98/251/EC: Commission Decision of 21 May 1997 on the proposal of Austria to award aid to the Hoffmann-La Roche company for the development of the drug 'Orlistat', designed for the treatment of pathological obesity (Only the German text is authentic) (Text with EEA relevance)
Date: 1997-05-21
Institutions: European Commission
Subjects: Austria, State aid, control of State aid, environmental protection, nutritional disease, pharmaceutical industry

L 103/28

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 21 May 1997

on the proposal of Austria to award aid to the Hoffmann-La Roche company for
the development of the drug ‘Orlistat’, designed for the treatment of pathological
obesity

(Only the German text is authentic)

(Text with EEA relevance)

(98/251/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of
Article 93(2) thereof,

Having regard to the Agreement establishing the Euro-
pean Economic Area, and in particular Article 61(1)
thereof,

Having given the parties concerned the opportunity to
submit their comments, in accordance with the above-
mentioned Articles,

Whereas:

I. DESCRIPTION OF THE FACTS

A. Antecedents

By letter dated 2 October 1995, Austria, pursuant
to
Article 93(3) of the EC Treaty, notified proposed State aid
to Hoffmann-La Roche (hereinafter ‘HLR’) for the de-
velopment of the drug ‘Orlistat’, designed for the treat-
ment of pathological obesity.

By letter dated 5 March 1996, the Commission informed
the Austrian authorities of the opening of the procedure
provided for in Article 93(2) the EC Treaty.

The multinational company HLR began the development
of the anti-obesity drug Orlistat in 1986. A cooperation

contract between HLR and Chemie Linz (hereinafter
‘CL’), a chemical company owned by the Austrian State,
was finalised in October and November 1992 to produce
an intermediate compound essential for the production of
the drug Orlistat.

This contract involved the construction in Linz of a plant
to produce hydroxy-beta-lactone, a key intermediate in
the production of Orlistat. The implementation of the
contract entails several phases going from the basic en-
gineering work (which began in August 1992, before sig-
nature of the contract) and construction of the plant, to
start-up and production (planned for 1998 and for a
10-year duration). The whole production output of the
intermediate product is to be exported to Switzerland,
where Orlistat will be manufactured.

The State aid proposal for the Orlistat project can be
divided in two parts: one subsidy of ATS 300 million for
research and development, and the other a grant of ATS
78 million for environmental protection. The aid is to be
granted in principle by the federal, regional and local
authorities. Austria considers the aid intensity to be
5,3 %, since the total amount of the project (including
investment and research) is about ATS 7 124,9 million.

The Commission decided to initiate the procedure
provided for in Article 93(2) of the Treaty for the fol-
lowing reasons:

— a previous aid proposal, first notified on 18 October
1994 and for the same amount of aid as the present
proposal, was presented as investment aid, although

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the CL plant was located in an area not eligible for
regional aid. The aid proposal was withdrawn by
Austria when it appeared inevitable that the Commis-
sion would decide to open the procedure within the
meaning of Article 93(2) of the EC Treaty, and would
probably adopt a negative decision,

— with regard to the proposed aid for research and de-
velopment, the Commission expressed doubts as to
whether the aid conformed to the criteria given in the
Community framework on State aid for research and
development (1). In particular, the research and de-
velopment activities were described in broad terms,
without a structured technical approach and lacking
in specific technical targets and milestones. Moreover,
neither the ‘incentive’ effect nor the necessity for the
aid were convincingly demonstrated,

— with regard to the aid for environmental protection, a
technical description of the measures envisaged were
described in general terms, without detailed informa-
tion as to the eligible costs and the relationship
between the aid and the improvement of environ-
mental protection due the aided investments,

of CL employees,

— as regards the aid of ATS 5 million to CL for the
the Commission
retraining
requested legislative
information
confirming that the granting of this type of subsidy
was open to all undertakings established in Austria on
an objective and non-discretionary basis,

and regulatory

B. The company

HLR is a leading international pharmaceutical corpora-
tion, founded in 1896. The company, which comprises
four divisions, pharmaceuticals, vitamins and fine chem-
icals, diagnostics and fragrances and flavours, researches,
develops, manufactures and markets high-quality products
and services in the field of health care. The pharmaceu-
ticals division is the largest, making up 63 % of Group
sales in 1995.

The HLR group has some 50 000 employees of whom
about 50 % are located in Europe and 30 % in North
America. Turnover amounted to ECU 8 500 million in
1995 (increasing to ECU 9 400 million in 1996), with net
income increasing by over three times from ECU 555
million in 1990 to ECU 2 000 million in 1995. Sales by
region in 1995 were 37 % in Europe, 37 % in North
America, 14 % in Asia, and 3 % in Africa, Australia and
the Pacific.

