Proposal for a COUNCIL DECISION on extension of the Joint Undertaking status of Hochtemperatur-Kernkraftwerk GmbH (HKG)

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. EURATOM TREATY PROVISIONS ON JOINT UNDERTAKING STATUS

1. Article 45 of the Euratom Treaty provides for the establishment of Joint Undertakings which the Treaty defines as undertakings which are of fundamental importance to the development of the nuclear industry in the Community.

Under Article 46, every project for establishing a Joint Undertaking is subject to an inquiry by the Commission. For this purpose, the Commission obtains the views of Member States and of any public or private body which in its opinion can usefully advise it.

The Commission must forward to the Council any project for establishing a Joint Undertaking, together with its reasoned opinion.

Under Articles 47 to 49, Joint Undertakings are established by Council decision on a proposal from the Commission.

2. BACKGROUND ON HKG AND THE THTR 300 PROJECT

Reasons for the application

2. The objectives of Hochtemperatur-Kernkraftwerk GmbH (HKG) were to construct, equip and operate a nuclear power station at Uentrop (Unna district) in the Federal Republic of Germany. This was to be a prototype thorium-fuelled high-temperature reactor with a capacity of approximately 300 MWe (Thorium High-Temperature Reactor - THTR 300). In order to attain this objective, HKG applied for establishment as a Joint Undertaking.

3. The Council found that HKG's statutes were compatible with the provisions of the Euratom Treaty relating to Joint Undertakings and that, at the time, HKG's project was of fundamental importance to the development of the nuclear industry in the Community and therefore granted HKG Joint Undertaking status for a period of 25 years from 1 January 1974.

4. HKG also applied for certain advantages listed in Annex III to the Euratom Treaty.

Considering that:

- the nuclear power station was to be constructed by a consortium of Community undertakings and nearly exclusively with components from the Community;

- construction of the power station would allow considerable improvements in the technical processes for generating electricity on an industrial scale;

- conferment on HKG of advantages listed in Annex III to the Treaty could lighten the financial burden and limit the economic risks inherent in such an undertaking;

- HKG was to make available to the Community the non-patentable information it would collect in the course of implementing the nuclear power station project,

the Council decided to confer some of the advantages listed in Annex III to the Euratom Treaty, in particular in the form of exemption from some taxes. These advantages were conferred for a period ending three years after final acceptance of the power station by the undertaking.

Original decisions

5. In June 1974 the Council, acting on proposals from the Commission, adopted two decisions:

- Council Decision 74/295/Euratom of 4 June 1974 on the establishment of the Joint Undertaking Hochtemperatur-Kernkraftwerk GmbH (HKG) (OJ L 165, 20.6.1974, pp 7 to 13);

- Council Decision 74/296/Euratom of 4 June 1974 on the conferring of advantages on the Hochtemperatur-Kernkraftwerk GmbH (HKG) Joint Undertaking (OJ L 165, 20.6.1974, pp 14 to 15).

Amendments to the original decisions

6. On 11 July 1983 the general meeting of the Joint Undertaking decided to increase the company's subscribed capital. This increase called for an amendment to the statutes of the Joint Undertaking.

The Joint Undertaking also requested an extension of the exemption from the "Kapitalverkehrsteuer" conferred in 1974 on the assets contributed, in line with the abovementioned increase in capital.

7. Considering that:

- the amendment to the statutes had no effect on the provisions governing the Joint Undertaking and was consistent with the development of the project;

- and extension of the exemption could reduce financing expenses and thereby limit the economic risks inherent in such an undertaking,

in February 1984 the Council adopted two decisions adapting the 1974 decisions to the increase in HKG's capital:

- Council Decision 84/104/Euratom of 21 February 1984 approving an amendment to the Statutes of the Joint Undertaking HKG (OJ L 58, 29.2.1984, p. 35);

- Council Decision 84/105/Euratom of 21 February 1984 amending Decision 74/296/Euratom on the conferring of advantages on the Joint Undertaking HKG (OJ L 58, 29.2.1984, p. 37).

Service record of the power station and reasons for change of objective

8. HKG finally accepted THTR 300 on 1 June 1987. The power station operated until 29 September 1988, when it was shut down. During that period operations were interrupted on a number of occasions due to faults.

9. Economic, technical and fuel element supply difficulties, combined with problems in obtaining authorisation to restart the plant due to financial uncertainties, resulted in the decision, taken on 1 September 1989, immediately to shut down the plant definitively.

10. Since then the Joint Undertaking's objectives have become shutdown of the reactor, core unloading, construction of the safe enclosure and surveillance. On 13 December 1989 a contract on controlled decommissioning of the THTR 300 project was concluded between the Federal authorities, the Land of North Rhine-Westphalia, HKG and its members. This included provisions on the financial aspects.

