Aides d'État - Royaume-Uni

Aide C 21/03 (ex N 474/02) - Waste Resources Action Program

Invitation à présenter des observations en application de l'article 88, paragraphe 2, du traité CE

(2003/C 129/04)

(Texte présentant de l'intérêt pour l'EEE)

Par la lettre du 19 mars 2003 reproduite dans la langue faisant foi dans les pages qui suivent le présent résumé, la Commission a notifié au Royaume-Uni sa décision d'ouvrir la procédure prévue à l'article 88, paragraphe 2, du traité CE concernant une partie de la mesure susmentionnée.

Les parties intéressées peuvent présenter leurs observations sur la mesure à l'égard de laquelle la Commission ouvre la procédure dans un délai d'un mois à compter de la date de publication du présent résumé et de la lettre qui suit, à l'adresse suivante: Commission européenne Direction générale "Concurrence"

Registre des aides d'État

B - 1049 Bruxelles Fax (32-2) 296 12 42.

Ces observations seront communiquées au Royaume-Uni. L'identité des parties intéressées ayant présenté des observations peut rester confidentielle sur demande écrite et motivée.

RÉSUMÉ DE LA LETTRE

1. PROCÉDURE

Par lettre datée du 9 juillet 2002, enregistrée le 16 juillet, le Royaume-Uni a notifié, conformément à l'article 88, paragraphe 3, du traité CE, le programme intitulé "Waste Resources Action Program". Par lettre du 2 août 2002, la Commission a demandé des informations complémentaires, lesquelles lui ont été fournies par les autorités britanniques par lettre du 28 août 2002. À la suite d'une réunion entre la Commission et les autorités britanniques qui s'est tenue le 29 août 2002, les autorités britanniques ont fourni un complément d'information par lettre datée du 13 septembre 2002, enregistrée le 18 septembre 2002. La Commission a envoyé une nouvelle demande de renseignements par lettre du 23 octobre 2002, à laquelle les autorités britanniques ont répondu par lettre datée du 3 décembre 2002, enregistrée le 6 décembre 2002. Par lettre datée du 15 janvier 2003, enregistrée le 23 janvier 2003, les autorités britanniques ont demandé une nouvelle réunion avec la Commission; celle-ci s'est tenue le 21 janvier 2003. À la suite de cette réunion, les autorités britanniques ont fourni des informations complémentaires par une série de lettres datées du 24 janvier au 7 février 2003.

2. INTRODUCTION

Le Waste Resources Action Program (ci-après dénommé "WRAP"), organisme financé par le secteur public et institué pour le compte du ministère britannique de l'environnement, de l'alimentation et des questions rurales, a pour objectif de promouvoir une gestion durable des déchets et des marchés efficients de la gestion des déchets, en vue de permettre au Royaume-Uni d'atteindre les objectifs communautaires en matière de gestion des déchets fixés par la directive du Conseil du 26 avril 1999 concernant la mise en décharge des déchets et par la directive du Conseil du 20 décembre 1994 relative aux emballages et aux déchets d'emballages.

Le WRAP administrera plusieurs mesures d'aide:

- le WRAP Grant Funding, mesure qui se subdivise en trois sous-mesures:

- une première sous-mesure prévoit des subventions à l'investissement exclusivement en faveur des petites et moyennes entreprises (PME) (régime dit "WRAP SME Scheme"). Elle sera mise en oeuvre sur la base du règlement (CE) n° 70/2001 de la Commission du 12 janvier 2001 concernant l'application des articles 87 et 88 du traité CE aux aides d'État en faveur des petites et moyennes entreprises (ci-après dénommé "le règlement (CE) n° 70/2001")(1) et n'entre pas dans le cadre de la présente notification,

- une deuxième sous-mesure, dénommée "WRAP Regional Scheme" (ci-après dénommé "régime régional") prévoit des aides en faveur de grandes entreprises dans des régions assistées et est notifiée sur la base des lignes directrices concernant les aides à finalité régionale(2) (ci-après dénommées "les lignes directrices régionales"),

- une troisième sous-mesure, dénommée "WRAP Environmental Scheme" (ci-après dénommé "régime environnemental"), couvre des cas qui ne relèvent ni du règlement (CE) n° 70/2001 ni des lignes directrices régionales. Les autorités britanniques ont notifié cette sous-mesure sur la base de l'Encadrement communautaire des aides d'État pour la protection de l'environnement(3) (ci-après dénommé "l'encadrement des aides à l'environnement"),

- le WRAP Pilot Fund (ci-après dénommé "fonds pilote"). Il s'agit d'un fonds de capital-risque qui prendra des participations au capital de PME spécialisées dans des activités de recyclage des déchets,

- le WRAP Lease Guarantee Fund (ci-après dénommé "fonds de garantie"). Cette mesure est également divisée en trois sous-mesures, à savoir:

- la section PME du fonds de garantie, qui fournira des garanties de loyer à des PME,

- la section régionale du fonds de garantie, qui fournira des garanties de loyer à des grandes entreprises situées dans des régions assistées,

- la section environnementale du fonds de garantie, qui fournira des garanties de loyer dans des cas ne relevant ni de la section régionale ni de la section PME du fonds de garantie,

- le soutien à l'association de compostage ("Support to the Composting Association"),

- les initiatives dénommées "The Business Development Service", "Exemplar Companies Initiative" et "Advice to Composting Firms Initiative".

La Commission a décidé de ne pas soulever d'objections à l'encontre de ces mesures d'aide, à l'exception du régime environnemental et de la partie du fonds de garantie qui est notifiée sur la base de l'Encadrement des aides à l'environnement.

3. DESCRIPTION

3.1. Le régime environnemental (WRAP Environmental Scheme)

Le régime environnemental a pour objectif de subventionner les investissements réalisés par des entreprises privées dans des installations de recyclage de déchets divers (matières plastiques, verre, bois, agrégats, compost). Les entreprises sélectionnées s'engageront à recycler une certaine quantité de déchets. L'existence et le fonctionnement de ces installations de recyclage sont censés encourager la collecte sélective des déchets et réduire la mise en décharge. Les bénéficiaires de ces subventions seront sélectionnés par voie d'appel d'offres ouvert, en vue de limiter le montant des aides.

Les coûts éligibles au titre de ce régime seront limités aux coûts des investissements en matériel et outillages, dont les autorités britanniques déduiront les bénéfices éventuellement réalisés par le bénéficiaire de l'aide sur une période de cinq ans. Les intensités d'aide n'excéderont pas 30 %, majorés, le cas échéant, des points de pourcentage supplémentaires prévus au point 34 de l'encadrement des aides à l'environnement.

3.2. Le fonds de garantie (Lease Guarantee Fund)

Le fonds de garantie sera un fonds entièrement public, chargé d'accorder des garanties pour la location en crédit-bail de machines et d'équipements destinés au retraitement des déchets ou à la fabrication de produits à partir de ces matériaux.

