REPORT FROM THE COMMISSION on the Application of the Community Rules for State Aid to the Coal Industry in 1998 and 1999

1. Introduction

Article 10 of Commission Decision No 3632/93/ECSC of 28 December 1993 establishing Community rules for State aid to the coal industry requires the Commission to report each year to the Council, the European Parliament and the ECSC Consultative Committee on the application of these rules.

This report examines the financial aid granted by France, Germany, Spain and the United Kingdom to their coal industries in 1998 and 1999.

Such measures may be considered compatible with the proper functioning of the common market only if they help to achieve at least one of the following objectives:

- to make, in the light of coal prices on international markets, further progress towards economic viability with the aim of achieving degression of aid;

- to solve the social and regional problems created by total or partial reductions in the activity of production units;

- to help the coal industry adjust to environmental protection standards.

As required by Article 8 of the Decision, the Member States submitted to the Commission their plans to modernise, rationalise and restructure the coal industry. After examining the plans the Commission delivered opinions on their conformity with the general and specific objectives set by Articles 2, 3 and 4 of Decision No 3632/93/ECSC, and in particular the Decisions adopted on 13 December 1994 [1] for Germany and Spain, 19 July 1995 [2] for France, and 1 June 1994 [3] for the United Kingdom. In accordance with Article 9(1) of Decision No 3632/93/ECSC, the Member States notified all the financial aid they intended to grant for 1998 and 1999, as they had for the previous years, on the basis of these modernisation, rationalisation and restructuring plans. The Commission's rulings on these measures were given in the Decisions set out below:

[1] Decision No 94/1070/ECSC and Decision No 94/1072/ECSC - OJ L 385, 31.12.1994. p. 18 and p. 31 (respectively).

[2] Decision No 95/465/ECSC - OJ L 267, 9.11.1995, p. 46.

[3] Decision No 94/574/ECSC - OJ L 220, 25.8.1994, p. 12.

>TABLE POSITION>

The amounts of financial aid referred to in this document are the final figures authorised by the Commission for 1998 and 1999 under Decision No 3632/93/ECSC. Aid for various purposes such as, for example, the specific social benefits paid by the Member States as part of the special contribution provided for under Article 56 of the ECSC Treaty is therefore not included. This is the fourth report under Article 10 of this Decision following its entry into force on 1 January 1994.

2. Coal industry and market

2.1. Production

In 1998, coal production in the European Union totalled 106.4 million tonnes, down by 15.5 million tonnes compared with 1997. This reflects the general downward trend over the past few years, and should be further confirmed since the production forecast for 1999 is approximately 100 million tonnes.

Table 1

Coal production (1000 t)

>TABLE POSITION>

Source: Eurostat: yearly (1992-1997) and monthly (1998-1999) statistics

2.2. Employment

Continuation of the measures to rationalise and reduce activity in the coal industry in most coal-producing countries led to a further drop in employment figures. In 1998 and 1999, the workforce was reduced by 20 000, to total at a level of 106 000 workers. The biggest drop in absolute terms was in Germany (11 700 job losses), followed by Spain (approximately 6 000) and France (more than 2 000). Significant job losses - approximately 2 000 - were also recorded in the United Kingdom, although widespread recourse to subcontracting in the exploitation of deposits is hampering the compilation of precise statistics. Further cutbacks are anticipated in 2000, particularly in Germany and the United Kingdom.

2.3. Coal demand and trade

Internal deliveries of coal within the Community (including net imports) totalled 265.4 million tonnes in 1998, compared with 273.9 million tonnes in 1997. This development is largely due to the electricity generating sector, which has always been the main coal user in the European economy, accounting for almost 70% of total consumption. This downward trend continued in 1999 with total internal deliveries estimated at less than 250 million tonnes.

Table 2

Total internal deliveries of coal (1000 t)

>TABLE POSITION>

Source: Eurostat: yearly (1992-1997) and monthly (1998-1999) statistics

In 1998 and 1999, coal imports from third countries remained stable at 150.9 million tonnes, as in 1997. The price of coal - unlike that of hydrocarbons - remained largely stable on the international markets in 1999. A further important point is that imported coal from third countries is gradually replacing Community coal in some sectors of the market, for ecological as well as economic reasons, since the imported coal may be of higher quality or contain fewer pollutants. Finally, the transport of coal by sea does not give rise to any major environmental problems. Unlike oil tankers, ships transporting coal do not cause large scale pollution in the event of shipwreck or collision and there are fewer risks of fire.

Table 3

Imports of coal from third countries (1000t)

>TABLE POSITION>

Source: Eurostat: yearly (1992-1997) and monthly (1998-1999) statistics

3. Situation in European Union coal fields

3.1. Germany

In what is now the main coal producing country in the European Union, the coal industry is in effect concentrated in two fields, the Ruhr and the Saar. Production is centred on 16 pits, employing about 67 000 workers, including 37 000 underground.

