Information from the Commission - State aid C 25/89 (Portugal) (Articles 92 to 94 of the Treaty establishing the European Economic Community)



Official Journal C 188 , 28/07/1990 P. 0003 - 0005



STATE AID C 25/89 (Portugal) (Articles 92 to 94 of the Treaty establishing the European Economic Community) (90/C 188/03) Commission communication pursuant to Article 93 (2) of the EEC Treaty to other Member States and interested parties regarding aid which Portugal has decided to grant to the chemicals undertaking Quimigal - Química de Portugal, EP. By letter, the Commission informed the Portuguese Government of its decision to close the procedure initiated on 12 July 1989 (1). By letter dated 13 January 1989, the Portuguese Government announced a proposal to grant an aid of Esc 48 million to the public undertaking Quimigal - Química de Portugal, EP and supplied further details by letter dated 28 March 1989. The information being insufficient, the Commission requested further data by letter dated 20 April, only part of which was sent by the Portuguese authorities by letter dated 31 May 1989. In view of the extensive intra-Community trade in chemicals, and the economic and financial position of the recipient, the Commission considered that the measures in question constituted aid pursuant to Article 92 (1) of the EEC Treaty and that, on the basis of the information in its possession and that sent by the Portuguese authorities, the aid did not appear to satisfy the tests of Article 92 (3) and could not qualify for exemption under that Article. The Commission therefore opened the Article 93 (2) procedure against the aid by Decision of 12 July 1989. As part of that procedure, the Commission gave the Portuguese Government notice, by letter dated 26 July 1989, to submit its comments in accordance with Article 92 (2) of the EEC Treaty. The other Member States and interested parties were also invited to submit their comments. The Portuguese authorities submitted their comments by letters dated 15 September, 13 November and 30 November 1989, and at bilateral meetings held on 22 September and 22 November 1989. The Portuguese authorities maintain that the aid is not a restructuring programme incorporating a strategic change of direction, the closure of loss-making activities and a radical reorganization to allow private capital to be invested. Quimigal's principal activities would be located at Barreiro in the Setubal region which is facing serious problems and is the subject of a Community integrated development programme. In view of the role of the firm at the regional and industrial levels, the plan to be assisted is of strategic importance both for the firm itself and for the Portuguese economy as a whole. No comments were received from Member States or interested parties under the procedure in question. Once it is established that a public authority is injecting capital into an undertaking in conditions which are not those of a market economy, the case must be assessed in the light of Article 92 of the EEC Treaty. Having incurred repeated losses since 1980, the loss in 1988 totalling Esc 18,5 billion (ECU 104 million), with a turnover of Esc 62,1 billion (ECU 350 million), and financial charges amounting to 24,8 % of turnover, the firm in question has little chance of obtaining sufficient private capital to ensure its survival and a lasting recovery. The economic and financial difficulties of Quimigal are essentially due to the inadequate profitability of certain activities, chiefly the failure of investments in pyrites pellets, fibreglass and ammonia. The Community chemicals market is characterized by intense competition and considerable intra-Community trade. In 1987, total turnover in the Community chemicals industry was ECU 236 000 million, intra-Community exports accounting for 27,7 % of turnover. Although the production of chemicals in Portugal represents only ECU 1,476 billion or 0,63 % of Community production, the Portuguese chemicals industry is actively involved in intra-Community trade, exporting 23 % of its production. Quimigal, which was created in 1977 through the merger of three nationalized undertakings: Companhia União Fabril (CUF), Amoniaco Português SARL and Nitratos de Portugal, is the leading chemicals manufacturer in Portugal. With 6 400 employees, Quimigal produced a turnover in 1989 of some Esc 62 billion (ECU 349,4 million) in a huge range of sectors including agrochemical products, animal feedstuffs, fertilizers, oils and soaps, inorganic chemical products, metals, chemical specialities, plastics and furnishing textiles. In addition to these activities, there are a further 22 associate enterprises, influenced and/or managed by Quimigal, with a turnover of approdimately Esc 60 billion (ECU 338 million) and 3 000 workers. The group's consolidated turnover was approximately Esc 100 billion (ECU 563 million). Quimigal is