4. APPRÉCIATION

4.1. Le régime environnemental (WRAP Environmental Scheme)

Existence d'une aide

Ce régime confère aux bénéficiaires un avantage économique et sélectif sous la forme d'une subvention. Les déchets qui sont recyclés et les produits finals qui sont fabriqués à partir des déchets recyclés peuvent faire l'objet d'échanges internationaux. Cette mesure peut par conséquent avoir un effet sur la concurrence et elle peut constituer une aide d'État au sens de l'article 87, paragraphe 1, du traité CE.

Compatibilité avec le traité CE

Cette mesure d'aide n'est apparemment pas compatible avec le marché commun en application de l'article 87, paragraphe 2, ni de l'article 87, paragraphe 3, points a), b), ou d), du traité CE. L'article 87, paragraphe 3, point c), semble être la seule base possible de compatibilité.

Les autorités britanniques ont notifié ce régime sur la base de l'encadrement des aides à l'environnement. Au stade actuel, la Commission estime qu'un complément d'examen est nécessaire pour déterminer si les aides à l'investissement prévues dans le cadre de ce régime relèvent de cet encadrement, en particulier en ce qui concerne les points suivants:

- en vertu du point 29 de l'encadrement des aides à l'environnement, des aides à l'investissement peuvent être accordées sur la base dudit encadrement lorsque les entreprises réalisent des investissements en l'absence de normes communautaires obligatoires ou pour se mettre en conformité avec des normes nationales plus strictes que les normes communautaires applicables. La Commission note que les aides à l'investissement accordées dans le cadre de ce régime sont destinées à permettre au Royaume-Uni d'atteindre les objectifs généraux assignés aux États membres par les directives communautaires concernant respectivement la mise en décharge des déchets et les emballages,

- les aides à l'investissement autorisées en vertu de l'encadrement des aides à l'environnement pourraient être interprétées comme visant exclusivement à réduire les émissions et les pollutions occasionnées par le bénéficiaire dans le cadre de son processus de production. La Commission note que l'objectif environnemental du régime en cause est plus indirect: selon les informations fournies par les autorités britanniques, il est prévu que les activités de recyclage exercées par les bénéficiaires aient pour effet de promouvoir la collecte sélective des déchets et de réduire les mises en décharge ainsi que l'utilisation de matières premières primaires. La Commission doute que l'encadrement des aides à l'environnement soit applicable à de tels cas.

Même si elle devait parvenir à la conclusion que l'encadrement des aides à l'environnement est applicable, la Commission aurait encore des doutes quant à la manière dont les autorités britanniques se proposent de calculer les coûts éligibles en application de cet encadrement. Ainsi, le point 37 de l'encadrement des aides à l'environnement dispose que "les coûts éligibles doivent être strictement limités aux coûts d'investissement supplémentaires pour atteindre les objectifs de protection de l'environnement". En l'espèce, les autorités britanniques ont inclus dans le calcul des coûts d'investissement éligibles la totalité des investissements liés à l'activité de recyclage. Elles ne déduisent de ceux-ci que les bénéfices réalisés par le bénéficiaire des aides pendant une période de cinq ans. Cette approche ne semble pas conforme au point 37.

Enfin, la Commission doute que cette mesure d'aide puisse être considérée comme compatible directement sur la base de l'article 87, paragraphe 3, point c), du traité CE, puisque les autorités britanniques n'ont pas démontré que ladite mesure n'altérait pas les conditions des échanges dans une mesure contraire à l'intérêt commun.

4.2. Le fonds de garantie (WRAP Lease Guarantee Fund)

Existence d'une aide

Ce fonds permet aux entreprises qui souhaitent acquérir des équipements d'avoir accès à la location-bail à des conditions plus favorables que celles qui sont normalement proposées sur le marché. Le locataire perçoit donc un avantage économique, qui est de caractère sélectif. Les produits fabriqués par les entreprises opérant dans le secteur du recyclage des déchets peuvent faire l'objet d'échanges internationaux. Cette mesure peut donc avoir un effet sur la concurrence et les échanges entre États membres et elle peut constituer une aide au sens de l'article 87, paragraphe 1, du traité CE.

Compatibilité avec le traité CE

Les autorités britanniques ont partiellement notifié la mesure sur la base de l'encadrement des aides à l'environnement. La Commission note que le type d'investissements visés par le fonds de garantie est similaire à ceux visés par le régime environnemental. La Commission a déjà exposé les raisons pour lesquelles elle nourrissait des doutes concernant l'applicabilité de l'encadrement à ce type d'investissements. En outre, les autorités britanniques n'ont pas fourni d'informations sur la compatibilité de la mesure avec l'encadrement des aides à l'environnement, en particulier en ce qui concerne le calcul des coûts éligibles en application du point 37 de cet encadrement. En conséquence, la Commission émet également des doutes sur la compatibilité de la mesure avec l'encadrement des aides à l'environnement si celui-ci se révélait applicable.

5. CONCLUSION

À la lumière des considérations qui précèdent, sur la base des informations disponibles ainsi que de l'appréciation préliminaire exposée ci-dessus, la Commission a décidé d'ouvrir la procédure prévue à l'article 88, paragraphe 2, du traité CE à l'égard du régime environnemental (WRAP Environmental Scheme) et de la partie du fonds de garantie (Lease Guarantee Fund) qui est notifiée sur la base de l'encadrement communautaire des aides d'État pour la protection de l'environnement. Conformément à l'article 14 du règlement (CE) n° 659/1999 du Conseil, toute aide illégale pourra faire l'objet d'une récupération auprès de son bénéficiaire.

TEXTE DE LA LETTRE

"The Commission wishes to inform the United Kingdom that, having examined the information supplied by your authorities on the measure referred to above, it has decided to initiate the procedure laid down in Article 88(2) of the EC Treaty.

I. PROCEDURE

(1) By letter dated 9 July 2002, registered on 16 July, the United Kingdom notified, pursuant to Article 88(3) EC, the Waste resources action programme. By letter dated 2 August 2002, the Commission asked for further information, which was provided by the British authorities by their letter dated 28 August 2002. Following a meeting between the Commission and the British authorities that was held on 29 August 2002, the British authorities provided further information by letter dated 13 September 2002, registered on 18 September 2002. The Commission sent another request of information by letter dated 23 October 2002, to which the British authorities replied by letter dated 3 December 2002, registered on 6 December 2002. By letter dated 15 January 2003, registered on 23 January 2003, the British authorities requested a new meeting with the Commission, which was held on 21 January 2003. Following that meeting, the British authorities provided supplementary information by a series of letters dated between 24 January 2003 and 7 February 2003.

II. DETAILED DESCRIPTION OF THE MEASURE

2.1. Presentation of WRAP and its objectives

(2) This notification includes several aid measures administered by the Waste resources action programme, an entity established on behalf of the Department of the Environment, Food and Rural Affairs. Whilst WRAP has a private corporate form, it functions as a Government body: its operating costs are wholly funded by the Government, and one of the directors in the company's board is appointed by the Secretary of State for Environment, Food and Rural Affairs.

(3) The legal basis of this program is Section 153 of the Environmental Protection Act 1990 and the Financial Assistance for Environmental Purposes (No 2) Order 2000 (SI 2000:2211).

