EN Official Journal of the European Union L 225/104

COMMISSION DECISION

of 2 July 2008

on the measures C 16/04 (ex NN 29/04, CP 71/02 and CP 133/05) implemented by Greece in favour of Hellenic Shipyards

(notified under document C(2008) 3118)

(Only the Greek text is authentic)

(Text with EEA relevance)

(2009/610/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(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 the provisions cited above (1) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) By letter dated 9 September 2003, the Greek authorities submitted to the Commission an application by Hellenic Shipyards S.A. (hereafter ‘HSY’) for amendments to the investment plan for its restructuring, in favour of which aid was authorised by Commission decision of 15 July 1997 in case N 401/97 (2) (hereafter ‘decision N 401/97’). According to the amended plan, dated November 2002, HSY applied for, and eventually received the approval of the Greek authorities to complete the implementation of the investment plan by 30 June 2004. Moreover, according to the amended plan, the aid approved by the Commission in 1997, has not yet been paid out to HSY.

(2) By letter dated 31 October 2003, the Greek authorities explained that the amended plan was communicated to the Commission ‘for its information’, and was not meant to be a notification.

(3) By letter dated 18 November 2003, the Commission asked the Greek authorities to clarify whether they intended to grant or disburse aid to HSY for the purposes of the amended investment plan. In the same letter, the Commission reminded the Greek authorities that in such a case, and in accordance with Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (3) (hereafter ‘Regulation (EC) No 659/1999’) this aid should be notified to the Commission and should not be implemented before the Commission has taken a formal decision in that respect.

(4) By letter dated 16 January 2004 the Greek authorities stated that the aid they intend to grant is ‘existing aid’, covered by the terms of the Commission’s approval decision of 1997, and that the Greek authorities have jurisdiction to approve amendments to the restructuring plan, including the prolongation of the timetable for the plan’s implementation.

(5) By letter dated 20 February 2004, the Commission communicated to the Greek authorities its doubts regarding the validity of the above statements.

(6) By letter dated 27 February 2004, the Greek authorities stated that no aid had been granted to HSY to that date.

(7) By decision C(2004) 1359 of 20 April 2004 (4) (hereafter ‘the opening decision’), the Commission initiated the procedure laid down in Article 88(2) of the Treaty with respect to the amendments made to the investment plan which is partly financed by the investment aid authorised by decision N 401/97. The opening decision indicates also that the State-owned bank Hellenic Bank of Industrial Development (hereinafter ‘ETVA’) granted several loans and guarantees to HSY and that the Greek authorities have not provided yearly reports as they should have done.

(8) After having requested and received extensions of the deadline to submit comments, Greece submitted comments on the opening decision by letter of 20 October 2004.

(9) The Commission decision to initiate the procedure was published in the Official Journal of the European Union (5). The Commission invited interested parties to submit their comments on the measures.

(10) After having requested and received extensions of the deadline to submit comments, HSY made comments on the opening decision by letter of 18 October 2004. These comments are the same as the ones submitted by Greece on 20 October 2004. Elefsis, a Greek competitor of HSY, submitted comments by letter of 10 September 2004. These comments were sent to Greece by letters of 16 December 2004 and 23 December 2004, which replied respectively by letters of 20 January 2005 and 26 January 2005. By letter of 29 March 2005, the Commission sent additional comments of Elefsis to Greece, which replied by letter of 23 May 2005.

(11) From 2002, the Commission had started to receive letters of complaint from Elefsis, which asserted that HSY has benefited from several unlawful and incompatible aid measures and misused aids authorised by the Commission. These letters were dated 23 May 2002, 28 May 2002, 14 August 2002, 24 April 2003, 3 February 2004, 4 March 2004, 30 June 2004, 8 April 2005, 27 April 2005, 24 May 2005, 10 June 2005, 15 July 2005, 28 July 2005, 13 September 2005, 16 September 2005, 21 October 2005, 12 December 2005, 23 December 2005, 6 January 2006, 10 January 2006, 12 January 2006, 18 January 2006, 23 January 2006, 3 February 2006, 9 February 2006, 23 March 2006, 28 March 2006, 6 April 2006, 20 April 2006, 24 May 2006 and 2 June 2006. The Commission sent letters to the complainant on 27 June 2002, 22 July 2004 and 12 August 2005.

(12) These complaints were registered under the numbers CP 71/02 and CP 133/05.

(13) The Commission asked Greece for information by letters dated 30 January 2003, 30 July 2004, 2 May 2005, 24 May 2005, 24 March 2006, 24 May 2006 and 29 May 2006. Greece answered by letters dated 31 March 2003, 21 October 2004, 17 December 2004, 20 June 2005, 25 April 2006, 30 May 2006 and 1 June 2006.

(14) The Commission met the Greek authorities on 22 March 2006 (on this occasion the Greek authorities were accompanied by representatives of HSY as well as Piraeus Bank and provided the Commission with some additional documents), the complainant on 10 January 2003, 14 January 2005, 10 March 2005, 20 May 2005, 19 October 2005, 8 November 2005 and 23 March 2006, and Thyssen Krupp Marine Systems AG (hereafter ‘TKMS’) on 21 March 2006.

(15) By decision C(2006) 2983 of 4 July 2006 (6) (hereafter the extension decision), the Commission extended the procedure laid down in Article 88(2) of the Treaty to include several additional measures in favour of HSY. This extension decision also concludes that several non-notified measures either fall within the scope of Article 296 of the Treaty or do not constitute aid in the meaning of Article 87(1) of the Treaty.

(16) This extension of the procedure in case C 16/04 was made without prejudice to any other existing or forthcoming State aid procedure concerning HSY, notably procedure C 40/02.

(17) After having requested and received an extension of the deadline to reply, Greece replied to the extension decision by letter of 5 October 2006.

(18) The Commission decision to extend the procedure was published in the Official Journal of the European Union (7). The Commission invited interested parties to submit their comments on the measures.

(19) The Commission received comments from the following interested parties. HSY submitted comments by letter of 30 October 2006. Greek Naval Shipyard Holding (hereafter ‘GNSH’) and TKMS made a joint submission by letter of 30 October 2006. Piraeus Bank submitted comments by letter of 27 October 2006 and — following a meeting with the Commission on 15 November 2007 — by letter of 27 December 2006. After having requested and received an extension of the deadline to reply, Elefsis submitted comments by letter of 17 November 2006.

(20) By letter of 22 February 2007, the Commission forwarded these comments to Greece, which commented them by letter of 7 March 2007 and 19 March 2007. By letter of 27 April 2007, the Commission sent to Greece annexes to the comments of third parties which it had omitted in the letter of 22 February. In the letter dated 27 April 2007, the Commission also raised several questions to Greece, which replied by letter of 29 June 2007. By letter of 23 August 2007, the Commission asked questions to HSY, which replied by letter of 9 October 2007. By letter of 13 November 2007, the Commission requested from Greece further information and forwarded the answers of HSY of 9 October 2007. Greece replied by letters of 4 December 2007 and 14 December 2007. The Commission met the Greek authorities on 16 October 2007 and on 21 January 2008. The Commission sent additional questions to Greece on 12 February 2008, which replied by letter of 3 March 2008.

(21) A meeting was held on 8 May 2007 between the Commission and TKMS/GNSH as well as HSY’s laywer. TKMS/GNSH submitted additional comments by letter of 21 June 2007. The Commission forwarded this letter on 11 September 2007 to Greece, which submitted comments by letter of 11 October 2007. Following a second meeting held on 9 January 2008 between the Commission and the same persons, TKMS/GNSH made an additional submission by letter of 18 January 2008, which was forwarded to the Greek authorities by letter of 12 February 2008.

(22) The Commission met Elefsis on 15 March 2007 and on 7 August 2007. Following the latter meeting, Elefsis made additional comments by letter of 8 November 2007, which were submitted to Greece by letter of 17 January 2008. Greece commented by letter of 15 February 2008.

(23) Piraeus Bank submitted additional comments by letter of 22 October 2007, which were forwarded to Greece by letter of 13 November 2007. On 12 February 2008, Piraeus Bank asked to meet once more the Commission. The meeting took place on 5 March 2008.

(24) Article 6 of Regulation (EC) No 659/1999 indicates that the Member State and the other interested parties have a one-month period to submit comments and ‘In duly justified cases, the Commission may extend the prescribed period’. In the present case, the parties have continued to make submissions (and to request meetings with the Commission) after the expiration of this period. Initially, the Commission has forwarded these submissions to Greece for comments and thereby signalled to Greece that the Commission has accepted these submissions made after the expiration of the one month period. The Commission also accepted initially the meeting requests from the interested parties and, during these meetings, it accepted when the interested party in question asked to be allowed to make a submission to complement the issues discussed during the meeting. However, the Commission has never indicated to the interested parties that their other submissions made after the expiration of the one month period would be accepted. In particular, the Commission has never indicated to the interested parties that they could indefinitely submit comments or that the Commission would inform them when it will stop to accept submissions.

(25) The Commission considers that a prolongation of the prescribed period beyond one month was justified in the present case because the extension decision covers a large number of measures. In addition, the assessment of several of these measures requires complex legal analysis and the clarification of facts as old as 10 years.

(26) However, some interested parties have continued to make submissions to the Commission more than one year after the publication of the extension decision. If the Commission had not decided to ignore the comments submitted after a certain date, this continuous submission of comments would have prevented the Commission to arrive at a final decision in a reasonable period (8). In addition, in some submissions, some parties were commenting again issues which they had already commented in their previous submissions, without bringing new factual elements. This can not be the purpose of extending the period for submitting comments.

