measures

(114) According to Ineos, France is not proposing any appropriate compensatory measures. Ineos stresses that the 2004 Guidelines unambiguously require the use of compensatory measures.

(115) Ineos notes that only half the production capacity for S-PVC in the north-western European market is used for sales in the same market. This serious problem of overcapacity does not seem likely to disappear in the medium term, given the prospects for the construction industry. The consequence of overcapacity and low demand is a reduction in the margins of European PVC producers. Against this background, the planned aid would give Kem One a significant advantage.

(116) In particular, it would enable it to convert its technology to mercury, which would exacerbate the risk for its competitors of having to close down certain parts of their capacity. Furthermore, if Kem One actually succeeds in increasing its sales in the north-western European market, it would contribute to increasing the competitive pressure still further.

(117) Ineos takes the view that it is essential to reduce Kem One's PVC production capacity permanently, given that the structural problem of overcapacity in the market will continue in the long term.

(118) Lastly, Ineos notes that, in the context of relevant markets suffering from structural overcapacity, the 2004 Guidelines lay down that the Commission should grant in principle only targeted aid for the costs of social and environmental restructuring. Ineos takes the view that the restructuring aid should therefore be targeted on the environmental and social costs linked to closure of the Lavéra site, rather than its conversion.

(119) Ineos believes that Kem One is very well positioned in the S-PVC market in north-western Europe, which constitutes an additional reason why substantial compensatory measures should be effectively applied. In 2012, Kem One was the third biggest player in the S-PVC market in north-western Europe, with between 10 and 20 % of total capacity.

(120) Furthermore, France cannot assert, on the one hand, that Kem One is suffering from a weak position in the S-PVC market, and, on the other, that any reduction in its production capacity would lead to a weakening of the competitive structure in the same market.

(121) Ineos stresses that the purpose of these compensatory measures is not to take out the firm entirely, but to reduce its capacity. Moreover, Ineos takes the view that it is incorrect that a reduction in capacity — and even the very disappearance of Kem One from the market — would render its customers unable to put in place a strategy of multiple sources of supply. Ineos notes that there are, or that there will be in the near future, five other sizeable suppliers, plus other, smaller competitors. Ineos stresses again that Kem One is not, in any case, regarded as reliable in this market. Lastly, Ineos highlights the fact that the market in question is competitive.

(122) According to Ineos, compensatory measures are also necessary in other markets, which are all characterised by overcapacity problems and sound positioning by Kem One. The first market is the E-PVC market, in which Kem One had 10 to 20 % of total capacity in 2012. In the chloromethanes market, the aid in question will result in downstream production on a cost basis that is more advantageous than that of Kem One's competitors. With regard, lastly, to the caustic soda market, Ineos points out that it is an inevitable by-product of chlorine production.

(123) Ineos takes the view that compensatory measures are possible and that they would help to create a viable production chain.

(124) In that regard, Ineos takes the view that Kem One should adopt a restructuring plan involving: — closure of its Lavéra electrolysis cell rooms, — closure of the PVC production plants that can no longer receive adequate supplies of VCM from the Fos-sur-Mer site, i.e. Saint-Fons and Balan.

(125) In the opinion of Ineos, such a capacity reduction by Kem One would mitigate the distortive effects of the aid in the market, rationalise Kem One's activities on a more competitive basis, and make good the withdrawal from structurally loss-making activities (in particular on the Lavéra site). This solution would resolve the problem of Kem One's overcapacity and obviate the need for the French state to contribute to the conversion of the Lavéra site through substantial investments.

5.1.2. Comments by anonymous undertaking 1

5.1.2.1. Justification for State aid

(126) First, anonymous undertaking 1 emphasises the fact that the PVC sector is in crisis and the major players are subject to substantial economic and financial pressure. European operators must agree to substantial investments under the regulatory framework in a context marked since 2007 by a fall in margins, a reduction in European demand for PVC, falling prices, high energy costs, overcapacity problems and, lastly, the poor economic situation of the construction sector.

(127) Against this background, it is important to maintain a level playing field. Aid to Kem One is considered a potential source of serious market distortion.

(128) France claims that, without any aid measures to Kem One, the market would be characterised by a situation of tight oligopoly. Anonymous undertaking 1 does not agree with that point of view. It points out that the Commission, in its Ineos/Solvay/JV decision, did not conclude that the market was characterised by such a situation. At the time, the Commission referred to the fact that S-PVC was currently produced or imported by 11 companies.

(129) Moreover, anonymous undertaking 1 notes that granting aid to the third-largest player in the sector would only delay the necessary market adjustments and improvements and exacerbate the financial difficulties of the other operators. According to anonymous undertaking 1, it is even possible to argue that no aid may be granted, under point 8 of the 2004 Guidelines, because the market is suffering from structural overcapacity.

(130) Anonymous undertaking 1 also raises doubts about Kem One's prospects of returning to profitability. It notes that the Commission, in its Ineos/Solvay/JV decision, had already established Kem One's inability to return to economic viability, even after its acquisition by Klesch.

(131) The measures in the restructuring plan as announced in the opening decision lack detail, in particular with regard to Kem One's new commercial strategy, the conversion of the electrolysis units and the credibility of the firm's future contracts. Furthermore, it seems likely that the restructuring period will exceed five years — the duration judged acceptable by the Commission in its previous decisions.

