Information from the Commission - State aid C 25/89 (Portugal) (Articles 92 to 94 of the Treaty establishing the European Economic Community)
Date: 1990-07-28
Institutions: European Commission
Subjects: Portugal, State aid, chemical industry, control of State aid













EUR-Lex - 31990Y0728(02) - EN






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31990Y0728(02)

Information from the Commission - State aid C 25/89 (Portugal) (Articles 92 to 94 of the Treaty establishing the European Economic Community)  


Official Journal C 188 , 28/07/1990 P. 0003 - 0005 





STATE AID  C  25/89  (Portugal)  (Articles 92  to 94 of the Treaty establishing the European Economic Community)  (90/C  188/03) Commission communication pursuant to Article 93  (2) of the EEC Treaty to other Member States and  interested parties regarding aid which Portugal has decided to grant to the chemicals undertaking  Quimigal - Química de Portugal, EP. By letter, the Commission informed the Portuguese Government of  its decision to close the procedure initiated on 12 July 1989  (1). By letter dated 13 January  1989, the Portuguese Government announced a proposal to grant an aid of Esc 48 million to the  public undertaking Quimigal - Química de Portugal, EP and supplied further details by letter dated  28 March 1989. The information being insufficient, the Commission requested further data by letter  dated 20 April, only part of which was sent by the Portuguese authorities by letter dated 31 May  1989. In view of the extensive intra-Community trade in chemicals, and the economic and financial  position of the recipient, the Commission considered that the measures in question constituted aid  pursuant to Article 92  (1) of the EEC Treaty and that, on the basis of the information in its  possession and that sent by the Portuguese authorities, the aid did not appear to satisfy the tests  of Article 92 (3) and could not qualify for exemption under that Article. The Commission therefore  opened the Article 93  (2) procedure against the aid by Decision of 12 July 1989. As part of that  procedure, the Commission gave the Portuguese Government notice, by letter dated 26 July 1989, to  submit its comments in accordance with Article 92  (2) of the EEC Treaty. The other Member States  and interested parties were also invited to submit their comments. The Portuguese authorities  submitted their comments by letters dated 15 September, 13 November and 30 November 1989, and at  bilateral meetings held on 22 September and 22 November 1989.  The Portuguese authorities maintain  that the aid is not a restructuring programme incorporating a strategic change of direction, the  closure of loss-making activities and a radical reorganization to allow private capital to be  invested. Quimigal's principal activities would be located at Barreiro in the Setubal region which  is facing serious problems and is the subject of a Community integrated development programme. In  view of the role of the firm at the regional and industrial levels, the plan to be assisted is of  strategic importance both for the firm itself and for the Portuguese economy as a whole. No  comments were received from Member States or interested parties under the procedure in question.  Once it is established that a public authority is injecting capital into an undertaking in  conditions which are not those of a market economy, the case must be assessed in the light of  Article 92 of the EEC Treaty. Having incurred repeated losses since 1980, the loss in 1988  totalling Esc 18,5 billion (ECU 104 million), with a turnover of Esc 62,1 billion (ECU 350  million), and financial charges amounting to 24,8  % of turnover, the firm in question has little  chance of obtaining sufficient private capital to ensure its survival and a lasting recovery. The  economic and financial difficulties of Quimigal are essentially due to the inadequate profitability  of certain activities, chiefly the failure of investments in pyrites pellets, fibreglass and  ammonia. The Community chemicals market is characterized by intense competition and considerable  intra-Community trade. In 1987, total turnover in the Community chemicals industry was ECU 236  000  million, intra-Community exports accounting for 27,7  % of turnover.    Although the production of  chemicals in Portugal represents only ECU 1,476 billion or 0,63  % of Community production, the  Portuguese chemicals industry is actively involved in intra-Community trade, exporting 23  % of its  production. Quimigal, which was created in 1977 through the merger of three nationalized  undertakings: Companhia União Fabril (CUF), Amoniaco Português SARL and Nitratos de Portugal, is  the leading chemicals manufacturer in Portugal. With 6  400 employees, Quimigal produced a turnover  in 1989 of some Esc 62 billion (ECU 349,4 million) in a huge range of sectors including  agrochemical products, animal feedstuffs, fertilizers, oils and soaps, inorganic chemical products,  metals, chemical specialities, plastics and furnishing textiles. In addition to these activities,  there are a further 22 associate enterprises, influenced and/or managed by