HLR’s record of innovation derives primarily from its
heavy investment
in research and development, with
expenditure of about ECU 1 340 million on R & D in
1995, or about 16 % of sales. In the pharmaceutical divi-
sion, R & D expenditure was above 20 % of pharmaceu-
tical
it
currently takes about 10 years and ECU 260 million to
bring a new drug onto the market. HLR invests a major
part of the profits from product sales in research and
development and hence in the future of the company.

sales. According to company

information,

— finally, given the loss-making situation of CL,

the
Commission raised the question whether the proposal
of Austria to grant aid to HLR for the establishment
of HLR in Linz might constitute an indirect means of
providing a State subsidy for CL.

Austria’s observations to the opening of the Article 93(2)
procedure were submitted to the Commission by letter
registered on 26 April 1996. A meeting between the
Austrian authorities and the Commission took place on
19 September 1996, and further information was received
by letters registered on 31 October and 20 November
1996.

The other Member States and interested parties were
informed of the Commission’s decision to initiate pro-
ceedings and were invited to submit their observations, by
publication of a notice on 12 June 1996 in the Official
Journal of the European Communities (2). No observa-
tions were received either from other Member States or
from third parties.

(1) OJ C 45, 17. 2. 1996, p. 5.
(2) OJ C 168, 12. 6. 1996, p. 2.

Company literature states that HLR addresses safety and
environmental
issues as thoroughly and responsibly as
relating to improving product quality and
questions
productivity, and hence considers these issues to be an
integral part of its business activities. Risk analysis has
emerged as the main tool for identifying possible hazards,
whereas environmental protection efforts are focused on
pollution prevention. Total expenditure on safety and
environmental protection was ECU 300 million in 1995,
equivalent to nearly 4 % of sales.

C. Potential to distort trade between Member States

(a) Trends in the development of anti-obesity drugs

the reduction of

The treatment of obesity,
real or
perceived excess body weight, can in principle be
achieved by the pharmacological manipulation of any one
of the several biochemical pathways involved in regula-
ting body weight, and involving many different parts of
the body including the brain, fat tissue, muscle fibres and
the cells lining the gut. The manipulation of any single
pathway is expected by most in the field to provide suffi-
cient clinical benefit
to give rise to a commercially
feasible product.

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Several pathways have been studied for many years in-
cluding inhibition in the gut of fat-digesting enzymes
(termed lipases), which modulate the digestion of dietary
fat, as well as means to stimulate the oxidation of fat in
the body (thermogenesis). In the last four years, there has
been a rapid increase in the understanding of the mo-
lecular biology of obesity, driven by the discovery of
genes linked to obesity. Some of the most recent anti-
obesity drug developments are summarised below.

Sibutramine, an anti-obesity treatment from Knoll Phar-
maceuticals (a company arising from the takeover of
Boots Pharmaceuticals by BASF in 1995), has been
approved for marketing by the US Food and Drug Ad-
ministration. Sibutramine works by increasing the levels
of the hormones serotonin and noradrenaline, both of
which are involved in appetite control, in the brain. The
drug works by enhancing a feeling of fullness, thereby
reducing appetite. It is also thought to increase energy
expenditure. Sibutramine was developed at Knoll’s
Nottingham UK site and it will be produced at
Nottingham and also at Cramlington. The company is
currently pursuing approval of the drug in Europe. In
early 1996, the Food and Drug Administration approved
the anti-obesity drug Isomeride (dexfenfluramine) deve-
loped by the French laboratory Servier. The drug, which
reduces hunger by raising the levels of serotonin in the
brain, is to be produced by Interneuron Pharmaceuticals
under the name Redux.

The UK company Alizyme is working on several drugs
(termed lipase inhibitors)
fat-
digesting enzymes in the gut, thereby reducing the intake
of fats into the body. HLR pioneered this approach, and
the company has filed a New Drug Application on the
lipase inhibitor Orlistat.

to block the action of

Germany’s Boehringer Ingelheim and the Danish firm
Novo Nordisk have entered into a multiyear agreement
on research into drug treatment for obesity. The focus of
the agreement will be the discovery of new drugs which
influence receptors on cells in the brain or in fat cells,
thereby regulating food intake, energy expenditure or the
number of fat cells, and thus decreasing fat accumulation
in obese people.

Ciba-Geigy (Basle, Switzerland) and Synaptic Pharmaceu-
(Paramus, New Jersey, USA) have found a new
tical
Neuropeptide Y (NPY) receptor,
(Y5). The peptide is
produced in the brain and is important in regulating
appetite, being the most potent appetite stimulant yet
described. New treatments to fight obesity will be targeted
at the receptor for NPY. Synaptic and Ciba-Geigy are
engaged in preclinical research on various small-molecule
compounds specific for the Y5 receptor. The first drug
targeting Neuropeptide Y (NPY1), developed in a collab-
oration between Neurogen and Pfizer, has begun first-
phase clinical trials on humans.

