98/384/EC: Commission Decision of 21 January 1998 on aid granted by the Netherlands to a hydrogen peroxide works in Delfzijl (notified under document number C(1998) 232) (Only the Dutch text is authentic) (Text with EEA relevance)
Date: 1998-01-21
Institutions: European Commission
Subjects: Netherlands, State aid, chemical industry, control of State aid, redemption

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Official Journal of the European Communities

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COMMISSION

COMMISSION DECISION

of 21 January 1998

on aid granted by the Netherlands to a hydrogen peroxide works in Delfzijl

(notified under document number C(1998) 232)

(Only the Dutch text is authentic)

(Text with EEA relevance)

(98/384/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 on the European
Economic Area, and in particular Article 62(1)(a) thereof,

Having given the parties concerned the opportunity to
submit their comments, in accordance with those Articles,

Whereas:

I

A complaint drew the Commission’s attention to the
construction of a hydrogen peroxide plant in Delfzijl in
the Netherlands.

FMC Industrial Chemicals (Netherlands) BV (‘FMC'), a
subsidiary of the US company FMC Corp., submitted a
request to the Netherlands authorities for a contribution
towards the cost of constructing a hydrogen peroxide
production plant
in the province of
Groningen. Production was scheduled to start at the end
of 1995 and was targeted at northern Europe. The invest-
ment would amount to NLG 115 million, and the plant
was to have a production capacity of 35 000 tonnes a year.

in Delfzijl

authorities

of the local economy and the fact that it was the first time
since 1986 that a large firm had settled in the area. The
Netherlands
accordingly acceded to the
company’s request;
they awarded a grant of 25 % of
eligible costs, subject to a ceiling of NLG 25 million. The
aid was to be paid under a scheme which the Commis-
sion had previously approved, the Regional Investment
Project Subsidies Order
regionale
Investeringsprojecten (cid:190) ‘the IPR scheme') (1). The aid
granted amounted to NLG 28,75 million.

subsidies

(Besluit

On 18 September 1996 the Commission decided to
initiate proceedings under Article 93(2) of the Treaty in
respect of these measures. It informed the Netherlands
Government accordingly by letter of 3 October 1996 (2).
By letter of 31 October the Netherlands authorities asked
for an extension of the time allowed for observations until
15 January 1997, and the Commission agreed to this. The
observations reached the Commission on 27 January
1997, followed by additional information on 28 February
1997.

The letter informing the Netherlands authorities that the
proceedings had been initiated was published in a notice
in the Official Journal of the European Communities (3).
Following that notice the Commission received observa-
tions from four firms, including the group to which the
complainant belongs, the recipient, and one trade associa-
tion.

On 2 June 1997 Commission staff met representatives of
the recipient company; the company’s lawyer was present.

By letter of 16 June 1997 the Commission sent the
Netherlands authorities the observations received from
interested parties, with translations
into Dutch. The
Commission received the Netherlands authorities’ replies
to these observations on 17 July 1997.

FMC’s project was considered to be of special interest to
the economic development of the province of Groningen,
and in particular the town of Delfzijl, in view of the state

(1) Commission Decision of 27 December 1990: State

aid

measure No N 514/90 (cid:190) Netherlands.

(2) SG(96) D/8632.
(3) OJ C 112, 10. 4. 1997, p. 3.

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On 27 October and 6 November 1997 the advisers to the
recipient company submitted further information to the
Commission. Lastly, on 4 November 1997 the Nether-
lands Government supplied further details of the environ-
mental aspects of the investments to be carried out by the
recipient company.

II

The Commission decided to initiate the proceedings for
the following reasons:

(cid:190) The complaint that gave rise to the proceedings stated
in 1994, when the Netherlands authorities
that
the hydrogen
approved the aid to the company,
peroxide market was
in overcapacity. The com-
plainant expressed surprise that in such circumstances
the company could be given aid towards an invest-
ment which would create new capacity.