Consequent further applications

11. The tax advantages conferred on HKG by Decision 74/296/Euratom expired on 31 May 1990, three years after final acceptance of the power station by the undertaking on 1 June 1987.

12. By letters of 9 February and 6 March 1990 the members of HKG submitted a request for the advantages conferred to be extended until HKG's Joint Undertaking status expired and for the advantages to be adjusted to the undertaking's situation at the time, which had necessitated additional financial contributions regarded, for tax purposes, as contributions of assets.

HKG was implementing a programme for decommissioning the nuclear power station up to the safe enclosure stage and proposed, thereafter, to carry out a programme of surveillance of the nuclear installations concerned.

13. The Council considered that there was no equivalent to these programmes in the Community and that implementation thereof was, therefore, important to provide useful experience for the nuclear industry and the future development of nuclear energy in the Community.

The Council also considered it advisable to assist HKG with implementation of the programmes by lightening its financial burden and, therefore, to extend the advantages conferred.

By its Decision of 16 November 1992 the Council extended the advantages conferred on HKG until its Joint Undertaking status established by Decision 74/295/Euratom ended, i.e. until 31 December 1998.

3. LATEST DEVELOPMENTS

14. On 30 March 1998 HKG applied to the Commission for extension of its Joint Undertaking status for a further 25 years beyond 31 December 1998.

The reason given for this request was the importance of the experience which would be gained from the definitive shutdown and decommissioning operations to the nuclear power industry in Germany, Europe and worldwide. This view was based on the fact that THTR 300 is the largest reactor of its type in the world and that the unique configuration of the plant, particularly with regard to the enclosure, provides an unprecedented opportunity to acquire experience on the results and costs of enclosure.

HKG stated that the tax advantages were no longer necessary following the changes made to the German tax law and the depreciation of the power station site.

HKG added that on 13 November 1989 the Federal Republic, the Land of North Rhine-Westphalia, HKG and its members had concluded a framework agreement with a view to completing the final phase of the THTR 300 project. This framework agreement and the amendment annexed thereto on 18 December 1996 govern the phases up to 2009, including the arrangements for financing HKG's activities.

15. In its acknowledgement of receipt dated 25 June 1998 the Commission requested clarification of three points:

- what approaches had been made to the German authorities in connection with the request for extension of the Joint Undertaking status-

- which interests lay behind the request, given that the tax advantages conferred as a result of this status were no longer needed-

- which reasons prompted the request for the 25-year extension-

16. After receiving no reply from HKG, on 9 November 1998 the Commission sent a second letter to the undertaking reminding it that the clarifications sought before initiating the appropriate procedure had not been given.

17. In its reply dated 25 November 1998 HKG confirmed its interest in extending its Joint Undertaking status and supplied the following further details:

- HKG had informed the Federal Ministry for Education and Research and the Federal and regional Ministries responsible for decommissioning of the THTR 300 plant of its application;

- it admitted that its previous statement that it no longer needed the tax advantages was a mistake and asked for these advantages to be maintained since further amendments of the tax legislation could once again add to its tax burden;

- as regards the 25-year extension of the Joint Undertaking status, HKG said that the current authorisations and plans provided for maintaining the safe enclosure for 30 years. Dismantling of the irradiated elements could take place after a 30-year decay time, either in 2019, counting from the definitive shutdown, or in 2027, counting 30 years' safe enclosure. The current final disposal situation in Germany and Europe allows no definitive schedule for dismantling of the plant and rehabilitation of the site and therefore warrants the request for a 25-year extension of the status.

The Commission acknowledged receipt of this letter on 21 December 1998.

18. It also set up an interservice working party to conduct the inquiry provided for by Article 46(1) of the Euratom Treaty.

4. PRELIMINARY MEASURES BY THE COMMISSION

19. The first conclusion which must be drawn is that Council Decision 74/295/Euratom expired on 31 December 1998 and, with it, the Joint Undertaking status granted to HKG. Also, since 1989 HKG's objectives have changed compared with 1974.

20. Under these conditions, in its letter dated 21 January 1999 the Commission suggested that HKG submit a new application for Joint Undertaking status based on its current objectives.

The Commission informed the German authorities and asked them for their initial response to HKG's request for extension of its Joint Undertaking status and for maintaining the tax advantages conferred in 1974 and extended in 1992.

21. By letter of 15 March 1999 HKG sent the Commission a further request to grant it Joint Undertaking status and maintain its tax advantages. The Commission replied to this letter on 12 May 1999.

22. Article 46 of the Euratom Treaty requires the Commission, in the course of the inquiry which it has to conduct, to obtain the views of the Member States and of any public or private body which in its opinion can usefully advise it.