(132) Moreover, the timing of the investments required to modernise the electrolysis plants is uncertain (2016 or 2017). The European rules require European operators to convert from mercury technology by the end of 2017. If France allowed Kem One to delay the necessary investments, it would be preferential treatment that could constitute a financial advantage and therefore a form of State aid.

(133) Lastly, implementing restructuring measures depends on external factors that are outside the firm's control. That is the case in particular with the bank loan of EUR 60 to 70 million in 2016.

5.1.2.2. Amount of State aid

(134) With regard to the amount of aid, anonymous undertaking 1 stresses the fact that it is much higher than the amount granted by France. Certain measures may be considered State aid in their entirety, such as the direct grant of EUR 15 million and the repayable advances of EUR 80 million for the modernisation of production plant. A private investor would not, under any circumstances, have made his decision conditional on the maintenance of activity and staff at the Lavéra site. Moreover, the purely hypothetical nature of the private bank loan is not enough to demonstrate the willingness of a private investor to grant a loan on the same terms.

(135) With regard to the FDES loan of EUR 30 million, in the absence of a detailed list of the assets and equipment constituting the collateral, and of an evaluation of their market value, it is impossible to conclude that the level of collateral is ‘high’. According to anonymous undertaking 1, the level may at most be regarded as normal, in which case, in accordance with the 2008 Reference Rate Communication, the base rate of 0,53 % would have to be increased by at least 6,00 %. This would considerably increase the amount considered to be aid in the FDES loan.

(136) Lastly, anonymous undertaking 1 cites the write-off of tax debts and social security contributions of EUR […]. According to anonymous undertaking 1, these debt write-offs by the state authorities may be likened to the write-offs agreed to by the private creditors only to the extent that they do not exceed the average of such write-offs. Since the average write-off was 70 %, the EUR […] that exceed the average should be considered State aid.

(137) Moreover, anonymous undertaking 1 highlights the fact that the deferred payment of the Seveso guarantee may also be potential aid. An intra-group transfer of EUR 10-19 million was made to Kem One by the Klesch Group for the purposes of the Seveso guarantee. France has confirmed that the amount paid and transferred from the Seveso guarantee would have to be gradually allocated to the reconstitution of the Seveso financial guarantee by Kem One. The financial guarantees are intuitu personae, so that in the event of a change in site operator, the French Environmental Code requires the new operator to make a statement to the relevant Prefect within one month. The Commission should seek confirmation from France that the amount transferred will be actually used to reconstitute the Seveso guarantee and that the delayed payment of the guarantee does not constitute preferential financial treatment granted to Kem One by the Prefect, which potentially implies State aid.

(138) Moreover, according to anonymous undertaking 1, the existence of possible reductions granted by EDF to Kem One on its new electricity contracts is a fact of which the market is aware. If this point were to be proven, there would then be no doubt about the fact that this preferential treatment is imputable to the French state, since it controls EDF's board of directors and holds more than two thirds of its capital.

(139) Anonymous undertaking 1 also expresses doubts about the limitation of the aid to the strict minimum, in particular for the SAM investment project. The EUR 95 million awarded in the form of a direct grant and repayable advances serve to finance an investment that the undertaking is required in any case to undertake in accordance with current legislation. The aid for this conversion project may possibly no longer have any incentive effects for Kem One because the company would only be acting in accordance with its legal obligations. There are therefore serious doubts about whether the SAM project is actually an investment essential for restoring Kem One's viability.

(140) The bulk of Kem One's own resources is constituted by the debt write-offs by its private creditors. On that basis, Kem One's own contribution does not even reach half of the amount of aid calculated by France, an amount which, as has already been explained, is much lower than the actual amount of aid that has to be taken into account.

(141) Moreover, the private debt write-offs cannot be considered an own contribution because they do not provide any additional resources to Kem One to cover the costs of its restructuring.

(142) The other block constituting Kem One's own contribution is represented by the bank loan of EUR 60 to 70 million. However, anonymous undertaking 1 has already stressed the hypothetical nature of this loan.

5.1.2.3. Compensatory measures

(143) Lastly, anonymous undertaking 1 stresses the need for compensatory measures to neutralise the consequences of the aid. It does not agree with the position of France that the compensatory measures would jeopardise Kem One's viability and the effects of the aid on the competitive structure would be limited, or even beneficial, for competition in the market.

(144) Anonymous undertaking 1 stresses in particular point 40 of the 2004 Guidelines, which states that compensatory measures should take place in particular in markets where the firm will have a significant market position after restructuring. Anonymous undertaking 1 estimates Kem One's market share in the S-PVC market in north-western Europe at 20 %.

(145) Anonymous undertaking 1 disagrees with the position of France that the measures in question are also necessary to maintain a competitive structure in the market. Following the implementation of the corrective measures provided for in the Ineos/Solvay/JV decision, the market will see the emergence of new players, whatever the situation of Kem One. Moreover, there is no evidence that the fact of maintaining Kem One's production capacities constitutes an essential condition for its economic recovery. The measures in question risk exacerbating the problem of overcapacity in the market.