(4) Its objective is to promote sustainable waste management and efficient markets for waste management and recycling. In particular, the aim of the British Government is to fulfil the Community targets for waste recycling set by the EC Landfill Directive(4), which requires Member States to reduce the disposal of municipal waste to landfill and by the EC Packaging Directive(5) which requires significant increases in packaging waste recycling by at least 2006.

(5) In order to achieve this objective, the Waste resources action programme will manage the following measures:

- the WRAP grant funding: this measure is divided in three submeasures:

- a first submeasure provides investment grants to SMEs only (the WRAP SME scheme). It will be implemented on the basis of Commission Regulation (EC) No 70/2001 of 12 Januray 2001 on the application of Articles 87 and 88 of the EC Treaty to State aid to small and medium-sized enterprises(6) (hereafter 'Regulation (EC) No 70/2001') and does not form part of the present notification,

- a second submeasure, the WRAP regional scheme, involves aid to large firms in assisted areas and is notified on the basis of the guidelines on national regional aid(7) (hereinafter 'the regional guidelines'),

- a third submeasure, the WRAP environmental scheme, covers cases that do not fall under either Regulation (EC) No 70/2001 or the regional guidelines. The British authorities notified this submeasure on the basis of the Community guidelines on State aid for environmental protection(8) (hereinafter 'the environmental guidelines'),

- the WRAP pilot fund (hereinafter referred to as the 'pilot fund'). This is a risk-capital fund that will take equity participations in SMEs that are specialised in waste recycling activities,

- the WRAP lease guarantee fund (hereinafter referred to as the guarantee fund). This measure is also divided into three submeasures:

- a first submeasure is the SME section of the guarantee fund, which will provide lease guarantees to SMEs,

- a second submeasure is the regional section of the guarantee fund, which will provide lease guarantees to large firms located in assisted areas,

- a third submeasure is the environmental section of the guarantee fund, which will provide lease guarantees to cases that are not covered by the regional section or the SME section of the guarantee fund,

- the support to the Composting Association,

- the Business development service, Exemplar companies initiative and Advice to composting firms initiative.

Each of these measures is described in detail below.

2.2. The WRAP grant funding in the wood, plastics, glass, aggregates and compost sectors

2.2.1. Aim of the measure

(6) The purpose of this grant funding programme is to subsidise investments by private companies in recycling facilities in order to increase the recycling of waste in the United Kingdom. The selected firms will commit themselves to recycling a certain amount of waste per year. As a result, local authorities would have the incentive to set up systems of selective collection of waste since the existence of these facilities would ensure the reprocessing of their selected waste. According to the British authorities, the necessity of such aid stems from the uncertainty of returns on this type of investment, due to the risks associated with obtaining appropriate waste materials and the difficulty in motivating the purchase of products with recycled contents.

2.2.2. The WRAP SME scheme

(7) In a certain number of projects, which concern in particular wood and aggregates, the British authorities will directly provide the aid on the basis of Regulation (EC) No 70/2001. These cases are not part of this notification.

2.2.3. The WRAP regional scheme

(a) Description of the scheme

(8) Projects under this scheme will involve investment aid with the view to optimising the recycling of aggregates (stone, gravel etc. used in construction) and compost (processing of organic waste into compost and horticultural products). The British authorities expect that this scheme will provide extensive regional benefits, by generating new and increased economic activity in the development of aggregates recycling and composting in these regions. It is expected that it will encourage other companies to involve themselves in these activities. The British authorities also consider that these investments will assist the regions concerned in managing their construction, demolition or industrial wastes or organic wastes, which will help relieve the pressure on landfills and contribute to the sustainable development of the region.

(9) In order to identify the proportional level of aid funding and to select the recipients of support, WRAP uses open and competitive tenders for each type of products. These tenders are advertised in the specialised press throughout Europe. Projects are selected on the basis of a certain number of criteria: most economically advantageous offer, magnitude and relevance of deliverables in relation to the environmental objectives of the competition, organisational feasibility.

(10) The UK authorities consider that these projects will not lead to over-capacity in the aggregates recycling and composting sectors, because these are immature and under-developed sectors, and because a tender process will be launched only following an assessment of the regional needs and existing capacity.

(b) Characteristics of the investment aid provided under this scheme

(11) This scheme will support initial investment only. In particular, application for aid must be made before work starts on a project. Recipients of the aid under the scheme will be required to maintain aided investment in the region for a period of at least five years. The eligible costs will be limited to investment in tangible assets, namely land, buildings and plant/machinery. All projects will fall below the thresholds for assessment under the Multisectoral Framework on regional aid for large investment projects(9).

(12) This scheme will only apply in regions qualifying for assistance under Articles 87(3)(a) and (c) of the EC Treaty. The aid intensities in each case will remain within the applicable limits of the regional aid map for the United Kingdom currently in force, as approved by the Commission until 2006(10). In each case, recipients are required to contribute at least 25 % of the project's costs.

(13) The British authorities will ensure that no project will receive aid for the same eligible costs from other sources if the cumulated aid exceeds the applicable aid intensities. In order to ensure compliance with this principle, recipients will be asked to provide a declaration on the other aid applied for.

(14) The firms concerned will operate in the aggregate and compost sectors. Therefore no firm involved in the sensitive sectors will receive aid. In particular, it is to be noticed that the production of compost is not an activity linked to the production, processing or marketing of products listed in Annex I of the Treaty. It is estimated that at least seven, and probably more projects will benefit from this scheme.

(15) The budget for the WRAP regional scheme is GBP 4,5 million (around EUR 6,75 million). This scheme will operate until the end of 2006.

2.2.4. The WRAP environmental scheme

(a) Description of the scheme

(16) Under this scheme, aid will be granted to investment projects that will contribute to the optimisation of the recycling of various products, including plastics, glass, possibly wood, aggregates and compost. Projects have been or will be selected on the basis of an open tendering procedure, which is identical to the one used under the WRAP regional scheme. In cases where the selection of the company has already been completed, the granting of the aid has been made subject to a positive decision of the Commission on this notification.

(17) This tender has already been completed in at least one case, which concerns plastics. In the case of plastics, the British authorities underlined that in 2001 the United Kingdom collected 14700 tonnes of plastics bottle for recycling, which is only 3 % of all British plastic bottle waste. Analysis has shown that the best way to achieve an increase in the recycling of plastics would be to increase the waste sorting capacity. The [...](11) project will consist of creating an entirely new waste plastics sorting and recycling plant [...](12). The sorting plant will have a capacity that will allow it to sort 20000 tonnes of waste plastics per annum for reprocessing. Plastic waste will be sorted by polymer type, and will be used to produce high quality plastic products [...](13).

(18) The WRAP environmental scheme will also grant aid to at least one glass recycling project. No bidder has been selected yet, but the aim of the British authorities is to develop reprocessing capacity that will produce very finely ground glass. This will be a new technology in the United Kingdom. It would be environmentally desirable since it would provide a means of recycling waste glass for end markets that do not exist in sufficient quantity (e.g. for flat glass in windows), and therefore increase the overall amount of recycled waste glass in the United Kingdom. The proposed intervention is expected to recycle an additional 320000 tonnes of waste glass. According to the British authorities, current waste glass processors have not invested in this type of facility as the initial investment costs cannot offset a potential demand for the final product.