To this end, on 1 June 1999 the Commission sent a letter to the Permanent Representatives of the Member States containing all the relevant details and requesting their opinions.

23. In reply, Germany supported HKG's request and stated that the Federal Government was in favour of maintaining the tax advantages granted.

24. Other Member States (Finland, Ireland, Portugal, Sweden and the United Kingdom) also supported the request. Soundings of the other Member States also elicited a positive response.

25. The United Kingdom Government asked for figures demonstrating the financial benefits derived from the Joint Undertaking status in the past and those expected in the future. HKG was asked to supply this information and replied that payments on the funding and subsidies would have added approximately 22 million Euro to the tax burden over the period from 1974 to 1998, which would have had to be compensated for by additional funding or subsidies. The tax advantages linked to the extension of the Joint Undertaking status are estimated by the undertaking at approximately 89500 Euro per year.

26. On 16 November 1999 the Commission asked HKG for further details, particularly on the tax advantages requested.

In its reply dated 13 June 2000 HKG stated that, following the entry into force of new tax legislation in Germany, it was requesting extension of the following advantages:

- exemption from the tax on the acquisition of immovable property (Grunderwerbsteuer) - paragraph 4 of Annex III to the Treaty;

- exemption from land tax (Grundsteuer) and exemption from the part of the industrial or commercial profits tax which is levied, pursuant to Article 8 point 1 of the Gewerbesteuergesetz (trade tax law), on the interest due on long-term debt - paragraph 5 of Annex III to the Treaty.

5. CONCLUSIONS

27. The Commission considers that the arguments accepted by the Council in 1992 for maintaining HKG's Joint Undertaking status and advantages are still valid today; in particular, the undertaking's activities are still the same and the context in which it performs them is identical. The Commission therefore proposes that the Council extend its 1992 decisions.

28. The arrangements concluded between the Federal Republic, the Land of North Rhine-Westphalia, HKG and its members for financing HKG's activities apply only for a period up to 31 December 2009.

29. The Commission therefore proposes that the Council, in accordance with the period arranged between the German authorities and HKG, approve extension of the Joint Undertaking status and of the advantages conferred on HKG for the same period, that is until 31 December 2009.

Proposal for a COUNCIL DECISION on extension of the Joint Undertaking status of Hochtemperatur-Kernkraftwerk GmbH (HKG)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Atomic Energy Community, and in particular Article 49 thereof,

Having regard to the proposal from the Commission [1],

[1] OJ C , , p. .

Whereas:

(1) By Decision 74/295/Euratom [2], the Council established Hochtemperatur-Kernkraftwerk GmbH (HKG) as a Joint Undertaking, within the meaning of the Treaty, for a period of 25 years as from 1 January 1974.

[2] OJ L 165, 20.6.1974, p. 7.

(2) The objectives of Hochtemperatur-Kernkraftwerk GmbH (HKG) were to construct, equip and operate a nuclear power station with a capacity of approximately 300 MWe at Uentrop (Unna district) in the Federal Republic of Germany.

(3) After being in operation from 1987 to 1988, the nuclear power station was finally shut down on 1 September 1989 as a result of technical and economic difficulties.

(4) Since that date the objective of HKG has been to implement a programme for decommissioning the nuclear power station up to the safe enclosure stage and, thereafter, to carry out a programme of surveillance of the enclosed nuclear installations.

(5) By its Decision of 16 November 1992 extending the conferment of advantages on the HKG Joint Undertaking, the Council recognised that there was no equivalent to these programmes in the Community, that implementation thereof was important and that they provided useful experience for the nuclear industry and the future development of nuclear energy in the Community.

(6) In order to achieve its objective, HKG requested extension of its Joint Undertaking status with effect from 1 January 1999.

(7) Extension of its Joint Undertaking status will enable HKG to complete its decommissioning and surveillance programmes, notably by lightening the financial burden.

(8) Arrangements for financing HKG's activities have been agreed between the Federal Republic of Germany, the Land of North Rhine-Westphalia, HKG and its members for the period up to 31 December 2009.

(9) HKG's Joint Undertaking status should therefore be extended for the same period.

HAS ADOPTED THIS DECISION:

Article 1

1. The Joint Undertaking status, within the meaning of the Treaty, granted to Hochtemperatur-Kernkraftwerk GmbH (HKG) is hereby extended for eleven years with effect from 1 January 1999.

2. The objective of HKG shall be to implement a programme for decommissioning a nuclear power station up to the safe enclosure stage and, thereafter, to carry out a programme of surveillance of the enclosed nuclear installations.

3. The power station is located at Uentrop (Unna district) in the Federal Republic of Germany.

Article 2

This Decision is addressed to the Member States and to HKG.

Done at Brussels,

For the Council

The President