Reconversion loans granted at reduced interest rates, under Article 56 of the ECSC Treaty, for investments which create alternative employment opportunities in areas affected by a decline in the activities of the coal or steel industries

I. Introduction

The Commission is able to make loans to undertakings under the provisions of Article 56 of the ECSC Treaty subject to the availability of borrowed resources. In order to improve the efficacity of this financial instrument the Commission may, subject to the availability of resources, reduce the cost of interest charged for these loans by using funds set aside for this purpose each year in the ECSC budget.

In order that the national administrations, and the possible beneficiaries, be fully aware of the existing policy this statement sets out the operating policies on the basis of which such loans and interest rebates are granted.

It will be recalled that under Article 56, paragraphs 1 (b) and 2 (a), reconversion loans may be granted on application by the governments concerned, for new and economically sound activities which create alternative employment opportunities: - if the introduction within the framework of the general objectives (1) of new technical processes or equipment should lead to an exceptionally large reduction in labour requirements in the coal or steel industry, making it particularly difficult in one or more areas to reemploy the ECSC workers made available, or

- if fundamental changes, not directly connected with the establishment of the common market, in market conditions for the coal or the steel industry, should compel some ECSC undertakings permanently to discontinue, curtail or change their activity.

The Commission considers that to fulfil the requirements of Article 56 it is necessary to promote the creation of an adequate number of alternative job opportunities in areas affected by the decline in coal or steel employment and in which, in the absence of new investments, workers would otherwise remain or become unemployed.

II. Operating policies

Reconversion loans can be made to undertakings directly, or indirectly through financial intermediaries in the form of global loans and to public agencies.

Applications for loans under Article 56 are made to the Commission by the authorized department of the Member State's government on behalf of the undertaking concerned (2).

The decision to grant a loan under Article 56 is taken by the Commission. When the loan is made for a non-ECSC activity, the Commission must obtain the assent of the Council.

A. DIRECT LOANS

Most reconversion loans have been direct loans to enterprises. These loans are governed by the following basic operating principles: (i) Eligibility:

The area in which the project is to be implemented must suffer from unemployment either resulting from a decline in ECSC employment or which would be aggravated by further proposed closures of ECSC plants, unless the project involves reemployment of labour who move from such an area.

The changes in the ECSC industries must be related to the technological developments or market conditions specified in the Treaty.

Reconversion loans are normally granted for projects which create new economically sound activities in non-ECSC products.

Within the ECSC industries, and particularly in the steel industry, investments may be considered eligible for reconversion assistance when the investment modifies substantially the activity of the plant concerned by the production of new products.

Such investments must provide new productive activities for the workers who were previously working on production processes which are no longer economic or (1) General objectives for the coal and steel industries pursuant to Article 46 (3) of the ECSC Treaty. (2) Requests are formally addressed to the Secretariat General of the Commission, 200 rue de la Loi, B-1049 Brussels. are expected to become so as a result of the changes described under heading I above.

(ii) The borrower:

The undertaking borrowing from the ECSC must be properly constituted ; its relations with parent companies and other shareholders must be known. Its size and activities must be known.

(iii) The project:

The proposed investment for which financing is sought normally represents the expansion of an existing plant, the creation of a new plant, or, in the case of an ECSC undertaking, it may represent the replacement of activities within an existing plant. The application should normally concern a project for which expenditure has not been started and which can be completed in a period not exceeding three years.

(iv) Economic aspects:

In its appraisal of the economic aspects of industrial projects the Commission will take account of the contribution of the investment to the development of the region, the financial viability of the investment, the situation in the sector concerned, and market prospects. In multi-plant firms, the relationship between the project and the firm's other activities is examined.

In the case of most industrial projects, the main contribution of the investment to the area is the employment created and the additional income thereby generated. However, the effect of the investment itself on local demand, and the demand for suppliers in the region, are relevant considerations.

(v) Financial aspects:

Further to the financial and economic analysis referred to above, the Commission assesses the financial condition of the borrower, and that of its parent companies. The value of guarantees is also assessed.

(vi) Environmental considerations:

The main consequences of the investment on the environment may be evaluated from the point of view of the effect of emissions and waste on the national environment and the site, and from the point of view of the environmental advantages arising from the manufacture and use of a new product. The question of workers' health is also examined.

(vii) The loan:

The ECSC reconversion loan, granted under the conditions laid down in Article 56, is made directly to the enterprise carrying out the project. The maximum amount of the loan is 40 % of the fixed investment. The interest rate is fixed by the Commission in relation to the cost of the borrowed resources.

The Commission may grant an interest subsidy based on a rebate of three percentage points for five years on the initial amount of loan granted and expressed in EUA (1). The interest rebate, calculated in EUA, is paid directly to the borrower in its national currency, calculated at the rate the day before interest falls due.

The maximum amount of loan eligible for an interest rebate is 20 000 EUA per job to be created. In determining the level of the interest rebate the Commission will take account of the level of national aids from which the project benefits, and of the aid ceilings contained in the Commission's communication on general systems of regional aids (2). The undertakings benefiting from Article 56 loans shall give priority in their recruitment to ex-ECSC workers.

(1) European unit of account. (2) COM(75)77 final, 26 February 1975. B. GLOBAL LOANS

The principle of global loans for reconversion financing is to provide loans to smaller enterprises through an intermediary financial agency at the national or regional level.

Unless agreed in advance by the Commission, the beneficiaries of global loans shall be undertakings with total employment of less than 500 people, and net fixed assets of less than 30 million EUA, and in whose capital structure large enterprises, other than agencies responsible for contributing to regional development by promoting industrial projects hold no more than a one-third participation.

The basic policy objectives regarding global loans are the same as for direct loans, the difference being in the size of the loans, and the degree of administrative decentralization which is effected at two levels: - within the Community institutions, when the Council has given its assent to the global loan, approval of individual sub-loans is given by the Commission without further reference to the Council ; the Commission has delegated approval of sub-loans to its responsible departments,

- between the Commission and the national or regional intermediary. Subject to the Commission's final approval, the intermediary agency is responsible for appraising the investment (on the same basis as the Commission appraises direct loans), for negotiating the sub-loans with the borrowers and informing the Commission of its recommendations. If the approval by a national administration is also required for individual projects, then the intermediary agency is responsible for obtaining this.

The maximum sub-loan under a global loan is one million EUA and - 20 000 EUA per post created provided that this amount does not exceed 40 % of the cost of the fixed investment.

C. NON-INDUSTRIAL LOANS

In addition to reconversion loans to industry, the ECSC may make Article 56 reconversion loans for non-industrial projects. (i) Investment in services:

The development of service-based activities in declining coal and steel areas can contribute to the diversification of areas previously over-dependent on heavy industry. Reconversion loans can be granted for investments in service activities if they meet the requirements set out above.

(ii) Industrial estates and advance factories:

The establishment of industrial estates with advance factory units providing a physical location for the re-absorption of workers who become available and involving the redevelopment or reclamation of sites formerly occupied by ECSC industries can be supported under Article 56 of the Treaty, provided that such investments can be closely related to the creation of new activities.

III. Reports and controls

The Commission receives regular reports from borrowers on the implementation of investments and on the creation of employment. Projects are inspected by the Commission on a selective basis to confirm that implementation is according to plan.

IV. Information

Requests for ECSC reconversion loans and for allocations under global loans are covered by banking discretion until a contract is signed. After consultation with the borrower, the Commission will make known its decisions to grant assistance and their economic and social effects.

The Commission has available the lists of detailed information required to appraise requests for direct reconversion loans, global loans, and for industrial estate loans.