On 13 March 1997, an agreement was signed between the German Government, the Länder of North Rhine-Westphalia and Saarland, the trade unions and the coal producers on the future of the German coal industry. It provides for annual aid, currently standing at 9.4 billion German marks, to be reduced progressively to 5.5 billion by 2005. The Federal Government's share of the bill was to drop from DM 7.7 billion in 1998 to DM 3.8 billion in 2005, while that of North Rhine-Westphalia would increase, rising from 860 million to DM 1 billion. Saarland's contribution would, as in the past, be paid by the Federal Government. The plan announced by the companies involved reducing production by around 20% by 2002 and cutting back the workforce to around 56 000. Subsequently, production would be brought down to 25 million tonnes in 2005 and by that date only ten mines would still be in service. Production should fall to 35 million tonnes from the year 2000. Mining would cease completely in three pits between now and the year 2000 and, what is more, four mines would be grouped together into two units. Following these restructurings, the costs of production, expressed in 1992 prices, should fall to DM 229 per tce (tonne coal equivalent) in the year 2000, compared with DM 288/tce in 1992 and around DM 270/tce in 1997. This is still, however, way out of line with prices on the international markets, currently around DM 60/tce.

In addition, the merging of the three German coal producers (Ruhrkohle AG, Saarbergwerke AG and Preussag Anthrazit GmbH) into a single entity, Deutsche Steinkohle AG (DSK), provided for by the same agreement, was approved by the Commission on 29 July 1998. The Decision, adopted under Article 66 of the ECSC Treaty, concerns only the effects of the merger and hence does not deal with any State aid questions which might be raised by the operation. The new company centralises the nation's entire coal production. The merger concerned not only the mining activities of these companies but also affected significant areas of their non-mining activities.

3.2. Spain

In Spain, coal mining is spread over a number of fields: Asturias (Central and Western field), Léon (Bierzo-Villablino, Sabero and Nord), Palencia (Guardo and Barruelo), Cataluña (Pirenaica), Teruel (Teruel-Mequinenza), Sud (Puertollano and Peñaroya). The Spanish coal fields are small, geographically isolated areas which are highly dependent on coal mining. This has a direct effect on the possibility of redeployment and reindustrialisation and, consequently, on the employment level. Around eighty undertakings, mostly private (following the recent privatisation of Endesa, the only exception is Hunosa, which recently took over Minas de Figaredo), share production and employ some 17 000 underground workers. Only four undertakings produce more than one million tonnes annually and 12 more than 200 000 tonnes. On 31 March 1998, Spain presented the second part of the plan to modernise, rationalise and restructure the coal industry, concerning the years 1998-2002. The plan involves reducing production annually, which should not exceed 14.5 million tonnes in 2002, and mentions some of the mines in which this reduction will have to be achieved. Finally, in accordance with the guidelines of Decision No 3632/93/ECSC, it provides for an additional, gradual reduction in aid to current production of 4% per year for underground workings and 6% for open-cast mining. The UMINSA company, bringing together 17 previously independent mines in the regions of Léon and Palencia, came into existence in the years 1998 to 1999. With its production of 1.6 million tonnes, UMINSA is among the foremost producers in the country.

3.3. France

In France, coal mining is now concentrated on the Lorraine coal field, with two underground mines in operation and the Centre-Midi coal field, with five mines, one of which is underground. The industry employs 9 164 people, fewer than half of whom work underground. The country's only producer, Charbonnages de France, is a public sector undertaking. As part of the process of reducing production capacity which has been under way for many years and which is mainly due to unfavourable geological conditions, over 22 000 jobs were lost between 1986 and 1999. Under the National Coal Pact agreed between the two sides of industry in 1995, this process will have to continue over the next few years, leading to the complete cessation of coal mining in France by the year 2005. The seriousness of the social and regional problems has prevented the French Government from keeping to the 2002 deadline provided for in Decision No 3632/93/ECSC. The main thing, however, is that the French authorities have recognised the total lack of any prospect of the French coal industry becoming competitive in the medium or long term and are firmly committed to a reduction of activity and programmed closures.

3.4. United Kingdom

For many years, the United Kingdom was the European Union's largest coal producer. The sector has gone through a drastic restructuring process, particularly with the privatisation of the British Coal Corporation in 1994, as a result of which the number of large collieries in operation has fallen from 241 in 1976 to the current 17. There are also around 50 small mines (employing fewer than 100 persons) and a variable number of open-cast workings. Over the same period, the number of workers has dropped from over 300 000 to less than 12 000 and production from 125 million tonnes to around 36 million tonnes.

Since the privatisation of British Coal was completed on 31 December 1994, the coal industry in the United Kingdom has consisted solely of private undertakings. The largest is RJB Mining (13 pits in total), while Hatfield Coal Company, Goire Tower Anthracite Company, Scottish Coal and Blenkinsopp Collieries have one pit each. Celtic Energy operates a number of open-cast workings. The Ellington pit, one of the largest in the country, could close shortly. Thanks to the concentration of activity on the most productive mines and strenuous and protracted efforts to increase viability, these companies, none of which receive State aid, have production costs which are only slightly higher than prices on the world market. In 1998, the multiannual supply contracts concluded in 1993 with the electricity generating companies came up for renewal. These contracts, in which prices were pre-set and calculated to decrease over time while remaining higher than international market prices, guaranteed a remunerative market for British coal production. Following lengthy discussions, the major electricity producers have concluded new contracts whereby either the quantities are reduced or the duration is shorter. Despite considerable improvements in productivity, however, the national companies are now facing competition from imported coal and, to an even greater extent, from gas. Imported coal, apart from its more competitive price, often has the advantage of a lower sulphur content, which enables the electricity generating companies to comply with the stringent restrictions on emissions without having to install costly gas scrubbing equipment, while gas not only produces fewer pollutants, but also, with the new combined cycle gas turbine technology (CCGT), enables over 50% efficiency to be achieved in converting thermal energy into electricity. In 1998, the Secretary of State for Trade and Industry presented to Parliament a report on the United Kingdom's energy policy expressing the intention to limit building permits for new gas-fired power stations and encouraging the maintenance of a large number of power stations fuelled by coal to guarantee the country sufficient diversification of energy sources. In April 1999 John Battle, the Minister for Energy, announced that a grant of £12 million spread over three years would be awarded for research into clean combustion methods for coal.

