ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(82)230
Vol.1982/9008

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COMMISSION
DES
COMMUNAUTES EUROPEENNES
SecrétariatgénéralCOM(82)230final.
Bruxelles,le30april1982.
REPORTFROMTHECOMMISSIONAIRE COUNCIL
onaidstothesteelindustry .intheperiod1975-1980
C0M(82)250final.

r
Report tothe Council onaids tothe steel industry inthe period 1975-1980
1. Introduction
until 14May 1981 .\
t
r
1.1.InitsResolution of3March 1981 theCouncil noted that theCommission 1
would present anewreport onaids within twomonths .Thepreparation iA. i,
ofthis report hadtaken longer than expected "because theCommission
considered thatanyreport onaidsgranted tothesteelindustry inthe j^years prior tothereinforcement oftheaidrules should "beasauthori –
tative aspossible ,particularly inviewofthefactthatitsdraft for [
anewaidsdecision included aprovision empowering ,theCommission ,in [
itselimination oftheamount andintensity ofaids ,totakeaccount of janyaid^f^om which thebeneficiary undertaking hadpreviously benefited
andofany<»structuring undertaken byit(Article 2(2)ofDecision No j
• 2320/81/ECSC).
I
1.2.TheCommission prepared adetailed questionnaire tobesent toMember j
States regarding thei^iid payments .Inviewofthecomplexity ofthis j
questionnaire itwasdeified toconsult Member States onitsformand j
'<■
content before asking thenf /roundertake thework involved inreplying !
toit.Accordingly ,thequestionnaire wasnotfinalised anddispatched ;
1.3.Thelastreply wasnotreceived unti]j£^.rch 1982.Ofthetenreplies
received most areconsidered tobecompjkie ;where evident lacunae '
'
existed ,theCommission hasmade estimateStjfl ^theamounts ofaid.The j
reply fromoneMember State (Greece )gaveno^kta andinthiscasethe j
Commission didnot feel able tomake anyuseful estimates .
<
1.4.Thereport hasbeen discussed in "draft form with national experts at
four multilateral meetings during 1982 .%
2. Methodology
2.1.Theaidsgiven tothesteel industry intheperiod under revie^6*included ,
inter alia ,grants ,loans atmarket rates ofinterest ,soft loans ,guaran­
tees ,taxrelief ,conversion ofdebt into equity orquasi-equity capital ,
reductions intransport tariffs ,andanyaidelements contained tosubs^ftjp -
tionsofcapital topublic steelundertakings .Theamounts ofeachtype0$^,
aidaregivenbyMember State intables D1.toD10.Toaddthese various^
amounts together would notenable valid comparisons ofaidintensities to
bemade since noaccount would betaken ofdifferences intheforms ofaid ;
granted ,anditistherefore desirable toconvert thedata supplied byMem­
berStates toacomparable basis ,showing foreach aiditsvalue tothe
recipient .
•m•/•••

2.However ,itproved impossible tomake precise evaluations ofthis kind
since thereal value ofmost oftheaids inquestion depends onanumber
offactors onwhich information was not available :
-inthecase oftaxable aids ,thetaxposition ofthecompany ;
-inthecase ofguarantees orState loans ,therate ofinterest at
which thecompany could itself have borrowed theamounts inquestion
onthemarket ;and
-forsubscriptions ofcapital ,participatory loans andsimilar measures ,
^Information enabling theCommission todetermine whether anyaidele-
meMs were present inthemeasures concerned ,and ,ifso,their amount .
3.Intheabsence ofdata enabling accurate determinations tobemade ofthe
value ofeach aid ,ithasbeen necessary toattribute avalue toeach aid
onthebasis ofcartain working hypotheses .Since nosingle setofhypo­
theses isrealistio^^lternative setsofhypotheses have ,beenusedto
estimate whatcanbezifeprded asreasonable lower andtipper limits tothe
value oftheaids inquestion .These estimates areforconvenience subse­
quently referred toas"minimum "and "maximum "aidvalues although ,infict
asexplained intheAppendix (paragraph A3.2 )theminimum value maysome­
timesbegreater thanthemaximuit^sj^ue .Thetruevalueofparticular aids
willliesomewhere inbetween these ^fefereme values :totheextent that
thebeneficiary company isprofitable af^^creditworthy "thetruevalue
will approximate totheminimum value ;totheextent that itisnot ,the
true value will approach themaximum value .Since theprofitability and
creditworthiness ofsteel companies havevaried wij^in andbetween Member
States aswell asfrom year toyear during theperi&ajkrovered bythis
report ,nomore general statement canbemade . fyc -%
4.Themethod bywhich theminimum andmaximum values ofaids were estimated
forthis report aregiven intheappendix tothis document .Thevalues
obtained aregiven intables A1.toA7.,while tables B1.toB3 eliite
<40
these minimum andmaximum estimates toinvestment andtocrude steelRe­
duction .Finally ,tables C1.toC4.andD1.toD10.give thebasic
data employed inthecalculations .
.../3

