COMMISSION REPORT on the Application of the Community Rules for State Aid to the Coal Industry in 2000

TABLE OF CONTENTS

1. Introduction

2. Coal industry and market

2.1. Production

2.2. Employment

2.3. Coal demand and trade

3. Situation in European Union coal fields

3.1. Germany

3.2. Spain

3.3. France

3.4. United Kingdom

3.5. Others

4. Financial aid scheduled for the coal industry

4.1. Germany

4.2. Spain

4.3. France

4.4. United Kingdom

5. Legal disputes

5.1. Complaints

5.2. Appeals

6. Conclusions

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.

The report examines the financial aid granted by France, Germany, Spain and the United Kingdom to their coal industries in 2000.

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, 13 December 1994 [2] for Spain, 19 July 1995 [3] for France, and 15 November 2000 [4] 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 2000, 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 94/1070/ECSC - OJ L 385, 31.12.1994, p. 18. Germany subsequently amended the plan, and the amendments were approved by the Commission in its Decisions of 2 December 1998 (99/270/ECSC - OJ L 109, 27.4.1999, p. 14) and 21 December 2000 (not yet published).

[2] Decision 94/1072/ECSC - OJ L 385, 31.12.1994, p. 31. Spain subsequently amended the plan, and the amendments were approved by the Commission in its Decisions of 3 June 1998 (98/637/ECSC - L 303, 13.11.1998, p. 57

[3] Decision 95/465/ECSC - OJ L 267, 9.11.1995, p. 46.

[4] Decision 2001/114/ECSC - OJ L 43, 14.2.2001, p. 27.

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The amounts of financial aid referred to in this document are the final figures authorised by the Commission for 2000 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 fifth 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 2000, coal production in the European Union totalled 86.6 million tonnes, down by 13.4 million tonnes compared with 1999. This reflects the general downward trend over the past few years, and should be further confirmed since the production forecast for 2001 is approximately 82 million tonnes.

Table 1

Coal production (1000 t)

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Source: Eurostat: yearly statistics (1992-1999); * = estimates

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 2000, the workforce was reduced by 12 000, to total 92 500 workers. The biggest drop in absolute terms was in Germany, with 11 000 job losses, followed by Spain (more than 2 000). In the United Kingdom, widespread recourse to subcontracting in the exploitation of deposits is hampering the compilation of precise statistics. Further cutbacks are anticipated in 2001, particularly in Germany.

2.3. Coal demand and trade

Internal deliveries of coal within the Community (including net imports) totalled 257 million tonnes in 2000, compared with 244 million tonnes in 1999. 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.

Table 2

Total internal deliveries of coal (1000 t)

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Source: Eurostat: yearly (1992-1998) and monthly (1999) statistics; * = estimates

In 2000, coal imports from third countries rose to more than 164 million tonnes in order to compensate for reduced internal production. The price of coal - unlike that of hydrocarbons - remained largely stable on the international markets in 2000, and significant increases were not observed until the fourth quarter. 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 capsizing or collision and there are fewer risks of fire.

Table 3

Imports of coal from third countries (1000 t)

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Source: Eurostat; yearly statistics (1992-1999); *=estimates

3. Situation in European Union coal fields

3.1. Germany

In the main coal producing country in the European Union, the coal industry is in effect concentrated in two fields, the Ruhr and the Saar. Following the merger [5] of the three German coal producers (Ruhrkohle AG, Saarbergwerke AG, Preussag Anthrazit GmbH), a single entity, Deutsche Steinkohle AG, now centralises the nation's entire coal production. Production is centred on 13 pits, employing about 57 000 workers, including 25 000 underground.

[5] See also section 5.2, case T-156/98.