3.5. Others

Coal production ceased in Belgium in 1992 and in Portugal in 1994. There is no significant production in any other European Union country.

4. Financial aid scheduled for the coal industry

This report covers the measures set out in Article 1 of Decision No 3632/93/ECSC, viz:

- any direct or indirect measure or support by public authorities linked to production, marketing and external trade which, even if it is not a burden on public budgets, gives an economic advantage to coal undertakings by reducing the costs which they would normally have to bear;

- the allocation, for the direct or indirect benefit of the coal industry, of the charges rendered compulsory as a result of State intervention, without any distinction being drawn between aid granted by the State and aid granted by public or private bodies appointed by the State to administer such aid;

- aid elements contained in financing measures taken by Member States in respect of coal undertakings which are not regarded as risk capital provided to a company under standard market-economy practice.

This report classifies aid according to the categories used in Articles 3, 4, 5, 6 and 7 of Decision No 3632/93/ECSC, i.e. distinguishing between operating aid, aid for the reduction of activity, aid to cover exceptional costs, aid for research and development and aid for environmental protection.

For all requests for authorisation it approved in accordance with Article 9 of Decision No 3632/93/ECSC, the Commission checked that the Member States concerned had provided all the required information and, on the basis of that information, that the measures were in line with the general criteria and objectives laid down in Article 2 of the Decision and with the specified criteria, viz.:

- Aid granted under Article 3: this must not exceed the difference between production cost and the price on the international market; coal may not be placed on the market at a price lower than that charged for coal of a similar quality produced in third countries; the aid must not distort competition between users; principle of annual correction.

- Aid granted under Article 4: requirement to present and respect a closure plan.

- Aid granted under Article 5: this must not exceed the costs it is intended to cover; strictly limited to the costs expressly mentioned in the Annex to Decision No 3632/93/ECSC.

When assessing aid, the Commission took full account of the need to mitigate as far as possible the social and regional consequences of the restructuring of mining activity, in accordance with the second indent of Article 2(1) of Decision 3632/93/ECSC. It also checked that the aid was compatible with the proper functioning of the common market.

A breakdown of the overall amount of aid granted by the Member States spread over these different categories also gives a fairly clear idea of the coal policy being pursued at national level and of the progress being made in the modernisation, rationalisation and restructuring process. Finally, we would reiterate that aid for various purposes, such as, for example, the specific social benefits paid by the Member States as part of the special contribution provided for under Article 56 of the ECSC Treaty is not included.

Table 4

Aid authorised 1994-1999

>TABLE POSITION>

Figures expressed in million ecus/euros: State aid authorised in national currency has been converted into ecus/euros at the average exchange rate for the reference year. The totals for 1997, 1998 and 1999 do not include the figures for France.

* Aid granted under Article 3 of Decision No 3632/93/ECSC.

** Aid granted under Article 4 of Decision No 3632/93/ECSC.

*** Inherited liabilities under Decision No 2064/86/ECSC and aid granted under Articles 5, 6 and 7 of Decision No 3632/93/ECSC

**** France notified the aid granted for 1997, 1998 and 1999 but it was not authorised and is still being considered by the Commission.

Compared with 1994, there was a certain reduction in production-related aid per tonne of coal extracted (the calculations for 1997, 1998 and 1999 do not include France), which is in line with the degression principle established in Decision No 3632/93/ECSC. The increasing deployment of aid for the reduction of activity, on the other hand, has caused the overall total to rise, reducing the true significance of this result. The possibility of a Community coal industry which can compete commercially on the international markets appears more and more to be receding, despite the considerable efforts made by producers on both the technological and organisational fronts to improve productivity.

There are two main reasons for this result. The first is that, as the most easily accessible seams are exhausted, the coal has to be mined in increasingly difficult geological conditions and at greater and greater depths, in some cases exceeding 1 500 metres. This is exacerbated by more stringent regulations on mining health and safety and environmental protection, application of which has inevitably increased costs, with the result that, over the reference period, production costs have not fallen as anticipated.

Secondly, the price of coal on the international markets has dropped considerably over the past few years, for various reasons. Several non-European producers already operating on the international markets, for example, have adopted more efficient extraction methods, assisted by more favourable geological conditions; others, such as China, which in the past produced only for the domestic market, have begun to export coal, adopting aggressive marketing policies; the specific economic situation in other traditionally exporting countries, such as Indonesia and South Africa, where the national currencies are undergoing substantial devaluation and there is an urgent need to obtain hard currency, and the low price of natural oil and gas, have put strong pressure on prices to drop.

In short, the gap between production costs in the Community coal industry and the price of coal on the international markets, which is the main basis for calculating State aid, has become entrenched over the years rather than narrowing as hoped.

In practice, the only significant reductions have been in Portugal, where mining activities ceased completely at the end of 1994, and in the United Kingdom which, while maintaining a considerable degree of mining activity, has cut production drastically, keeping open only the most profitable mines. Of particular note is the position of France, which aims to cease all mining activity by 2005. The more cautious approach adopted by Germany and Spain, which have not taken any final decision, seems to be dictated by social and regional concerns rather than any kind of realistic prospect of their coal industry achieving economic equilibrium.