(19) Finally, it is important mentioning that a separate grant award in the paper recycling sector is the subject of another notification under the environmental guidelines, which was notified on 20 March 2002, and in respect of which a complaint was received. This case has led to an opening of the investigation procedure and is now registered under C 61/2002.

(b) Characteristics of the investment aid provided under this scheme

(20) The British authorities have included in the calculation of the eligible investment costs all the investment costs directly associated with the achievement of the environmental benefit, i.e. the increase in recycling capacity. As a result, the total cost of the plant, machinery, equipment and where appropriate technology transfers, related to the reprocessing of the different types of waste are included in the eligible costs.

(21) For example, in the case of the [...](14) plastics recycling project, the eligible investment costs will include: the equipment and works to enable mixed plastic waste to be sorted by polymer type and to be decontaminated, as well as the equipment and works to convert the polymer separated waste plastics into high quality feedstock [...](15).

(22) The British authorities have explicitly confirmed that any benefits accruing to the recipient of the aid will be deducted from these investment costs, as required under point 37 of the environmental guidelines. In particular, they confirmed that the benefits to be deducted are the savings over five years of the life of the investment, any increase in production during that five year period and any increased revenue or other benefit to the recipient during that period. They will also deduct any costs associated with the achievement of mandatory environmental standards. However, the British authorities did not provide any precise indication of how they would calculate the benefits to be deducted in practice.

(23) The aid intensities will not exceed 30 %, plus the extra percentage points allowed under point 34 of the environmental guidelines for projects involving SMEs and/or located in assisted areas. For instance, in the plastic recycling project, the eligible costs are valued at no more than GBP 10,8 million (around EUR 16,2 million) and the requested support amounts to a maximum of GBP 2,3 million (around EUR 3,45 million), which would represent a gross aid intensity of 21,3 %.

(24) No aid will be provided under this scheme to firms whose activities are linked to the production, processing or marketing of products listed in Annex 1 of the Treaty.

(25) The budget for the WRAP environmental scheme will be GBP 14 million (around EUR 21 million). The Scheme will operate until the end of 2006.

2.3. WRAP pilot fund initiative (the pilot fund)

2.3.1. Aim and justification of the pilot fund

(26) The pilot fund will invest in the equity of SMEs that are specialised in recycling activities and that have difficulties in obtaining private funding to invest in this type of activities. Its main objective is to promote the development of recycling activities in the United Kingdom, and by doing so to improve the environment.

(27) According to the British authorities, the recycling markets that the pilot fund will target are too risky to attract sufficient commercial equity investment. Market failure in the recycling sector is due to a number of factors: the lack of information and market transparency, the fact that these market sectors are not well-established, the high level of regulation, the lack of technological and market understanding amongst the investors, the lack of management capability in the sector and the relatively small transaction sizes. As a result, there is no commercial investment fund specifically focused on the recycling industry. A study carried out by ESYS Consulting Ltd also showed the lack of interest from mainstream funds in investing in this type of sectors: no member of the British Venture Capital Association identified environment as a preferred sector for investment in early stage/expansion SME projects. The pilot fund is meant to address this market failure.

2.3.2 Characteristics and mechanisms of operation of the pilot fund

(28) The pilot fund will start with a GBP 5 million public grant (EUR 7,5 million). At least 20 % of the capital of the Fund will come from private investors. These private investors will be sought through a process of competitive tender. No person eligible to invest in the Fund will be debarred from doing so. These investors will be afforded a waiver of the entrance fees and administrative costs. [...](16).

(29) The pilot fund will be managed by a manager who is selected through competitive tender. He will be remunerated on the basis of a fixed management fee, which will be subject to negotiation with the successful tenderor and will not exceed 5 % of the fund's value capital. He will also receive a performance-related remuneration, equivalent to 20 % of the profits of the fund. According to the British authorities, the fund will be independent from WRAP in its investment decisions. In particular, a majority of the board of the fund, including the fund manager will be drawn from the private sector and will be experienced market operators. WRAP will have no power of veto over investment decisions.

(30) Investment decisions will be based on an assessment of a business plan submitted by the applicants. The applicants will have to provide evidence that the project will generate a clear environmental gain. The fund will look positively on schemes, which have already been turned down for funding by the private sector. The fund may not invest in competition with the private sector, but when private funds are insufficient, the fund may co-invest alongside private funding.

2.3.3. Eligible companies

(31) The pilot fund will only invest in the equity of SMEs(17) that have difficulty in obtaining private funding to invest in waste recycling facilities. The primary focus of the fund will be small enterprises, or medium-sized enterprises in their start-up or early stages. In exceptional cases, the fund may invest in medium-sized enterprises that are past their start-up phase, but that are expanding into recycling for the first time or experimenting with a new process.

(32) Investments will be limited to firms concerned with the collection and reprocessing of waste paper, plastic, glass, wood, aggregates, compost and ceramics. No firms involved in the sectors explicitly excluded from the application of the Communication on State aid and risk capital(18), like shipbuilding or the ECSC sectors, will benefit from the Fund's interventions. No firm whose activity is linked to the production, processing or marketing of products listed in Annex I of the Treaty will receive aid under the scheme.

2.3.4. Nature of the investments of the Fund

(33) All investments will consist of equity or equity-type participation in the share capital of eligible SMEs. Investment by the Fund per individual company will be capped at EUR 500000 in non-assisted areas, EUR 750000 in Article 87(3)(c) regions, and EUR 1 million in Article 87(3)(a) regions. The maximum investment in medium sized firms beyond start-up and early stages will be GBP 500000 (around EUR 750000). There is an exit mechanism for the Fund's investment.

2.3.5. Cumulation and reporting

(34) The British authorities have undertaken that where companies have received investment from the pilot fund, they will be eligible for regional and SME aid at only 50 % of the level of intensity otherwise allowed by the Commission, for a period of three years from the date of the initial investment by the Fund.

(35) They also committed themselves to provide an annual report on the operation of this Fund. In particular, this report will show the actual level of participation of private investors in the fund.

2.4. WRAP lease guarantee fund (the guarantee fund)

2.4.1. Aim and general features of the guarantee fund

(36) Like the WRAP grant funding and the WRAP pilot fund, the guarantee fund supports investments in reprocessing activities and aims, in this manner, to contribute to an increase in the waste recycling capacity in the United Kingdom.

(37) The guarantee fund will be managed by a third party agent, selected following a competitive tender by WRAP, which is a public body, and its resources will come from the State.

(38) It will provide guarantees that will cover leases of machinery and/or equipment for the purposes of reprocessing recyclable materials or manufacturing products from those materials. Only leases that have a duration of at least five years will be eligible.

(39) According to the British authorities, leasing companies are very reluctant to provide leases for waste recycling equipment. This is due to the perceived low re-sale value of the specialist equipment used in the recycling sector. As a result, leasing contracts for such equipment are regarded by leasing companies as very high-risk and are therefore disproportionately expensive, especially in cases involving start-up companies.