(146) With regard to possible compensatory measures, anonymous undertaking 1 puts forward a number of proposals: — reduce Kem One's capacity by 200 to 300 kilotonnes. If this reduction were to affect the Lavéra site, that would require a corresponding reduction in the site's VCM capacity, — reduce Kem One's production (if the State aid measures enable the company to artificially maintain a certain level of marginal production), — other measures: sell a minority shareholding, terminate certain cooperation agreements, undertake not to diversify Kem One's production during a limited period of time, divide the payment of the restructuring aid into a number of instalments conditional on the effective implementation of the planned measures to a detailed timetable.

5.1.3. Comments by Arkema

(147) In relation to recital 13 of the opening decision, Arkema points out that its vinyl business was transferred to two subsidiaries when the company was sold to the Klesch Group. At the time of the transfer, an initial adjustment was made to the structural costs of the two units sold. Arkema states that between 2005 and 2010 it implemented a restructuring plan in its vinyl division. Arkema points out that exceptional events, such as the reversal in the economic situation in the second half of 2012 and the interruption of ethylene supplies because of an incident at the Lavéra site, explain the financial difficulties encountered by Kem One in 2013.

(148) With regard to recital 14 of the opening decision, Arkema points out that the services and performance contracts between Arkema and Kem One were concluded at the request of Kem One to enable it to continue its activities as usual once the transfer of the business to a subsidiary had been completed.

(149) In recital 126 of the opening decision, the Commission notes that the debt write-offs by the private partners must not be taken into account in the private contributions. In this regard, Arkema points out that, at the same time as its debt write-off, it provided a consolidated contribution of EUR 40,5 million, which did constitute a genuine financial flow and expressed its confidence in the viability of Kem One's recovery plan. According to Arkema, there is no reason to consider the debt write-off differently. The purpose of the write-off of EUR 95,6 million to which Arkema agreed was to assist in providing Kem One with a balance-sheet structure enabling it to contract the necessary loans on acceptable terms, when the time was right.

(150) Arkema recalls that it is a stakeholder in part of the risks involved in Kem One continuing its activity. For example, Arkema has chosen to maintain its flow of supplies of products and by-products with Kem One, whereas they could have been reallocated to other suppliers.

5.1.4. Comments by Vestolit

(151) Vestolit considers that the measures granted to Kem One by the French state will have an adverse impact on the competitive situation of the PVC market in Europe. Vestolit draws the Commission's attention to the fact that the market is in a state of overcapacity and that a number of independent studies are forecasting stagnation of demand.

(152) These measures will cause difficulties in particular for the companies which have modernised their assets themselves (using own resources). The State aid will enable Kem One to maintain obsolete assets that are not economically viable.

(153) Lastly, Vestolit stresses that Kem One would not have been able to obtain the loans on the same terms in the market.

(154) Accordingly, Vestolit calls on the Commission to consider imposing compensatory measures.

5.1.5. Comments by the ECVM

(155) The European Council of Vinyl Manufacturers (ECVM) represents the interests of the European producers of PVC resin. Its five members account for some 70 % of the PVC produced in the EU and Norway. The ECVM is a founder member of the VinylPlus programme, which is a 10-year voluntary commitment relating to sustainable development launched in 2011.

(156) In 2012, Kem One took a unilateral decision to leave the EVCM, at the same time ceasing to contribute to the VinylPlus programme. The ECVM takes the view that Kem One benefits from the efforts and financial contributions of other PVC producers to the VinylPlus programme, without sharing the financial burden. This situation is at the origin of an unfair competitive advantage for a company that is also a beneficiary of State aid. Consequently, the ECVM calls for the setting-up of a compensatory measure consisting of an obligation for Kem One to contribute to VinylPlus.

5.1.6. Comments by anonymous undertaking 2

(157) The Commission notes first that the comments by anonymous undertaking 2 were submitted after the deadline for receiving comments from third parties.

(158) First, anonymous undertaking 2 claims that the measures in question give a substantial competitive advantage to Kem One. It takes the view that, given the current market situation, the conversion from mercury technology is not profitable for its competitors. As a result, only companies in receipt of State aid will be able to undertake such an investment. This is explained by the fact that the difference between the cost of production of ethylene dichloride (EDC) by chlorination and its cost of acquisition is not such as to justify a large investment to produce chlorine to be used for chlorination. Yet directly produced EDC is less expensive, so Kem One will enjoy a considerable advantage in relation to its competitors, thanks to State aid.

(159) Second, anonymous undertaking 2 stresses the fact that the market is characterised by substantial oversupply, which it estimates at 1 million tonnes per year. In this context, which is made still more difficult by forecasts of stagnant or even falling demand, the return on investment is very uncertain.

(160) Anonymous undertaking 2 disagrees with France about the counterfactual scenario in the absence of aid. It points out that, since Kem One's commercial policy is largely geared to southern Europe, there is no risk that the disappearance of that firm would have a significant impact on available capacity to the detriment of consumers of S-PVC in northern Europe. Anonymous undertaking 2 takes the view that, should Kem One not carry out the conversion of its mercury technology, it could still supply its clients from its industrial site that has already been converted.

(161) Moreover, since the market is characterised by oversupply, Kem One's competitors would have no trouble in supplying its customers from that excess supply if Kem One were to reduce its commercial presence.

(162) Anonymous undertaking 2 suggests that a reduction in Kem One's capacity or commercial presence should be imposed on it by way of compensatory measures.