In the United States alone, customers paid as much as
ECU 43 billion for weight-loss products such as special
diets and over-the-counter medications, even though the
results are short-term effects
Indeed,
Redux, the first anti-obesity drug to be approved by the
Food and Drug Administration in May 1996 is expected
by some market analysts to generate peak annual sales of
about ECU 430 million. Given the enormous market
potential of anti-obesity drugs, it is not surprising that
several companies are working in this highly competitive
area, targeting a broad range of pharmacological pathways.

in most cases.

(b) Development of Orlistat

The development of the anti-obesity drug Orlistat has
followed the usual development path for pharmaceuticals:

Preclinical testing:

a company conducts laboratory and animal studies to
show biological activity of
the
targeted ailment, and the compound is evaluated for
safety. This phase may take from two to four years.

the compound against

Clinical trials, phase I:

these tests involve about 20 to 80 normal, healthy volun-
teers and focus on drug safety and dosage,
including
studies of drug absorption, distribution in the body and
drug metabolism.

Clinical trials, phase II:

studies with 100 to 300 volunteer patients to test the
drug’s effectiveness.

Clinical trials, phase III:

studies with 1 000 to 3 000 patients, usually in clinics and
hospitals to determine drug efficacy and identify adverse
reactions.

The clinical trials (phases I, II, III) may last from five to
seven years.

New drug application (NDA):

the company files an NDA with the Food and Drug
Administration if the data successfully demonstrate safety
and effectiveness. Approval may take up to two years.

Approval:

once the drug is approved, it becomes available on the
market.

On average, only 5 in 5 000 compounds pass on from the
preclinical testing phase to clinical trials, and only one of
these five is finally approved. From preclinical testing to
approval may take in excess of 10 years, and the cost may
be over ECU 450 million to get a drug from the labor-
atory to the market place.

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According to information provided by Austria, laboratory
work on Orlistat apparently began in 1986. The drug, to
be marketed under the name Xenical
in the United
States, is a potent inhibitor of intestinal lipases and blocks
the absorption of approximately 30 % of dietary fat.

In early 1992, it appears that phase II clinical trials on
400 overweight individuals were completed, and phase III
trials were due to begin. By 1993, it appeared that phase
III trials were under way. In December 1996, HLR filed a
new drug application with the Food and Drug Adminis-
tration.

The company views Xenical as one of its most important
products, and advertising will be aimed at the medical
profession, managed-care organisations and consumers.
Some analysts forecast that peak annual sales could reach
up to about ECU 450 million.

because the drug is several years from the market,
but also because of the still substantial risk that the
drug will not pass the final stages of clinical
testing. Also, the third stage of the clinical tests are
to be regarded as ‘precompetitive development
activity’,

— other pharmaceutical companies carry out research
on anti-obesity drugs, but their procedure is diffe-
rent from that of Orlistat,

— the ‘incentive’ effect is clear since HLR would not
have carried out the production of ‘hydoxy-beta-
lactone’ at CL without the prospect of receiving
State aid,

— finally, as regards the necessity of

the
Austrian authorities consider that the aid is neces-
sary because of the high development costs, the
substantial risk that the drug will not be approved
for marketing, as well as the particularly innovative
character of Orlistat.

the aid,

D. Proceedings following opening of the Article

93(2) procedure

(b) Aid for environmental protection

to submit

As mentioned above, and in accordance with the Article
the Commission invited the Austrian
93(2) procedure,
Government
its observations. The other
Member States and interested parties were informed of
the Commission’s decision to initiate proceedings and
were invited to submit their observations. No third party
comments were received.

The Austrian Government’s reply

The observations submitted by the Austrian authorities in
arguing that the aid should be allowed may be sum-
marised as follows.

(a) Aid for research and development

aid for

framework of

— pharmaceutical research has specific characteristics
taken into consideration by the
which are not
Community
research-
development. Indeed, pharmaceutical research can
be divided into three stages which stretch over at
least 10 years: the research concept phase, pre-
clinical tests and clinical
trials. The last-named
stage can be subdivided in three phases, of which
only the third involves
tests on a significant
number of persons (several thousand);

— the research corresponds to ‘industrial research’
ac-
and ‘precompetitive development
cording to the definitions given in the 1996 State
aid guidelines, since at the time of the notification
the drug Orlistat was still several years away from
the market.

activity’

Furthermore,
the research concept phase, pre-
clinical tests and the first two stages of the clinical
research’ not only
trials constitute ‘industrial

— according to the Austrian authorities, the measures
of environmental protection to be implemented by
HLR at the CL plant go beyond the standards
required by Austrian legislation,

— Austria provided further

information on the
eligible costs and on the economic advantages for
the company arising from the implementation of
the environmental measures.