(cid:190) The aid given to FMC exceeds the maximum aid
intensity which the Commission approved in connec-
tion with the IPR scheme. The Netherlands author-
ities were authorised to provide no more than 20 % of
gross investment, whereas in fact they approved a little
over 25 % gross. In its initial inquiry, the Commis-
sion established that three kinds of aid had been given
to FMC: the grant already referred to, a subordinated
loan, and a site sold to the recipient company for less
than its market value. The aid added up to a total of
NLG 29,88 million. It should be borne in mind that
these proceedings relate only to that part of the aid in
excess of the maximum allowed in connection with
the IPR scheme, that maximum being 20 % gross of
the eligible costs.

III

In the course of the proceedings, the Netherlands author-
ities put forward the following arguments:

(cid:190) they submitted a study of the market in hydrogen
peroxide which was more detailed than the one that
they had had carried out by Chem Systems, an inde-
pendent chemical industry consultant, and the other
data they had submitted to the Commission, which
were reviewed at the initial stages of the proceedings.

According to these studies, which are based on a
maximum effective rate of utilization of 90% of theo-
retical capacity, capacity will be almost fully utilised
by the year 2000. In the industry an effective capacity
utilisation rate of 90 % is regarded as the maximum
level of production that is reasonably feasible in the

long term, for mainly environmental reasons. The data
supplied by the complainant likewise suggest that the
effective rate of capacity utilisation will be fully taken
up. At this stage, the few percentage points’ difference
between effective capacity and demand have to be
regarded as necessary in order to be able to deal with
market fluctuations.

These studies also show that in 1993 market growth
was expected to average 6,3 % a year over the period
1991-2000. Thus,
the prospect was for a rapidly
growing market, and other producers announced that
they were to increase capacity in the same period as
FMC: Aussimont in 1993, and Oxysynth(cid:138)se, EKA and
Kemira in 1995,

(cid:190) the gross investment, which is virtually completed, has
cost NLG 115 million, as expected. Of this total NLG
2 million is not eligible for assistance under the IPR
scheme, so that the sum provided in aid is NLG 28,25
million. As a percentage of the gross investment of
NLG 115 million, this sum amounts to a rate of aid of
24,75 %.

Noordelijke

Ontwikkelingsmaatschappij
NV
(Northern Development Corporation -
‘NOM')
granted a subordinated loan of NLG 12,5 million
towards the project, at an interest rate of 5,92 %,
largely because FMC provided a 100 % guarantee. In
view of the reservations expressed by the Commission,
and given that a better rate could be obtained from a
non-Dutch bank, FMC repaid the loan early, in March
1997.

the land,

As regards the sale of
the Commission
denied that its Decision in the Fresenius case (1) was a
relevant precedent here, because there was nothing to
indicate that the land had been for sale over a long
period, and because the depreciation of
the land
seemed to be due not to the lack of buyers but to the
use to which the site had been put in recent years. (In
Fresenius the Commission considered that although
the price paid was 10 % lower than the theoretical
market value estimated by the valuers,
the local
authority in question had for a number of years been
offering the site for sale both directly and through
intermediaries, without finding a buyer. The Commis-
sion concluded that these efforts to sell the land were
comparable to an open and unconditional bidding
procedure, and that consequently the price paid cor-
responded to the market value).

The competent authorities observe, however,
that
during the 1980s and at the beginning of the 1990s
the land was offered to interested firms at a price no
lower than the cost price. This brought not a single
investor to settle in the region, partly because of the
price being asked. In view of the poor results, it was
decided in 1992 to set the price on the basis of market
value, and no longer on the basis of cost.

(1) State aid measure No C 36/92, ex NN 108/92: OJ C 21, 25.

1. 1994, p. 4.