(27) Consequently, the Commission has decided that any submission received from 5 March 2008 (i.e. date at which the Commission received the 4-pages-letter dated 3 March 2008 by which Greece replied to the Commission letter of 12 February 2008) would be considered as submitted after the expiration of the period for submitting comments. This concerns the submission of Elefsis dated 7 Mars 2008, 24 April 2008, and 2 June 2008 (9), and the submission of GNSH/TKMS of 2 April 2008. This means that these submissions have not been sent to Greece for comments and have not been taken into account in the present decision.

2. PRIOR DECISIONS OF THE COMMISSION AND OF THE COUNCIL

(28) The facilities of HSY are among the largest of the eastern Mediterranean. The yard is situated in Skaramanga, West of Athens, Attica. HSY was established in 1939 by the Hellenic Navy and purchased in 1957 by Mr Niarchos’ group. The extended crisis in the shipping sector, which followed the first oil crisis, had a negative effect on HSY’s level of activity. In April 1985, the situation was so critical that the firm ceased operations and entered into liquidation process. In September 1985, the State-owned bank ETVA bought the company. The activities resumed after this sale. However, the activities of the firm were insufficient in view of the large facilities and the large number of employees (10).

(29) Greece obtained in 1990 from the Council a special provision in Council Directive 90/684/EEC of 21 December 1990 on aid to shipbuilding (hereafter ‘Directive 90/684/EEC’) (11) allowing operating aid for restructuring in the framework of the privatisation of several yards.

(30) In 1992, due to its financial obligations and accumulated losses, HSY was put into liquidation. In November 1993, following two unsuccessful efforts to sell HSY, the liquidation process was revoked. On the basis of the undertakings given by the Greek Government that its public yards would be privatised by 31 March 1993, the Commission authorised on 23 December 1992 (12) a debt write-off in favour of HSY. The Greek Government having failed to respect the March 1993 deadline, the Commission opened on 10 March 1994 a procedure (C 10/94) for misuse of the authorised aid (13). On 26 July 1995, the Commission decided (14) to close the procedure with a negative decision concerning the aid in favour of HSY. However, at the request of the Greek Government, claiming that the sale of the yard was imminent, the Commission decided to suspend notification of that decision. Finally, the Greek authorities informed the Commission that 49 % of HSY’s shares had been sold to its employees, Greece using the opportunity to keep a majority holding in one of the yards, justified by defence reasons as provided for in Article 10(3) of Directive 90/684/EEC. On 31 October 1995, the Commission revoked the final negative decision for HSY (15). In the meanwhile, the amount of debts was growing and restructuring had not been carried out. The Commission therefore extended on 8 January 1997 the procedure initiated in case C 10/94 (16). Council Regulation (EC) No 1013/97 of 2 June 1997 on aid to certain shipyards under restructuring (17) (hereafter ‘Regulation (EC) No 1013/97’), including HSY, was then adopted.

(31) On 15 July 1997, the Commission approved aid for HSY in two separate decisions: — by the first decision (18) (hereafter ‘decision C 10/94’), the Commission closed the procedure C 10/94 launched in 1994 by approving a debt write-off amounting to GRD 54,5 billion (EUR 160 million) under Regulation (EC) No 1013/97, — by decision N 401/97, the Commission, further to a notification of the Greek authorities of 20 June 1997, approved a grant of GRD 7,8 billion (EUR 22,9 million) for an investment programme of GRD 15,6 billion (EUR 45,9 million) aimed at the restructuring of the shipyard.

(32) In 2001, the government decided to fully privatise HSY. The Greek State initiated an open bidding competition, for which a tender document was established. On 31 May 2002, ETVA and HSY’s employees sold their HSY shares to a consortium constituted of HDW and Ferrostaal (19) (hereinafter ‘HDW/Ferrostaal’). This consortium founded GNSH in order to harbour the holding in HSY. HDW and Ferrostaal were equal shareholders of GNSH. ThyssenKrupp took over HDW in January 2005 (20) and acquired Ferrostaal’s shares in GNSH in November 2005 (21). Since the end of 2005, ThyssenKrupp has therefore 100 % ownership and control of HSY. GNSH and HSY are harboured in TKMS, ThyssenKrupp’s division specialised in systems for naval vessels and specialised commercial ships.

(33) In August 2001, during the bidding process for the sale of HSY, the Greek State has adopted law 2941/2001, which includes several measures aimed at facilitating the sale of HSY. First, the law gives incentives to the workers to voluntarily leave the company. Second, the Greek State will take over some of the one-off pension costs of HSY. Third, the law makes it possible for HSY to benefit from a number of tax-exempt reserves if they are set off against losses from previous years. Fourth, the law contains a provision for the compensation for the workers that were shareholders in HSY prior to the privatisation. More precisely, the Greek State will reimburse the workers for the amounts they invested in HSY in the framework of the capital increases carried out over the preceding years. On 5 June 2002, the Commission adopted a two-fold decision (hereafter ‘decision N 513/01’) (22) regarding several measures included in law 2941/2001 and which Greece had notified in 2001 (notification registered under number N 513/01). The Commission decided to approve closure aid of EUR 29,5 million in favour of HSY and to open (under the case number C 40/02) the formal investigation procedure laid down in Article 88(2) of the Treaty as regards: (1) payment by the State of some of the one-off costs of the retirement of HSY employees; (2) transfer of a number of reserves of the balance sheet without paying the statutory 10 % tax. The final Decision taken on 20 October 2004 (23) (hereafter ‘decision C 40/02’) concluded that these two measures constituted incompatible State aid that has to be recovered.

3. ASSESSMENT OF HORIZONTAL ISSUES

(34) The present decision concerns 16 measures. Before assessing them one by one, the Commission needs to clarify some key issues which are relevant for the assessment of several of these measures.

3.1. Horizontal issue 1: Creditworthiness and access to the financial market between 1997 and 2002

(35) For the assessment of most of the measures subject to the current decision, it is necessary to determine what the economic and financial situation of HSY was during the years 1997–2002 and whether one could have reasonably expected that the firm would return to long term viability. In addition, it has to be determined whether in these circumstances a market economy investor would have accepted to grant HSY loans and guarantees similar to the ones that have been granted by the State and the State-owned bank ETVA. The latter were the only institutions that provided financing to HSY during that period.

(36) The Commission will start by analysing the situation in 1997 and afterwards analyse the evolutions until 2002.

3.1.1. Situation in 1997

(37) To start this analysis, it is necessary to verify whether the Commission has already expressed itself on this issue in earlier decisions. First, the Commission recalls that in decision N 401/97 and decision C 10/94, both adopted by the Commission on 15 July 1997, the Commission did not put into question the validity of the business plan submitted by Greece. Therefore, the Commission implicitly acknowledged that the implementation of this plan was able to restore the viability of HSY. Second, the descriptive part of decision N 401/97 indicates that the yard will finance a part of the restructuring plan by means of bank loans amounting to GRD 4,67 billion borrowed on market terms without State guarantees. By not putting into question the feasibility of this financing, the Commission acknowledged that the firm should be in a position to have access to the loan market, at least for the amount at stake. Indeed, if the Commission had been of the opinion that the yard was unable to obtain loans amounting to at least GRD 4,67 billion, it should have indicated that the restructuring plan was unfeasible and should have prohibited the large amounts of restructuring aid (including the investment aid). In conclusion, the Commission can not contradict these two earlier assessments in the present Decision.

(38) Without contradicting them, the Commission nevertheless recalls how weak the situation of the yard was in 1996–1997.

(39) First, as regards the physical infrastructure, decision N 401/97 indicates that equipments of the yard were old and outdated, and that the investment plan was the first investment plan since the construction of the yard (24). Decision C 10/94 also indicates that this modernisation of the infrastructures was necessary to restore competitiveness and viability. It can therefore be concluded that the return to viability was conditional on the rapid implementation of the investment plan.

(40) Second, as regards the commercial activities of HSY and the size of its order book, the Greek authorities themselves acknowledge that ‘at the time of the presentation of the investment plan, the firm had not signed shipbuilding contracts, the activity of the yard being characterised by a great uncertainty regarding its future, an absence of clear commercial strategy and a lack of investments. The only serious activity was the termination of the MEKO type frigates for the Greek Navy’ (25). Since the shipbuilding order book was empty and since the yard needed a sufficient level of shipbuilding activity to be viable in the future years, the Commission considers that the return to viability was depending on the rapid signature (i.e. conclusion) of profitable civil or military shipbuilding contracts.

(41) Third, as regards the financial situation of HSY, Table 1 provides the key accounting figures. As regards the solvability of the firm in 1997, one observes that the firm had a large amount of equity (26). However, this positive situation was entirely the consequence of the massive debt waivers implemented by the State in 1996. In particular, the State wrote off GRD 54,52 billion (EUR 160 million) of debts related to civil activities — this waiver was approved by decision C. 10/94 — and GRD 46,35 billion (EUR 136 million) of debts related to military activities. The seemingly healthy balance sheet observed on 31 December 1996 was somehow ‘artificial’ and in particular it was not at all a proof that the yard had restored its competitiveness and that the causes of the severe difficulties encountered over the last twenty years had been tackled. Without the complete implementation of the restructuring plan, the yard would most probably record losses which would rapidly deplete these own resources (i.e. the net equity). It has to be kept in mind that HSY had been put twice in liquidation during the preceding 12 years. In conclusion, this positive equity would not have sufficed to convince a bank to lend to HSY at a normal interest rate, i.e. at the interest rate charged when lending to healthy firms. Table 1 Figures for HSY’s turnover, profit and net equity from 1997 to 2005 (EUR millions) 1997 1998 1999 2000 2001 2002 2003 (27) 2004 2005 Share capital 86 91 92 95 65 106 106 121 121 Net Equity 82 88 54 17 –4 –78 –83 – 111 – 182 Turnover 74 83 30 59 55 89 112 130 198 Profit 7 1 –36 –42 –21 – 115 –1 –45 –71

(42) In conclusion, the Commission considers that in 1997 the yard was still in difficulty and not competitive yet, but a return to viability could be expected if the investment plan was implemented in full and in time and if the yard succeeded in rapidly concluding profitable shipbuilding contracts. Since the return to viability was conditional upon these two uncertain developments, lending to HSY in 1997 and in the following years presented ‘a particular risk’. A private bank would have accepted to grant loans or guarantees to HSY, but at a price reflecting the significant risk. In a situation presenting ‘a particular risk’ the Commission notice on the method for setting the reference and discount rates (28) indicates that the adequate reference point to determine the existence and the amount of State aid is the reference rate for Greece (i.e. ATHIBOR plus 300 basis points until 31 December 2000 and 5 year EUR swap rate plus 75 basis points from 1 January 2001) increased by a risk premium of at least 400 basis points (i.e. this means ATHIBOR plus at least 700 bps until 31 December 2000 and 5 year EUR swap rate plus at least 475 bps from 1 January 2001). As regards guarantees on loans, the Commission will assess the existence of aid on the basis of the same method, i.e. by comparing the total cost of the guaranteed loan (i.e. interest rate paid by HSY to the bank plus guarantee premium paid by HSY to the guarantor) with the cost which HSY would have supported if it had concluded this loan on the market (i.e. reference rate for Greece plus at least 400 basis points).