(c) As

regards aid for CL personnel

this
subsidy constitutes a general measure, not limited to
any region, sector or individual company.

retraining,

(d) Finally, as to possible indirect aid for CL, Austria
considers the aid for research and development and
for environmental protection to be compatible with
the EC Treaty; therefore the issue as to whether the
aid intended for HLR actually benefits CL is not
relevant.

II. LEGAL ASSESSMENT

A. Compatibility of

the aid with the common

market

Article 92(1) lays down the principle that, except where
otherwise provided, aid which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods is, in so far as it affects
incompatible with the
trade among Member States,
common market. However, Article 92(2) and (3) set out
the circumstances in which such aid is, or may be,
allowed.

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In this case, Article 92(2) is inapplicable, owing to the
character, purpose and location of the aid in question.
Article 92(3) further provides that other aid may be com-
patible with the common market. Compatibility must be
determined within the context of the Community and not
of a single Member State.

In this case, the aid cannot benefit from the derogations
under points (a), (b) and (d) of Article 92(3) because the
area where the investment will be realised is not an
assisted area, the project is not an important project of
common European interest, nor does it aim to remedy a
serious disturbance in the economy of a Member State,
nor is it intended to promote culture and heritage conser-
vation.

Furthermore, the Commission has for research and de-
velopment and environmental measures adopted Com-
munity guidelines setting out the criteria for assessing the
compatibility with the common market of State aid in
this area, thereby limiting the discretionary margin under
point (c) of Article 92(3).

The Commission has therefore to consider the compatib-
the proposed aid with the assessment criteria
ility of
described in the research and development guidelines and
environmental aid guidelines (1).

B. Compatibility of the research and development

aid with the common market

The R & D programme goes from the research concept
phase to clinical trials (phase III), and aid is proposed of
ATS 300 million. The company considers the total costs
for the development of the drug to be ATS 4 354 million.

(a) Need for the aid

Although the project is stated to have begun in 1986, the
proposal for State aid was only notified by the Austrian
authorities in October 1995, by which time phase II
trials which demonstrated the effectiveness of
clinical
Orlistat as an anti-obesity drug had been concluded (in
1992), and phase III clinical trials with a large number of
obese individuals were well under way.

At present, phase III clinical trials have been completed
and approval of the drug (for sale) is expected by 1999.
Since the drug development project has come to a
successful end, the granting of aid to Hoffmann-La Roche
at the present time for an already terminated R & D

(1) OJ C 72, 10. 3. 1994, p. 3.

project constitutes a priori an operating aid to that
company.

Even in October 1995 when the aid was notified, phase
III clinical trials had begun and the drug development
project was more than half-complete in terms both of
duration and of expenditure. In these circumstances, it is
evident that Hoffmann La Roche began the project at is
receiving aid.
own risk and without
Indeed,
to
demonstrate that the aid is necessary as an incentive and
is on no account operational aid (point 6.3, Community
framework for research and develpment, 1996). In this
case,
the Commission considers that Austria has not
demonstrated the need for the aid.

the Commission calls on Member States

the prospect of

(b) Nature of the research and development

A categorisation of a research project according to the
definition of
types of research activities (fundamental
research, industrial research, precompetitive development
activity) is meant to serve as an indicator as to how close
to the market the aid proposal is, and thereby to help in
defining the maximum allowable aid intensity. Funda-
mental research and industrial research may qualify for
higher levels of aid than precompetitive development
activities which are closer to the market and which could
therefore have a greater potential to distort competition
and trade. However, this is not to say that companies,
particularly those in R & D-intensive sectors do not need
to carry out all the different categories of research and
development research as part of
their normal activity,
either to remain competitive or to secure future compet-
itive advantage.

Even in the pharmaceutical ssector where product de-
velopment times are long, categorising a research project
as fundamental research, industrial research or precom-
petitive development activity is open to a wide range of
interpretation. Particular account needs to be taken as
regards the existing state-of-the-art technology and tech-
nology trends.

Nevertheless, the boundary conditions of the types of
research and development that may benefit from State
funding are clearly defined, and may be used to deter-
mine whether the R & D aid is compatible with the
common market.