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Although the price asked was NLG 1 per square
metre, or in some cases even less, only FMC accepted.
The Netherlands Government also observes
that
Belgian and French regions were offering sites at
prices comparable to what was being asked by the
Delfzijl/Eemshaven harbour authority,

these
ment. The consultant estimated the cost of
‘locally excessive' investments at between NLG 1,4
million and NLG 2,65 million. The Netherlands
Government takes the view that in such circumstances
additional aid should be allowed.

(cid:190) according to the Netherlands authorities, the FMC site
in Delfzijl is near the waters of the Waddenzee. The
area has a special status as a conservation area. The
Waddenzee is a nature reserve within the scope of
Article 3 of Council Directive 79/409/EEC of 2 April
1979 on the conservation of wild birds (1) and of
Article 4 of Council Directive 92/42/EEC of 21 May
1992 on the conservation of natural habitats and of
wild flora and fauna (2). It
is also a wetland area
covered by the Ramsar Convention. The Netherlands
authorities have enacted legislation which allows
economic activity in the area only in so far as it is not
detrimental to the area’s status.

FMC has taken a series of environmental measures in
consequence; a large proportion of the investment,
accounting for NLG 62,92 million, must be regarded
as investment of this kind. It is important to establish,
therefore, whether the investment can be described as
‘excessive'. An independent consultant was asked to
examine the question. The consultant defined ‘exces-
sive' as meaning ‘higher than the minimum level
required in other Member States, taking account of
Community Directives'. Whether an investment
is
excessive has to be determined by comparing it with
the customary environmental measures and with a
generally accepted level of environmental protection.

A number of
investments and measures aimed at
environmental conservation were identified on the
basis of applications for authorization submitted by
FMC under the different environmental conservation
measures in force in the Netherlands: the Environ-
mental Management Act
the
Pollution of Surface Waters Act (Wet verontreiniging
oppervlaktewateren), and the permits granted by the
municipal and provincial authorities under those Acts.
The consultant identified from those documents the
measures which were aimed solely at the protection of
the environment, and excluded those which did not
appear to be ‘excessive'.

(Wet milieubeheer),

The consultant concluded that a number of invest-
ments costing a total of between NLG 12 million and
NLG 21 million were ‘excessive' in whole or in part.
Some of these were ‘locally excessive', that is to say
necessitated by the vulnerability of the local environ-

(1) OJ L 103, 25. 4. 1979, p. 1.
(2) OJ L 206, 22. 7. 1992, p. 7.

IV

In the course of
the Commission
the proceedings,
received observations from four firms and one trade asso-
ciation in the industry. The four firms include the group
to which the complainant belongs, and the recipient.

The four firms submitting observations supplied figures
for the period 1994-96 and estimates for 1997-2000,
relating to the question of production capacity for
hydrogen peroxide. From an examination of these figures,
some of which are confidential, it is clear that European
demand falls short of installed production capacity, even
taking the effective capacity (which is equal to 90 % of
theoretical capacity, as indicated by Chem Systems).
According to these four parties, the rate of utilisation is as
follows, though it must be pointed out that no account
has been taken of exports (equal to about 10 % of Euro-
pean demand):

(%)

1994

1995

1996

1997

1998

1999

2000

(a)

84,05

85,47

76,90

74,43

75,45

79,79

84,55

(b)

77,88

82,72

72,78

77,78

(c)

82,26

80,38

74,52

73,12

75,12

78,25

81,48

(d)

81,94

83,98

76,61

73,35

74,12

80,62

The observations
follows:

submitted can be summarised as

(cid:190) the complainant’s group contends that the 1994 fore-
casts, according to which the expansion of capacity
would outpace growth in demand for several years,
have been proved correct,

(cid:190) the same group, basing itself on its own experience in
the last few years, states that the rate of utilization that
can be achieved on a steady basis with world-scale
capacities (and there are no others in western Europe)
is 95 %. Demand has to be looked at against this
figure. None of the other parties objects to the 90 %
capacity utilisation rate calculated by Chem Systems,

