REPORT FROM THE COMMISSION Monitoring of Article 95 ECSC Steel Aid Cases, Thirteenth Report, May 2000

REPORT FROM THE COMMISSION Monitoring of Article 95 ECSC Steel Aid Cases, Thirteenth Report, May 2000

Table of contents

Summary

Overview

Irish Steel, Ireland

Siderurgia Nacional, Portugal

Eko Stahl, Germany

Voest Alpine Erzberg, Austria

Summary

The Commission presents its Thirteenth Report on the Monitoring of Article 95 ECSC steel and iron ore aid cases pursuant to its decisions of 4 April 1994 [1], 21 December 1994 [2] and 29 November 1995 [3].

[1] Decisions No 94/257-261/ECSC (OJ L 112, 3.5.1994, p. 52, 58, 64, 71, 77).

[2] Decision No 94/1075/ECSC (OJ L 386, 31.12.1994, p. 18).

[3] Decision No 96/269/ECSC (OJ L 94, 16.4.1996, p. 17).

In accordance with the above mentioned decisions, this thirteenth report will cover the following companies: Irish Steel, Siderurgia Nacional, EKO-Stahl and Voest Alpine Erzberg. Since most conditions imposed by the Commission in its decisions approving the aid are already fulfilled, only the conditions still monitored by the Commission are addressed in this report.

1. Irish Steel, Ireland

Investments carried out at Irish Ispat up to 31.12.1999 are in line with the planned ones.

Reported production and sales for the first half of the financial year 1999/2000 (from July 1999 to June 2000) are in line with the imposed limitations.

2. Siderurgia National, Portugal

The monitoring is focused on following up the plan for installation of the electric arc furnace, which according to a modified plan should be operational in the third trimester of 2001. The required reduction of workforce at SN Serviços is thereby further delayed until this date. For this reason the Commission intends to extend the monitoring until 15 March 2002.

3. Eko-Stahl, Germany

The only conditions still monitored by the Commission is respecting the annual capacity limitation (900 kt/y until the end of January 2000 and 1,5 million t/y as from February 2000) of the new hot-rolling mill and the using of its production only for further processing in the company. The capacity limitation is controlled by an electric device, the orderly functioning of which is monitored by the Commission.

4. Voest-Alpine Erzberg, Austria

The price charged for iron ore was in line with market prices and higher than the price of imported iron ore in the monitored period.

The decision authorised ATS 57 m. aid to be granted over 1999. The company applied for ATS 51 m and ATS 47,8 m has finally been disbursed. The production exceeded the ceiling provided by the Decision. However, the amount of aid disbursed was ATS 9,2 m less than the amount of aid approved by the Commission for that year.

5. Outstanding issues from previously monitored companies.

ILP

Investments performed in 1999 did not modify the total production capacity of the company.

The arbitration of the dispute between Riva and IRI on the price paid for ILP, is not concluded yet.

ACERALIA

In 1999, the total production capacity of the company has not been modified.

AHV-Ensidesa Capital

Social aid paid to the company in 1999 was in line with the approved aid.

Acenor

Social aid paid to the company in 1999 was in line with the approved aid.

Freital

No increase of remaining capacity took place in 1999.

Overview

Siderurgia Nacional, EKO Stahl, Irish Steel, Voest Alpine Erzberg

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Irish Steel, Ireland

I. Introduction

The Commission decided on 7 February 1996 (Commission Decision 96/315/ECSC) [4] to approve aid under Article 95 ECSC linked to the sale of Irish Steel Ltd (ISL) to Ispat International amounting to a maximum of IRL£ 38.298 million, serving various purposes toward the restructuring of Irish Steel (for details see the previous monitoring reports).

[4] OJ L 121 of 21.5.1996, p. 6.

Under the terms of the decision the aid was approved subject to various conditions (for details see previous monitoring reports).

At present, the only remaining conditions to be monitored are the respect of the production and sales limitations until 30 June 2000 and the five years production capacity freeze up to the end of May 2001.