The aid granted by the various Member States is described in detail below.

4.1. Germany

Germany's aid to the coal industry under Article 3 and 4 of Decision No 3632/93/ECSC was restricted, as from 1996, to aid for coking coal intended for the steel industry, aid for steam coal for electricity generation, and aid to maintain an underground labour force (Bergmannsprämie). Such aid is meant to cover the difference between production costs and selling prices freely negotiated on the basis of conditions prevailing on the world markets for coal of a similar quality originating in non-member countries. Consequently, production for domestic and industrial consumption must be sold at prices which cover production costs. This aid was approved by the Commission, which took due account of the social and regional impact of the restructuring of the coal industry. The unemployment rate in the affected areas is indeed considerably higher than in the rest of the country. What is more, these areas are also generally eligible for aid from the Structural Funds, under the Objective No 2 priorities. This aid has been entered in the federal budget and thus meets the requirements of Article 2(2) of Decision No 3632/93/ECSC.

4.1.1. 1998

For 1998, the Commission authorised DM 9 427 million (ECU 5311.2 million) in aid to the coal industry (under Articles 3, 4 and 5 of Decision No 3632/93/ECSC), the most important destinations of which were:

- (a) DM 5 171 million in operating aid under Article 3;

- (b) DM 3 164 million in aid for the reduction of activity under Article 4;

- (c) DM 81 million under a system to maintain an underground labour force (Bergmannsprämie) under Article 3;

- (d) DM 161 million for Article 5 to cover exceptional costs incurred in pumping out pits and purifying water which had infiltrated from inactive pits, for RAG AG, Saarbergwerke AG, Preussag Anthrazit GmbH and Sophia Jacoba GmbH;

- (e) DM 850 million in aid under Article 5 (exceptional costs) for RAG AG, Saarbergwerke AG and Sophia Jacoba GmbH, to enable these companies to cover costs resulting from the restructuring of the coal industry and which are not linked to current production.

The subsidies mentioned under (a), totalling DM 5 171 million, went to the following mines of RAG AG: Friedrich Heinrich/Rheinland, Niederberg, Walsum, Lohberg/Osterfeld, Prosper/Haniel, Westerholt, Auguste Victoria, Blumenthal/Haard and Heinrich Robert. In the case of Saarbergwerke AG, the aid was destined for the Ensdorf and Warndt/Luisenthal mines and in the case of Preussag Anthrazit GmbH, to the Ibbenbüren pit.

The DM 3 164 million in aid for the reduction of activity, mentioned under point b), was paid to the Ewald/Hugo, Westfalen, Fürst Leopold/Wulfen and Haus Aden/Monopol pits of RAG AG. This aid was also paid to the Göttelborn/Reden pit belonging to the Saarbergwerke AG company. This aid was part of the programme for the total or partial closure of the mines, mentioned above, under the agreement of 13 March 1997.

The DM 81 million referred to in c), intended to finance the Bergmannsprämie supplement of DM 10 per shift worked underground, is an incentive measure to encourage skilled mining personnel to work underground and help rationalise production. It indirectly covers part of the difference between the cost of production and foreseeable income. What is more, this aid reduces by that amount the cost of production of the coal industry and must therefore be examined in the light of Article 3 of Decision No 3632/93/ECSC.

The DM 161 million granted to RAG AG, Saarbergwerke AG and Preussag Anthrazit GmbH, referred to in d), is to cover the exceptional costs incurred for pumping out pits closed down under restructuring measures which are situated next to pits still in production. Given that the closed pits no longer have the equipment to evacuate such water or, if they do, the installations concerned are not working at full pace, there are additional influxes of water which are in no way linked with current production but which are occurring in neighbouring pits still in production and thus causing additional costs. This aid, awarded pursuant to Article 5 of Decision No 3632/93/ECSC, is explicitly mentioned in Title II (b) of the Annex to this Decision.

The DM 850 million in aid, referred to in e), paid to Ruhrkohle AG, Saarbergwerke AG and Sophia Jacoba GmbH, was to cover restructuring costs not linked to current production (inherited liabilities). It was granted as a result of decisions taken at the Kohlerunde negotiations of 11 November 1991 between the coal industry, the Federal Government, the Land governments of North Rhine-Westphalia and Saarland, the trade unions in the coal sector and the electricity generators, and is intended to cover social security benefits payable to workers forced to take early retirement, other exceptional costs, supply of free coal to workers made redundant as a result of restructuring and rationalisation and payment of allowances outside the statutory system to workers made redundant as a result of restructuring and rationalisation and those entitled to such benefits prior to restructuring. On the technical and financial side, the aid is intended for the supplementary safety measures needed underground and the exceptional intrinsic depreciation resulting from the restructuring of the industry. This aid is also granted pursuant to Article 5 of Decision No 3632/93/ECSC and is explicitly mentioned in Title II, paragraphs a), b), c), d), f) and k) of the Annex to this Decision.

The restructuring plan for 1998-2002 was examined by the Commission in accordance with Article 8 of Decision No 3632/93/ECSC in connection with the authorisation of aid for 1998.