To qualify as ‘fundamental research’ (and eligible for up
to 100 % funding) the work should not be linked to any
industrial or commercial objective of any particular enter-
prise, and a wide dissemination of
the
research must be guaranteed (in a time frame such that
the whole industrial sector may benefit). The definition of
‘precompetitive
encompasses
research activities (eligible for up to 25 % funding) up to

the results of

development

activity’

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and including the creation of an initial prototype, initial
demonstration projects or pilot projects which cannot be
converted or used for industrial applications or commerial
exploitation; explicitly excluded are routine or periodic
changes made to products, production lines, manufac-
turing processes, existing services and other operations in
progress, even if such changes may represent improve-
ments.

It has already been indicated above that the development
of Orlistat is typical of drug development in the pharma-
ceutical industry, and therefore constituted normal opera-
tions in progress for the company at the time the project
began, being the consequence of a strategic business de-
cision to develop anti-obesity drugs. Indeed, developing
an anti-obesity drug has long been an objective of Hoff-
man-La Roche, which previously had five other drugs in
development which were discontinued for a variety of
reasons. Furthermore,
the pharmaceuticals division of
HLR itself considers ‘preclinical research’ and ‘drug de-
velopment’
tasks which
to be fundamentally different
have as a consequence been split into different depart-
report 1995). According to
ments (La Roche annual
company information, development
ranging
functions
from clinical trials of new drugs to drug regulatory affairs
were reorganised with the aim of streamlining and refin-
ing business processes and to pursue process optimisation
as an ongoing task. The project as notified when phase III
clinical trials were well under way, and it would appear
that the company itself considers this phase to be part of
the normal business process rather than research.

On the basis of the above, the Commission cannot agree
with Austria’s claim that the work is eligible for funding
as ‘industrial research’ and ‘precompetitive development
activity’ within the meaning of the State aid guidelines of
1996. Neither is the work eligible for funding as ‘applied
research and development’ withtin the meaning of the
State aid guidelines of 1996.

(c) Incentive effect of the aid

The ‘incentive’ effect of the proposed aid, an inducement
for the company to carry out research which it would not
otherwise have pursued as part of its normal R & D activ-
ities, was examined, back to the time when the project
was notified in October 1995. This incentive effect is
clearly expressed in both the 1986 (1) and 1996 research
and development guidelines, both placing emphasis on
the need to ensure that such aid does not become the
equivalent of operating aid.

As indicated above, the development programme of the
anti-obesity drug ‘Orlistat’ was one typical for the phar-
maceutical sector, which, furthermore, was well advanced
at the time of the notification. Given the market pros-
pects, it would have been perfectly normal for any phar-

(1) OJ C 83, 11. 4. 1986, p. 2.

maceutical company to carry out the research on anti-
obesity drugs. As shown above, other anti-obesity drugs
are currently on the market, and there has been a rapid
increase in research on obesity in the last
few years,
driven by the discovery of genes linked to obesity.

that

On the basis of the above, the Commission does not agree
the Austrian authorities’ argument
in 1995 the
project as described was especially ambitious, involving
expenditure and risks well above the normal for this type
of drug development, and that
the project demanded
extraordinary efforts outside the scope of the company’s
normal R & D activity. Indeed, the conjectural effect of
granting aid to the company in October 1995 would
simply have been to reduce the normal risk of commer-
cial failure in the development of an anti-obesity drug by
providing a State subsidy for a project which would
anyhow have had to have been carried out in order for the
company either to remain competitive, or to gain future
competitive advantage.

Any ‘incentive’ achieved through granting the proposed
aid was highly unlikely at the time the project was noti-
fied to the Commission in October 1995 and at
the
present
time is clearly non-existent. The Commission
considers then, that Austria has not demonstrated the
existence of an incentive effect of the aid.

Therefore, given that the proposed aid for research and
development does not fulfil the criteria set out in the
State aid guidelines on research and development, it is not
compatible with the common market.

C. Compatibility of the aid environmental protec-

tion

(a) The measures

HLR has offered to implement additional measures
which, according to the Austrian authorities, go consid-
erably beyond the level of environmental protection
required in Austria and the standards normally promoted
by HLR itself. The mandatory environmental standards
applicable to chemical plants such as the project in Linz
have their legal basis in federal law which applies to the
whole of Austria.

The offer by HLR to go beyond legislative requirements
was made on the assumption that the aid promised by the
Austrian authorities would actually be granted. Ac-
cordingly, these environmental measures must be consid-
ered additional measures that HLR would not implement
without State aid.

Three series of environmental measures are concerned:
five measures to reduce the risk of environmental ac-
cidents, three measures to prevent water pollution, and
seven measures to combat air pollution.