The ninth monitoring report on Irish Steel Ltd (currently Irish Ispat Ltd.) covers the period up to 31.12.1999, based on information submitted by the Irish authorities on 24 March 2000 in accordance with the Commission's decision.

II. Production

Actual production of finished products in the period going from the beginning of July 1999 to the end of December 1999 was 145,059 tonnes. This is lower than the level of production during the corresponding previous period. In order to respect the production limitation of 361.000 tonnes imposed by the decision for the period July 1999 - June 2000, production during the first half of 2000 should not exceed 216,000 tonnes. The following table summarises the situation :

(thousands tonnes)

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Sizes of beams produced were within the current range of sizes as communicated to the Commission in November 1995.

Total billet production for the period July 1999 to December 1999 was 163,675 tonnes. Production of billets for sale outside the company for the monitored period was 951 tonnes (the limitation laid down by the Commission decision for the year 99/00 is of 90,000 tonnes).

III. Sales

Sales of finished products in the monitored period totalled 141,227 tonnes compared with 154,101 tonnes of total sales in corresponding previous period.

The breakdown of sales by market for the period July 1999/December 1999 shows that approximately 92% of sales or 131,135 tonnes went to European markets as defined under the decision (i.e. Community, including domestic market in Ireland, plus Switzerland and Norway). The limitation imposed by the Commission decision for European sales in the period July 1999/June 2000 is 320,000 tonnes.

The Irish authorities have also provided information on prices. The Commission has examined this information and concluded that the prices are within the normal range.

Production for sale to Community markets of ISL's largest U beams (Imperial), HE beams (metric) and IPE beams during the second half of 1999, was 14,732 tonnes. Total production for sale of these products into the European Community, plus Switzerland and Norway, in the period of 98/99 was 34.996 tonnes, slightly under the annual limitation of 35,000 tonnes as laid down in the Commission decision.

Siderurgia Nacional, Portugal

I. Introduction

On 12 April 1994 the Commission approved [5] PTE 60.12 billion [6] aid to the Portuguese public steel undertaking Siderurgia Nacional under Article 95 of the ECSC Treaty (see details in the previous monitoring reports).

[5] OJ L 112, 3.5.1994, p. 52.

[6] PTE 1 billion = ECU 4.987 million (1.1.1999).

This aid was paid in 1994 and 1995.

In September 1994 the Commission approved under the Fifth Steel Aid Code: [7]

[7] OJ C 390, 31.12.1994, p. 18.

PTE 4.925 billion in social aid,

PTE 1.000 billion in aid for environmental protection.

By the end of 1999, social aid amounting to PTE 2.409,56 billion has been paid. The remaining social aid and the environmental aid may still be disbursed.

Authorisation of the aid was subject to several conditions. The following conditions are still monitored by the Commission :

replacement of the blast furnace at Seixal by an electric arc furnace (outstanding),

total workforce to be reduced by 1 798 employees by the end of 1996 (delayed),

The present report covers developments up to 31 December 1999 on the basis of information provided by the Portuguese Government in its twelfth monitoring report, which was submitted, in line with the Commission's request, on 21 March 2000. The present report concentrates on the conditions still monitored by the Commission.

II. Investments

SN Longos - Electric arc furnace

Under the initial restructuring plan (PERG), the blast furnace was to be replaced by an electric arc furnace by the beginning of 1996. The Portuguese Government's decision to privatise the operating companies immediately, which was not envisaged by the initial restructuring plan, and the approach taken by the authorities of leaving the final investment decision to the new private shareholders in SN Longos have led to a three-year delay in installation of the electric arc furnace.

After acquisition of the shares of RIVA group, the only investor left, MEGASA, has submitted a plan for installation of the furnace that was discussed in the 12th Report, p. 8. SN Serviços and Portugal informed the Commission that a supplementary delay occurred as the furnace could not be constructed on the planned site for environmental reasons and as a property issue could not be settled in time. SN Serviços therefore decided to have the furnace constructed on another site, using existing facilities which will, in the end, result in the need for less civil construction work, but offers already received had to be modified and a delay occurred.