4.1.2. 1999

For 1999, the Commission authorised a total of DM 9 193.3 million (EUR 4 700.5 million) in aid to the coal industry (under Articles 3, 4 and 5 of Decision No 3632/93/ECSC). The main destinations were:

- (a) DM 5 141 million as operating aid under Article 3;

- (b) DM 3 220 million in aid for the reduction of activity under Article 4;

- (c) DM 73 million in aid for the Bergmannsprämie scheme to maintain an underground labour force under Article 3;

- (d) DM 11.3 million under Article 5 to the company RAG Aktiengesellschaft to cover exceptional costs;

- (e) DM 748 million in aid to cover exceptional costs under Article 5 and paid to the companies RAG Aktiengesellschaft and Sophia Jacoba GmbH, to enable them to cover costs resulting from a restructuring of the coal industry and which are not linked to current production.

The subsidies referred to in a), totalling DM 5 141 million, were paid to the pits of the following companies: RAG Aktiengesellschaft, Preussag Anthrazit GmbH [4], Dr Arnold Schäfer GmbH and Merchweiler GmbH. As regards RAG Aktiengesellschaft, the aid went in particular to the following pits: Friedrich Heinrich/Rheinland, Niederberg, Walsum, Lohberg/Osterfeld, Prosper/Haniel, Westerholt, Auguste Victoria, Blumenthal/Haard and Heinrich Robert and to the Ensdorf and Warndt/Luisenthal mines which have belonged to RAG Aktiengesellschaft since 1 January 1998. In the case of Preussag Anthrazit GmbH, the aid was paid to the Ibbenbüren colliery.

[4] Although Preussag Anthrazit GmbH was taken over by RAG AG on 1 January 1999, it is still run as a separate entity.

The aid for reduction in activity, totalling DM 3 220 million, referred to under b), was paid to RAG Aktiengesellschaft's following mines: Fürst Leopold/Wulfen, Ewald/Hugo, Haus Aden/Monopol and Westfalen and also to the Göttelborn/Reden pit which has belonged to RAG Aktiengesellschaft since 1 January 1998. In accordance with Article 4 of Decision No 3632/93/ECSC, the Göttelborn/Reden, Westfalen and Ewald/Hugo coal mines will cease all activity before the date on which the decision expires, namely 23 July 2002. More precisely, the Ewald/Hugo site will close down on 30 April 2000 and not in July 2002 as initially planned, on account of the ceiling imposed on aid and the fall of coal prices in the world market.

The aid totalling DM 73 million referred to in c) and intended to finance the Bergmannsprämie supplement of DM 10 per shift worked underground, is an incentive measure to encourage skilled mining personnel to work underground and to help rationalise production. It indirectly covers part of the difference between the cost of production and foreseeable income. In addition, this aid reduces by that amount the cost of production of coalmining companies and must thus be examined in the light of Article 3 of Decision No 3632/93/ECSC.

The aid amounting to DM 11.3 million and aimed at covering exceptional costs and paid to RAG Aktiengesellschaft, referred to in d), must cover the additional cost of pumping out waste water from pits closed down under restructuring measures and which are situated next to pits still in production, as described in detail in the relevant section for 1998, paragraph d).

The DM 748 million in aid referred to e) and paid to RAG Aktiengesellschaft and Sophia Jacoba GmbH, was to cover restructuring costs not linked to current production (inherited liabilities). Part of this aid, namely DM 609 million, was granted as a result of decisions taken at the Kohlerunde negotiations of 11 November 1991 between the coal industry, the Federal Government, the Land Governments of North Rhine-Westphalia and Saarland, the trade unions in the coal sector and the electricity generators. The remainder, i.e. DM 139 million, results from new closures decided on 13 March 1997. This aid is aimed at covering the costs described in detail in the relevant section for the year 1998, paragraph e).

4.2. Spain

4.2.1. 1998

For 1998, the Commission authorised a total of PTA 193 817 million (ECU 1 159.3 million) in aid to the coal industry under Articles 3, 4 and 5 of Decision No 3632/93/ECSC. The main destinations were:

- (a) PTA 59 443 million as operating aid, under Article 3;

- (b) PTA 67 412 million in aid for the reduction of activity under Article 4;

- (c) PTA 54 967 million under Article 5, aimed at financing exceptional welfare benefits payable to workers made redundant as a result of modernisation, rationalisation, restructuring and reduction of activity in the Spanish coal industry;

- (d) PTA 11 995 million under Article 5, to cover exceptional technical costs occasioned by pit closures under the measures to modernise, rationalise, restructure and reduce the activity of the Spanish coal industry.

The PTA 59 443 million in operating aid referred to in a) was paid to cover the operating losses of 73 coalmining companies accounting for an overall production of 14.5 million tonnes in 1998. Spain notified the Commission of the production costs of these companies for 1997 in order to show how such costs had evolved between 1994 and 1997. The aid granted to cover the production costs of companies or production units or aid granted pursuant to Article 3, Article 4, or both these Articles, is meant to cover entirely or partially the difference between the costs of production and the selling price freely agreed upon by the parties concerned, account being taken of the conditions prevailing in the world market.

Of the PTA 67 412 million in aid for the reduction of activity, referred to in b), PTA 61 054 million went to cover the operating losses of the Hunosa and Minas de Figaredo mines, PTA 5 361 million to the Mina de la Camocha SA and PTA 997 million to Endesa, only for its underground mines. The companies concerned produce a total of 3 million tonnes of coal.