(163) Lastly, with regard to the viability of the restructuring plan, anonymous undertaking 2 takes the view that the context of oversupply, already emphasised above, coupled with stagnant demand, makes a gradual increase in PVC prices, as envisaged in recital 52 of the opening decision, impossible.

5.2. OBSERVATIONS BY FRANCE

(164) By letter dated 25 February 2015, France replied to the comments by interested parties.

(165) France began by making some general remarks on the comments submitted by Ineos and anonymous undertaking 1. — According to France, their comments contained factual errors in the references to the opening decision and groundless allegations such as those regarding the supposed discounts granted by EDF or disguised State aid. — France was surprised that the comments made by the two undertakings in this case differed significantly from those submitted by Ineos and Solvay in reply to the statement of objections in the Ineos/Solvay/JV case. In that case, Ineos and Solvay had argued that ‘despite [its financial difficulties], Kem One was a strong competitor in the market’ and that ‘Kem One's production problems have been resolved’. Regarding Kem One's investment project to convert its mercury technology, Ineos and Solvay had stated that: ‘this investment will give Kem One the ability to produce sufficient chlorine in its fully owned integrated membrane plant to operate its S-PVC plant at full capacity’. — Lastly, the French authorities pointed out that Ineos and Solvay had been obliged to divest vertically integrated PVC production plants, comprising production assets in Belgium, Germany, France, the Netherlands and the United Kingdom (‘Newco’). These combined assets were deemed to constitute a viable and independent entity likely to exert competitive pressure comparable to that exerted by Solvay on Ineos before the merger. The positive assessment of these assets in the Ineos/Solvay/JV decision seemed to be in contradiction with the doubts expressed by Ineos and anonymous undertaking 1 with respect to Kem One's return to viability. The two entities (Newco and Kem One) were likely to have comparable turnover figures, even though Newco's business was focused exclusively on S-PVC and caustic soda, for which margins were smaller than for other derivatives in Kem One's portfolio. These factors contradicted the comments by Ineos to the effect that, in current market conditions of high overcapacity and low customer demand, Kem One's restructuring plan was unlikely to return it to viability.

(166) In summary, France regarded the comments by Ineos and anonymous undertaking 1 as biased, vitiated by errors of fact and motivated by opportunistic considerations.

(167) The compensatory measures requested by Ineos and anonymous undertaking 1 could compromise Kem One's return to viability and trigger its exit from the market, which would undeniably benefit Ineos and anonymous undertaking 1 by strengthening their market positions, resulting in less intense competition in the various PVC markets.

(168) Lastly, France pointed out that numerous conversions of electrolysis facilities from mercury to membrane technology had benefited from Commission-approved State aid between 2003 and 2007. For example, Ineos had received EUR 57,2 million for modernisation at the Runcorn site and Solvay, EUR 36 million for the Rosignano and Bussi sites. To France's knowledge, this aid had been granted without any compensatory measures being required.

(169) France went on to discuss the classification of the measures as aid and their compatibility with the internal market.

5.2.1.1. Classification of the measures as aid

(170) FDES loan. France first stressed that it had already shown that the state had a sound guarantee, meaning that the actual rate of 3,5 % corresponded to a market rate. If aid was found to exist, it should be calculated as the difference between the actual rate and a reference rate.

(171) As regards the value of the collateral, which had been called into question by the interested third parties, France reasserted that its net book value was equal to its market value. In support of this assertion, France had provided independent expert reports carried out at the time of the partial transfer of assets from Arkema to Kem One in July 2012. Moreover, the value of the transfers had been validated by a contributions auditor (commissaire aux apports). Even supposing that the value of these assets had fallen on account of Kem One's financial difficulties, France pointed out that the assets had been estimated at EUR [130-140] million, while the value of the FDES loan was no higher than EUR 30 million: the value of the collateral would therefore still largely cover the value of the loan.

(172) As regards the loan repayment terms, France stated that the appropriate rate of repayment had to be calculated in accordance with the beneficiary undertaking's risk of insolvency and the quality of collateral offered. In accordance with the 2008 Reference Rate Communication, a reference rate could be calculated using a base rate of 0,53 % + 400 basis points, giving 4,53 % and not 6,53 % as cited by anonymous undertaking 1. However, the reference rate served merely as a guide and the low risk of insolvency for Kem One coupled with the very high level of collateral justified a rate of 3,5 %.

(173) Lastly, as indicated by the Commission in the opening decision, Kem One's restructuring plan was also being financed by [private operator 2] to the tune of EUR [55-65] million.

(174) Repayable advances. France pointed out that it had never argued that these advances contained no State aid. However, it took the view that they should be assessed as a loan repayable by Kem One. Accordingly, the difference in the rates was the element that could constitute aid and not the entire value of the advances. Contrary to what was argued by Ineos and anonymous undertaking 1, it was not the entire amount in repayable advances that was likely to constitute aid but the grant equivalent estimated at EUR 29,4 million (including the grant of EUR 15 million).

(175) As regards the funding of the SAM project, France indicated that the project was an important element of the restructuring plan and that the funding measures accordingly formed part of the restructuring plan approved by Lyon Commercial Court. They should be analysed in the light of the 2004 Guidelines on the same terms as the other measures that were part of the restructuring plan.