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(cid:190) the same group states that the growth of the market
for hydrogen peroxide was previously buoyed up by a
changeover from chlorine to the less environmentally
damaging hydrogen peroxide in the bleaching of
cellulose; that changeover came to an end in western
Europe in 1994, which is why growth has stagnated
since,

(cid:190) another party argues that pressure from environmental
activists for the replacement of chlorine by hydrogen
peroxide was very strong at
the
1990s. That pressure has diminished in the last few
years. Demand has consequently risen less rapidly
than most producers had expected at the beginning of
the 1990s,

the beginning of

(cid:190) another party asks the Commission to investigate the
investment costs of the Delfzijl works carefully, in
order to establish whether or not they have been made
to include FMC’s own internal costs,

(cid:190) lastly, one party alleges that other companies have
built production plants for hydrogen peroxide in
referred to are Solvay,
Germany. The companies
Aussimont and Oxysynth(cid:138)se. There are rumours in
the industry that they received State aid.

V

As already explained, FMC also submitted observations on
the initiation of proceedings. In so far as they differ from
the observations of the Netherlands authorities they can
be summarised as follows:

(cid:190) on the purchase of the site, FMC argues that open
bidding would have served little purpose in view of
the lack of interested buyers over many years. The
valuation carried out by Stichting Adviesbureau
Onroerende Zaken cannot be taken as a reference.
The agreement concluded in 1988 among the various
authorities involved in the financial restructuring of
the Delfzijl harbour authority required that that foun-
dation’s services be used. The price set may have been
influenced by considerations other than economic
ones,

(cid:190) FMC observes that the loan granted by NOM has
been fully repaid. FMC fails to see how this loan could
have been considered an aid measure for purposes of
Article 92(1) of the Treaty. As the Court of Justice of
the European Communities held in its judgment of
17 March 1993 in Joined Cases C-72/91 and C-73/91
Sloman Neptun v. Bodo Ziesemer (1), a measure taken

by the authorities is an aid measure only where it
confers an advantage the cost of which is borne by the
State or a public or private body designated or estab-
lished by the State. The account from which NOM
lent the money to FMC earned NOM a lower rate of
interest than NOM charged FMC, so that there was no
advantage granted through State resources of the kind
referred to by the Court,

(cid:190) on the alleged overcapacity on the market

in
hydrogen peroxide, FMC argues that between the
decision to build a plant and the moment when
production comes on stream there is a gap of eighteen
months. An expected increase in demand can be met
only by expanding output correspondingly, which
requires that a decision be taken eighteen months
beforehand. Producers have to anticipate, as can easily
that demand in 1994 was
be seen from the fact
647 000 tonnes and in 1992 effective production
capacity was 646 000 tonnes (according to CEFIC
figures cited at the initiation of proceedings) (2).

When FMC took the decision to invest, in 1992, it
expected demand to increase by over 10 % a year over
the period 1992-95. FMC also confirms, and provides
figures to substantiate the claim, that the stagnation in
sales between 1995 and 1996 was due mainly to the
fall in demand from the paper industry. This was an
unexpected development, given the historical data and
the objective factors that influence demand,

(cid:190) Other firms likewise received regional investment aid,

for investments in Germany,

(cid:190) If the Commission were to find that the aid was
incompatible with the common market, any attempt
to recover the aid would in any event be unjustified
and out of time. Recovery would conflict with the
protection of FMC’s legitimate expectations. FMC has
displayed great care in familiarising itself with the
rules of all the applicable aid schemes and assuring
itself that they had been approved by the Commis-
sion. FMC became aware of the 20 % gross ceiling
governing the IPR scheme only when the notice
announcing
initiation of proceedings was
published (3).

the

On the basis of the information in its possession at
the time of the investment decision, and the legal
advice it had obtained, FMC could only conclude that
the investment aid qualified for approval under the
IPR scheme, and that the Commission clearly had not
prohibited the provision for
in the
scheme which in the view of the Netherlands author-
ities allows the admissible amounts and intensities to
be exceeded,

‘major cases'

(1) ECR [1993] I-887.