The PTA 54 967 million referred to in c) was to fund the allowances payable to workers in the Spanish coal industry forced to take early retirement or made redundant as a result of the implementation of the plan to modernise, rationalise, restructure and reduce the activity of the Spanish coal industry. Part of this aid, totalling PTA 44 872 million, was granted to the Hunosa and Minas de Figaredo SA mines and will be used to cover the costs of the early retirement of workers who were laid off before 31 December 1998. The balance, amounting to PTA 10 095 million, is to cover the allowances payable to workers laid off in other companies through measures to modernise, rationalise, restructure or reduce activity.

The PTA 11 995 million referred to in d) was intended to cover the fall in value of the fixed assets of coal producers having to effect total or partial closures and the other exceptional costs occasioned by the progressive closures connected with the restructuring of the coal industry. Part of this aid, totalling PTA 1 670 million, will be awarded to Hunosa and Minas de Figaredo SA. The remainder, i.e. PTA 10 325 million, is destined for other producers undertaking restructuring or reductions of activity.

4.2.2. 1999

For 1999, the Commission authorised a total of PTA 178 250 million (EUR 1 071.3 million) in aid to the coal industry (under Articles 3, 4 and 5 of Decision No 3632/93/ECSC). The main destinations were:

- (a) PTA 54 544 million (EUR 327.8 million) in operating aid, under Article 3;

- (b) PTA 66 486 million (EUR 399.6 million) in aid for the reduction of activity, under Article 4;

- (c) PTA 44 141 million (EUR 265.3 million) in aid under Article 5, to cover exceptional social welfare benefits payable to workers made redundant as a result of the measures to modernise, rationalise, restructure and reduce the activity of the Spanish coal industry;

- (d) PTA 13 079 million (EUR 78.6 million) under Article 5 to cover exceptional technical costs occasioned by pit closures under the measures to modernise, rationalise, restructure and reduce the activity of the Spanish coal industry.

The PTA 54 544 million in operating aid referred to in a) is meant to cover the operating losses of 57 coal producers accounting for an overall production of 13.3 million tonnes in 1999. Spain notified the Commission of the production costs of these companies for 1998 in order to show how such costs had evolved between 1994 and 1998. The aid granted to cover the production costs of companies or production units, or aid granted pursuant to Article 3, Article 4 or both these Articles, is meant to cover entirely or partially the difference between the costs of production and the selling price freely agreed upon by the parties concerned, account being taken of the conditions prevailing on the world market.

Aid for the reduction of activity, referred to in b), amounting to PTA 66 486 million (EUR 399.6 million) is meant to cover the operating losses of the following producers: Hunosa, which received PTA 58 442 million (EUR 351.2 million), Mina de la Camocha, which received PTA 5 147 million (EUR 30.9 million), the underground mines of Endesa, which received PTA 624 million (EUR 3.7 million), the underground mines of Encasur, which received PTA 533 million (EUR 3.2 million), Antracitas de Guillon, which received PTA 1 115 million (EUR 6.7 million), Antracitas de Rengos, which received PTA 271 million (EUR 1.6 million), and Minas de Escucha, which received PTA 354 million (EUR 2.1 million). The planned total production for these producers in 1999 was 3 million tonnes.

The PTA 44 141 million (EUR 265.3 million) in aid referred to in c) was to fund the allowances payable to workers in the Spanish coal industry forced to take early retirement or made redundant as a result of the implementation of the plan to modernise, rationalise, restructure and reduce the activity of the Spanish coal industry. Part of this aid, totalling PTA 34 046 million (EUR 204.6 million) is to be paid to the Hunosa company and will be used to cover the costs of the early retirement of workers who were laid off before 1 January 1999 and of 536 workers who will be laid off in 1999. The remainder, i.e. PTA 10 095 million (EUR 60.7 million), is meant to cover the allowances payable to some 1 000 workers who will be laid off in 1999 in other coalfields as a result of measures to modernise, rationalise, restructure and reduce activity. The financial measures in question correspond to obligations imposed by the modernising, rationalising and restructuring of the Spanish coal industry and thus cannot be linked to current production (inherited liabilities).

The PTA 13 079 million (EUR 78.6 million) in aid referred to in d), is intended to cover the fall in value of the fixed assets of coal producers having to effect total or partial closures, and the other extraordinary expenses caused by gradual closures linked to the restructuring of the coal industry. Part of the aid totalling PTA 2 754 million (EUR 16.6 million) will be awarded to Hunosa. The remainder, i.e. PTA 10 325 million (EUR 62 million), is to be paid to other companies carrying out restructuring or reducing activity.

4.3. France

The State aids notified by France for the financial years 1997, 1998 and 1999 and paid to Charbonnages de France, were not approved by the Commission and are still being examined. On 9 July 1999, the Commission addressed a letter of formal notice [5] to France in which it reports that the undertaking in question has regular recourse to credit available on international markets to cover operating losses arising both from current production losses and interest on loans contracted previously. The Commission also notes that Charbonnages de France, while being in a critical financial situation, nevertheless enjoys the highest credit rating for its loans on the international financial markets (Standard & Poor's AAA, confirmed by Moody's). The Commission considers that the confidence shown by the international financial markets can - in the absence of a formal guarantee - be explained only by a tacit guarantee from the French State for loans issued by Charbonnages de France, which could thus constitute non-declared State aids.

[5] OJ C 280, 2.10.1999, p. 3.