(176) Write-off of tax and social security debts. France reiterated that the CCSF decision to waive […] % of remittable debts was unlikely to contain any State aid elements, as the remission rate was in line with the average rate of remission by the private creditors to allow the undertaking to recover (some creditors, in connection with the recovery plan by way of continuing the business adopted by Lyon Commercial Court, agreed to write off their entire claim, resulting in an average rate of remission by creditors of […] %).

(177) EDF electricity tariffs. France stressed that the argument by the third parties regarding the existence of discounts was based on an erroneous reference to the opening decision (which made no mention of any such discounts) and on market rumours reported by anonymous undertaking 1: ‘It is indeed well known in the market that Kem One has been granted price reductions by EDF for its new electricity contracts.’

(178) France insisted that Kem One had not been granted any discounts by EDF.

5.2.1.2. Compatibility of the measures with the internal market

(179) Return to long-term viability. France stressed that the industrial restructuring measures provided an appropriate response to the various factors giving rise to Kem One's financial difficulties and would therefore allow the undertaking to return to long-term viability.

(180) First, in response to the argument by Ineos to the effect that Kem One's structural overcapacity problem could not be resolved in a competitive environment suffering in its turn from overcapacity and low demand forecasts, France pointed out that the nominal overcapacity in the S-PVC market in western Europe needed to be qualified. Practical capacity should be cut by 10 % in view of the inevitable irregularity of production (seasonal nature of sales, major shutdowns). France considered real overcapacity in the global market to be no higher than 14 %.

(181) The concept of overcapacity used by Ineos was not that of spare capacity but that of the sum of spare capacity (ignoring the need for a reserve of 8 %) and quantities sold outside Europe.

(182) This concept presupposed both that plants were operating permanently at 100 % of their technical capacity and that the European market was the only profitable outlet (something that was contradicted by export trends), and it ignored geographical reality (very dispersed European locations).

(183) Kem One estimated available capacity in the PVC market in north-western Europe at […] kt and maximum production at […] kt (- [5-15] % for seasonal effects and maintenance). Operating rates for the S-PVC market therefore stood at [85-95] % of the realistic maximum and [80-90] % of operational capacity. For paste PVC (E-PVC), the figures were almost identical: [85-95] % of the realistic maximum and [80-90] % of operational capacity.

(184) The real figures showed that the situations of the S-PVC market and Kem One were better than described by Ineos in its comments.

(185) Second, France took the view that the assertions by Ineos and anonymous undertaking 1 to the effect that Kem One's production sites suffered from overcapacity of 40 % were groundless. Ineos had not explained its calculation method. Even with a fall in production volumes at Kem One's plants in the 2011-2013 period due to technical incidents, the average utilisation rate of the S-PVC plants over five years was [70-80] %, according to France.

(186) So, contrary to what was argued by Ineos and anonymous undertaking 1, Kem One's difficulties were not linked to overly low production levels. The real reasons behind Kem One's filing for insolvency at the end of March 2013 were an accumulation of structural problems (high costs of raw materials, insufficiently competitive chlorine and caustic soda production plant at Lavéra) and cyclical difficulties (scheduled long-term shutdown and technical problem affecting ethylene supplies).

(187) To provide an effective response to these various handicaps, the restructuring plan included: — major investment to convert the electrolysis facilities at Lavéra and carry out drilling at the Vauvert saltworks, — renegotiation of Kem One's main contracts for the supply of key raw materials, — internal restructuring accompanied by a performance and productivity plan, and — a review of commercial policy.

(188) In the base-case scenario, the restructuring plan would allow Kem One to return to a level of gross margin of [25-35] % of turnover from 2017 and an EBITDA of [5-15] % from 2018, in line with average profitability in the commodity chemicals sector. Moreover, the hypotheses in the restructuring plan and the business plan were based on relatively stable turnover figures (and not necessarily a significant increase in S-PVC sales) and production figures close to historic levels for the undertaking.

(189) In any event, FIDES data (S-PVC industry statistics) showed that Kem One's share of the S-PVC market in western Europe was [10-20] % in 2014, which was similar to its share in 2011 and 2012 and higher than in 2013 ([10-20] %). In addition, Kem One had seen a rise in its sales and export margins to the Turkish market in the last six months, where it had opportunely picked up the market shares of North American producers owing to the significant fall in the euro against the dollar and the drop in oil prices.

(190) The French authorities also pointed out that the assertions by Ineos to the effect that Kem One had a poor reputation among consumers on the S-PVC market in north-western Europe contradicted the argument made elsewhere to justify the requirement for compensatory measures, namely: ‘Kem One is a significant player in the S-PVC market’.

(191) France also took the view that the part of the restructuring plan involving the reorientation of Kem One's commercial policy towards markets other than S-PVC was based on prudent and realistic hypotheses and was merely a minor component of the plan compared with the industrial part.

(192) According to France, the undertaking was well aware that the biggest margins would be gained not from the commercial policy side but from the renegotiation of the contracts for access to raw materials and platforms, and from infrastructure modernisation.

(193) Prevention of any excessive distortion of competition. France commented on the following points: — the structural overcapacity in the S-PVC market, — the size of Kem One's share of the S-PVC market, — the credibility of the counterfactual scenario, and — the proposal of disproportionate compensatory measures by the third parties.