:
-3-
ι.
ι
3.Interpretation oftheresults f
t
3.1.Anyconclusions drawn fromtheresults given inthe -AandBtables should £
take account ofthepoint made inparagraphe 2.3 .above that thetrue value £
y»ofaids will lie 'ineach case somewhere between theestimated minimum and r-
Cj. c'rmaximum values butthat itslocation within this range will vary both p/.^between companies andovertime .Inaddition ,because themethods used
attribute thevalues ofcertain aids toparticular years although their T
effets maybespread over anumber ofyears ,theaverage fortheperiod as
aidsitevaluates anddoesnot,^particular ,examine their relation­shiptotheindustrial restructurifta ,undertaken during theperiod .%•% 4.Uses ofthereportawhoJ^is likely toyield more reliable indications ofaidlevels than j;'A R
aretheinures forindividual years . t..
3.2.Moregeneral^,itshouldbeborneinmind: j
(i)that thedata inthis report only concern aids andtherefore exclude f
allgeneral measles which mayaffect thecompetitiveness ofsteel j
undertakings eith<=&^os itivelyornegatively (fiscal depreciation ^
•arrangements ,social^bcurity contributions ,transport orenergy j'^ , !pricing policies andsox>n );and I
i
(ii)that thereport does notinanywayprejudge thecompatibility ofthe f-.
xaxuine tneir relation - *
4.1 .Article 2(2 )ofDecision No2320/81/ECSC empowers theCommission totake |
account ofaids -granted andofrestructuring undertaken inthepast inits jr
appraisals oftheamount andintensity ofnewaidstol^^steel industry . j
Thedatacontained inthisreport willenable theCommissi ?^toimplement ;
'r*this provision . </>
4.2 .Article 9oftheDecision requires theCommission tomonitor thepayment •
ofaids tothesteel industry .This monitoring will beundertaken bythe ^
Commission onasixth-monthly basis bymeans ofquestionnaires similar j
those used forthecompilation ofthe1975-1980 data .The -Commission will !
usethese returns tokeep thetables uptodate throughout thevalidity '
ofthe aids decision . i
f
I
t

Appendix
loanat*&reduced rateofinterest istaken tobethepresent value ofThe estimation ofminimum and maximum aid values
A.1 .Member States are familiar with themethod ofcalculation ofthe net .
grant equivalent (JTOE)ofaids ,which enables estimates tobemade of
thevalue ofnearly allforms ofaidinthe context ofpolicy on
1regional aids •This method enables thevalue ofaids toprofitable ,
creditworthy companies tobecalculated ,butunderestimates their value
toundertakings which arenotsufficiently profitable topayprofits
taxani^or which havealowcredit rating .Thus ,theaidelement ofa
loanat^^educed rateofinterest istakentobethepresent valueof
thediffer^fep between theinterest payable ontheloanandthatwhich
would bepaya^e onanequivalent loanatthestandard ratelessthe
additional profits taxpayable bythecompany since itslower interest
payments increase itstaxable profits .Inthecase ofthesteel industry
NGEistherefore aminidfym estimate .
A.2.Inorder tocalculate amaxi^j^i value ,thatisavalue which isrealisticforunprofitable and"uncreditiforthy "companies twoadjustments have
therefore tobemade :first ,anytaxdeducted toarrive attheNGEhas
beenadded backandsecond awayhasto^be found totakeaccount ofthe
factthatthecompany concerned isunabjj^Jo borrow atthenormal market
rateofinterest .Thus ,fortheexample gjtf$j above ,themaximum aid
element ofthesoftloanisthepresent valueT^the difference between
theinterest payable onthe loan andthat which would bepayable onan
equivalent loan atastandard market rate plus "something "totake account
ofthe/actthatthecompany would really havehadtopaj^an interest rate
wellabovethemarket rate.Forthepurposes ofthisrep<$^this"some­
thing"hasbeentakentohaveapresent valueequaltohalf■^^p.mount of
theloan ,which reflects theriskthatthecompany willbeunabl^to pay
back the loan and that its indebtedness will therefore have tobereduced .
Theproportion selected is,ofcourse ,arbitrary andcanyield aidvalues
close to100$oftheloaninthecaseofloans atverylowinterest rates^
This procedure ,although arbitrary ,isapplied systematically toallrele­
vant cases and therefore should not lead toundue distortion ofthe
results .Forconvenience ,wemayterm this maximum estimate the "subsidy
.equivalent "(SE)ofaids .
ICOM 78)636 final of21.12.1978 .
...72