4.4. United Kingdom

4.4.1. 1998/1999

Since the privatisation of British Coal was completed at the end of 1994 and the new legal and administrative framework for the British coal industry was brought in by the 1994 Coal Industry Act, the United Kingdom has no longer granted State aid related to current production. All aid in respect of the period concerned was therefore authorised under Article 5 of Decision No 3632/93/ECSC as exceptional costs arising from the modernisation, rationalisation or restructuring of the coal industry (inherited liabilities), according to the provisions of the Annex.

For 1998/1999, the Commission authorised £891 million (ECU 1 317.3 million) in aid to the coal industry. The main destinations were as follows:

- (a) £92 million for contributions to the pension schemes of the British Coal corporation employees and their dependants;

- (b) £24 million to the British Coal Corporation or the public body replacing it, to cover the cost of exceptional social welfare benefits payable to workers who lose their jobs as a result of restructuring, rationalisation and modernisation of the coal industry;

- (c) £365 million for supply of free coal or smokeless fuel or, in some cases, cash payment to former employees of the British Coal Corporation or their dependants;

- (d) £177 million in compensation for accidents or physical injuries sustained by former employees of the British Coal corporation and their dependants;

- (e) £15 million to cover the costs arising from the British Coal Corporation's residual activities;

- (f) £218 million towards the cost of environmental damage resulting from mining activity prior to privatisation.

The £92 million referred to in (a) is intended to cover contributions to pension schemes and other pension arrangements for around 600 000 persons insured through their activity as employees of the British Coal Corporation. The pension rights of British Coal Corporation employees who stay on after privatisation, relating to their employed activity after the date of privatisation, are the responsibility of the new industry-wide pension schemes financed entirely by the new companies.

The £24 million referred to in (b), intended to cover the exceptional social welfare costs arising from the closure of British Coal Corporation mines, is to help the company and the British Government to meet their compensation obligations towards the workers who have lost their jobs or been transferred to other mines as a result of the measures to restructure, rationalise and modernise the British coal industry.

The £365 million referred to in (c), covering the entitlement of former employees of the British Coal Corporation or their dependants to free coal or smokeless fuel or, in some cases, cash-in-lieu, arises from the British Coal Corporation's obligations under agreements signed with the miners' trade unions. For workers transferring to the new privatised companies, this obligation has been taken over by the new companies.

The £177 million referred to in (d) is to cover the cost of compensation payable by the British Coal Corporation to workers sustaining accidents or other physical injury in the course of their paid activity within the undertaking prior to the date of privatisation. The beneficiaries of the financial measures are workers made redundant, retired or transferred to the privatised companies.

The £15 million referred to in (e) to cover the costs arising from the British Coal Corporation's residual activities between privatisation and the dissolution of the Corporation is to meet the Corporation's obligation to cover certain residual activities not related to current production, such as the management and disposal of the corporation's residual property assets and liabilities, commitments under rent contracts relating to British Coal properties, and the Corporation's responsibilities with regard to certain legal action taken against it (other than for compensation for individual injury or damage to health).

The £218 million referred to in (f) allocated to the Coal Authority is intended to cover liabilities for the environmental damage caused by underground production activities prior to privatisation of the British Coal Corporation. Part of these liabilities are for damage caused on the surface by subsidence. The other liabilities include the rehabilitation of abandoned mine sites and tips, methane venting and water pumping from old workings. The companies succeeding the British Coal Corporation are responsible for the obligations connected with the working of the resources or mines transferred to them, as this is one of their areas of responsibility defined in their operating licences.

4.4.2. 1999/2000

No State aid was granted to the coal industry of the United Kingdom.

5. Legal disputes

The coexistence on the Community market of undertakings which receive State aid for current production and others which do not inevitably leads to tension between operators, which can provoke legal disputes of various kinds.

5.1. Complaints

On 26 August 1997 the Commission registered a complaint (ref. 97/4717) from five French undertakings, [6] including the Thion et Cie company, against the public undertaking Charbonnages de France.

[6] Thion & Cie, Maison Balland Brugneaux, Société Nouvelle Vinot Postry, Établissements Lekieffre, Charbogard.

The complaint concerns the alleged misuse of State aid which France grants on an annual basis to the public undertaking Charbonnages de France after authorisation by the Commission in the framework of Decision No 3632/93/ECSC. It is alleged that the Charbonnages de France group is selling coal at a price lower than that on the world market, thus precluding all competition. This price is allegedly made possible only by making use - for unauthorised purposes - of State aid granted by France to the public undertaking Charbonnages de France to support its coal production. According to the complainants this practice leads to distortion of competition on the French market of imported coal intended for the industrial sector. The complex mechanism used provided for a series of transactions between the companies of the Charbonnages de France group, a more detailed description of which is provided in the letter of injunction, thanks to which SIDEC, one of the group's subsidiaries, is able to supply industrial consumers with heat produced from coal sold by the parent company at an artificially low price. What is more, the parent company Charbonnages de France is said to attribute to itself some of the costs borne by the subsidiary companies, thus improving the financial result of the latter to its own detriment.

In the following months, the Commission contacted all the parties concerned, i.e. the complainants, the undertaking Charbonnages de France, the supervisory authority (DIGEC), and finally the French Government, in order to gather more substantial information to assess whether the complaint was justified.