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 9.2 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 DEM 7.7 billion in 1998 to DEM 3.8 billion in 2005, while that of North Rhine-Westphalia would increase, rising from 860 million to DEM 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 and 36 000 workers would still be in service. In the course of the year, in view of the fall in coal prices to an all-time low and the iron and steel industry's reduced demand for ore and coke, the German Government decided to expedite the restructuring process: in 2000 mining has ceased completely in three pits (Westfalen, Göttelborn/Reden and Ewald/Hugo) and in 2001, the Auguste Victoria and Blumenthal/Haard mines will be grouped together. in 2002, the Friedrich Heinrich/Rheinland and Niederberg mines will also be grouped together and production will be cut to 29 million tonnes. Following these restructurings, the costs of production, expressed in 1992 prices, should fall to DEM 242 per tce (tonne coal equivalent) in the year 2002, compared with DEM 288/tce in 1992. This is still, however, way out of line with prices on the international markets, currently around DEM 80/tce.

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. A plan for the alternative development of mining communities was therefore provided along with the Spanish mining plan. Production is shared among 58 undertakings, mostly private (following the recent privatisation of Endesa, the only exception is Hunosa, which took over Minas de Figaredo in 1998). The industry employs around 17 000 workers, including contract workers. Eight companies alone produce more than one million tonnes annually and 10 others more than 100 000 tonnes. In Decision 98/637/ECSC of 3 June 1998, the Commission approved the second part of the plan to modernise, rationalise and restructure the coal industry, concerning the years 1998-2002, which involves cutting production annually to no more than 14.5 million tonnes by 2002.

3.3. France

In France, coal mining is now concentrated on the Lorraine coal field, with two underground mines in operation (Merlebach, which is to be closed in October 2003 and La Houve, to be closed in July 2005), and the Centre-Midi coal field, with five mines, one of which is underground (Gardanne, in Provence). The industry employs 7 973 people, 3 560 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 2000. 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. According to Charbonnages de France, the cost of production is FRF 1 267 per tonne, compared with a market price of FRF 275. A recent Court of Auditors report urged the government to implement the mine closure programme without delay, with reference to the FRF 233 billion paid out between 1970 and 2000.

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 18. 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 approximately 11 500 (including more than 8 000 underground) and production from 125 million tonnes to around 32 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: Clipstone, Daw Mill, Ellington, Harworth, Kellingley, Maltby, Rotherham Prince of Wales, Riccall/Whitemore Mine, Rossington, Stillingfleet Combine, Thoresby, Welbeck, Wistow Mine [6]), while Betws Anthracite, 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. Thanks to the concentration of activity on the most productive mines and strenuous and protracted efforts to increase viability, these companies have production costs very close to prices on the world market. 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 more easily with the stringent restrictions on emissions, 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, and is therefore a more economic form of energy. In 1999 and 2000, the situation has become increasingly critical, due both to the widespread drop in coal prices on the international markets and the high value of the pound sterling, and the imminent expiry of a moratorium on consents for the construction of new gas-fired generating stations was expected to exacerbate the situation. The British Government, considering that the problems of the national coal industry were of a temporary nature and that there was still a realistic prospect of achieving a return to satisfactory viability in the medium term, by letter of 26 July 2000 sent notification of a modernisation, rationalisation and restructuring plan for the United Kingdom coal industry, together with the "UK Coal Operating Aid Scheme", covering the period from 17 April 2000 to 23 July 2002. On 15 November 2000, the European Commission approved the above-mentioned modernisation, rationalisation and restructuring plan for the UK coal industry, which provides for financial aid to the coal industry up to a total amount of no more than GBP 110 million. At the same time, the Secretary of State for Trade and Industry announced that the government was lifting the moratorium on the construction of new gas-fired generating stations and giving the green light to six new power stations.

[6] The Riccall/Whitemore, Stillingfleet and Wistow pits are also known as the 'Selby Complex'.

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 1994-2000

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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.

*: 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.

Compared with 1994, there was a certain reduction in production-related aid per tonne of coal extracted, at least, 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. Finally, 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 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. These areas are also generally eligible for aid from the regional development fund, 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. 2000

For 2000, the Commission authorised DEM 9 180 million (EUR 4 693.7 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) DEM 3 847 million (EUR 1 966.9 million) in operating aid under Article 3;

- b) DEM 3 138 million (EUR 1 604.4 million) in aid for the reduction of activity under Article 4;

- c) DEM 71 million (EUR 36.3 million) under the system to maintain an underground labour force (Bergmannsprämie) under Article 3;

- d) DEM 2 124 million (EUR 1 086 million) for Article 5 to cover exceptional costs.