(40) To remedy this problem, the guarantees provided by the guarantee fund will cover the residual value of the equipment, which, under an operating lease, will remain the lessor's asset and which the lessor will sell at the end of the lease-period or earlier, in the case of bankruptcy of the lessee. Before the lease contract is signed, the management agent will set a residual value of the asset concerned in negotiation with a panel of lessors. The guarantee fund will be obliged to acquire this asset for the agreed residual value in two circumstances: either if, during the lease period, the lessee goes bankrupt or if the residual value of the assets falls short of the guaranteed value at the end of the lease period. The residual value that is guaranteed will normally be set at a maximum of 20 % of the initial value of the investment but may sometimes be set at a slightly higher percentage.

(41) According to the British authorities, these guarantees will reduce the risk-element of lease contracts for waste recycling equipment and enable SMEs to obtain such leases at a reasonable cost. The guarantee fund's guarantee will be well below the 80 % of the value of the lease.

(42) In order to calculate the net grant equivalent, the British authorities have used the method laid down in the Commission's Notice on State aid in the form of guarantees(19) which states the grant equivalent is equal to (guaranteed sum × risk) - premium. In the case of a GBP 100000 investment, the guaranteed residual value would typically be GBP 20000. According to the United Kingdom, a normal commercial asset finance portfolio has a risk basis of a 10 to 20 % default rate. Given the higher risk profile of the risk recycling activities covered by the guarantee fund, the British estimates that it would be appropriate to apply a higher default rate, namely 30 %. The grant equivalent for a GBP 100000 investment would therefore be GBP 20000 × 30 % = GBP 6000. There are unlikely to be deductible premiums paid to WRAP. It means that the aid intensity for this aid will be 6000/100000 = 6 %. The calculation of this aid intensity is based on the assumption that the guaranteed residual value is set at 20 % of the value of the investment. This will be the average level of the guarantee. In some cases, this guaranteed residual value could exceed 20 %. In such cases, the calculation of the aid element will vary accordingly.

(43) The majority of the beneficiaries of the guarantees will be SMEs as defined in Annex I of Regulation (EC) No 70/2001, and especially small companies or medium-sized companies at a start-up or early stage. The beneficiaries will not have significant financial track record or credit rating. Exceptionally, the guarantee fund may grant guarantees to large enterprises.

(44) The guarantee fund will guarantee a maximum of GBP 8 million (around EUR 12 million) in residual values over a five year period (it will operate until 31 December 2006). The likelihood of default in respect of these residual values is calculated at approximately 30 %, which means that the size of the fund will be GBP 2,4 million (around EUR 3,6 million).

2.4.2. The SME section of the guarantee fund

(45) When applicable, the British authorities grant the guarantees on the basis of Regulation (EC) No 70/2001 and have committed themselves to respect all its provisions.

2.4.3. The regional section of the guarantee fund

(46) In a limited number of cases, the guarantee fund will provide lease guarantees for initial investments undertaken by firms in areas covered by Article 87(3)(a) or Article 87(3)(c) of the EC Treaty. In such cases, the British authorities have confirmed that the guarantees will be provided under the following conditions:

- guarantees will only be granted to leases of equipment that correspond to initial investments. Application for the aid will have to be made before the purchase of the machinery which is the subject of the guarantee. Recipients will be further required to maintain aided investments in the region for a period of at least five years,

- eligible costs will be limited to investment in tangible assets, namely machinery/equipment,

- the aid intensities will remain within the applicable limits of the regional aid map for the United Kingdom, currently approved by the Commission until 2006. The recipients will be required to contribute to at least 25 % of the investment's costs,

- the economic sectors to benefit from this initiative will be those concerned with the reprocessing of waste paper, plastic, glass, wood, aggregates, compost and ceramics. The sectors which could use those recycled materials to manufacture products may also benefit. No firms involved in the sensitive sectors, such as shipbuilding, car manufacturing, synthetic fibres, the ECSC sectors or activities linked to the production, processing or marketing of products listed in Annex I to the Treaty will be eligible for aid,

- the British authorities will ensure that no project will receive aid for the same eligible costs from other sources if the cumulated aid exceeds the applicable aid intensities. In other to ensure compliance with this principle, recipients will be asked to provide a declaration on the other aid applied for,

- they will send an annual report on the activity of the lease guarantee fund.

2.4.4. The environmental section of the guarantee fund

(47) In exceptional cases that do not fall under Regulation (EC) No 70/2001 or the regional guidelines (e.g. guarantees to large companies outside Article 87(3)(a) or Article 87(3)(c) regions), the guarantees will be granted under the environmental section of the guarantee fund. The British authorities ask for exemption of this submeasure on the basis of the environmental guidelines. However, they have not provided any further information that would enable the Commission to assess the compatibility of this submeasure with the said guidelines.

2.5. Support to the composting association

(48) WRAP is also responsible for developing markets for compost products in the United Kingdom. WRAP has identified that appropriate standards are critical to increasing confidence in compost products and thus increasing their use. As a result, it has sought to identify an organisation best placed to prepare an appropriate quality standard for the production of compost, to achieve accreditation of that standard with the British Standards Institute, to liase with the industry and set up an accreditation system.

(49) WRAP concluded that the Composting Association, a non-profit, member-funded trade association, was uniquely placed to provide this service, since it has already elaborated a preliminary standard and an outline accreditation process for composted products. Under the contract with WRAP, WRAP will assume the intellectual property rights to all the further work carried out on both the standard and the accreditation process and will make that work generally available to all interested parties.

(50) In order to develop this standard and encourage industry wide implementation of the standard, the Composting Association will receive a grant of GBP 95000 (around EUR 142000).

2.6. Business Development Service, Exemplar Companies Initiative and Advice to Composting Firms Initiative

(51) The Business Development Service aims at providing business advisory services to firms operating in the recycling sectors, such as advice on market research practices and quality, on business plan development, on management and technical issues. These services will normally be delivered by WRAP staff. According to the type of service provided and the extent to which it is tailored to the need of the company, WRAP has valued them from GBP 165 (around EUR 247,5 for general information) to GBP 18934 (around EUR 28400) for assistance in the preparation of business plans, market research information and similar services. About 600 companies will benefit from this form of support.

(52) The Exemplar Company Initiative will encourage the use of recycled products. Under that program, WRAP will provide advisory support to companies that commit themselves to improve their performance with regard to the procurement of recycled products. This support is valued by WRAP at a maximum of GBP 15000 (around EUR 22500), with a maximum number of companies to receive support evaluated at 30.

(53) The advice to composting companies will consist of providing consultancy to companies producing compost in order to help them to test various processes over a period of two years. The average value of the services to the recipient companies is expected to be less than GBP 6000 (around EUR 9000).

(54) Following discussions with the Commission, the British authorities have agreed to provide aid under the three above programmes in conformity with Commission Regulation (EC) No 69/2001 on de minimis aid.

III. ASSESSMENT OF THE AID MEASURE

3.1. Legality of the aid measures

(55) The British authorities notified these aid measures to the Commission before implementing them and have therefore complied with their obligation on the basis of Article 88(3) of the EC Treaty.