On 20 January 1999, having not concluded that the complaint was manifestly not justified, the Commission forwarded to the French Government a letter of formal notice [7] pursuant to Article 88 of the ECSC Treaty concerning State aids paid since 1994, namely both the aid awarded for the 1994, 1995 and 1996 financial years, duly authorised by the Commission [8], and aid for the 1997 and 1998 financial years, regarding which the Commission has not yet delivered an opinion.

[7] OJ C 99, 10.4.1999, p. 9.

[8] Decision No 95/465/ECSC (1994 financial year); Decision No 95/579/ECSC (1995 financial year); Decision No 96/458/ECSC (1996 financial year).

On 16 March 1998, the Commission registered a complaint from the British company RJB Mining plc against a State aid specifically linked to and conditioned by the merger of the German companies RAG AG, Saarbergwerke AG and Preussag Anthrazit GmbH.

5.2. Appeals

The British company RJB Mining Plc lodged an appeal with the Court of First Instance of the European Communities against certain Commission Decisions, viz.:

- (1) Case T-156/98 concerning the Decision of 29 June 1998 [9] concerning the amalgamation of the undertakings RAG AG, Saarbergwerke AG and Preussag Anthrazit GmbH.

[9] The appellant claims that the merger authorised by the abovementioned Decision entails the granting of non-authorised State aids, but the Commission departments affirm that such aid does not exist. The case is mentioned only for the record.

- (2) Case T-12/99 against Decision No 99/270/ECSC of 2 December 1998 on the authorisation of State aids to the German coal industry for 1998.

- (3) Case T-63/99 against Decision No 99/299/ECSC of 22 December 1998 on the authorisation of State aids to the German coal industry for 1999.

- (4) Case T-64/99 against the implied decision of refusal deemed imputable - pursuant to Article 35 of the ECSC Treaty - to the lack of initiative on the part of the Commission with regard to the merger of the RAG AG, Saarbergwerke AG and Preussag Anthrazit GmbH companies.

- (5) Case T-170/99 against Decision No 99/451/ECSC of 4 May 1999 on the authorisation of State aids to the Spanish coal industry for 1999.

The German company Vasa Energy GmbH & Co. KG has also introduced an appeal similar to that described under 4):

- (6) Case T-29/99 against the implied decision of refusal deemed imputable - pursuant to Article 35 of the ECSC Treaty - to the lack of initiative on the part of the Commission with regard to the merger of the RAG AG, Saarbergwerke AG and Preussag Anthrazit GmbH companies [10].

[10] OJ C 86, 27.3.1989, p. 32.

These appeals are currently being assessed by the Court of First Instance of the European Communities, together with Cases T-110 [11] and T-111 already mentioned in the previous report.

[11] On 9 September 1999, the Court of First Instance delivered a judgment against RJB Mining plc on two points of law concerning the annulment of the Commission Decision regarding financial aid by Germany in favour of the coal industry in 1997 (OJ C 314/99 of 30 October 1999, p. 8). RJB Mining plc has lodged an appeal.

A letter of formal notice dated 4 February 2000 has been addressed to the German Government concerning aid which could have been included in the sale of the coalmining and non-coalmining activities of Saarbergwerke AG and Preussag Anthrazit GmbH for DM 1.

6. Conclusions

The main objective of aid granted by certain Member States in the last few years is to minimise the social and regional consequences of restructuring and the reduction in activity in the coal industry and thus to avoid the industry's complete disappearance in the very short term. On its side, the Commission, through its Decision No 3632/93/ECSC, has endeavoured to ensure that the allocation of aid is performed with the greatest transparency and that the derogations to Article 4(c) of the ECSC Treaty are limited to the strict minimum to enable the coal industry to implement the structural changes in the coalmining areas in decline.

As already pointed out in the last report, these aid mechanisms, which were designed to cope with economic crises, have not managed to provide an answer in economic terms to the structural crisis facing the European coal industry. The improvements made to production costs have not been sufficient in the light of the coal prices operated on the world market. Indeed, the production costs in non-member countries have also been reduced through the introduction of more advanced technology in geological conditions which are clearly more favourable than those encountered by European producers, which are increasingly difficult. The competitive imbalance has not been compensated; on the contrary, it has even increased. In the absence of any practical prospect of a return to a stable and profitable European coal industry, the idea has gained ground that State aids ought to be considered a support to areas and social groups which are lagging behind, rather than a strategy for economic development.

This growing awareness, in a context in which public expenditure is being cut, has provoked a critical examination of the future of policies implemented by the Member States, particularly regarding their high cost. In other words, while the social and regional function of these aid programmes has been recognised, their cost-effectiveness ratio has been progressively questioned. Modern theories about State intervention in the economy favour other instruments now which are less burdensome and which, above all, offer better prospects, at least in the medium term, for the development of the social groups concerned. Indefinitely supporting an industry in irreversible decline is a choice which is being increasingly questioned, both within governments and by the public. What is more, the effect on the environment of aid to the coal industry is also being increasingly questioned, particularly on account of the obligation to reduce the emissions of greenhouse gases in order to comply with the Kyoto Protocol.

The governments concerned have decided to limit - both in quantity and in time - their public aid, according to different timetables and procedures. The process may be regarded as finished in the case of Belgium and Portugal, coming to a close in France, which has settled on 2005 as the date for the definitive end of coalmining, and is rapidly changing in the United Kingdom, where efforts to achieve competitiveness with imported coal are being pursued. Even Spain and Germany, which have adopted a more gradual approach, have put forward more rigorous plans for restructuring.