The subsidies mentioned under (a), totalling DEM 3 847 million, were intended to cover the difference between production costs and the selling price on the world market for coal of a similar quality from third countries. The above aid was to be allocated only to cover losses incurred in those production areas meeting the criteria of making progress towards achieving economic viability in the medium term, as stipulated in the first indent of Article 2(1) and in Article 3 of Decision No 3632/93/ECSC.

The DEM 3 138 million in aid for the reduction of activity, mentioned under (b), was paid to the Westfalen, Göttelborn/Reden and Ewald/Hugo sites, which were closed in 2000, the Auguste Victoria and Blumenthal/Haard sites which are due to be regrouped and partially closed in 2001, and the Friedrich Heinrich/Rheinland and Niederberg sites which are to undergo the same in 2002. Finally, the aid will cover the losses incurred at sites scheduled for closure after 2002.

The DEM 71 million referred to in (c), intended to finance the Bergmannsprämie supplement of DEM 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 DEM 2 124 million in aid, referred to in (e), was to cover restructuring costs not linked to current production (inherited liabilities), such as 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 increase in the allocation in relation to the previous year may be explained by the closure of three production sites mentioned above, Westfalen, Göttelborn/Reden and Ewald/Hugo, in the course of the year.

4.1.2. 2001

For 2001, the Commission authorised a total of DEM 8 129 million (EUR 4 156.3 million) in aid to the coal industry (under Articles 3, 4 and 5 of Decision No 3632/93/ECSC). The same Decision authorised aid for both 2000 and 2001. It is therefore possible to indicate the amounts for 2001, even though they do not concern the year covered by this report. This aid is intended to cover the categories of costs already mentioned. The most important destinations are:

- a) DEM 3 433 million (EUR 1 755.3 million) in operating aid under Article 3;

- b) DEM 1 889 million (EUR 965.8 million) in aid for the reduction of activity under Article 4;

- c) DEM 67 million (EUR 34.2 million) in aid for the Bergmannsprämie scheme to maintain an underground labour force under Article 3;

- d) DEM 2 740 million (EUR 1 400.9 million) in aid to cover exceptional costs under Article 5.

4.2. Spain

For 2000, the Commission authorised ESP 186 541 million (EUR 1 121.1 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) ESP 48 696 million (EUR 292.7 million) in operating aid under Article 3;

- b) ESP 67 484 million (EUR 405.6 million) for the reduction of activity under Article 4;

- c) ESP 55 209 million (EUR 331.8 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) ESP 15 152 million (EUR 91 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 ESP 48 696 million in operating aid referred to in (a) was paid to cover the operating losses of 42 coalmining companies accounting for an overall production of 11.1 million tonnes in 2000. 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. Over that period, costs showed an overall reduction of 16.4 % in relation to 1992 prices. A further reduction of around 11 % was expected for 2000. 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 ESP 67 484 million in aid for the reduction of activity, referred to in (b), ESP 56 121 million went to cover the operating losses of Hunosa mines, ESP 4 940 million to the Mina de la Camocha SA and ESP 6 423 million to 14 other companies [7]. The 16 companies concerned produce a total of 3.5 million tonnes of coal [8].

[7] ESP 636 million (EUR 3 822 436.98) to ENDESA's underground mines, ESP 322 million (EUR 1 935 258.98) to ENCASUR's underground mines, ESP 903 million (EUR 5 427 139.3)to Antracitas de Guillón, ESP 681 million (EUR 4 092 892.43) to Coto Minero Jove S.A., ESP 83 million (EUR 498 840.05) to Inversiones Terrales-Plácido Ubeda, ESP 154 million (EUR 925 558.64) to Industrial y Comercial Minera (INCOMISA), ESP 52 million (EUR 312 526.29) to Mina Escobal, ESP 356 million (EUR 2 139 603.09) to Minas de Escucha, ESP 118 million (EUR 709 194.28) to Minas de Valdeloso S.L., ESP 445 million (EUR 2 674 503.86) to Promotora de Minas de Carbón S.A., ESP 189 million (EUR 1 135 912.88) to Virgilio Riesco S.A., ESP 600 million (EUR 3 606 072.27) to the Picadin, Pontedo and Arbas groups of UMINSA, ESP 853 million (EUR 5 126 633.25) to the María group of Minero Siderúrgica de Ponferrada S.A., and ESP 1 029 million (EUR 6 184 414.55) to the Escandal group of Coto Minero del Sil S.A.