The table below shows the new planning. The schedule published in the 12th report is put between brackets.

Definition of the project and lay-out of the furnace // (April 1999) completed.

Analysis and attribution of the offers // (September 1999) March 2000

Engineering details // (December 1999) March 2000

Civil construction works // (June 2000) 4th trimester 2000

Installing the equipment // (November 2000) 1st trimester 2001

Start of operations // (January 2001) 2nd trimester 2001

Furnace fully operational // (July 2001) 3rd trimester 2001

The Commission is following the progress of the plan step by step. It needs to be stressed that when the derogation was granted under Article 95 of the ECSC Treaty, replacement of the blast furnace by an electric arc furnace was regarded as a key feature of the necessary industrial restructuring of Siderurgia Nacional.

The restructuring cannot therefore be regarded as complete until that investment has been carried out. Although there is currently no indication that the delay will make it necessary to grant further aid to SN Serviços, the Commission has to monitor the completion of the aided restructuring. Since the monitoring is at present extended until 15 September 2000 only, the Commission intends to extend further the monitoring period until 15 March 2002 to cover the whole period of the plan on the installation of the electric arc furnace.

III. Evolution of workforce

Reduction of the workforce is still lagging behind the initial plan. This delay affects only SN Serviços and will therefore have no impact on the viability of the privatised companies. The 447 workers still kept on by SN Serviços are necessary to operate the blast furnace, which was initially scheduled to cease production by the end of 1996 but can only be closed once the new electric arc furnace to be installed by SN Longos at Seixal enters into operation.

The delay in implementing the initial plan concerned altogether 359 workers as at the end of 1998. The following tables show the evolution of the workforce and the forecasts:

1997 till 1999 and forecasts for 2000 and 2001

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*Expected reductions during years 2000 and -2001

**Workers needed for dismantling the installations.

SN Longos is likely to increase its workforce once the new electric arc furnace is put into service, so that the total workforce of the privatised companies will increase slightly after the closure of the blast furnace. The initial target of 1 410 employees set by the restructuring plan is expected to be achieved at latest during 2001 after closure of the blast furnace.

Financing of redundancies:

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1 In accordance with Article 4(1) of the Fifth Steel Aid Code, a contribution from the State defrays 50% of these costs.

2 Through mutual agreement (negotiated redundancy).

3 These figures do not correspond to the net reduction in the workforce given in the previous table because the companies have hired some new employees.

In 1999 PTE 52.97 million in social aid authorised under Article 4 of the Fifth Steel Aid Code was disbursed.

IV. Sales

The sales of billets on the Portuguese market by SN Serviços go exclusively to SN Longos. Prices for these products are fixed on normal market conditions for a period of three months. Residual steel production is sold on the market against market prices (Metal Bulletin spot prices). The average prices achieved by the different product groups were given in the monitoring report. The Commission has compared these prices with the average market prices and considers them to be within the normal range.

V. Financial performance

SN Serviços

The Portuguese authorities provided a full set of financial data and financial ratios in line with the Annex to the Commission's Decision. As set out in the 12th Report, SN Serviços suffered during the first half year of 1999 from the general collapse of steel prices. The large part of the losses were accrued during this period. Steel prices considerably improved as from the second half year of 1999 [8] and SN Serviços was able to realise a positive cash-flow in the second half year of 1999. Its price arrangements with SN Longos (price fixed for 3 months, see above), implying that market prices are followed at a distance, did not allow SN Serviços to profit immediately from market price improvements. The company hopes to return to profitability in 2000.

[8] Price movement in line with steel market development, see the Commission's Forward Programme for Steel for the year 2000, OJ C 27/2 of 29.1.2000.

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VI. Aid

The aid authorised under Article 95 of the ECSC Treaty has been paid in six instalments between March 1994 and June 1995 as explained in the fourth monitoring report. The environmental aid approved under Article 3 of the Fifth Steel Aid Code has not so far been paid. The use of the social aid approved under Article 4(1) of the Fifth Steel Aid Code is explained above under II.3 (financing of redundancies).