tr
-2-Appendix [
l
t
»
1
A.3.Thetreatment ofcertain financial measures mayrequire some explanation . r
A.3.1.Subscriptions ofshare capital areassigned anNGEequal tozero ,since j
inthecaseofprofitable companies theywould notnormally beconsidered 1^ tocontain elements ofaid.TheirSEiscalculated asiftheywerein- j^ terest-free loans ,sinceinthecaseofunprofitable and"uncreditworthy "I
companies theprospect ofdividend payments isremote . j_
A.3.2.Aparticular problem arises inthecaseofcapital reconstructions ,which |
no£$j^ly entail measures suchasthewriting-off ofcapital and/ordebt, |
thec3&persion ofdebt intocapital orquasi-capital andthehonouring [
f•of guarantees .TheSEestimate hasalready taken account oftherisk (
thatsuchmeasures maybenecessary (byadding 50%oftheamount ofthe j
loan tothevalue oftheaid ),andtherefore theSEofmeasures associated :
with capital reconstructions isequal tozero .Ontheother hand ,the »
. ..
NGEcannot bezeroare^s taken tobeequal tothatofthegrant orin- |
terest relief grantwho^^effect onfinancial costswouldbethesameas j
thatofthefinancial measure concerned .Forinstance ,theconversion of j
a10%loanintoshare capital istreated asa10%interest relief grant .J
Itwillbeevident thatintheca^^of capital reconstructions themini- ;
mumestimate (NGE)willhaveagrea^^value thanthemaximum estimate j
(SE),whichmayappear paradoxical .HoW^^r ,thisphenomenon reflects the i
factthattheSEisanestimate which tak^^account ofthisaspect in j
I
advance ,whereas theNGEestimate only does sowhen thecapital recon - jO straction -occurs .Iftheassumptions underlying thecalculation ofthe
SEarecorrect (inparticular ifthe50%figure is^sjprect )thetwo
estimates should inthelongrunyieldsimilar values^^j^such semi-trans -|
parent aidsasloans andguarantees ,butmaynotdosoov^s period o'f
afewyears such asthat covered bythis report .
Note also that measures ofcapital reconstruction aretreated asaids to j
continued operation ,whereas theoriginal finance (loan ,guarantee ,
talsubscription )mayhave been treated asinvestment aid .Hence the j
oftheoriginal aidgenerally appears inonetable and -theNGEofthe !
reconstruction inanother .
../3

Appendix
-3-
The methods vised for the calculation ofNGE and SEfor each form ofaid
aregiven inthetable below .Itwill beseen that ,inorder tosimplify
thetask ofcomputation ofNGEanumber ofshort-cuts have been adopted
incases where theadditional effort ofmaking precise calculations would
nothave significantly altered theresults .
%%%
%
%\%
%

Aid
Grant (non-taxable )
Grant (taxable )
^fejerest relief grant
Loan atreduced
interest rate
X
Loan atamarket rate
ofinterest
State guarantee
Reimbursable grant
Participatory loan
Capital subscriptions
Conversion ofinterest
bearing debt to
capital orquasi -
capitalMinimum value :
NetGrant Equivalent (NGE)
NGEaamount ofgrant
NGE■amount ofgrant x
(1-taxrate )
'NGEadiscounted present value
ofi.r.g .x(1-"taxrate )
NGEadiscounted present value
ofnotional i.r.g .(equal to
the difference between the
reference rate fortheyear in
question and therate of
interest ontheloan)x(l -tax
rate )
Notional
NGE =0i.r.g .=0.Therefore
NOT-present-value ofnotional
i&£ •of2points ona10-year
loaiv*Jd.th 10%discount rate and
50%ta&xate =4.24% ofthe
amount d^jthe loan
a.Ifconditionally reimbur­
sable =grant
b.Otherwise NGE calculated as
anotional inx^fesst relief
grant equal toTM' ,reference
rate%Maximum value :
Subsidy Equivalent (SE)
SE ■=■amount ofgrant
SE»amount ofgrant
SE«discounted present
value ofi.r.g .
SEadiscounted present
value ofnotional i.r.g *
+$0%of,jtheamount of
the loan
SE=50%ofthe amount
ofthe loan
SEa8.48% (adding back
thetax )+50$ofthe
amount ofthe loan «
58.48%
SEaNGE
b»SEaNGE+tax+50%
ofthe amount ofthe
reimbursable grant 1
Treated asa10-year
NGER&n atreduced interest rate
SEcalculated asfora10-ye ;
loan atareduced inte-
NGEadiscounted present value
ofthe reduction ininterest
payments x(1-taxrate )/rf*est rate (equal tow° )
%
Notes%\
SEisinallcases limited toaBaximum of100% oftheamount oftheaid .
^SEiszerointhis case since theaddition of50%oftheloanamount hasalready
taken account ofthis possibility (seeA^3.2 .above ).