The specific measures and the aid proposed are as follows
(figures in ATS million):

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3. 4. 98

Description

Extra
investment

Aid amount

Aid intensity
(gross %)

Five measures to reduce the risk of accidents

1.1. Production building as containment

1.2. Blow down container

1.3. Pressure resistant apparatus

1.4. Fully automatic control

1.5. Separate storage facility for butyllithium

30,1

4,95

47,5

51,5

7,1

Three measures to prevent water pollution

2.1. Collecting tanks for production platforms

2.2. Stripping of waste water

2.3. Chemical treatment of waste water

4,7

28,4

14,9

Seven measures to combat air pollution

3.1. Discharged air

3.2. Solvent recovery

3.3. Heat recovery for heating and cooling

3.4. Prevention of diffuse emissions

3.5. Glove boxes

3.6. Low-emission sampling

3.7. Vacuum pumps fitted with a magnet

65,6

110

4

13

15,8

1,692

0,96

9,03

1,485

12,6

15

1,5

1,41

5,67

3,3

16,2

0

0

3,9

4,5

0,507

0,289

30

30

26,53

29,13

21,13

30

19,96

22,15

24,70

0

0

30

28,48

30

30

Measures 3.2 and 3.3 are not eligible for aid because of
the high operational savings involved in their implemen-
tation.

For each of the additional measures, the Austrian author-
ities have submitted a detailed description of the standard
legal requirements, the investment needed to achieve the
the additional
standard requirements,
measures,
additional
measures, and the aid element expressed in monetary
terms and as a percentage of the eligible costs.

related to the

the nature of

investment

the

The Commission continued ‘. . . new plants will inevitably
be built to the highest level of safety available on the
market, it is consequently difficult to accept that State aid
should be granted to help the firm to reach this level’.
Finally, the Commission added that ‘aid towards measures
to improve the protection of workers or health or to
improve the firm’s efficiency or reduce its costs cannot be
declared compatible with the common market, as those
measures would have had to be taken in any event’.

(b) Measures to reduce the risk of accidents

The first series of measures are presented by Austria as
concerning the reduction in risk of ‘environmental’ acci-
dents. In opening the procedure, the Commission had
already stated that ‘. . . when it assesses new investments
with environmental aspects,
to take a strict
approach in order to prevent firms from receiving aid
towards supposed environmental expenditure that serves
to finance investments which they would have carried out
in any event’.

it has

Contrary to the other measures for which the Austrian
authorities notified environmental aid, the alleged justi-
fication of this first series of measures is not to reduce the
release into the environment of polluting substances
emanating from normal production activities, but they are
clearly described as targeted towards reducing the risk of
explosion as well as the release of harmful substances in
case of operating plant malfunction. The main purpose of
these measures is to prevent catastrophic occurrences,
minimising harm to humans (for example, employees,
adjacent
residents, etc.), and not primarily aimed at
reducing environmental damage.

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Even if the proposed measures go beyond the prevailing
mandatory standards in Austria, aid necessity cannot be
justified because the prevention of accidents constitute an
obligation for the company, which in case of accident
would bear liability for it. The Commission is of the view
that State aid should not be granted to cover the com-
panies’ obligations.

activities of HLR, the necessity of the aid in favour of
such measures has been not demonstrated. Hence, aid for
the safety measures foreseen (1.1 to 1.5 in the above table)
is to be considered as general
investment within the
meaning of the Community guidelines on State aid for
environmental protection, and therefore excluded from its
scope. On this basis, the Commission considers that the
aid proposal
the planned safety measures is not
compatible with the common market.

for

Austria has provided no justification as to why it considers
these measures to be primarily ‘environmental’ and there-
fore eligible to benefit from State aid, particularly since it
is supposed that the best available safety technology is
used in the construction of new chemical plants.

As already mentioned, the Commission is of the view that
the highest level of safety would have to be implemented
in the interest of the company itself. Public opinion is
such that firms are fully expected to carry out risk analysis
and implement the appropriate safety measures in order
to prevent accidents. Safety and the prevention of damage
are clearly a key concern for chemical companies, since
any accident would likely involve high liability as well as
a loss of public image and a reduction in sales.

The high priority placed on safety is confirmed by HLR
company literature. In the foreword of the ‘Safety and
environment protection at Roche: group report 1995’, the
Chairman of the Board of Directors states that ‘Con-
tinuous study of possible damage scenarios, however, log-
ically led to a change in attitude. Instead of waiting pas-
sively for damage to occur, players shifted their attention
to measures designated to prevent damage. Risk analysis
emerged as the main tool for identifying possible hazards.
Now performed in all processes and plants, risk analysis
enables chemists and engineers to assess the impact of
possible process deviations and to reduce the risk to an
acceptable level by suitable technical, organisational and
personnel measures’.