[8] A small sector of the Spanish coal industry accounting for production of approximately half a million tonnes receives no State aid. A number of companies operating several mines receive aid under both Article 3 and Article 4.

The ESP 55 209 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 ESP 36 634 million was granted to the Hunosa mines to cover the costs of the early retirement of workers who were laid off before 31 December 1999. The balance, amounting to ESP 18 575 million is to cover the allowances payable to workers laid off in other companies through measures to modernise, rationalise, restructure or reduce activity.

The ESP 15 152 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 ESP 5 193 million, will be awarded to Hunosa. The remainder, i.e. ESP 9 959 million, is to go to other producers undertaking restructuring or reduction of activity.

4.3. France

Lengthy and delicate negotiations on what constituted State aid to the French coal industry for the years 1997 to 2000 have been held between the departments of the European Commission and the relevant French authorities in view of the differing interpretations of certain loans issues floated by Charbonnages de France, the only national undertaking operating in the coal industry. The Commission noted that the aid as notified by France, consisting of direct subsidies under the general State budget and capital injections from a special Treasury account, did not enable the operating losses for the current production to be covered. The outstanding amount of the losses for the three years has been covered, according to a memorandum from the French authorities of 25 March 1998, by loan issues floated by Charbonnages de France on the financial market.

In its letter of formal notice to France of 26 July 1999 [9], the Commission considered that the conditions under which these loan issues were floated and the close links which exist between Charbonnages de France and the French authorities suggested that the loan issues floated by the company were tacitly guaranteed by the French State in order to support continued operation which would otherwise have been much more problematic and costly, given the undertaking's critical financial situation and the prospect of mining activities coming to a end in 2005. The Commission therefore considered that these loans constituted aid within the meaning of Article 1 of Decision No 3632/93/ECSC.

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

France subsequently confirmed the Commission's position in a letter of 26 October 1999 and expressly stated that the loan issues floated by Charbonnages de France could be regarded as issued on behalf of the French State in view of the fact that the French State will take over that public undertaking's debt when it is wound up after mining activities cease in 2005. The part of the loan issues floated by Charbonnages de France to cover the balance of the operating losses for 1997, 1998 and 1999 which are not covered by direct subsidies and capital injections therefore constitutes aid within the meaning of Article 1 of Decision No 3632/93/ECSC, and as such may be properly included in the State budget. This is why the figures for 1997, 1998 and 1999 have also been given, even though the report does not cover those years.

4.3.1. 1997

For 1997, the Commission authorised FRF 6 323 million (EUR 956.2 million) in aid to the coal industry (under Articles 4 and 5 of Decision No 3632/93/ECSC), the most important destinations of which were:

- A maximum of FRF 2 454 million (EUR 371.1 million) in aid for the reduction of activity under Article 4. 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. This aid forms part of the plan for the reduction of activity by the company, which plans to cease all mining activities in 2005.

- A maximum of FRF 3 869 million (EUR 585.1 million) under Article 5 to cover exceptional costs, allocated as follows:

- FRF 631 million towards the cost of paying social-welfare benefits resulting from the pensioning-off of workers before they reach statutory retirement age;

- FRF 154 million as other exceptional expenditure on workers losing their jobs as a result of restructuring and rationalisation;

- FRF 47 million towards residual costs resulting from administrative, legal or tax provisions;

- FRF 143 million towards additional work resulting from restructuring;

- FRF 10.7 million towards mining damage attributable to pits previously in service;

- FRF 73 million towards exceptional intrinsic depreciation resulting from the restructuring of the industry;

- FRF 2 811 million towards the increase in the contributions, outside the statutory system, to cover social security costs as a result of the drop, following restructuring, in the number of contributors.