3.1.2. Evolution from 1997

(43) As will be explained below, the Commission can not exclude that until 30 June 1999 HSY was still able to borrow from the market at the interest rate such as defined in the previous section (29).

(44) HSY recorded slight net profits in 1997 and 1998 (30). However, during these two years it did not succeed in concluding any shipbuilding contract (31) — either military or civil — which would have been necessary to ensure a sufficient level of activity in the next years and to avoid making losses. The first shipbuilding contract that the yard succeeded to conclude concerned the construction of two ferries for Strintzis. It was signed only at the beginning of 1999 (32). In addition, from the outset it was known that the sales price was too low to cover the costs and that this contract would therefore cause a loss (33). In July 1999, the Greek navy awarded the construction of three submarines to HSY and HDW. The three submarines were planned to be constructed over nearly 10 years and the total contract was amounting to around GRD 350 billion (EUR 1 billion), of which around three quarters would go to HDW, which was due to supply the machinery, pressure components and sensitive electronics systems. In addition, the first submarine was to be constructed at HDW’s yard in Kiel (34). Therefore this project would not generate a lot of activities and income for HSY during the first years (35).

(45) In view of the failure to build a large and profitable order book in 1997, 1998 and in the first months of 1999, the management and any investor having analysed the situation of the yard must have realised at the latest in the first months of 1999 that the yard would not have a sufficient level of activity in 1999 and 2000 to cover its costs and that in these years the yard would record large losses reducing its net equity to a small amount (36). In these circumstances a return to viability could not be expected anymore (37). As a subsidiary element, the Commission notes that the first report performed by the Greek authorities regarding the implementation of the investment plan showed that on 30 June 1999 only a small part of the plan had been completed. Therefore, besides the commercial setbacks, the modernisation of the facilities was slow (38). Finally, the Commission notes that the looming financial difficulties caused a dispute between the independent management team of the yard (i.e. Brown & Root, which was appointed in September 1996) and the employees/shareholders. In particular, the management insisted on the necessity to carry out additional workforce reduction due to the low level of activity. The union leaders opposed to such a reform and succeeded in getting the management team ousted (39). Such an event, creating management discontinuity and illustrating the difficulty to implement sufficient reforms in the yard, was an additional element which would have deterred a market economy investor to lend money to HSY.

(46) From the foregoing, the Commission concludes that from 30 June 1999 it was not reasonable anymore to expect a return to viability. Consequently, the Commission considers that from that date no bank would have accepted to lend to the yard anymore, even at high interest rates, and no bank would have accepted to grant a guarantee anymore, even in exchange of a high guarantee fee. Since HSY would not have received a loan or guarantee from the market, any loan or guarantee granted after 30 June 1999 automatically constitutes aid. If found incompatible and still outstanding, any guarantee has to be stopped immediately, and any loan has to be immediately reimbursed. The reimbursement — following the normal time schedule laid down in the loan contract and following from the present decision — of any loan granted after 30 June 1999 is however not sufficient to restore the initial situation since until the reimbursement date HSY has had at its disposal a financing that it normally would not have obtained from the market. In order to restore the initial situation, this advantage, of which the size can only be approximated by using the interest rate of a very risky loan, should therefore also be recovered. Therefore, for the period running from the pay-out of the loan to HSY until the reimbursement by HSY, the Commission has to order the recovery the difference between the interest rate actually paid by HSY and an interest rate theoretically adequate for a loan presenting a very high risk. In order to determine the latter interest rate, the Commission notes that the Commission notice on the method for setting the reference and discount rates indicates that the risk premium may be higher than 400 basis points above the reference rate ‘if no private bank would have agreed to grant the relevant loan’, which is the situation in the present case. In several decisions, the Commission has considered that a premium of 600 basis points above the reference rate was adequate minimum to reflect a situation containing a high risk (40). The Commission considers that this constitutes the minimum for loans in the present situation. As regards State guarantees granted after 30 June 1999, the Commission will use the same approach: for the period for the pay-out of the guaranteed loan until the termination of the guarantee — whether following the normal calendar laid down in the guarantee contract or following from the present decision — the Commission will order the recovery of the difference between the cost of the guaranteed loan (interest rate paid to the bank plus guarantee premium paid) and the reference rate for Greece increased by 600 basis points.

(47) In order to underpin its claim that the loans and guarantees granted by the State and ETVA could have been granted at the same terms by a private bank, HSY has submitted the first Deloitte report (41). In the section 5 of this report, Deloitte analyses the creditworthiness of HSY in 1999 and in the following years. It concludes that ‘the Company could have alternatively borrowed or received letters of guarantee from another non-affiliated financial institution (i.e. with no other relationship, apart from the regular commercial collaboration) during the period under examination’ (42). The Commission observes that the report does not explain how this conclusion can be reconciled with the fact that HSY’s attempts to raise funds from other financial institutions have failed (43). In addition, the Commission notes that the analysis contains a series of errors (44), which significantly bias the conclusion.

3.1.3. Intra-group analysis

(48) All the loans and guarantees subject to the current procedure were granted by ETVA or by the State. The Greek authorities claim that since ETVA and the Greek State (through ETVA) were shareholders of HSY, the loans and guarantees could be seen as intra-group transactions. In this context, Greece makes two claims: — First, that it is normal for a mother company to lend at favourable conditions to its subsidiary. Indeed, the advantage granted to the subsidiary increases the value of the shares held by the mother company. Therefore, even if the Commission would consider that ETVA and the State granted loans and guarantees at a price below the market price, this would have been acceptable to a market economy investor in a similar situation. Consequently, these loans and guarantees would not constitute aid, — Second, it is normal for a mother company to lend to its subsidiary in difficulty. Indeed, such lending aims at preserving the value of the shareholding held by the mother company. Therefore, even if the Commission should consider that no private bank would have lend to HSY during a certain period because the yard’s situation was too bad, loans and guarantees granted by ETVA and by the State should nevertheless be considered as acceptable for a private investor in similar circumstances. These loans and guarantees would therefore not constitute aid.

(49) The Commission consider that Greece’s conclusions are not correct.

(50) First, the Commission notes the two following elements. In first instance, no market economy investor would have found itself in the situation of ETVA. Indeed, it is recalled for instance that when ETVA purchased HSY in 1985, it was a development bank, acting upon order of the government, in order to avoid the closure of a company of significant importance for the Greek economy (45). In order to keep HSY alive, ETVA made in 1986 a capital injection, which was found to constitute aid by the Commission (46). In 1995, ETVA kept ‘a 51 % majority holding’ in HSY because Greece claimed it was ‘justified by defence interest’, in accordance with Article 10 of Directive 90/684/EEC. In second instance, the Commission observes, when all the measures implemented by the State (including the measures implemented by ETVA, since, as will be demonstrated later in this Decision, they are imputable to the State) in favour of HSY are taken into account — and in particular the repeated and large State aids granted to HSY in the period until 2002 —, it appears clearly that, during the period until 2002, the State has not acted as a market economy investor. It has constantly provided the large financial support necessary to keep HSY alive, what has been highly costly. In conclusion, since the State (through ETVA) found itself in the situation of being the shareholder of HSY only because it acted as a public authority willing to preserve the activities of HSY at all costs and since it has never acted like a market economy investor who wants to make money thanks to its shareholding in HSY, the claim that ETVA and the State acted in a way acceptable for a market economy investor because the too low interest rates (or guarantee fee) charged on the financing (loans and guarantees) which they granted to HSY was compensated by an increase of the value of the share of HSY lacks credibility. Since the State (included ETVA) has never acted like an investor trying to make profit but conversely accepted to keep HSY alive at that high price, Greece and HSY should have at least underpinned their claim by a detail analysis showing that, as shareholder of HSY, the State and ETVA could really expect a capital gain (i.e. an increase of the value of the shares) higher than the ‘foregone revenues’ (i.e. the insufficient interest rate or the insufficient guarantee premium). Since such an analysis has not been provided and since HSY and Greece made that doubtful and hypothetical claim without any supporting evidence, the Commission dismisses without further analysis their claim that the State (including ETVA) acted as a market economy investor since the financing granted at favourable terms triggered an increase of the value of HSY shares which was sufficiently important to compensate the ‘foregone revenues’.

(51) Second, even if the foregoing reasoning were dismissed and the intra-group aspects should be analysed (i.e. the potential increase of the value of HSY’s shares), there are ample evidence that the transactions carried out by ETVA would have not been acceptable for a market economy investor which would have hold a 51 % shareholding in HSY.