(194) While it could not be denied that there was structural overcapacity, its portrayal by Ineos, in France's view, needed to be significantly qualified in a number of respects. First, producers' unused capacity generally ranged between 8 % and 10 % to take account of the irregular distribution of supply and demand. In addition, the market situation, as pointed out by the Commission in its decision in Ineos/Solvay/JV, varied considerably from one geographic area to another. In the S-PVC market, transport and logistics costs played a significant part in defining the regional limits of the geographic market. Prices and margins varied across regions.

(195) France took the view that Kem One's positions in the main markets in which it operated were far weaker than those of Ineos and Solvay. It pointed out in this connection that the Commission had found in its decision in Ineos/Solvay/JV that ‘Ineos [was] the largest supplier of commodity S-PVC in NWE with merchant market shares in 2012 of [30-40] %’ and ‘Solvay [was] the second largest player in the NWE market for commodity S-PVC’. As for Kem One, the Commission had stated that ‘Kem One [was] currently the number five player by sales volume and number three by capacity in NWE ([5-10]* % and [10-20]* % market shares, respectively)’. Moreover, Ineos and Solvay were the only two undertakings to concentrate their business so intensely on the north-western European market, unlike Kem One.

(196) Ineos and anonymous undertaking 1 had questioned the credibility of the counterfactual scenario proposed by the French authorities, according to which a reduction in Kem One's production capacity in the PVC market would result in a reduction in the competitive pressure on the other market players. However, France insisted that the S-PVC market did possess oligopolistic features, as pointed out by the Commission in its decision in Ineos/Solvay/JV. Contrary to what was argued by the interested third parties, France stressed that Ineos, Solvay and Kem One were currently the only market players with spare production capacity in north-western Europe. France therefore took the view that imposing compensatory measures would not only threaten Kem One's return to viability but would also affect the structure of competition in the market, to the detriment of customers.

(197) France regarded the compensatory measures proposed by the interested third parties as disproportionate. First, they were incompatible with the proposed restructuring plan. In France's view, for Kem One to remain in business and return to viability in the long term, a vertically integrated production chain had to be maintained, with, as at present, an economic balance between the capacity of the two upstream sites for chlorine and VCM on the one hand and the five downstream PVC production sites on the other. Closing a site or reducing Kem One's capacity would threaten the industrial balance of its business. By contrast, the French authorities confirmed that the commitment finally proposed to the effect that the nominal chlorine and caustic soda production capacity at Fos-sur-Mer and Lavéra would not be increased for […] constituted an appropriate compensatory measure. This commitment had the advantage of keeping competition in the PVC market at the same intensity and ensuring that Kem One could return to viability, while also safeguarding the jobs that could be maintained under the restructuring plan. Lastly, France pointed out that Kem One's decision to withdraw from the ECVM was quite justified for reasons connected with its governance and operating costs, and this in no way prevented Kem One from conducting a pro-active environmental policy.

(198) Aid limited to the minimum (own contribution). France pointed out that it had valued the amount of private contributions at EUR 356,3 million, or 68,6 % of all contributions.

(199) France responded to the objections raised by the interested third parties in respect of the bank loan of EUR [55-65], the debt write-off by private partners and the necessity of the SAM project.

(200) France stressed that the comments by the third parties in respect of the bank loan were irrelevant, as it had not included the amount of the loan in the undertaking's own contribution. This loan was not one of the factors considered indispensable for financing the investments specific to the SAM project. Even without the bank loan, Kem One's own contribution represented more than 50 % of the total contributions to the restructuring.

(201) France wished to point out that the Commission had, in previous decisions, already included debt write-off in the calculation of own contribution by the beneficiary. Taking account of debt write-off was also provided for in the new Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (16) (‘the new Guidelines’), which entered into force on 1 August 2014. France took the view that, by improving own funds (and thus freeing up liquidity that Kem One could then use for its restructuring), this measure had the same effect as a positive financial flow. Like Arkema, France remarked moreover that the debt write-off was an indicator of the confidence that the private partners had in the undertaking's continuing in business. In any event, even if the private debt write-off were not included in the calculation of own contribution, the latter would still account for more than 50 % of the restructuring costs.

(202) Vestolit took the view that the aid measures would allow Kem One to maintain non-viable assets, while its competitors had had to modernise their assets using their own resources. However, France pointed out that numerous competitors of Kem One had already benefited from State aid authorised by the Commission in order to carry out technological conversion measures similar to that put in place by Kem One. This was justified in the light of the low returns on investment in conversion projects of this kind. In response to the comments by anonymous undertaking 1 to the effect that Kem One would be obliged in any event to carry out the work under the SAM project in order to comply with Directive 2010/75/EU of the European Parliament and of the Council (17), France stated that the investment was already committed and was expected to be carried out before the end of 2016, in other words a year before the date required by the Directive. Moreover, the SAM project did not concern the mercury electrolysis unit(s) alone. It also involved the modernisation of the diaphragm cell unit at Lavéra, which is why it was so central to the restructuring plan and why it allowed the undertaking to maintain a balance between its upstream (chlorine) and downstream (vinyl) production capacities, while at the same time considerably reducing costs.

6. ASSESSMENT OF THE AID MEASURES

(203) France notified the following three measures: (i) the FDES loan (EUR 30 million); (ii) a grant (EUR 15 million) and repayable advances (EUR 80 million); and (iii) the possible write-off of tax and social security debts (EUR 42 million, finally corrected to EUR […]).