4.3.2 1998

For 1998, the Commission authorised FRF 6 592 million (EUR 998.6 million) in aid to the coal industry (under Articles 4 and 5 of Decision No 3632/93/ECSC), the most important destinations of which were:

- A maximum of FRF 2 533 million (EUR 383.7 million) in aid for the reduction of activity, intended to cover operating losses;

- A maximum of FRF 4 059 million (EUR 614.9 million) in aid to cover exceptional costs allocated as follows:

- FRF 731 million towards the cost of paying social-welfare benefits resulting from the pensioning-off of workers before they reach statutory retirement age;

- FRF 244 million as other exceptional expenditure on workers losing their jobs as a result of restructuring and rationalisation;

- FRF 67 million towards residual costs resulting from administrative, legal or tax provisions;

- FRF 198 million towards additional work resulting from restructuring;

- FRF 7 million towards mining damage attributable to pits previously in service;

- FRF 45 million towards exceptional intrinsic depreciation resulting from the restructuring of the industry;

- FRF 2 767 million towards the increase in the contributions, outside the statutory system, to cover social security costs as a result of the drop, following restructuring, in the number of contributors.

4.3.3 1999

For 1999, the Commission authorised FRF 6 459 million (EUR 984.7 million) in aid to the coal industry (under Articles 4 and 5 of Decision No 3632/93/ECSC), the most important destinations of which were:

- A maximum of FRF 2 324 million (EUR 354.3 million) in aid for the reduction of activity intended to cover operating losses;

- A maximum of FRF 4 135 million (EUR 630.4 million) in aid intended to cover exceptional costs, allocated as follows:

- FRF 837 million towards the cost of paying social-welfare benefits resulting from the pensioning-off of workers before they reach statutory retirement age;

- FRF 157 million as other exceptional expenditure on workers losing their jobs as a result of restructuring and rationalisation;

- FRF 86 million towards residual costs resulting from administrative, legal or tax provisions;

- FRF 246 million towards additional work resulting from restructuring;

- FRF 12 million towards mining damage attributable to pits previously in service;

- FRF 45 million towards exceptional intrinsic depreciation resulting from the restructuring of the industry;

- FRF 2 752 million towards the increase in the contributions, outside the statutory system, to cover social security costs as a result of the drop, following restructuring, in the number of contributors.

4.3.4 2000

For 2000, the Commission authorised FRF 6 627 million (EUR 1 010.3 million) in aid to the coal industry (under Articles 4 and 5 of Decision No 3632/93/ECSC), the most important destinations of which were:

- a maximum of FRF 2 336 million (EUR 356.1 million) in aid for the reduction of activity, intended to cover operating losses;

- a maximum of FRF 220 million (EUR 33.5 million) in aid for the reduction of activity, intended to cover the interest due for 2000 on the part of the loan issue floated by Charbonnages de France in 1997, 1998 and 1999 to cover the balance of the operating losses for those years which are not covered by direct subsidies and capital injections;

- FRF 4 071 million (EUR 620.6 million) in aid to cover exceptional losses, allocated as follows:

- FRF 870 million towards the cost of paying social-welfare benefits resulting from the pensioning-off of workers before they reach statutory retirement age;

- FRF 70 million as other exceptional expenditure on workers losing their jobs as a result of restructuring and rationalisation;

- FRF 83 million towards residual costs resulting from administrative, legal or tax provisions;

- FRF 331 million towards additional work resulting from restructuring;

- FRF 10 million towards mining damage attributable to pits previously in service;

- FRF 45 million towards exceptional intrinsic depreciation resulting from the restructuring of the industry;

- FRF 2 662 million towards the increase in the contributions, outside the statutory system, to cover social security costs as a result of the drop, following restructuring, in the number of contributors.

4.4. United Kingdom

For 2000, in accordance with the "UK Coal Operating Aid Scheme" mentioned in paragraph 3.4, the Commission authorised a total of GBP 86.9 million (EUR 142.7 million) in aid to the coal industry (under Article 3 of Decision No 3632/93/ECSC). This aid is meant to cover the difference between production costs and selling prices prevailing on the world markets for coal of a similar quality originating in non-member countries.