(52) At the end of 1995, 49 % of the ownership of HSY was transferred to the employees of HSY. The price that the employees would pay to purchase this 49 % stake was decided at that moment. Therefore, in the following years, when ETVA and the State were providing financing to HSY at a price below what a (non-affiliated) private bank would have charged, 49 % of the increase of the value of HSY resulting from this savings (i.e. HSY was paying lower interest rates) was benefiting the other shareholders of HSY. Only 51 % of the advantage (reduction of the interest rates charged and of the guarantee premiums charged) granted by ETVA and the State to HSY was returning to them in the form of an increase of the value of HSY. No market economy investor would have accepted to make such a gift to the other shareholders of HSY. In order to avoid losing money in favour of these other shareholders, a market economy investor would have charged an interest rate similar to the one charged by (non affiliated) private banks. The first claim of the Greek authorities is therefore unfounded.

(53) As regards the period after 30 June 1999, at a time when no private bank would have provided financing to HSY because the risk of bankruptcy was too high, the same reasoning applies. In particular, a rational investor holding only 51 % of a firm would have at least asked the other shareholders to provide financing in proportion to their shareholding in HSY. If these other shareholders did not have the resources to provide this financing, a rational investor would have at least negotiated the provision of financing to HSY against a higher shareholding in HSY. Providing significant financing to HSY without co-financing or without concessions by the other shareholders was similar to put one’s own money at high risk to save the value of the shares held by someone else. No market economy investor in similar circumstances would have accepted to make such a gift to the other shareholders (47). The second claim of the Greece authorities has therefore to be rejected.

3.2. Horizontal issue 2: Imputability of ETVA’s behaviour to the State

(54) Several of the 16 measures analysed in the present decision were not granted directly by the State. They were granted by the State-owned bank ETVA. Since Greece, HSY and TKMS/GNSH contest the imputability to the State of these measures while Elefsis and Piraeus Bank confirm it, this issue has to be analysed.

(55) These measures were granted by ETVA between 1996 and 2002. According to case-law, such measures may qualify as State aid pursuant to Article 87(1) of the Treaty only if the State was in a position to control ETVA and if the public authorities have ‘been involved, in one way or another, in the adoption of those measures’ (48).

(56) ETVA, whose initials stand for Industrial Development Bank of Greece, was founded in 1964 following the merger of three organisations (the Industrial Development Organisation, the Economic Development Financing Organisation and the Tourist Credit Organisation). It was converted into a corporation by Law 1369/1973. Since 1973 it has therefore operated as a State-owned bank. According to Greece (49), ‘The main purpose stated in the statue of ETVA as a development bank was promotion of the development of the country through the financing of production activities in the Greek economy (tourism, industrial production, etc.)’. ETVA was the only development bank in Greece. ETVA therefore endeavoured to play a decisive role in the economic and regional development of the country by financing enterprises, developing the regional infrastructure of the country, providing venture capital and participating in undertakings with strategic importance for the Greek economy. In 1995, following financial difficulties resulting from these activities, the recapitalisation, restructuring and modernisation of the bank became a top priority of the Greek government. This was done on the basis of a five-year programme within the framework of Law 2359/95. In addition to the provision of GRD 427 billion of capital by the government, the aim of the restructuring was to implement a new strategic orientation, change the organisational structure and formulate modern business procedures which respond to present-day conditions of competition. Consequently, ‘In addition to its development activity, ETVA developed commercial banking services, in particular from 1997 onwards’ (50).

(57) In 1999, the State, which held 100 % of ETVA’s shares, decided to proceed with the bank’s listing on the Athens Stock Exchange, offering 24 % of its share capital to the public. The State decided to proceed even further with the bank’s privatisation and reduce the State’s participation to below 50 %. A call for tender was conducted and Piraeus Bank was chosen. On 20 March 2002, shares representing 57,7 % of ETVA’s capital were transferred to Piraeus Bank (51).

(58) Regarding the possibility for the State to control ETVA, the Commission observes that until the end of 1999 ETVA was fully owned by the Greek State. The State kept a majority shareholding until the transfer of the majority of the shares to Piraeus Bank on 20 March 2002. The State was therefore in a position to control ETVA at least until 20 March 2002. This also illustrate that State resources were involved in the measures implemented by ETVA.

(59) Regarding the involvement of the State in the adoption of the different measures, the Commission observes the following points: — First, the Commission notes that the three most significant decisions regarding ETVA’s shareholding in HSY have not been decided independently by ETVA’s management: these decisions have been taken by the government and implemented by ETVA. Indeed, when ETVA purchased the bankrupt HSY in 1985, this was a government decision (52). ETVA simply implemented this State decision and rapidly made a large capital injection in HSY, which was considered to be State aid by the Commission (53). This illustrates that the relation between ETVA and HSY has from the outset been a relation of State support in favour of a company which was important — in terms of employment and of activities — for the Greek government. The second major decision was the sale by ETVA of 49 % of HSY’s capital to the employees, which was decided by Law 2367/1995 (54). In addition, this Law imposes significant restructuring measures on HSY (55) (and grants very large aid amounts to the yard). The third major event was the privatisation of HSY in 2001–2002 (i.e. ETVA had to sell its remaining 51 % shareholding in HSY). This privatisation was decided by decision No 14/3-1-2001 of the relevant Inter-ministerial Privatisation Committee and took place within the framework of the Greek Privatisation Law 2000/2091. This was constantly repeated in the tender documents submitted to the interested investors/bidders by Alpha Finance, which was the bank organising the sale of HSY on behalf of the State and of the Sellers (ETVA and the employees). The tender documents dated 2 April 2001 also indicate that the State will select the preferred bidder with the Sellers. In conclusion, the three crucial decisions concerning ETVA’s shareholding in HSY were decided by the State. — In addition to its direct involvement at these three occasions, the State granted very large amounts of aid during the period 1995 to 2002. The State wrote off GRD 54,52 billion (EUR 160 million) of debts related to civil activities — this waiver was approved by decision C 10/94 — and GRD 46,35 (EUR 136 million) of debts related to military activities. As indicated in decision N 401/97, the State also intended to grant GRD 7,8 billion (EUR 22,9 million) of investment aid. During the bidding process in 2001, the Greek State enacted law 2941/2001, which contained a large amount of financial support aimed at facilitating the privatisation of HSY (see recital 33 of the present decision). As the Commission indicated in decision N 513/01, the State committed for instance to pay EUR 118 million as incentives to encourage employees to voluntarily leave the company. By granting large and repetitive aids, the government clearly signalled that it considered the survival of HSY as politically very important (56). — Finally, the Commission observes that the State awarded strategic defence contracts to HSY during these years, like for instance the construction of the submarines. Consequently, the State had a direct interest in monitoring the activities of HSY and ensuring the continuation of the operations of the yard.

(60) By deciding the size of the shareholding of ETVA in HSY, by giving constantly large financial support to HSY and because it granted military contracts of high importance for Greece’s security, the Greek government signalled very clearly that it attached a great importance to HSY’s activities and was monitoring the situation of the yard carefully. In this general context, the Commission consider that, until ETVA’s privatisation in March 2002, the imputability of ETVA behaviour to the State can not be questioned. Indeed, in these circumstances, it was impossible for ETVA’s management to develop towards HSY a lending policy which would not have been in line with the policy of steady support adopted by the government. In particular, it would have been impossible for ETVA to take a decision creating financial problems for HSY. For instance, ETVA could not have charged a high interest rate (i.e. a high ‘spread’ above the interbank rate) on the loans granted to HSY, since this would have deteriorated HSY’s financial situation, what would have been politically unacceptable for the government. Similarly, ETVA could not have refused to grant a loan demanded by HSY to finance its operations (57). In other words, ETVA had no other choice than remaining coherent with the policy of strong and continuous support toward HSY adopted by the State. Consequently, the Commission concludes that all the measures implemented by ETVA towards HSY (loans, guarantees, capital injections, etc.) were automatically imputable to the State, and that it is not necessary to bring forward additional evidence of the State’s involvement at the moment when each of these measure were adopted by ETVA. In conclusion, the Commission considers that the different measures carried out by ETVA are imputable to the State.

(61) As subsidiary grounds, the Commission also notes the following elements confirming the imputability of ETVA’s behaviour to the State.

(62) First, in 1995 ETVA sold only 49 % — and thus not 100 % — of HSY shares to the employees. ‘Greece invoked its military needs in shipbuilding to justify retaining 51 % of the yard as allowed by Article 10 of the Directive’ (58). Article 10(3) of the Directive 90/684/EEC indeed provides that ‘Notwithstanding the obligation to dispose of the yards by sale referred to in paragraph 2, the Greek Government shall be allowed to maintain a 51 % majority holding in one of the yards if justified by defence interests.’ This illustrates that ETVA’s 51 % stake in HSY was aimed at allowing the State to control HSY with the goal of preserving the defence interests of Greece. It is obvious that in this context ETVA’s management could not have developed towards HSY a relation based on commercial terms. Any decision regarding the provision of financing to HSY and the terms of this financing could not go against Greece’s defence interests. In particular, the Commission fails to see how ETVA’s management could have refused to grant a financing to HSY or could have charged a high interest rate on these financings. Moreover, if Greece’s goal was the preservation of defence interests, one can suppose that the government was in fact directly supervising any significant decision of the management of HSY and any decision of ETVA regarding financing provided to HSY.