Furthermore, the Chairman added that ‘. . . we do not
consider safety and environmental protection solely as an
obligation towards government and the public but also as
an integral part of our business activities’. The fact that
safety matters are of vital concern to the chemical
industry in general
is
confirmed in the same report, which states that HLR
wants ‘. . . to present our data in a way that would satisfy a
demanding specialist readership, but we would also like to
reach out to a wider audience of employees, customers,
shareholders and others, givin them the background
information that will help them see the broader picture
and make it easier to assess the Roche data’.

and for HLR in particular

Given that safety measures are aimed at reducing the risk
of accidents and that they are a key part of the business

(c) Measures to combat water and air pollution

The measures aimed at preventing water pollution are
into the
intended to significantly reduce emissions
Danube. For example, the new measures will enable emis-
sion of solvents and residual substances such as phenyle-
thylamine to be stopped, although this is still permitted
under existing environmental regulations. In addition,
levels of organic halogen compounds (AOX) in wastewater
will be reduced by more than 75 %.

The measures to combat air pollution are claimed to
reduce to zero the emissions into the atmosphere of
hydrocarbons, heat-transfer oils, and dangerous dust and
solvents, although these emissions are still permitted
under
regulations. Other
measures will reduce the uncontrolled release of gases
into the environment. Here too, the existing standards
will be exceeded.

the existing environmental

Aid for investment that allows significantly higher levels
of environmental protection to be attained than those
required by mandatory standards may be authorised up to
a maximum of 30 % gross of the eligible costs. The level
of aid actually granted in order to exceed mandatory stan-
dards must be in proportion to the environmental im-
provement to be achieved and to the extra investment
necessary for achieving the improvement.

Due account must be taken of any costs savings or other
advantages obtained by the investor on the back of the
investment. These elements should be deducted from the
nominal extra investment costs to achieve the eligible
costs. Mutatis mutandis, operational costs should be
added to the investment in order to obtain the eligible
costs.

Taking into account the arithmetical error committed by
the Austrian authorities in subtracting the operational
savings from the aid amount and not from the extra
investment, the amount of aid allowable under the above-
mentioned guidelines are the following (figures in million
ATS):

L 103/36

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Official Journal of the European Communities

3. 4. 98

Description

Extra
investment

Eligible
cost

Aid amount
(30 % gross
intensity)

2.1. Collecting tanks for production platforms

2.2. Stripping of waste water

2.3. Chemical treatment of waste water

3.1. Discharged air

3.2. Solvent recovery

3.3. Heat recovery for heating and cooling

3.4. Prevention of diffuse emissions

3.5. Glove boxes

3.6. Low-emission sampling

3.7. Vacuum pumps fitted with a magnet

4,7

28,4

14,9

65,6

110

4

13

15,8

1,692

0,96

4,7

25,2

14,9

65,2

11

4

13

17

1,692

0,96

1,41

7,56

4,47

19,56

0

0

3,9

5,1

0,507

0,289

Total

259,05

157,65

42,796

The grant of aid up to ATS 42 796 000 for additional
measures to prevent water and air pollution is in confor-
mity with the Community guidelines on State aid for
environmental protection, and is compatible with the
common market in accordance with the derogation in
Article 92(3)(c) of the EC Treaty.

D. The aid for personnel training to Chemie Linz

the proceedings,

In the opening of
the Commission
requested the Austrian authorities to confirm that the
training aid given to the firm Chemie Linz (CL) was a
general measure.

The measure is based on the Order on aid to general
industrial training measures (implementing the Labour-
Market Aid Act, part B/IV/C). Its legal basis was exten-
sively modified in 1994 and it is now Article 33, read in
conjunction with Article 34(2), points 2 and 4, of the
Labour Market Service.

The aim of the measure is to train people previously
placed in a firm by the Labour Market Service, the body
reallocating unemployed people in the
in charge of
labour market. The objective is to raise the level of an
individual’s qualifications and to increase individual pro-
fessional mobility. The measure, according to the Austrian
authorities, is not restricted to any particular region, sector
or firm.

However, a discretionary decision must be taken by this
body in order to allow the training aid. The criteria taken
into account when assessing an application are the risk of
job-loss in a company, whether the former unemployed
person now hired by the company needs
training,
whether the training obtained is of use to more than one
firm, and a long-term commitment by the company to
the training programme.

the meaning of Article 92(1) of the EC Treaty, because it
relieves firms of some of the financial costs arising from
their normal economic activities.

According to Article 172(5) of the Act of Accession of
Austria, Finland and Sweden to the European Union,
‘. . . all decisions taken by the EFTA Surveillance Author-
ity before the date of accession pursuant to Article 61 of
the EEA Agreement and which fall under Article 92 of
the EC Treaty as a result of accession shall, on accession,
remain valid with respect to Article 92 of the EC Treaty
unless the Commission decides otherwise pursuant
to
Article 93 of the EC Treaty’.