Quimigal, with a  turnover of approdimately Esc 60 billion (ECU 338 million) and 3  000 workers. The group's  consolidated turnover was approximately Esc 100 billion (ECU 563 million). Quimigal is extensively  involved in intra-Community trade, with considerable market shares in Portugal, reaching 30  % for  certain product categories. In 1987, exports to other Member States totalled Esc 3,164 billion (ECU  17,8 million). In view of the foregoing, the situation of the market in question and the position  of the firm on the market in question, the aid measures proposed by the Portuguese Government are  liable to affect trade between Member States and distort competition within the meaning of Article  92  (1) of the EEC Treaty by favouring the firm concerned and the production of chemicals in  Portugal. In order to contribute to the development of economic activities, aid must contribute to  a lasting solution to the recipient's problems, must not tend to preserve the status quo and defer  unavoidable decisions and changes, and should assist the development of the relevant sector  throughout the Community. As regards the appropriate volume of aid, it must be sufficient to attain  the objectives in question whilst at the same time being strictly limited to requirements so as not  to affect trade to an extent contrary to the common interest. The Commission considers that, whilst  satisfying these conditions, the proposed aid measures contribute to the achievement of the  objective referred to above by helping to finance the firm's financial and economic recovery. The  recovery plan for Quimigal, which is to cost Esc 79,2 billion (ECU 446 million) provides for  financial steamlining - forming the basis for a radical restructuring of Quimigal - and for a  strategic change of direction comprising capacity closures and the reorganization of the group to  allow private capital into the various branches of the firm which have hitherto been exclusively  public. The closures in question will entail the loss of a considerable proportion of Quimigal's  market shares. In 1988, Quimigal had financial charges amounting to 24,8  % of turnover; under the  plan, this should fall to 7,5  % in 1990 through the provision of aid to defray losses resulting  from unprofitable investments, to be written off, in the pelletizing of pyrites and fibreglass  production, and through the financing of the additional unforeseen costs of an investment in  ammonia production, accounting for a total of Esc 47,7 billion (ECU 268,8 million). After suffering  losses for many years, the firm intends to achieve profitability by 1990. As regards the investment  in pyrite pellets (which, like the other investments described above, was decided prior to  Portugal's accession), it should be noted that they were intended to supply a projected new blast  furnace which had to be abandoned when the Community steel policy was applied to Portugal. The  strategic change of direction of the firm includes not only the writing-off of bad investments in  pyrite pellets (342  000 tonnes/year capacity, 200 workers) and fibreglass production (2  000  tonnes/year capacity, 50 workers), but also the closure of three sulphuric acid plants with a  capacity of 370  000 tonnes/year (170 workers), one hydrochloric acid and sodium sulphate plant  with a capacity of 29  000 tonnes/year (40 workers), and two copper plants with a capacity of 6   000 tonnes/year (200 workers), and a gold and silver plant of 41,5 tonnes/year (15 workers). The  total cost of closure and demolition of capacities will be Esc 16,4 billion (ECU 92,45 million),  plus the costs of redundancies, training and retraining amounting to Esc 9,7 billion (ECU 54,8  million). After the closures the workforce will be reduced from 6  400 in 1989 to 5  000 in 1991.  Finally, the plant is to invest some Esc 5,4 billion (ECU 30,5 million) to facilitate the change of  direction. The change of direction of Quimigal is accompanied by a radical reorganization. The plan  provides for the decentralization of Quimigal by creating units to take over the activities  remaining in operation, open to private capital, and setting up a holding company.    With the  financial streamlining, the shedding of major loss makers and a radical reorganization allowing the  injection of private capital, the plan in question will, with the injection of aid, result in the  recovery and strengthening of the Portuguese and Community chemicals market. Quimigal plans a  leading part in the Portuguese economy and is of prime importance at regional and social levels  because of the plants it has in a number of regions with serious employment problems. The main  Quimigal plant is located at Barreiro in the Setubal region, which is covered by a Community  integrated development operation (PNCI, Renaval, Resider). Consequently, the recovery of Quimigal,  which the proposed aid is to assist, is also vital to the development of Portuguese industry as a  whole. I can therefore inform you that the Commission has decided that the proposal to grant aid to  Quimigal qualifies for exemption under Article 92  (3)  (c).      (1)  OJ No C 295, 23.  11. 1989.