(63) Second, since ETVA’s mandate as ‘development bank’ was defined by the State, it can be concluded that all the activities of ETVA implemented in the framework of that mandate were imputable to the State. In a similar manner, the case law indicates that, in order to analyse the imputability of measures adopted by a firm ‘the nature of its activities and the exercise of the latter on the market in normal conditions of competition with private operators’ (59) may be relevant. In this context, the Greek authorities acknowledge that ‘ETVA from its creation onwards did not function like a usual commercial bank but as a special development credit institution mainly active in the field of long-term credits playing a decisive role in the economic and regional development of the country’ (60). In this context, the Commission recalls that ETVA purchased HSY in 1985. The involvement of ETVA within HSY was therefore developed within this mandate as ‘development bank’, and not within the framework of its commercial activities which started not earlier than 1997. Since ETVA had until then to support HSY within its mandate as ‘development bank’, ETVA could not suddenly from 1997 stop providing the loans and guarantees demanded by HSY and let the yard go bankrupt. In this context, the Commission recalls that, in the second half of the nineties, ETVA has been authorised to develop commercial activities besides its development activities, and not in replacement of its development activities, which had to be continued.

(64) Third, according to case-law, ‘the legal status of the undertaking (in the sense of its being subject to public law or ordinary company law’ (61) may be relevant to show imputability. In this respect, since ETVA, as a State-owned development bank, has as its principal corporate object to further the country’s development by financing the Greek economy, it was not subject to banking directives (62). It is only when ETVA’s shares were listed on the Athens Stock Exchange on 12 January 2000 that ETVA became subject to the standard supervisory rules applicable to commercial banks.

(65) Fourth, the Commission observes that during the period 1996–2002, the State was particularly attentive to the operations of ETVA. Indeed, the State adopted Law 2359/95 in order to restructure ETVA and injected hundred of billions of drachma whitin that framework. In 1999, it decided to list a part of the capital on the Athens Stock Exchange. One year later, it decided to privatise the majority of the capital of ETVA. This privatisation was completed in 2002. This illustrates that during the period 1996–2002, the State was deeply interested in the operations of ETVA. The loans and guarantees provided to HSY were of a size (63) sufficiently large such that the granting decisions could not have been taken by ETVA’s management without endorsement or direct order of ETVA’s sole shareholder.

(66) In the foregoing paragraphs the Commission has demonstrated that, in the period preceding the sale of the ETVA to Bank Piraeus in March 2002, all the measures implemented by ETVA involved State resources and all the measures implemented by ETVA towards HSY were imputable to the State. When it will assess individually each of the measures implemented by ETVA, the Commission will therefore not demonstrate these two points anymore.

(67) The Commission will only discuss again these two issues in the assessment of measure E18c, because some parties claim that this measure was granted by ETVA in May 2002, i.e. after the purchase of ETVA by Piraeus Bank.

3.3. Horizontal issue 3: aid measures partially financing the military activities of HSY

(68) In its answer to the extension decision, Greece claims that several of the measures investigated by the Commission have supported the military activities of the yard. Greece therefore claims that they fall under Article 296 of the Treaty, and can not be assessed — and even less recovered — under State aid rules.

(69) The Commission has therefore to assess whether some measures could partially or entirely fall within the scope of Article 296 of the Treaty.

(70) None of the parties to the present procedure contests that HSY has civil and military activities. Over the last 15 years, the main civil activity was the repair of civil ships. HSY has also built railstock material and hulls of civil ships. HSY’s military activities consisted in the construction and repair of military ships and submarines for the Greek Navy.

(71) The Commission recalls that the extension decision has already identified the measures supporting exclusively the military activities of the yard. The extension decision concludes that these measures entirely fall under Article 296 of the Treaty and are not subject to State aid rules. The extension decision has not been challenged at the Court.

(72) Some of the State supports covered by the present decision were not assigned to a particular activity, i.e. they were not earmarked to finance a given project. The Commission has therefore to determine to which extent these State supports benefited the military activities and to which extent they benefited the civil activities. This calculation is made complicated by the fact that HSY did not keep separate accounts for the civil activities and for the military activities. In these circumstances, the Commission will base its analysis on the relative size of the two activities. It must therefore assess the relative weight each activity. The Commission observes that any State support (e.g. financing, capital injection, etc) granted to HSY (and not assigned to finance a particular activity) has at the same time covered losses of the past (i.e. losses generated by past contracts) and allowed the yard to finance future activities. In order to determine to which extent a given State support benefited the civil and the military activities, the Commission therefore considers that the analysis must not be limited to the division between civil and military activities (i.e. the relative weight of each activity) in the year when the support was provided, but it is necessary to calculate the average division between these two activities over a sufficiently long period. The fact that the relative weight of the two activities varies strongly from one year to another also justifies using an average over several years. Indeed, a given year may not be representative of the average division between the two activities over the medium and long term.

(73) In the framework of the procedure for the recovery of the aid found unlawful and incompatible by decision C 40/02, Greece has claimed that the civil activities accounted for 25 % of the activities of HSY and the military activities accounted for 75 % of the activities. To underpin this claim, Greece provided data regarding the work-hours and the turnover (i.e. sales value) of the two activities for the years 1997 to 2005 (64). In the context of the present procedure, Greece has not contested these figures. In addition, the Commission had already accepted a division 25 % civil/75 % military in the decision N 513/01, which has not been contested in front of the Court. On the basis of the foregoing, the Commission will consider that the civil activities accounted for 25 % of the activities of HSY and the military activities for 75 % of the activities.

(74) With regards to the military activities of HSY, the Commission has consistently accepted in earlier decisions that the support provided to them is outside the scope of the State aid rules (65). The Commission repeated that assessment in paragraphs 86 to 90 of the extension decision. Since the measures which are the subject of the present decision were granted to HSY (i.e. HSY as a whole) during the same period as the period analysed in these earlier decisions, it must be concluded that the part of these measures which has supported the military activities of HSY also fall within the scope of Article 296 of the Treaty and is exempted of State aid rules.

(75) When assessing each measure individually, the Commission will establish whether it has exclusively supported the civil activities of HSY or whether it was granted to HSY without being earmarked for a particular use (66): — If only the civil activities were supported, the Commission considers that Article 296 of the Treaty does not apply and the entire measure can be assessed under Article 87 of the Treaty, — If HSY as a whole was supported, the Commission considers that, since 75 % of the activities of the yard is related to military production, 75 % of the State support benefited the military activities and fall under Article 296 of the Treaty. The remaining 25 % of the State support can be assessed under State aid rules.

4. THE MEASURES: DESCRIPTION, GROUNDS FOR INITIATING THE PROCEDURE, COMMENTS RECEIVED, ASSESSMENT AND CONCLUSION

(76) As regards the comments of Greece and of third parties, the Commission observes that they cover a wide range of arguments. For instance, in its numerous submissions to the Commission, the complainant Elefsis has claimed that there exist numerous grounds on the basis of which the measures should be considered incompatible aid. Similarly, Greece, HSY, and TKMS/GNSH have claimed in their successive submissions to the Commission that there exist numerous grounds on the basis of which the measures could be found compatible with the common market.

(77) Pursuant to Article 253 of the Treaty, a Commission decision has to state the reasons on which it is based. However the Commission is not obliged to answer to each of the arguments raised by the parties. Consequently, the present decision will explicitly deal only with the major points raised by the parties. In particular, the decision will not deal with some grounds raised by the parties which are clearly irreconcilable with the facts, which are in contradiction with points made by the same party in its other submissions or which can be clearly dismissed on the basis of the facts and assessment presented in the present decision.

(78) Since the present investigation covers a significant number of measures, it is important to number them in order to facilitate the reading and avoid confusion. Therefore, the four measures covered by the opening decision will be numbered P1 to P4. The twelve measures covered by the extension decision will keep the number attributed to each of them in that decision, but preceded by an E.

4.1. Misuse of the investment aid endorsed in 1997 (measure P1)

4.1.1. Description of the measure

(79) By Decision N 401/97, the Commission authorised a GRD 7,8 billion (EUR 22,9 million) investment aid, which Greece had notified on 20 June 1997. In that decision, the aid has been assessed on the basis of Article 6 ‘Investment aid’ of Chapter III ‘Restructuring aid’ of the Directive 90/684/EEC, which indicates that ‘Investment aid […] may not be granted […] unless it is linked to a restructuring plan which does not involve any increase in the shipbuilding capacity of the yard […]. Such aid may not be granted to ship repair yards unless linked to a restructuring plan which results in a reduction in the overall ship repair capacity’. The Decision N 401/97 indicates that a business plan has been set up which aims at restoring the competitiveness of the yard through increased productivity and modernisation. The first pillar of this plan is an important reorganisation and reduction of the workforce. In particular, the number of workers will be reduced to 2 000 by the end of 1997 and more flexible work methods will be introduced. The Decision N 401/97 indicates that most of the workforce reduction had already been implemented at the time of the decision, what will contribute to increase the productivity. The second pillar of the restructuring plan is an investment programme, which aimed at replacing the old and obsolete equipment with new updated technology. The Decision indicates that the plan foresees that the yard will have its viability restored at the end of the business plan, the year 2000. The total cost of the investment programme was estimated at GRD 15,62 billion (EUR 45,9 million). The descriptive part of the decision indicates that this programme will be financed in the following manner: GRD 7,81 billion (EUR 22,9 million) of State aid, GRD 3,13 billion (EUR 9,2 million) by an increase of the share capital, and GRD 4,67 billion (EUR 13,7 million) by bank loans. The capital increase will be made in the same proportion as the distribution of capital, i.e. 51 % by ETVA and 49 % by the employees of HSY. The decision further indicates that the bank loans will be raised at normal market conditions without State guarantees. In its assessment, the Commission notes that according to the restructuring plan, there is no increase in shipbuilding capacity and a decrease in the shiprepair capacity. The Commission also notes that the intensity of the aid (50 %) stays within the regional aid intensity allowed for Greece. The intensity is also justified by the extent of the restructuring involved.

4.1.2. Grounds for initiating the procedure

(80) The Exchange of Letters between Greece and the Commission which has preceded the opening of the procedure has been described in the chapter 1 ‘Procedure’ of the present decision.