This aid was allocated to the following mines:

- GBP 17.463 million to the Longannet colliery, run by Mining (Scotland) Ltd,

- GBP 13.560 million to the Maltby colliery, run by RJB Mining Plc,

- GBP 3.207 million to the Rossington colliery, run by RJB Mining Plc,

- GBP 14.722 million to the Harworth colliery, run by RJB Mining Plc,

- GBP 23.187 million to the Selby colliery, run by RJB Mining Plc,

- GBP 3.932 million to the Hatfield colliery, run by Hatfield Coal Company Ltd,

- GBP 0.470 million to the Blenkinsopp colliery, run by Blenkinsopp Collieries Ltd,

- GBP 0.870 million to the Betws colliery, run by Betws Anthracite Co;

- GBP 3.589 million to the Tower colliery, run by Tower Colliery Ltd,

- GBP 1.364 million to two open-cast mines run by H.J. Banks & Co. Ltd,

- GBP 1.321 million to several open-cast mines run by Ward Brothers Mining Ltd,

- GBP 2.978 million to several open-cast mines run by Celtic Energy Ltd,

- GBP 0.280 million to various others.

5. Legal disputes

No new legal actions were recorded in the course of the year in question. The state of progress in ongoing cases is outlined below.

5.1. Complaints

On 26 August 1997 the Commission registered a complaint (ref. 97/4717) from five French undertakings [10] including Thion et Cie, against the public undertaking Charbonnages de France, concerning the alleged misuse of State aid it had received. 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 [11] 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 [12], and aid for the 1997 and 1998 financial years, to which the French Government responded by letter of 8 April 1999. Consequently, in authorising State aid, the Commission is to issue a decision at a later date on the amounts of FRF 35 million for 1997 and FRF 45 million for each of the years 1998 to 2000 inclusive.

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

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

[12] Decision 95/465/ECSC (1994 financial year); Decision 95/579/ECSC (1995 financial year); Decision 96/458/ECSC (1996 financial year).

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.:

- Case T-110/98 against Decision 98/687/ECSC of 10 June 1998 on the authorisation of State aids to the German coal industry for 1997. On 9 September 1999, the Court of First Instance dismissed the application on two of the grounds and invited the parties to state their views on the further steps to be taken in the proceedings (interlocutory judgment).

By application lodged at the Registry of the Court of Justice on 8 November 1999, the applicant appealed against the judgment of the Court of First Instance of 9 September 1999 (Case C-427/99P). [13]

[13] OJ C 20, 22.1.2000, p. 14.

When proceedings resumed following the interlocutory judgment, the Court of First Instance by order of 25 July 2000 dismissed the application for annulment on the ground that the action was manifestly lacking in any foundation in law.

By application lodged at the Registry of the Court of Justice on 9 October 2000 the applicant filed grounds for a further appeal against the order of 25 July 2000 (Case C-371/00P).

- Case T-111/98 against Decisions Nos 98/635/ECSC, 98/636/ECSC and 98/637/ECSC of 3 June 1998 on the authorisation of State aids to the Spanish coal industry for 1994, 1995, 1996, 1997 and 1998. Proceedings are currently stayed pending a decision in Case C-427/99P.

- Case T-156/98 against the Decision of 29 June 1998 authorising the amalgamation of the undertakings RAG AG, Saarbergwerke AG and Preussag Anthrazit GmbH. On 31 January 2001, the Court annulled the above decision on the grounds that the Commission did not assess the impact of the possible non-notified State aid on the financial and commercial position in sufficient detail. According to the applicant, the value of the aid had been determined according to the purchase price, a token sum of one German mark which did not reflect the true value of the undertakings transferred [14].

[14] On 4 February 2000, the Commission departments sent a letter of formal notice on this matter to the German Government. The German Government replied by letter of 5 May 2001 maintaining that the operation did not involve any State aid in addition to that notified annually. An independent investigation by ING-BARINGS was submitted in support of this proposition.