6.1. ASSESSMENT OF THE PRESENCE OF AID WITHIN THE MEANING OF ARTICLE 107(1) TFEU

(204) The Commission must ascertain whether the notified measures could constitute State aid within the meaning of Article 107(1) TFEU.

(205) Article 107(1) TFEU lays down that ‘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 shall, in so far as it affects trade between Member States, be incompatible with the internal market’.

(206) This means that a public measure can be classed as State aid if all of the following tests are met: (i) the measure must confer an economic advantage on the beneficiary; (ii) the advantage must be imputable to the state; (iii) the advantage must be selective; and (iv) the measure must distort or threaten to distort competition and be likely to affect trade between Member States.

6.1.1. Involvement of State resources and imputability to the State

(207) The FDES loan was granted by order of the Minister for Economic and Financial Affairs and its implementation was entrusted to the Director-General of the Treasury. The Budget Act 2014 awarded the FDES a budget of EUR 300 million. It should be noted that the FDES has its own legal personality independently of the state and cannot be compared to a fund managed subject to an obligation to balance capital reimbursements and their use for new projects. FDES loans are made through a specific Treasury account and constitute expenditure on that account. Interest on the loans, however, is paid into the general budget of the state. The guidelines for using the FDES are still based on the circular of 26 November 2004 referred to in recital 28. FDES loans are always subject to a case-by-case assessment. They are not awarded automatically in accordance with pre-established criteria.

(208) The grant and repayable advances are to be provided under the ‘Support for re-industrialisation’ mechanism, as part of an agreement concluded with Bpifrance on behalf of the state.

(209) The tax and social security write-offs will be decided by the CCSF. This Committee is chaired by the Director of the Departmental Tax Office.

(210) The FDES loan, the grant, the repayable advances and the write-off of tax and social security debts are therefore provided through public resources and granted by way of decisions taken by the state.

6.1.2. Selectivity

(211) The measures under investigation are one-off measures granted exclusively to Kem One for the purposes of its recovery.

6.1.3. Presence of an economic advantage

(212) Whenever the financial situation of an undertaking is improved as a result of state intervention, an economic advantage is present. However, intervention by a public authority does not confer an advantage on the beneficiary, and as such does not constitute aid, if it is carried out under normal market conditions, in other words, if the public authority has acted as an operator in a market economy would have done in similar circumstances.

6.1.3.1. The FDES loan (EUR 30 million)

(213) Value of collateral. Following the launch of proceedings, France sent the Commission a list of the assets constituting France's first-rank collateral.

(214) It provided a report evaluating these assets, which had been drawn up by independent experts. The report calls for three remarks. First, the Commission would point out that the report contains an evaluation of Kem One's real estate and not of the plant and equipment it had pledged. Next, the experts evaluated the assets at EUR [110-120] million, which is EUR [20-30] million less than the net book value put forward by France, confirming the Commission's doubts about whether the net book value actually reflects the real value of the assets. Lastly, the report dates from July 2012, i.e. before the opening of the court-supervised administration procedure in March 2013. The asset value which should be taken into account is not the book value but the value at which the assets would be exchanged if the creditor, in this instance the state, were to exercise its right of pledge. When an undertaking is in difficulty and finds itself forced to sell its assets, its weak position and the urgency of the situation generally result in the assets being sold at below market price.

(215) In its reply, France incidentally referred to the value of transactions that took place in 2014 in the PVC sector. While this type of comparison may have some value in a broad sense, neither Vestolit nor Vinnolit were undertakings in difficulty at the time of their acquisition, unlike Kem One. Moreover, the transactions involved the entire undertakings and not just plant and equipment. Accordingly, the comparison is not relevant here.

(216) The Commission had asked France to provide an estimate of the value of the pledged assets in terms of the net revenue that their use could bring in. However, France provided an evaluation of the undertaking as a whole, and not of the pledged assets alone. What is more, to determine the future value of the undertaking in 2014, 2015 and 2016, it took into account the very same investments to convert the electrolysis units at Lavéra which were to be financed by the FDES loan. In sum, to calculate the amount of the collateral securing the FDES loan, France included the value of an asset modernised thanks to that very loan. Accordingly the evaluation cannot be considered.

(217) Lastly, in its reply to the opening decision, France did not provide any evidence that could allay the Commission's doubts about certain outdated and underperforming, or even obsolete, plant pledged by France.

(218) Accordingly, a conservative approach should be adopted and the collateral regarded as ‘weak’ within the meaning of the 2008 Reference Rate Communication for the purposes of determining a level of remuneration for the FDES loan in accordance with market conditions.

(219) Level of remuneration. The Commission accepts that the level of remuneration calculated using the methodology based on Bloomberg and Capital IQ data (resulting in a rate of 20,95 %) does not reflect real market rates, given that collateral and guarantees are not taken into account. Moreover, no bank has granted a loan to Kem One on the same terms as the state.

(220) Accordingly, and as indicated in paragraph 92 of the opening decision, in the absence of available and satisfactory real market data, the Commission should determine the applicable rate pursuant to the 2008 Reference Rate Communication, which states: ‘The reference and discount rates are applied as a proxy for the market rate and to measure the grant equivalent of aid’.