(81) In the opening decision, the Commission expressed doubts that the investment aid approved by decision N 401/97 may have been misused. First, the Commission observed that the investment plan was implemented only partially and with important delays. The Greek authorities granted several extensions of the deadline to execute the investment plan after 31 December 1999 without consulting the Commission. Second, whereas decision N 401/97 indicates that the investment programme will be financed by banks loans raised at normal market conditions without State guarantees, the firm seems to have received loans from a State-owned bank with non market-conform interest rates and it seems that one of the loans was covered by a State guarantee. Third, the Greek authorities did not send the yearly reports on the implementation of the plan, as requested by the decision N 401/97. Due to these three breaches of decision N 401/97, it seems that the investment aid was misused.

4.1.3. Comments from interested parties

(82) Elefsis underlines that the earthquake invoked to justify the delay occurred only in September 1999. That is four months before the end of the period to implement the investment plan, namely 31 December 1999. At the end of 1999 HSY had carried out only a small part of the investment plan. This shows that HSY had already accumulated significant delays in the implementation of the plan before the earthquake occurred and that HSY could not have finished on time the investment programme even if the earthquake had not occurred. Similarly, the privatisation of HSY invoked to justify a delay took place well after the end of 1999 and therefore could not justify HSY’s failure to respect decision N 401/97. Finally, Elefsis claims that, since HSY received a loan guaranteed by the State and loans at non arm’s length conditions, it has breached the conditions laid down in decision N 401/97. Therefore, this additional aid as well as the investment aid should be recovered.

(83) HSY submitted the same comments as Greece, which are summarised in the next section.

4.1.4. Comments from Greece

(84) In their letter of 20 October 2004, the Greek authorities confirm that they initially set the date of 31 December 1999 for the completion of the investment plan. In December 1999, they carried out the first control on the implementation of the plan, which related to the expenses incurred by HSY until 30 June 1999. It turned out that they amounted to GRD 2,7 billion (EUR 8,1 million), which is 17,7 % of the total expenses of the investment programme. On 27 June 2001, the Greek authorities granted a prolongation until 31 December 2001 for the completion of the investment, because the earthquake of 7 September 1999 had caused damages to the yard’s facilities and delayed the execution of the investment plan. By decision of 28 December 2001, the Greek authorities granted a second prolongation until 30 June 2002 because the privatisation process, which started in January 2001 (and was finally completed on 31 May 2002), requested to freeze the investment plan. When the Greek authorities carried out the second control in May 2002, they determined that the expenses incurred by HSY until 31 December 2001 amounted to GRD 9,8 billion (EUR 28,9 million), or 63 % of the total investment costs. By decision of 14 June 2002, a new extension was granted until 30 June 2004. By decision of23 July 2003, the authorities authorised a modification of the investment plan. On this occasion, the company asked to remove some of the investment expenses certified on the occasion of the second control. These expenses were advance payments concerning investments that the firm had decided to exclude from the investment plan. Therefore, the total amount certified after the second control was reduced to EUR 23,3 million, or 50,75 % of the total. By letter of 30 June 2004, the yard requested a new extension until 31 December 2004. As of today, the investment aid has not been paid out to the yard yet.

(85) The Greek authorities claim that, when granting the extensions, they considered in good faith that they acted within the limits of the approval decision of the Commission and that it concerned an existing aid for which no new notification was necessary. They considered that it was unrealistic not to provide for the possibility of a prolongation of an investment plan of such size and such scope, even more for a yard which had no experience with the implementation of such a plan, as acknowledged by the Commission itself in its approval decision. They also claim that they informed the Commission of the prolongation in November 2002. Concerning the modification of the investment plan which they have authorised in 2003, it did change neither the nature, nor the substance, nor the purpose of the approved aid. It simply aimed to adapt the content of the plan to the new circumstances: the privatisation of the yard, the new contracts of unforeseen nature (submarines), the 1999 earthquake, and the technological progress. The Greek authorities also fail to see how the prolongations could affect the substance of the aid and therefore its compatibility. Finally, they claim that the Commission should assess the compatibility of the prolongation of the investment plan on the basis of the point 52 of the Community guidelines on State aid for rescuing and restructuring firms in difficulty (67) (hereafter ‘the 1999 R & R guidelines’). In this case, the aid should be found compatible since the revised plan foresees a return to viability in a reasonable period, namely before 30 June 2004. The Greek authorities claim in particular that the delay is not caused by the firm but by force majeure (earthquake of 1999 and privatisation of the firm). Finally, the ‘one time, last time’ principle would not be breached since the aid would take place in the adaptation of an existing restructuring plan.

(86) Concerning the non-submission of annual reports on the implementation of the investment plan, Greece considers that this fact is not of sufficient importance to prevent the modification of the plan.

4.1.5. Assessment

4.1.5.1. Article 296 of the Treaty

(87) Before undertaking an assessment of the compatibility under Article 87 and 88 of the Treaty, the applicability of Article 296 Treaty needs to be considered. In this respect, the Commission observes the following elements. First, the investment aid had been notified by Greece in 1997 in accordance with the procedure laid down in Article 88(3) of the Treaty. By notifying the aid, Greece acknowledged that the investment plan was mainly related to the civil activities of HSY (i.e. ship repair and ship building), because if the plan had been related to military activities and had been important for national security, Greece could have invoked Article 296 of the Treaty at the time and would not have had to notify this investment aid (68). Moreover, Greece did not contest the approval decision in which the Commission assessed the notified aid under the State aid rules. Finally, Greece has not invoked Article 296 in its reaction to the opening decision. The prior elements are sufficient to conclude that the investment plan did not affect the security interests of Greece and any aid financing the investment plan can be dealt with under State aid rules laid down in Article 87 and 88 of the Treaty.

4.1.5.2. Existence of a misuse of the aid

(88) The three doubts raised in the opening decision will be analysed successively.

(89) As regards the breach of the condition that loans have to be raised at market rates and without State guarantees, the Commission considers that this breach affects the compatibility of the latter measures and not the compatibility of the investment aid. Indeed, the purpose of such a condition is to avoid the granting of additional aid in favour of the investment programme (i.e. to avoid the accumulation of aid above the intensity laid down in the decision N 401/97). Anyway, as will be explained later in the present decision, the Commission finds on the basis of other legal grounds that the State guarantee granted to HSY constitutes incompatible aid that has to be recovered. As regards the loans, the Commission also finds that the aid element has to be recovered. Since the aid elements will be recovered, the initial situation will be restored and the financing costs of HSY will not be lower than the market rate. In other words, by means of these recoveries, the objective of the condition laid down in decision N 401/97 will be fulfilled, namely to avoid the granting of additional aid by means of financing granted to HSY below market price. The Commission therefore rejects Elefsis’ aforementioned claim that both the aid element in the loans and guarantee and the investment aid endorsed by decision N 401/97 have to be recovered.

(90) As regards the absence of yearly reporting raised in the opening decision, the Commission considers that the non-submission of yearly reports does not as such constitute a misuse of the aid. Indeed, it does not change the characteristics of the aid, its effect or the characteristics of the investment programme. However, since Greece has not provided this information in due time and has therefore not informed the Commission about the delays at the moment when they occurred, it has prevented the Commission from adopting a decision on these issues at the appropriate moment. Consequently, this absence of reporting entails that the burden of proof falls on Greece: it is for Greece to prove that the Commission would have endorsed the successive prolongations of the period to implement the investment programme.

(91) As regards the delayed implementation of the investment plan, which was the main doubt raised in the opening decision, the Commission has reached the following conclusion. By Decision N 401/97, the Commission authorised aid to support investments which were ‘linked to a restructuring plan’, as requested by chapter III ‘Restructuring aid’ of Directive 90/684/EEC. As indicated in the description of the business plan in Decision N 401/97, the investment plan was in fact not simply linked to the restructuring; it was itself one of the two pillars of the restructuring because the yard had made no investments in the previous years and needed to replace ‘old and obsolete equipment with new technology’ to restore its competitiveness. In section 2.1 of their letter of 20 October 2004, the Greek authorities confirm that the investment programme aimed at restoring the competitiveness of HSY, by means of better productivity and modernisation, in order to become a competitive firm at the national and international level. Greece also confirms that the purpose was to replace outdated and unused equipments by new equipment with modern technology. In conclusion, from decision N 401/97 itself as well as from Greece’s letters, it appears that the investment programme had a crucial role in the restructuring plan and in the restoration of viability (69). Since it was ‘linked to a restructuring plan’ and crucial for the return to viability, it is obvious that the implementation of the investment programme could not be delayed significantly. In fact, its implementation was urgent in order to allow restoration of viability. In conclusion, the Commission authorised an aid to support an investment programme that had to be implemented in a precise period; it did not authorise an aid to support any investment project carried out in the future.

(92) As regards the precise timing of the implementation of this investment programme, decision N 401/97 did not include the planned calendar. Decision N 401/97 only indicates that ‘the yard will have its viability restored at the end of the business plan, the year 2000’. In their letter of 20 October 2004, the Greek authorities indicate that, according to the Ministerial decision of December 2007 granting the subsidy, the investment programme had to be completed by 31 December 1999 (70). However, this date does not appear in decision N 401/97. The Commission concludes that on the basis of decision N 401/97, the investment programme had to be completed at the latest at the end of 2000.

(93) From the foregoing, the Commission concludes that respecting the date of 31 December 2000 was important to ensure the success of the restructuring plan. In addition, any investment implemented significantly after 2000 could not be considered as linked to the restructuring plan which is described in decision N 401/97, as requested by Directive 90/684/EEC.

(94) After this analysis of the decision N 401/97, the Commission has to determine whether it would have granted a prolongation of the period to carry out the investments if Greece had requested it and correctly informed the Commission about the delays. In September 1999, an earthquake partially damaged the following of the yard’s facilities: walls, roofs, windows, structure of three buildings, tubes, electrical networks, piers, and cranes’ rails. Greece claims that the earthquake forced the yard to stop the investment plan and to focus on the repair of these damages.