Consequently, as a major modification took place in 1994
to the legal basis of the training aid scheme in question, it
should have been notified to the EFTA Surveillance
Authority (ESA) pursuant to Article 1(3) of Protocol 3 to
the Surveillance and Court Agreement (1). As the Austrian
authorities have not complied with this notification obli-
gation, the scheme has to be considered a new aid and
not an existing aid. It is, moreover, illegal for having been
put into force before the ESA (and later the Commission)
could state its view as to its conformity with State aid
rules.

the Commission will

The assessment of
therefore be
limited to the individual aid of ATS 5 million to CL
towards the retraining of its employees enabling them to
operate
the production of
hydroxy-beta-lactone, and is without any prejudice to the
position of the Commission on the scheme itself.

chemical plant

the

for

The amount of the aid is small, ATS 5 million (ECU
the training
360 000) as compared to the cost of

Therefore, as the subsidy is not granted under objective
and automatic criteria it must be considered State aid in

(1) OJ L 231, 3. 9. 1994, p. 1.

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L 103/37

programme which is ATS 150 million for the first four
years and covers at least 150 people. The aid intensity is
therefore about 3 % gross.

patible with the common market within the meaning of
Article 92(2) and (3). The proposed aid shall, therefore,
not be paid.

Article 2

The aid of ATS 39 615 million which Austria proposes to
grant to Hoffmann La Roche for additional measures to
reduce the risk of accidents in the operation of the plant
for hydroxy-beta-lactone in Linz, is not compatible with
the common market within the meaning of Article 92(2)
and (3). The proposed aid shall, therefore, not be paid.

Article 3

Environmental aid of ATS of 42 796 million to Hoff-
mann-La Roche for additional measures to prevent water
pollution and combat air pollution, in the operation of
the plant mentioned in Article 2 is compatible with the
common market within the meaning of Article 92(2) and
(3).

Article 4

The individual aid of ATS 5 million granted to Chemie
Linz towards the retraining of its employees so as to
enable them to operate the chemical plant
the
production of hydroxy-beta-lactone is
illegal on the
ground that the scheme under which it was granted was
not notified to the EFTA Surveillance Authority, as
required by Article 172(5) of the Act of Accession of
Austria, Finland and Sweden to the European Union.

for

Without prejudice to the position of the Commission on
the scheme itself, the individual aid to Chemie Linz can
be considered compatible with the common market
within the meaning of Article 92(2) and (3).

Article 5

The Republic of Austria shall inform the Commission of
the measures it has taken to comply with this Decision
within two months of the date of its notification.

Article 6

This Decision is addressed to the Republic of Austria.

Done at Brussels, 21 May 1997.

For the Commission

Karel VAN MIERT

Member of the Commission

The training obtained through the individual aid is of use
to more than one firm and is by no means specific to the
firm’s operations. The aid should thus be considered a
measure in favour of workers, even if a company benefits
indirectly from it. Besides that, it is clear that owing to
the financial and economic difficulties suffered by CL and
the potential
this
company who benefit from the training aid have a better
chance in finding other qualified jobs in case they lose
their present jobs.

job losses, employees of

risk of

The position of the Commission on measures such as
those to promote training and the acquisition of new
skills is expressed in the Guidelines on aid to employ-
ment (1) which states that ‘. . . where such measures fall
within the scope of Article 92(1) of the EC Treaty, the
Commission usually gives them sympathetic considera-
tion’.

Given these considerations,
the Commission considers
the proposal to grant the planned individual training aid
to be compatible with the common market in accordance
with the derogation provided for in Article 92(3)(c) of the
EC Treaty.

E. Possible indirect restructuring aid to Chemie

Linz

In its decision to initiate proceedings in this case, the
Commission also considered that, were it to find that the
aid measures were not compatible with the Treaty under
the rules on aid for the environment or for research, the
alternative question would then have to be asked whether
it had to be regarded as aid to Chemie Linz, a company
in financial difficulties.

it

As far as the notified aid for R & D and environmental
protection is concerned, the Commission has found that
is compatible, on its own merits, with the
part of
common market and that part of
is incompatible.
Accordingly, as the incompatible aid cannot be granted to
HLR, it could not constitute an indirect aid to CL and the
examination of this aspect no longer has any relevance,

it

HAS ADOPTED THIS DECISION:

Article 1

Research and development aid of ATS 300 million which
Austria plans to grant to Hoffmann La Roche for the de-
velopment of the anti-obesity drug Orlistat is not com-

(1) OJ C 334, 12. 12. 1995, p. 4.