EKO Stahl GmbH, Germany

I. Introduction

On 21 December 1994 the Commission authorised [9] DEM 900.62 million [10]aid to EKO Stahl GmbH under Article 95 of the ECSC Treaty (see details in the previous monitoring report).

[9] OJ L 386, 31.12.1994, p. 18.

[10] DEM 1 million = ECU 511 299.72 (1.1.1999).

On 21 December 1994 the Commission further approved [11] regional investment aid of DEM 385 million under Article 5 of the Fifth Steel Aid Code.

[11] OJ C 18, 17.1.1997, p. 7.

Authorisation of the aid was subject to several conditions. The following conditions are still monitored by the Commission:

- the new hot-rolling mill to reach a capacity of 900 kt/y by the end of 1997 and to be kept at that level until the end of January 2000. As from February 2000, the company is allowed to increase the capacity of this mill to 1,5 mio tonnes/year until the end of January 2005 (monitored, see II),

- the output of the new hot-rolling mill to be used only for further processing in the company's own cold-rolling facilities (so far observed).

The present report covers developments up to 29 February 2000 on the basis of the information provided by the German Government in its report submitted to the Commission on 15 March 2000. The present report concentrates on the two conditions still monitored by the Commission.

II. Capacity limitation

Limitation of the capacity of the new hot-rolling mill to 900 kt/y up until the end of January 2000 and thereafter to 1.5 million t/y up until the end of January 2005 is guaranteed by an electronic device that makes it technically impossible to exceed those ceilings. This technical solution was accepted in principle by the Commission in early 1996. For further details on the system, see the fifth monitoring report. The system has operated reliably and the records of the quantities produced have been regularly submitted to the Commission.

The authorised capacity increase as from February 2000 posed technical problems to the company as the electronic device is adjusted for the capacity year, which runs from July to June.

On 15 March 1999 the Commission therefore agreed to a proposal from the German authorities that the production from July 1999 until July 2000 will be counted using the average production of the two thresholds which results in a yearly capacity of 1,150 million t for the capacity year July 1999 - June 2000 [12]. The machine has been adapted accordingly on 1 July 1999 and will be adjusted to 1,5 million t/y on 1 July 2000.

[12] Calculated as follows: (7/12 x 900 = 525) + (5/12 x 1,5 = 625) = 1,150.

III. Production of the new hot-rolling mill

Hot-rolled strip produced in the new hot-rolling mill is used exclusively in the cold-rolling mill.

The production of hot rolled strip amounted to 775,026 tonnes in the period 1 July 1999 - 29 February 2000. For the period 1 March - 1 July 2000 the authorised residual production is 374,974 tonnes.

Voest Alpine Erzberg GmbH, Austria

I. Introduction

On 29 November 1995 the Commission approved [13] state aid to Voest Alpine Erzberg GmbH (VAEG) to enable it to close down its mining operations gradually up to the year 2002. Approved aid amounts to ATS 272 million [14] to cover operating losses over the period 1995-2002 and ATS 136 million to cover the costs of closing down mines safely and in an environmentally friendly manner.

[13] OJ L 94, 16.4.1996, p. 17.

[14] ATS 1 million = ECU 72,672.00 (1.1.1999).

The following annual ceilings were approved for the different types of aid are indicated below in the table under point 4.

Authorisation of the aid was subject inter alia to the following conditions:

- the annual aid ceilings and the production ceiling as given in the table above were not to be exceeded ( production ceiling exceeded; see under II.2.a),

- the amount of operating aid was not to exceed the difference between production costs and revenues (so far observed),

- the price charged for iron ore was to be in line with market prices and was not to be lower than the price of imported iron ore (so far observed).

This report covers developments up to 31 December 1999 on the basis of information provided by Austria in its eighth monitoring report, which was submitted, in line with the Commission's request, on 15 March 2000.