(95) Justifying the delay on the basis of the earthquake, the yard asked in November 2000 a first delay of the date to complete the investment programme until 31 December 2001. The question is whether the Commission would have accepted this request if it had received it. The Commission observes that, if it had applied paragraph 52 of the 1999 R & R guidelines, it would not have approved the first prolongation since the restructuring plan approved in 1997 had become clearly insufficient to restore viability in view of the situation prevailing in November 2000 and no other restructuring plan allowing a return to viability was available at that time. However, the Commission doubts that it would have applied paragraph 52 of the 1999 R & R guidelines since the aid had not been approved on the basis of these guidelines, since there was no ‘amendment’ of the content of the plan but only a delay of the date to complete the investments, and since there were not clear provisions regarding the modification of the date for completing the investments in decision N 401/97 and in Directive 90/684/EEC. In addition, since a severe earthquake is an event beyond responsibility of the yard and of the Greek authorities, which is exceptional and not related to the economy and the business, the Commission would have probably considered that it can justify some months of delay. In addition, the implementation of an investment plan is something difficult, which may necessitate some additional months. Consequently, even if one year is a long delay, it is reasonable to consider that the Commission might have accepted the prolongation.

(96) Regarding the second prolongation granted by the Greek authorities, Greece and HSY justified it by the privatisation of the yard during which the investment plan was frozen (71). In other words, the delay in the implementation of the investment programme resulted from a conscious decision to suspend the implementation. The Commission can certainly not authorise a prolongation of the period to implement the investment programme when it was consciously decided to stop the implementation during several quarters of a year. As concluded previously, the respect of the calendar set for the implementation of the restructuring plan was crucial. The Commission has authorised aid to support a precise restructuring plan implemented at a precise moment. As a subsidiary argument, the Commission notes that if prolongations after 31 December 2001 were accepted, the restructuring period would be so long that the investments carried out after that date could not be considered as ‘linked’ — in the meaning of the Directive 90/684/EEC — to the restructuring that began as early as in 1996. The restructuring plan approved in 1997 was inadequate to tackle the difficult financial situation of the yard in the years from 2001. Moreover, significant restructuring measures were implemented in 2001–2002, which were new and not included in the restructuring plan described in decision N 401/97 (for instance, an additional reduction of the workforce). In view of the foregoing considerations, the Commission considers that it would not have endorsed a prolongation of the investment period after 31 December 2001.

(97) In conclusion, the Commission considers that any aid supporting investment expenses incurred after 31 December 2001 fall outside the scope of decision N 401/97.

(98) Greece claims that even if the Commission finds that aid in favour of some investment expenses would not fall within the scope of decision N 401/97, this aid should nevertheless be considered compatible as restructuring aid on the basis of the 1999 R & R guidelines. The Commission must therefore analyse whether aid in favour of the investment expenses incurred by HSY after 31 December 2001 could be found compatible. The Commission notes that there is no doubt that HSY was a firm in difficulty after 31 December 2001. For instance, the losses accumulated over the preceding years were so important that the net equity was negative. Therefore, any aid granted to the firm, and especially aid supporting the modernisation of obsolete equipment, should have been considered as restructuring aid. The Commission considers however that the firm did not comply with the conditions for receiving aid under the 1999 R & R guidelines. For instance, the ‘one time, last time’ condition laid down in paragraph 48 of these guidelines was breached because Greece had already granted restructuring aid to HSY by Ministerial decision of December 1997. Indeed, the investment aid approved by decision N 401/97 was a restructuring aid according to Directive 90/684/EEC and according to decision N 401/97 itself. Paragraph 48 of the 1999 R & R guidelines allows an exemption from the ‘one time, last time’ condition in ‘exceptional and unforeseeable circumstances’. The Commission fails to identify which exceptional and unforeseeable circumstances could justify restructuring aid to be granted in favour of investment expenses incurred after 31 December 2001. In particular, the earthquake of September 1999 may, as concluded previously, justify a limited delay in the implementation of the investment plan. But it is not the cause of the delay of the implementation of the investment plan after 31 December 2001. As regards the freezing of the plan during the privatisation process, it does not fulfil the definition of ‘exceptional and unforeseeable circumstances’. Greece claims that the ‘one time, last time’ condition would not be breached since the aid would take place in the adaptation of an existing restructuring plan. As has been extensively explained, the Commission considers that the investment implemented after 31 December 2001 are not part of the investment programme described in decision N 401/97. In addition, paragraph 52 of the 1999 R & R guidelines indicates that ‘the revised plan must still show a return to viability within a reasonable timescale’. According to the initial plan the yard should have its viability restored by 2000. The Commission therefore considers that the planned restoration of viability in June 2004 was a too long delay compared to the initial plan and was not within a reasonable timescale anymore. Finally, the Commission observes that accepting such a long prolongation of the restructuring period would be similar to a circumvention of the ‘one time, last time’ condition.

(99) In conclusion, the Commission considers that aid in favour of the investment expenses incurred until 31 December 2001 and related to the investment programme described in decision N 401/97 can be considered to be covered by decision N 401/97. Any other aid does not fall within the scope of decision N 401/97. In addition, any other aid in favour of the other investment expenses that have been incurred by HSY is incompatible with the common market. Since Greece has indicated that the investment aid has not been paid out to HSY yet, no aid has to be recovered from HSY.

4.2. GRD 4,67 billion (EUR 13,72 million) loan granted in 1999 and covered by a State guarantee (measure P2)

4.2.1. Description of the measure

(100) Greece indicates that this 8-year loan amounting to GRD 4,67 billion (EUR 13,72 million) was granted by ETVA to finance the investment programme (72). By decision of 8 December 1999, the government granted a guarantee and charged an annual guarantee fee of 100 basis points. The loan was concluded on 29 December 1999 and paid to HSY in successive tranches from that date until 26 October 2000, up to a total amount of EUR 12,76 million (73). The interest rate was ATHIBOR (EURIBOR from 1 January 2001) plus 25 basis points. On 31 May 2002, the State guarantee and the loan were prolonged until 30 June 2009 and the interest rate increased by 100 basis points. The reimbursement of the capital started with a first payment in December 2003.

4.2.2. Grounds for initiating the procedure

(101) The opening decision indicates that the State guarantee could constitute State aid, the compatibility of which is doubtful. In addition, leaving aside the qualification of aid or not, decision N 401/97 indicated that, in order to finance the investment programme, bank loans would be raised at normal market conditions without State guarantees. It seems therefore that State guarantees were per se prohibited by decision N 401/97.

4.2.3. Comments from interested parties

(102) Elefsis made the following comments concerning measures P2, P3 and P4. It recalls that decision N 401/97 required that the bank loans financing HSY will be obtained on normal market terms without State guarantees. It can be shown that all three loans were given upon a non-arm’s length basis. First, these loans were granted from the end of 1999 onwards, when HSY’s financial situation was catastrophic and raised the risk of the revocation of the company’s operating licence. Second, the loans were granted at a time when it was clear that HSY had failed to implement its restructuring/investment plan and had failed to respect the terms of decision N 401/97. Third, given its catastrophic financial situation and the lack of arm’s length security, HSY would not have been able to raise these loans from the private sector.

4.2.4. Comments from Greece

(103) The Greek authorities (as well as HSY) claim that the State guarantee does not constitute State aid and was offered at normal market conditions. They base their analysis on the following elements: — the yard could have concluded a similar loan with any other bank by offering other types of securities than a State guarantee. In particular, the company could have offered as securities some claims related to large contracts or some mortgages on its assets, — the annual guarantee fee of 1 % is the market rate. In addition, it is not selective since the Greek State granted several guarantees during that period and in some cases the fee charged by the State was much smaller, — even if the Commission should consider that the guarantee fee was below the market rate, the State nevertheless acted as a market economy investor since it was shareholder of HSY (through ETVA) and would benefit from the return to profitability following from the implementation of the investment plan, — the fact that the loan aimed at financing an investment plan which had been approved by the Commission should have constituted a sufficiently solid ground for the lending bank and the guarantor to expect that HSY would be able to reimburse the loan, — the loan is regularly reimbursed and the guarantee fee paid.

4.2.5. Assessment

4.2.5.1. Article 296 of the Treaty

(104) Before undertaking an assessment of the compatibility under Article 87 of the Treaty, the applicability of Article 296 of the Treaty needs to be considered. The Commission notes that on the basis of the granting decision, HSY was obliged to use the guaranteed loan as well as the two others loans covered by the opening decision (i.e. measures P3 and P4) for the financing of the investment programme (74). As concluded in the assessment of measure P1, the investment programme does not fall within the scope of Article 296 of the Treaty. The Commission therefore considers that these three loans earmarked for the financing of the investment programme are subject to State aid rules and are not covered by Article 296 of the Treaty.

4.2.5.2. Existence of aid

(105) It first needs to be verified whether the State guarantee fulfils the conditions to be State aid in the meaning of Article 87(1) of the Treaty.

(106) In order to assess the existence of aid in the different guarantees investigated in this decision, the Commission will use the Commission Notice on the application of Article 87 and 88 of the EC Treaty to State aid in the form of guarantees (75) (hereinafter ‘the Notice on guarantees’), which was published in March 2000. However, as indicated in its section 1.4, it did not consist in a change of policy, but rather explains in more details the method that the Commission used until then to assess guarantees. Consequently, the principles laid down in the Notice on guarantees can also be used to assess the guarantees granted before March 2000. In accordance with this conclusion, in the opening decision the Commission used the Notice on guarantees to assess measure P2. Greece did not contest that application. Conversely, Greece also applied it to assess measure P2 (76).