extensively involved in intra-Community trade, with considerable market shares in Portugal, reaching 30 % for certain product categories. In 1987, exports to other Member States totalled Esc 3,164 billion (ECU 17,8 million). In view of the foregoing, the situation of the market in question and the position of the firm on the market in question, the aid measures proposed by the Portuguese Government are liable to affect trade between Member States and distort competition within the meaning of Article 92 (1) of the EEC Treaty by favouring the firm concerned and the production of chemicals in Portugal. In order to contribute to the development of economic activities, aid must contribute to a lasting solution to the recipient's problems, must not tend to preserve the status quo and defer unavoidable decisions and changes, and should assist the development of the relevant sector throughout the Community. As regards the appropriate volume of aid, it must be sufficient to attain the objectives in question whilst at the same time being strictly limited to requirements so as not to affect trade to an extent contrary to the common interest. The Commission considers that, whilst satisfying these conditions, the proposed aid measures contribute to the achievement of the objective referred to above by helping to finance the firm's financial and economic recovery. The recovery plan for Quimigal, which is to cost Esc 79,2 billion (ECU 446 million) provides for financial steamlining - forming the basis for a radical restructuring of Quimigal - and for a strategic change of direction comprising capacity closures and the reorganization of the group to allow private capital into the various branches of the firm which have hitherto been exclusively public. The closures in question will entail the loss of a considerable proportion of Quimigal's market shares. In 1988, Quimigal had financial charges amounting to 24,8 % of turnover; under the plan, this should fall to 7,5 % in 1990 through the provision of aid to defray losses resulting from unprofitable investments, to be written off, in the pelletizing of pyrites and fibreglass production, and through the financing of the additional unforeseen costs of an investment in ammonia production, accounting for a total of Esc 47,7 billion (ECU 268,8 million). After suffering losses for many years, the firm intends to achieve profitability by 1990. As regards the investment in pyrite pellets (which, like the other investments described above, was decided prior to Portugal's accession), it should be noted that they were intended to supply a projected new blast furnace which had to be abandoned when the Community steel policy was applied to Portugal. The strategic change of direction of the firm includes not only the writing-off of bad investments in pyrite pellets (342 000 tonnes/year capacity, 200 workers) and fibreglass production (2 000 tonnes/year capacity, 50 workers), but also the closure of three sulphuric acid plants with a capacity of 370 000 tonnes/year (170 workers), one hydrochloric acid and sodium sulphate plant with a capacity of 29 000 tonnes/year (40 workers), and two copper plants with a capacity of 6 000 tonnes/year (200 workers), and a gold and silver plant of 41,5 tonnes/year (15 workers). The total cost of closure and demolition of capacities will be Esc 16,4 billion (ECU 92,45 million), plus the costs of redundancies, training and retraining amounting to Esc 9,7 billion (ECU 54,8 million). After the closures the workforce will be reduced from 6 400 in 1989 to 5 000 in 1991. Finally, the plant is to invest some Esc 5,4 billion (ECU 30,5 million) to facilitate the change of direction. The change of direction of Quimigal is accompanied by a radical reorganization. The plan provides for the decentralization of Quimigal by creating units to take over the activities remaining in operation, open to private capital, and setting up a holding company. With the financial streamlining, the shedding of major loss makers and a radical reorganization allowing the injection of private capital, the plan in question will, with the injection of aid, result in the recovery and strengthening of the Portuguese and Community chemicals market. Quimigal plans a leading part in the Portuguese economy and is of prime importance at regional and social levels because of the plants it has in a number of regions with serious employment problems. The main Quimigal plant is located at Barreiro in the Setubal region, which is covered by a Community integrated development operation (PNCI, Renaval, Resider). Consequently, the recovery of Quimigal, which the proposed aid is to assist, is also vital to the development of Portuguese industry as a whole. I can therefore inform you that the Commission has decided that the proposal to grant aid to Quimigal qualifies for exemption under Article 92 (3) (c). (1) OJ No C 295, 23. 11. 1989.