3.2. Assessment of the WRAP grant funding

3.2.1. Assessment of the WRAP regional scheme

Existence of aid

(56) This measure is provided through State resources. It gives a selective economic advantage to certain firms in the form of a grant. The use of a competitive tender procedure can ensure that the amount of the subsidy is limited to the minimum necessary, but this does not remove the aid character of the measure. Furthermore, it is possible that the recycled products, like compost, are internationally traded: this scheme may therefore affect competition and trade between Member States. For these reasons, it constitutes a State aid within the meaning of Article 87(1) of the EC Treaty.

Compatibility of the aid with the EC Treaty

(57) The Commission notes that the British authorities have structured the scheme on the basis of the regional guidelines and in particular that:

- the scheme will support initial investment only, which the beneficiary will have to keep in the region for at least five years,

- the aid is limited to the minimum amount thanks to the use of an open tender to select the beneficiary and the amount of the aid,

- the scheme will apply only in regions qualifying for assistance under Article 87(3)(a) and (c) of the EC Treaty as defined in the regional aid map for the United Kingdom and the aid intensities will remain within the limits set in that map. All projects will fall below the thresholds for assessment under the Multisectoral Framework on regional aid for large investment projects,

- eligible costs will be limited to tangible assets,

- no firm operating in any sensitive sector will be eligible for assistance,

- the rules on cumulation will be respected,

- the British authorities undertook to report annually on the implementation of this scheme.

(58) For these reasons, the Commission concludes that the WRAP regional scheme is in line with the regional guidelines and that it can be considered to be compatible with the common market.

3.2.2. Assessment of the WRAP environmental scheme

Existence of aid

(59) This measure is provided through State resources. It gives a selective economic advantage to certain firms in the form of a grant. The use of a competitive tender procedure can ensure that the amount of the subsidy is limited to the minimum necessary, but this does not remove the aid character of the measure. Furthermore, the waste products that are recycled can be internationally traded. For instance, the British authorities indicated that up to 25 % of British waste plastics is exported. Also the end products that are produced from the recycled waste, like flat glass, can be internationally traded. For these reasons, the WRAP Environmental Scheme may have an effect an competition and trade between Member States and may constitute a State aid within the meaning of Article 87(1) of the EC Treaty.

Compatibility of the aid with the EC Treaty

(60) The WRAP environmental scheme does not appear to be compatible under Article 87(2) of the EC Treaty. Neither does it appear to fall within the scope of Article 87(3)(a), (b) or (d) of the EC Treaty, since it is not limited to areas where the standard of living is abnormally low or where there is serious underdevelopment, and since it does not concern projects of common European interest or the promotion of culture and conservation. The only possible basis of compatibility appears to be Article 87(3)(c) of the EC Treaty. On that point, the Commission first notes that this aid measure has been notified on the basis of the environmental guidelines.

(61) The Commission agrees that encouraging the development of waste recycling activities and therefore increasing waste recycling is an environmental objective. However further investigation is necessary to determine whether the investment aid provided under this scheme would fall under the environmental guidelines, in particular concerning the following issues:

- under point 29 of the environmental guidelines, investment aid may be given on the basis of these guidelines when firms undertake investment in the absence of mandatory Community standards or where they have to undertake investment in order to comply with national standards that are more stringent than Community ones. The Commission notes that investment aid granted under the present scheme is actually meant to enable the United Kingdom to fulfil the general targets for Member States set by the EC Landfill Directive and the EC Packaging Directive,

- as already stated in its decision of 2 October 2002 on case C 61/2002 (ex N 196/2002) on the aid granted to Shotton Paper under the WRAP Environmental Scheme, the Commission has generally interpreted that investment aid approved under the environmental guidelines aims at reducing the emissions and pollution caused by the beneficiary in the course of its production process. The Commission notes that the objective of the present measure is not to make recycling activities less polluting. Its environmental benefits are more indirect: it is expected that the operation of these recycling activities will result in a greater selective collection of waste,a decrease in waste disposal to landfills and a decrease in the use of primary raw materials, according to the information provided by the British authorities. As in case C 61/2002, the Commission doubts whether the environmental guidelines apply to such cases.

(62) Even if the environmental guidelines were found to be applicable to the present scheme, the Commission would still have doubts about the way in which the United Kingdom proposes to calculate the eligible costs under the scheme. Point 37 of the environmental guidelines states that 'eligible costs must be confined strictly to the extra investment costs necessary to meet the environmental objectives'. Under the WRAP environmental scheme, the British authorities have included in the calculation of the eligible costs the entirety of the investments linked to the recycling activity. That does not seem to be in line with the principle laid down in point 37 of the environmental guidelines. The British authorities have indicated that they will deduct from these eligible investment costs any benefits accruing to the recipients of the aid over a five-year period. However, they have provided no clear explanation on the way these benefits will be calculated in practice. For these reasons, at this stage and based on the information available, the Commission has doubts whether the definition of the eligible costs is in conformity with point 37 of the environmental guidelines.

(63) The British authorities structured the scheme on the basis of the environmental guidelines, and at this stage, no other legal basis for compatibility seems to be applicable, apart from a direct application of Article 87(3)(c) of the EC Treaty. Under this Article, aid can be considered to be compatible with the common market when it is meant to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. At this stage, the Commission is of the opinion that the direct application of Article 87(3)(c) of the EC Treaty to the WRAP environmental scheme should be done in the light of the principles on environmental aid laid down in environmental guidelines. In particular, the Commission notes that, as underlined in points 14 to 18 of these guidelines, the best policy in favour of the environment is the internalisation of costs and State aid is only a temporary second-best solution. The British authorities have indicated that they have taken some measures in the sense of an internalisation of costs, including a tax on landfill disposal. However, they have not sufficiently explained why these measures are not sufficient and need to be complemented by State aid under the present aid measure in order to encourage waste collection and recycling. They have not shown either that this aid does not adversely affect trading conditions to an extent contrary to the common interest. Therefore, at this stage, the Commission doubts whether this scheme could be considered compatible directly on the basis of Article 87(3)(c) of the EC Treaty.

3.3. Assessment of the WRAP pilot investment fund

(64) The assistance provided under the pilot fund will take the form of investments in the equity of SMEs. The Commission has therefore examined this scheme in the light of its Communication on State aid and risk capital (hereafter 'the communication')(20).

3.3.1. Existence of aid

(65) The large majority of the capital of the Fund is provided by WRAP, which is a public funded body. Consequently, this measure is financed by State resources within the meaning of Article 87(1) EC. According to the Communication, the presence of aid must be assessed at three levels: the private investors in the fund, the fund and the firms invested in.

(66) As far as the private investors are concerned, the Commission notes that they will receive some economic advantages, in particular a waiver of the entrance fee. [...](21). Furthermore, it is not certain that the conditions of selection of these investors will guarantee that all potentially interested investors will be aware of the possibility to invest in the Fund. It implies that the economic advantage received by the investors may also be selective. Finally, investment in risk capital is an activity that is the object of considerable trade between Member States. Consequently, this measure affects trade between Member States. For these reasons, this measure constitutes an aid within the meaning of Article 87(1) EC to the investors.