II. New monitoring report

1. The company

The company Voest Alpine Erzberg Gesellschaft mbH (VAEG) is held by ÖIA Bergbauholding Aktiengesellschaft, which in turn belongs to Österreichische lndustrieholding Aktiengesellschaft, an industrial holding company wholly owned by the Austrian State. VAEG is involved in the mining of low-density iron ore (~32 % Fe). The company has only one client, Voest Alpine Stahl AG (VASA), which was privatised in the autumn of 1995.

2. Operating aid

(a) Production and sales

In 1999, VAEG produced 1,149 million tonnes of iron ore with an average content of 33.6% Fe and 589.662 tonnes of low grade products which VASA can use for the blast-furnace burden (Möllerzusatzmaterial). These quantities were sold and delivered to VASA. .

Production decreased from 1.3 million t/y in 1998 to 1,149 million t/y in 1999 but exceeded the ceiling of 1 million t/y for 1999 provided in Article 1 of the Decision. The Austrian authorities have indicated that this has led to a better operating result and to a need for less aid than authorised.

The Commission is examining this situation in the light of the Decision and has asked the Austrian authorities for information. The latter informed the Commission on 18 April 2000 that the situation was due to unforeseen circumstances. In the end of 1999 a risk of collapse forced VAEG to explode part of the mine prematurely. The ore thus set free was meant to be produced and delivered in 2000 only. VAEG decided to deliver it already in the end of 1999 as an advance under the contract for 2000. The Austrian authorities ensured the Commission that the advance delivery will consequently be deducted from the authorised production in 2000 and that production ceilings will be respected.

(b) Production costs

The production costs for the standard-grade iron totalled ATS 169.915 million, i.e. ATS 147,22 per tonne in 1999. The production costs for the low grade products totalled ATS 33.581 million, i.e. ATS 56.95 per tonne. These amounts include closure and rehabilitation operations carried out in 1999. A detailed overview of production costs is given in the Annex.

(c) Pricing

The standard-grade iron ore was sold at ATS 139.50 per tonne. This standard price was set in December 1998 for the whole of 1999.

The low-grade material (Möllerzusatzmaterial) was sold at ATS 76 per tonne, fixed on the basis of the market price for lime gravel (Kalkschotter).

The average price for deliveries of iron ore and low-grade material (Möllerzusatzmaterial) results in ATS 99.60 per tonne. Including the costs of transport to VASA/Linz, the price charged was ATS 667.50 per tonne Fe.

The information submitted by Austria in its ninth report confirm the information given by Voest Alpine Rohstoffbeschaffungs GmbH, a subsidiary of Voest-Alpine Stahl AG responsible for the purchase of raw material, that the above price per tonne Fe for iron ore is higher than the comparable price payable for imported iron ore.

It may therefore be concluded that the prices charged in 1998 were not lower than required under Article 2 of the Commission's Decision of 29 November 1995.

(d) Operating aid

The total losses incurred by VAEG in the first half of 1999 were ATS -52.158 million.

Of the total losses sustained in this period, ATS 23.233 million related to closure operations. Further details on losses are given in the Annex.

The company requested ATS 51 million in operating and closure aid for 1999. Only 47,8 million ATS had to be disbursed. This amount is ATS 9,2 million less than the maximum amount of ATS 57 million authorised for 1999 by the Commission (ATS 34 million operating aid and ATS 23 closure aid). The need for less aid is due to the fact that VAEG was able to achieve higher cost savings than anticipated in the original plan and achieved a better operating result due to a higher production than planned and provided in the Decision.

3. Closure aid

The authorised maximum amount of closure aid for 1999 is ATS 23 million. In 1999 ATS 17.8 million was paid, whereas the closure costs were ATS 23.233 million.

4. Aid payments in relation to aid authorised

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5. Evolution of workforce

The plan for reducing the workforce is as follows:

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Departing from the above plan, the workforce in production was reduced to 230 in 1998 as explained in the Eleventh Monitoring Report. In 1999, workforce in production was reduced to 219. Reduction of workforce is therefore ahead of plan.

Annex Comparison of production costs and revenues in 1999

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* The difference of 6.900 tonnes was sold out of stock.