(107) First, in order to fall under Article 87(1), a measure must involve State resources. This is the case for measure P2 since, by granting this guarantee, the State put State resources at risk.

(108) Second, it needs to be established whether the measure is selective. Greece claims that the State has granted several guarantees to other firms and charged also a premium of 1 %. Greece provided a list of these firms. The Commission considers that this fact does not show that the measure was a general measure. In order to be a general measure, a measure must be open to all economic agents operating within a Member State. It must be effectively open to all firms on an equal access basis, and they may not de facto be reduced in scope through, for example, the discretionary power of the State to grant them or through other factors that restrict their practical effect. The present measure can therefore not be considered to be a general one. In particular, it is not because certain firms have received a State guarantee that all the firms could receive one. Greece has not shown that the granting of a State guarantee is open to all economic agents on an equal access basis. In addition, all the firms that appear in the list provided by Greece are State-owned firms or firms carrying out some military activities. It seems therefore that private firms could not have received such a guarantee for the financing of their normal activities. In fact, Greece does not indicate the legal basis on the basis of which the Minister of Finance decided on 8 December 1999 to grant the guarantee. It is likely that it is Law 2322/1995, which is a selective measure as it will be explained in the assessment of measure E12b.

(109) Third, the existence of an advantage must be demonstrated. In accordance with point 2.2.2 of the Notice on guarantees, since the guarantee was granted before the granting of the loan and not ‘ex post’, there is no presumption of aid to the lender. It is therefore the aid to the borrower that needs to be investigated, as defined in point 2.1.1 of the Notice on guarantees. Greece claims that there is no advantage since HSY could have obtained a similar loan by offering a bank other securities instead of a State guarantee. The Commission considers that it does not have to investigate whether, by offering other securities, HSY could have obtained this loan. Indeed, the Commission must assess whether the actual transaction implemented by the State, namely granting a guarantee on a loan without benefiting of any security, would have been acceptable to a market economy investor. A guarantee on a loan secured by a lien on some assets or by the conveyance of claims constitutes a different transaction. As indicated in section 2.1.1 of the Notice on guarantee, one of the potential advantages of the State guarantee is the possibility for the borrower ‘to offer less security’. In addition, even if the possibility to obtain a financing by offering more securities had to be assessed, the Commission has already concluded in section 3.1 of the present decision that after 30 June 1999 HSY would not have received loans or guarantees from private banks, even by offering a security to the bank. The Commission concludes that, since the State guarantee was granted in December 1999, it gave an advantage to HSY by providing financing which HSY could not have received from the market.

(110) Greece also claims that the guarantee fee of 1 % was the market price and there is therefore no advantage. The Commission notes that Greece did not provide any market data showing that banks were ready to grant a guarantee at that price. Greece only provided a list of guarantees provided by the State during the same period for the same price. The Commission fails to understand how this list of State guarantees could prove that the guarantee fee asked from HSY is market conform and does not constitute aid. In particular, this list can not be considered as ‘a State guarantee scheme [which] does not constitute State aid under Article 87(1)’ since, as the guarantee in favour of HSY illustrates, it does not fulfil many of the conditions laid down in section 4.3 of the Notice on guarantees. Furthermore, even if a guarantee fee of 1 % might have been market conform for other (healthy) companies, this would not automatically make it market conform for a company in difficulties like HSY.

(111) As regards the claim that a guarantee fee below the market price could be acceptable for a private investor in similar circumstances because Greece was shareholders of HSY, the Commission has already dismissed this claim in section 3.1 of the present decision.

(112) Section 3.1 also shows that from 30 June 1999 there was sufficient information available to conclude that HSY had not succeeded to conclude enough shipbuilding contracts to restore its viability and would face heavy losses in 1999 and 2000. Therefore, whereas the fact that the loan was financing an investment plan approved in 1997 by the Commission would have comforted a potential lender in 1997 and 1998, it would not have comforted a bank in December 1999 since it was clear that the business plan had failed. The corresponding point made by Greece must therefore be dismissed.

(113) Finally, as regards the fact raised by Greece that the loan is reimbursed in accordance with the terms of the contract, the Commission fails to see how it could prove that a private bank would have granted the loan in question. Indeed, what matters is the situation of the firm and the information available when the guarantee was granted (77). As a subsidiary element, the Commission observes that, in accordance with the information available at the time of the granting of the guarantee and on the basis of which it could be expected that the yard would book severe losses in the following years, the yard has really recorded heavy losses in the following years and its net equity really became very negative. In addition, HSY only survived (and thus is able to reimburse the loan) because of the continued support by State aid.

(114) From the foregoing, the Commission considers that the measure gives an advantage to HSY.

(115) This selective advantage distorts competition because it provides financing at a time when HSY would not have received financing from the market and was in difficulty. The measure therefore contributed to keep HSY alive and to finance its activities. Since some competitors of HSY are located in other Member States (78), this distortion of competition affects trade between Member States (79).

(116) Since it fulfils all the conditions laid down in Article 87(1) of the Treaty, the guarantee constitutes State aid. Since, contrary to the requirement laid down in Article 88(3) of the Treaty, it was granted without prior notification, it constitutes unlawful aid.

(117) Since the Commission has just demonstrated that a selective advantage granted to HSY distorts competition and trade, the Commission will not repeat the analysis of the existence of a distortion of competition and trade anymore when it will assess the remaining measures.

4.2.5.3. Compatibility of the aid

(118) As regards the compatibility under Article 87(2) and (3) of the Treaty, the Commission notes than none of the provisions laid down in Article 87(2) and Article 87(3)(b) and (d) apply. As regards the compatibility under Article 87(3)(a), (c) and (e), aid to shipbuilding was regulated from 1 January 1999 by Council Regulation (EC) No 1540/98 of 29 June 1998 establishing new rules on aid to shipbuilding (80) (hereinafter ‘Regulation (EC) No 1540/98’). Since the guaranteed loan aimed at financing an investment plan which was a part of a restructuring plan and since in addition HSY was in difficulty, the State guarantee should be assessed on the basis of Article 5 of Regulation (EC) No 1540/98. It is clear that the measure does not fulfil the conditions laid down in this article. In particular, Article 5 indicates that restructuring aid ‘may exceptionally be considered compatible with the common market provided that it complies with the Community guidelines on State aid for rescuing and restructuring firms in difficulties’. The guidelines applicable at the time of the grant were the 1999 R & R guidelines, which had been published in the Official Journal on 9 October 1999 (81) and which entered into force on the same day. Several of the conditions for authorisation of the aid laid down in section 3.2.2 of these guidelines are not fulfilled. For instance, regarding condition (b) ‘Restoration of viability’, the Commission notes that the State guarantee financed an investment plan which was part of a restructuring plan which, in December 1999, has become totally insufficient to restore the long term viability of HSY. Regarding the condition (d) ‘Aid limited to the minimum’, the Commission had already decided in decision N 401/97 that State aid could at the maximum amount to 50 % of the investment costs and the remaining 50 % would be financed by funds raised from the shareholders and by bank loans raised at market conditions. Consequently, no additional aid in favour of the investment plan could be granted otherwise the maximum aid intensity of 50 % would be breached. The State guarantee also breached the ‘one time, last time’ condition laid down in section 3.2.3 of the 1999 R & R guidelines since by decision N 401/97, the Commission had authorised investment aid, which, under Directive 90/684/EEC, was a kind of restructuring aid. This aid has been granted to HSY by Ministerial Decision of December 1997 (but, as described in recital 84 of the present decision, Greece indicates that it has not been paid out to HSY yet).

(119) On the basis of the foregoing, the Commission considers that the State guarantee constitutes unlawful and incompatible aid, which must be recovered. If it is still outstanding at the time of this decision, the State guarantee has to be stopped immediately. This is however insufficient to restore the situation that would have prevailed without aid since HSY has during several years benefited from a loan which it would not have received without State intervention. In order to recover this advantage, the Commission considers, in accordance with the conclusion reached in section 3.1 of the present decision, that the difference between the total cost of the guaranteed loan (interest rate and guarantee premium) and the reference rate for Greece increased by 600 basis points needs to be recovered for the years during which the guarantee was running.

(120) The Commission considers that this will restore the situation that would have existed without a State guarantee. Thereby, the breach of the prohibition of State guarantees and financing below market rate laid down in decision N 401/97 is eliminated.

4.3. GRD 1,56 billion (EUR 4,58 million) loan granted in 1999 (measure P3)

4.3.1. Description of the measure

(121) In 1999, HSY received a loan amounting to GRD 1,56 billion (EUR 4,58 million) from ETVA, which received as securities a right on the payment of the first tranche of the investment aid authorised by decision N 401/97. The loan was concluded on 28 July 1999 and fully paid out to HSY the next day. The initial duration was until 31 March 2001. After successive prolongations, it was reimbursed on 2 August 2004. The interest rate was ATHIBOR (EURIBOR from 1 January 2001) plus 100 basis points (82).

4.3.2. Grounds for initiating the procedure

(122) In the opening decision, the Commission indicates that the loan could constitute aid, the compatibility of which is doubtful. In addition, if it turned out that this loan benefited from a State guarantee, it seems to infringe decision N 401/97, which indicated that, in order to finance the investment programme, bank loans would be raised at normal market conditions without State guarantees.

4.3.3. Comments from interested parties

(123) Elefsis claims, in addition to the comments indicated previously with respect to measure P2, that since the measures P3 and P4 have been granted at a time when it was clear that HSY had failed to implement its restructuring/investment plan and had failed to respect the terms of decision N 401/97, there was a material risk that the security given for these loans, i.e. the payment of the approved investment aid, was unlawful and thus void and unenforceable.

4.3.4. Comments from Greece

(124) The Greek authorities (and HSY) claim that this loan was granted on market terms. In particular, the interest rate is similar to the one of some loans granted by ETVA to other firms during th