(67) As far as the fund is concerned, according to the Communication, a risk capital fund may have the character of an independent beneficiary of aid, in particular when it is an existing fund. This is not the present case. This fund may be an independent legal entity but it can be considered as a mere vehicle of aid.

(68) As far as the enterprises invested in are concerned, the Communication provides that existence of an advantage to these enterprises depends on whether the terms on which the pilot fund makes its investments would be acceptable to a private investor in a market economy. According to the British authorities, investment decisions will be profit driven, and it is not excluded that they will not be, in certain cases, at pari passu. But even then, the Commission must take into account the possibility any advantage granted to the investors in the Fund is passed on to the enterprises invested in. In the present case, the advantages that will be granted to the investors (see point 66) will reduce the risks and/or increase the rewards that these investors will obtain from making a particular investment. As a result, the investors may no longer be considered to be operating as a normal market operator. In this context, the Commission notes that there is general lack of interest of risk capital investors in investing in the sectors on which this fund will be focussed, as clearly appears from the submissions of the British authorities. Furthermore, it appears that the pilot fund's investment decisions will be subject to non-market constraints in order to ensure that the environmental objectives of the Fund are achieved. Amongst these constraints, one can mention the fact that the pilot fund will only be able to invest in SMEs concerned with waste recycling, or the fact that the it will have to consider positively projects which have been turned down for funding, in part or in full, by the private sector. On the basis of these elements, the Commission can conclude that the terms on which the pilot fund makes its investments would not be acceptable to a private investor in a market economy. Therefore, the firms invested in by the fund will get an economic advantage, which is selective since the interventions of the Fund are limited to certain types of projects and firms. Finally, these firms will be specialised in the recycling of various types of waste products. Some of them, like glass, plastics and especially paper, are clearly the object of trade between Member States, which may therefore be affected by this measure. For these reasons, this measure also constitutes an aid within the meaning of Article 87(1) EC to the enterprises invested in by the fund.

3.3.2. Compatibility of the measure with the EC Treaty

(69) According to point VI.5 of the Communication, the Commission requires provision of evidence of market failure before being prepared to authorise risk capital measures which fall outside the scope of existing rules. The Commission is however prepared to believe this is the case where each tranche of finance for an enterprise will not exceed EUR 500000, or EUR 750000 in regions qualifying for assistance under Article 87(3)(c) or EUR 1 million in regions qualifying for assistance under Article 87(3)(a). These conditions are fulfilled under the present case, which enables the Commission to conclude that the WRAP pilot will focus on areas where there is a market failure.

(70) Furthermore, point VIII lays down a certain number of other criteria of appreciation of compatibility:

(71) Types of companies invested in: The fact that the fund will essentially focus on small firms or medium-sized enterprises in their early stages is a positive element. The fund may occasionally provide finance to medium-sized enterprises beyond their early stages, but only when they expand into recycling for the first time or test a new process, which may regarded as acceptable under the Communication.

(72) Limits on the total funding per enterprises. The total funding available to a single enterprise from all risk capital funds which contain State aid will be set at EUR 500000 in non-assisted areas, EUR 750000 in regions qualifying for assistance under Article 87(3)(c), and EUR 1 million in regions qualifying for assistance under Article 87(3)(a). This is in conformity with the Communication. The British authorities also indicated that the total funding for medium-sized companies beyond their start-up or early stages will be capped at GBP 500000 (approximately EUR 750000). The same limit for investments in this type of companies was already accepted by the Commission in its decision of 20 December 2001, in case N 722/2000, Coalfields Enterprise Fund (UK) and can therefore be allowed in the present case.

(73) The measure should be focused on risk capital measure. The Commission notes that the Funds' investments will take the form of equity or quasi-equity participation in the suitable SMEs, which is regarded as a positive indication that the measure is focussed on a risk capital market failure.

(74) Decisions to invest should be profit driven. Under the communication, this is assumed to be met when there is a significant involvement of market economy investors' capital. Provision of 50 % of a fund's capital by private investors is taken to constitute 'significant involvement', or 30 % in assisted areas. The pilot fund will operate all over England, including in non-assisted areas. A 50 % private participation would therefore be expected. During the course of the notification process, the British authorities did market research to assess the likelihood of finding private investors for the fund. The research demonstrated the total lack of interest from private investors in investing in a fund targeting the recycling sector. The United Kingdom therefore proposed that the pilot fund would be entirely publicly funded. Following discussions with the Commission, they finally committed themselves to ensure a 20 % private participation in the fund. This level of participation is lower than what is recommended by the Communication for funds operating in assisted areas. However, on the basis of the information provided by the British authorities, the Commission accepts that there is a serious market failure in the provision of risk capital in the waste recycling sector. Furthermore, as already stated, the Commission accepts that the development of waste recycling activities could make a positive contribution to the achievement of environmental objectives. In the same way that a lower private participation is allowed for the objective of regional development (the Communication allows for a lower private participation in risk capital funds operating in assisted areas), the Commission believes that, mutatis mutandis, a lower level of participation could be allowed for this Fund, given its contribution to environmental objectives. In this context, given the specificity of this case and the efforts made by the British authorities to seek some level of private participation in the pilot fund, the Commission believes that this 20 % participation constitutes a sufficient involvement of the private sector. Finally, the Commission also notes that the fund manager's remuneration will be linked to the performance to the fund. For all these reasons, the Commission concludes that the decisions taken by this Fund will be sufficiently profit driven.

(75) The level of distortion of competition between investors should be minimised. This is guaranteed by the fact that the selection of the private investors and the determination of the preferential terms they will get will be done by open tender.

(76) Sectoral focus. This fund will focus on specific sectors, i.e. sectors specialised in the recycling of various types of waste. Nevertheless, these sectors appear to be sufficiently diversified, since they involve very different types of products (glass, paper, wood, plastics, etc.). In any case, a sectoral focus is allowed under the Communication if it has a public policy logic. This is the case of this fund which fulfils an environmental objective.

(77) Rules on cumulation. The commitments in terms of cumulation made by the British authorities on that case are identical to those already accepted by the Commission, for example in case N 606/2002 Community Development Venture Capital Fund, and can therefore be regarded as satisfactory.

(78) For these reasons, the Commission can conclude that this aid measure fulfils the criteria to the considered compatible under Article 87(3)(c) of the EC Treaty.

3.4. Assessment of the WRAP lease guarantee fund

3.4.1. Existence of aid within the meaning of Article 87(1) EC

(79) The lease guarantee fund will be entirely funded by WRAP. This measure can therefore be considered as being financed by State resources within the meaning of Article 87(1) of the EC Treaty.

(80) The Commission notes that the guarantee fund provides guarantees that cover leases of machinery and equipment for the purpose of reprocessing recyclable materials or manufacturing products from those materials. It enables firms that want to acquire this equipment to obtain a lease on conditions that are more favourable than normally available on the market. Since the lessees do not pay any premium for this guarantee, they clearly get an economic advantage from this measure. This economic advantage is specific, since only firms operating in the sectors of waste recycling will benefit from the application of this Fund. Furthermore, the products manufactured by these companies may be internationally traded, so this aid measure may therefore have an effect on competition and trade between Member States. For these reasons, the Commission can conclude that this aid measure constitutes an aid within the meaning to Article 87(1) EC to the lessees.