%%TablesA.1•-A.8.:Minimum(netgrantéquivalent)andmaximum(subsidy
équivalent)aidvaluesinEUAmillions
TableauxA»1«-A.8»sValeursminimales(équivalentsubventionnet)et
maximales(équivalent-subside )desaidesenmillions
d'UCE
A.1.
A.2.
A.2.1.
A.2.2,
A.3.
A.4.
A.5.
A.6.
A.7-.
A.8.Tov^>ofallaids-(otherthanclosureaids)
Investmentaids
Investmenta^s^(regional)
Investmentaids\jkui-regional )Totaldetouteslesaides(autresque
desaidesauxfermetures)
Aidesauxinvestissements '
Aidesauxinvestissements (régionales)
Aidesauxinvestissements (autresque
régionales)
Research-Development aids
Aidstocontinuedoperation
Emergencyaids
Closureaids
ProvisionofStateFunds
FootnotesAidesàlarecherche-développement
Aidesaufonctionnement
Aidesd,urgence
&
sauxfermetures
1%
Fourniture defondspublics
Renvois1
%%X
%
%

TablesB.1*-B.3
Minimumandmaximumaidvalueaspercentagesofinvestmentexpenditure and
inEUApertonneofcrudesteelproduction#
■^TableauxB.1•-B*3*
Valeursminimaleetmaximaledesaidesenpourcentages desdépenses
d'investissements etenUCEàlatonnedeproductiond'acierbrut.
B.1.Minimuw^dmaximumvaluesoftotal.
aids(othfl^Jhanclosureaid)inEUA
pertonneo/%rudesteelproduction*
B.2.Minimumandmaximumvaluesofinvest­
mentaidsasapercentageoftotal
%investmentexpenditure !
B*3*Minimumandmaximumvaluesofaids
toR&Dandtocontinuedoperation
andofemergencyaidsinEUAper
tonneofcrudesteelproduction *%Valeursminimaleetmaximaledu
totaldesaides(autresqu'aux
fermetures)enUCEàlatonnede
productiond'acierbrut.
Valeursminimaleetmaximaledes
aidesauxinvestissements en
pourcentages desdépensestotales
d'investissement •
Valeursminimaleetmaximaledes
aidesâlaR&D,aufonctionnement
^d'urgenceenUCEâlatonnede
pïTOuctiond'acierbrut*
%%%%
4

TablesC1-C4. TableauxC1-C4.
\
CJ..AnnualinVo^jnentexpenditure
bytheironalv^steelindustry
inEUAmillions.Dépensesd'investissement parande
l'industriesidérurgique enmillions
d'UCE.
C2.Annualcrudesteelprocuration
inmillionoftonnes.
%
C3.Averageannualconversionrates
ofEUAintonationalcurrencies .
C4.Discountandreferencerates(1)
andtaxrates(2).Productionparand'acierbruten
millionsdetonnes.
Tauxdeconversion moyenparande
l'UCEenmonnaienationale.
TaxixÇj^actualisationetderéférence(1)ettau&d'imposition (2).%
%%

TablesD1-D10 Tableaux D1-D10
BasicdatabyMemberState
tyyjsiEUAmillionsDonnéesdebaseparEtatmembre
enmillionsd'UCE
D1
D2
D3
D.4
D5
D6
D7
D8
D9
D10%
sjique%
Danmark
BundesrepublikDeutschland
%
Elias\
France%%
Ireland
Italia
Luxembourg
Nederland
UnitedKingdom%%%
%%