- Case T-12/99 and Case T-63/99 (cases combined for the purposes of oral procedure and judgment) against Decision No 99/270/ECSC of 2 December 1998 on the authorisation of State aids to the German coal industry for 1998 and against Decision No 99/299/ECSC of 22 December 1998 on the authorisation of State aids to the German coal industry for 1999. Currently before the Court of First Instance.

- Case T-64/99 Action in respect of failure to act (Article 35 of the ECSC Treaty). The Commission had unlawfully failed to adopt a decision on the applicant's complaint concerning examination of alleged non-notified State aid which the German authorities had granted in the context of RAG AG's takeover of Saarbergwerke AG and Preussag Anthrazit GmbH. Order not to proceed to judgment (25 July 2000)

- 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. Proceedings are currently stayed pending a decision in Case C-427/99P.

- Case C-427/99P - the applicant appealed to the Court of Justice against the judgment of the Court of First Instance in Case T-110/98. The case is currently before the Court of Justice.

- Case C-371/00P - the applicant appealed to the Court of Justice against the ruling of the Court of First Instance of 25 July 2000 in Case T-110/98 concerning the annulment of Commission Decision 98/687/ECSC. The case is currently before the Court of Justice.

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.

The Commission, through its Decision No 3632/93/ECSC, has succeeded in ensuring 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.

The European coal industry is still in crisis despite several years of State aid. The competitive imbalance has not been compensated; on the contrary, in many cases it has even been exacerbated. Increasingly, these measures serve as a support to vulnerable areas and social groups, while the prospect of a return to an economically viable European coal industry is fast disappearing.

>REFERENCE TO A GRAPHIC>

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 questioned. The annual sums paid in aid to current production now amount to approximately EUR 60 000 per worker in Germany, slightly less than EUR 50 000 in France and slightly more than EUR 40 000 in Spain, with more modest sums recorded in the United Kingdom. These figures, which do not include aid to cover the sometimes considerable exceptional costs or inherited liabilities or the specific social benefits paid by the Member States, are appreciably higher than the average wages of the workers concerned. Finally, given the very long period of time that some Member States have been paying aid to support the mining industry, on the one hand, and, on the other, the duration of the professional career of miners, which is generally shorter than in other areas of production, the great majority of the mine workers currently employed can be considered to have spent their entire working careers in the employ of undertakings that have been continuously state-supported. In other words, while State aid may have played a crucial role during this period, it has proved a very costly means of achieving these ends.

According to different timetables and procedures, the various governments concerned have decided to limit both the quantity and the duration of State aid with the aim of reducing its impact on the public purse. 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, whilst Spain and Germany, which have adopted a more gradual approach, are seeking to accelerate their restructuring plans. When the plans currently being implemented have run their course, the State aid allocated within the European Union should be cut by almost half in relation to that allocated in 1998. The United Kingdom is a special case, as State aid was resumed in 2000 after having ceased for a short period. According to the government's proposed plan for the coal industry, the amount and duration of aid will be limited and must inevitably come to an end by 2002. At the same time, the UK coal industry is striving to achieve competitiveness with imported coal.

The stringent conditions applied by the Commission in its decisions on the authorisation of State aid are behind two trends in the coal industry. On the one hand, there are undertakings which have made significant cuts in their production costs after several years of restructuring and which receive operating aid under Article 3 of the Decision. These undertakings have good prospects of continuing to operate and their production should therefore be able to contribute to the "production base" described in the Green Paper on the Security of energy supply in the European Union recently published by the Commission. In this context, they should help to maintain quick and easy access to Community solid fuel reserves in order to offset any uncertainties which might affect the energy market. On the other hand, there are undertakings whose modernisation and rationalisation plans have not, for a variety of reasons, succeeded in achieving the desired results. These undertakings or production units receive aid for the reduction of activity under Article 4 of the Decision. Such undertakings should continue the process of restructuring and reducing activity with a view to closing down within a reasonable time period. Indeed, although issues of the security of energy supply are clearly a priority, this priority should on no account be used as an argument to continue coal production in defiance of economic sense.