(81) The Commission notes that the lease guarantees are given ex ante, and not ex post. It therefore concludes that the aid beneficiary is the lessee, not the lessor.

3.4.2. Compatibility of the aid measure with the EC Treaty

(82) Having established that this aid measure constitutes aid within the meaning of Article 87(1) of the EC Treaty, the Commission needs to consider whether this scheme can be found to be compatible with the common market.

(83) Since State aid provided by this fund is under the form of guarantees, it must first be analysed on the basis of the Commission notice on State aid in the form of guarantees (hereafter 'the notice')(22). The Commission notes that the fund's lease guarantee will not exceed 80 % of the lessee's exposure and is expected to be much lower than that, which is in conformity with point 3.4 of the notice. The Commission also notes that the WRAP lease guarantees will only be mobilised if specific contractual conditions are satisfied, i.e. if the lessee becomes bankrupt or if the asset realises less than the residual value being guaranteed. This again is in conformity with point 5.3 of the notice.

(84) Furthermore, point 3.2 of the notice states that the cash grant equivalent of the loan guarantee can be taken to be the difference between the outstanding sum guaranteed, multiplied by the risk factor and any premium paid. The Commission notes that the British authorities have based the calculation of the grant equivalent of the specific type of guarantees granted under this scheme on this method and have applied a relatively high default rate (30 %). For these reasons, the Commission considers that the calculation of the grant equivalent, and consequently the calculation of the aid intensity of this guarantee are correct.

The SME section of the guarantee fund

(85) When Regulation (EC) No 70/2001 is applicable, the British authorities have undertaken to ensure that the conditions laid down in this regulation will be respected. It is understood that the large majority of projects that will benefit from the assistance of the guarantee fund will concern SMEs and the regional and environmental section of the Guarantee assessed below will be ancillary.

The regional section of the guarantee fund

(86) When the beneficiaries are large firms in areas covered by Article 87(3)(a) or Article 87(3)(c) of the EC Treaty, the Commission notes that the British authorities have structured the scheme on the basis of regional guidelines and in particular that:

- these guarantees will cover leases of machinery and/or equipment that have a duration of least five year and can therefore be considered as investment aid. The British authorities undertook that only initial investment will be aided,

- the British authorities undertook to respect all the conditions laid down in regional guidelines concerning aid intensities, eligible costs, cumulation, the requirement that the investment should be maintained for at least five years in the region concerned,

- furthermore, the Commission notes that firms operating in sensitive sectors will be excluded.

(87) The Commission can conclude the regional section of the guarantee fund is in conformity with the regional guidelines

The environmental section of the guarantee fund

(88) When the aid does not fall under either Commission Regulation (EC) No 70/2001 or the regional guidelines (for instance when it is provided to large firms in non-assisted areas), the British authorities propose to grant the aid on the basis of the Guidelines on State aid for environmental protection. The Commission notes that the types of investments targeted by this Fund are similar to the ones targeted by the WRAP environmental scheme. Under point 3.2.2 of this decision, the Commission has already explained why it has doubts concerning the applicability of the environmental guidelines to this type of investment aid. For the same reasons, at this stage, the Commission has doubts on the applicability of these guidelines to the guarantee fund. Furthermore, the British authorities have not provided any information on the compatibility of the aid measure with the environmental guidelines, and in particular on the conformity of the eligible costs of this measure with point 37 of the environmental guidelines. Therefore, the Commission also expresses doubts on the compatibility of the measure with these guidelines if they are found to be applicable.

(89) To conclude, the Commission can conclude that this aid measure fulfils the criteria to be considered compatible under Article 87(3) of the EC Treaty, except when it is applied on the basis of the environmental guidelines.

3.5. Assessment of the support to the Composting Association

(90) The Composting Association will receive GBP 95,000 in order to develop a quality standard for compost products and accreditation process, and to encourage the industry to make a wide implementation of the standard. This standard will be made generally available by WRAP which will assume the intellectual property rights to all further work carried out by the Composting Association on the standard and accreditation process. In this circumstances, the Commission considers that the development of the publicly available standard and accreditation process does not constitute an economic activity that is likely to fall within the scope of Article 87(1) of the EC Treaty and therefore, the aid provided to Composting Association does not constitute aid within the meaning of that article.

3.6. Assessment of the Business Development Service, Exemplar Companies Initiative and Advice to Composting Firms Initiative

(91) The British authorities have agreed to provide aid under these three programs on the basis of Commission Regulation (EC) No 69/2001 on de minimis aid. Therefore, this assistance does not constitute State aid within the meaning of Article 87(1) of the EC Treaty.

IV. CONCLUSION

(92) In the light of the foregoing considerations, the Commission decides that:

- the support to the Composting Association, the Business Development Service, Exemplar Companies Initiative and the Advice to Composting Firms Initiative do not constitute State aid,

- the WRAP regional scheme, the WRAP pilot investment fund and the part of the WRAP lease guarantee fund that is notified on the basis of Commission Regulation (EC) No 70/2001 or on the basis of the Guidelines on national regional aid are compatible with the EC Treaty.

(93) With respect to WRAP environmental scheme and the part of the lease guarantee fund that is notified on the basis of the Guidelines on State aid for environmental protection, the Commission, acting under the procedure laid down in Article 88(2) of the EC Treaty, requests the United Kingdom to submit its comments and to provide all such information as may help to assess the measure, within one month of the date of receipt of this letter. It requests the United Kingdom authorities to forward a copy of this letter to the potential recipients of the aid measure immediately.

(94) The Commission wishes to remind the United Kingdom that Article 88(2) of the EC Treaty has suspensory effect, and would like to draw attention to Article 14 of Council Regulation (EC) No 659/1999, which provides that all unlawful aid that is found to be incompatible with the common market may be recovered from the recipient."

(1) JO L 10 du 13.1.2001, p. 33.

(2) JO C 74 du 10.3.1998, p. 9.

(3) JO C 37 du 3.2.2001, p. 3.

(4) Council Directive 1999/31/EC of 26 April 1999 on the landfill of waste (OJ L 182, 16.7.1999, p. 1).

(5) Council Directive 94/62/EC, of 20 December 1994 on packaging and packaging waste (OJ 1994 L 365).

(6) OJ L 10, 13.1.2001, p. 33.

(7) OJ C 74, 10.3.1998, p. 9.

(8) OJ C 37, 3.2.2001, p. 3.

(9) OJ C 107, 7.4.1998.

(10) Commission Decision of 17 August 2000 in case N 265/2000.

(11) Confidential information.

(12) Confidential information.

(13) Confidential information.

(14) Confidential information.

(15) Confidential information.

(16) Confidential information.

(17) As defined in Annex I to Commission Regulation (EC) No 70/2001.

(18) OJ C 235, 21.8.2001, p. 3.

(19) OJ C 71, 10.3.2000, p. 14.

(20) OJ C 235, 21.8.2001, p. 3.

(21) Confidential information.

(22) OJ C 71, 11.3.2000, p. 16.