(221) As has been demonstrated, the collateral constituted to secure the FDES loan cannot be classed as strong, and therefore does not justify application of the 400 basis points, as advocated by France.

(222) Moreover, France has not provided any new evidence to support the view that the effective implementation of the recovery plan and Kem One's commitment to sound financial management, rather than constituting habitual obligations and compensations accompanying a restructuring measure, justify a remuneration below market rate.

(223) Lastly, the comparison with [private operator 2]‘s factoring agreement is irrelevant, as the debtor is not Kem One, but its debtors.

(224) In view of its financial difficulties, Kem One must be regarded as a CCC-rated undertaking within the meaning of the 2008 Reference Rate Communication. Likewise, the collateral must be classed as 'weak’ within the meaning of the same Communication. In the absence of any evidence that would call into question the interest rates set out in the 2008 Reference Rate Communication, the Commission takes the view that the market rate can be calculated in accordance with it, giving a rate of 10,53 % (0,53 % for the reference rate for France at the time the loan was granted + 1 000 basis points).

(225) Amount of aid. In line with its previous decision-making practice, the Commission considers that the amount of aid is equivalent to the difference between the interest rate calculated in accordance with the 2008 Reference Rate Communication (10,53 %) and the interest rate applied by France (3,5 %). For each due date (each year), the difference has been calculated between the return from the actual interest rate (3,5 %) on the remaining capital and the return from the interest rate applied by the Commission (10,53 %) on the remaining capital. The amounts obtained (seven in total, for the seven-year loan repayment period) have then been discounted and added up to arrive at a figure of EUR […].

6.1.3.2. The grant (EUR 15 million) and repayable advances (EUR 80 million)

(226) The grant. The Commission is of the opinion that a grant constitutes an economic advantage that the beneficiary would not obtain under market conditions. A grant is a financial instrument whose capital is not repayable and which does not generate interest to be paid by the beneficiary. A private lender, which has a cost of financing and has to remunerate its capital, would not agree to finance a company by grants. The aid amount is therefore equivalent to the grant in its entirety, namely EUR 15 million.

(227) The repayable advances. The Commission notes the presence of certain conditions relating to the granting of the advances that a private lender would probably not have required. These include in particular the condition relating to maintaining activity and jobs at the Lavéra site for five years after project completion, the sustainability of Kem One permitting, and with the prior agreement of the state. However, the obligation to repay confirms that these repayable advances can be regarded as a loan for the purposes of this Decision.

(228) As for the amount of aid, in the absence of available and satisfactory real market data (such as a bank loan actually granted to Kem One on the same terms as the repayable advances), the Commission should determine the applicable rate in accordance with the 2008 Reference Rate Communication. As it is an undertaking in difficulty, Kem One must be regarded as CCC-rated for the purposes of the Communication. Moreover, the advances are not secured by any collateral. Accordingly, the market interest rate calculated in accordance with the 2008 Reference Rate Communication is 10,53 % (0,53 % for the reference rate for France at the time the loan was granted + 1 000 basis points).

(229) For the first tranche (EUR 65 million) the amount of aid is therefore equal to the difference between the interest rate calculated in accordance with the 2008 Reference Rate Communication (10,53 %) and the interest rate applied by France (3,5 %), namely EUR 21,77 million. The repayable advances have been regarded as loans for the purposes of calculating the discounted amount of aid, resulting in a calculation method similar to that used for the FDES loan. On each due date (each year), the difference is calculated between the return from the actual interest rate (3,5 %) on the remaining capital and the return from the interest rate applied by the Commission (10,53 %) on the remaining capital. The amounts obtained (seven in total, for the seven-year ‘loan’ repayment period) have then been discounted and added up to arrive at a figure of EUR 21,77 million. Likewise, for the second tranche (EUR 15 million) the amount of aid is equal to the difference between the interest rate calculated in accordance with the 2008 Reference Rate Communication (10,53 %) and the interest rate applied by France (10 %), namely EUR 1,64 million.

(230) The total economic advantage granted under this measure therefore comes to EUR […].

6.1.3.3. Possible write-off of tax and social security debts

(231) It should first be observed that in its reply to the opening decision, France clarified that the tax and social security debts came not to EUR 42 million as indicated in the notification but to EUR […]. The amount of EUR 42 million was a very broad estimate by the tax and social security authorities and had been declared provisionally as part of the administration procedure initiated by Lyon Commercial Court, before a detailed list of actual debts had been drawn up.

(232) As for debts to private creditors, most of them have been written off at least up to 70 %.

(233) In this connection, the debt write-offs accorded by [private operator 3] and [private operator 1] should be analysed separately. These debtors are both close commercial partners of Kem One. […] and certain Lavéra products (VCM, chlorinated residues, chloroform) are vital for [private operator 1] because of the vertical integration of the fluorinated gases production chain involving the Lavéra, Saint-Aubain and Pierre-Bénite sites, all in southern France. These products are very difficult to replace by sources further afield. As regards [private operator 3], its facilities are connected to those of Kem One by pipeline. Moreover, there is no alternative outlet for [private operator 3]‘s production of ethylene by steam cracker at Lavéra that can be subject to an equivalent evaluation.

(234) The industrial partners know their customer and are vital to the undertaking's continued operation. It is therefore in