(2) OJ C 112, 10. 4. 1997, p. 3.
(3) OJ C 112, 10. 4. 1997, p. 3.

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(cid:190) FMC takes the view that as the aid was approved in
1994 and the Commission has been aware of it since
1995, a long time has passed up to the present final
decision. Citing the judgment of the Court of Justice
of 24 November 1987 in Case 223/85 RSV v.
Commission (1), FMC argues
the time the
Commission has taken to reach a decision precludes
recovery of the aid,

that

(cid:190) Lastly, FMC’s advisers have recently submitted that, in
its Decision 97/542/EC (2) on tax exemptions for
biofuels in France (State aid measure No C 51/94
France), the Commission had found that the aid was
unlawful and incompatible, but had nevertheless
decided not to require France to recover it. In FMC’s
view the same arguments apply to its own case.

VI

As the Commission pointed out when it initiated the
proceedings, the Court of Justice held in its judgment of
30 June 1992 in Case C-47/91 Italy v. Commission (the
Italgrani case) (3) that when the Commission came to
consider cases where fresh aid was to be granted under a
scheme the Commission had previously authorised, the
Commission had only to establish that the terms of the
scheme had been complied with. If the terms of such a
scheme have indeed been complied with, there is no need
to consider whether the individual case is compatible
with the common market. If the Commission finds that
the terms of the scheme have not been complied with,
then it has to carry out a thorough assessment of the
compatibility with the common market of the individual
aid measures.

The Commission considers, for the reasons set out below,
that the conditions of the IPR scheme have not been met
in this case. A more detailed scrutiny is therefore called
for.

The start-up of FMC’s Delfzijl plant
increases Dutch
production capacity by 20 000 tonnes a year to 55 000
tonnes. According to data from various sources,
the
proportion of European hydrogen peroxide production
traded between Member States in 1994 was between 30 %
and 40 %. Of this total, the Dutch share varies between
10 and 15 %. It follows that the aid given to FMC for its
Delfzijl works will affect trade between Member States.

[1987] ECR 4617.

(1)
(2) OJ L 222, 12. 8. 1997, p. 26.
(3)

[1992] ECR I-4145.

The Commission deplores the Netherlands Government’s
failure to notify the measures sufficiently in advance for it
to be able to reach a decision pursuant to Article 93(3) of
the EC Treaty. By implementing the measures before the
Commission has had time to state its position on them,
the Netherlands Government has
them
unlawful.

rendered

The case raises
Commission to consider:

three important questions

for

the

(A) it must be established whether or not the hydrogen
peroxide market was in overcapacity in 1994, when
the Netherlands authorities approved the aid, and in
succeeding years, as the complainant contends;

(B) the Commission must decide how to handle aid in
excess of the maximum intensity that it authorised in
connection with the regional aid scheme that applies
in Delfzijl, the IPR scheme. The Netherlands author-
ities were authorised to grant up to 20 % gross
towards the investment, but in fact granted slightly
more than 25 % gross;

(C) in conjunction with the preceding point,

the
Commission must consider what weight to give to the
Netherlands authorities’ argument
that FMC has
carried out substantial investment in the protection of
the environment.

In addition, the Commission must consider the observa-
the recipient company according to which
tions of
the aid, should the Commission find it
recovery of
incompatible, would be unjustified and out of time.

A. The market in hydrogen peroxide

The Commission takes the view that the examination of
the market in hydrogen peroxide and the way it has
developed must begin with the time when it was decided
to carry out the projected investment. It was on the basis
of the information in the company’s possession at that
time that the decision whether or not to carry out the
investment had to be taken.

In the course of
four parties have
the proceedings,
supplied statistics describing the situation on the market
in the past, up to 1995 or 1996 as the case may be, and
estimates for the future. The demand figures provided by
these four parties for the period 1994-96 show strong
similarities. However, they do not give a good picture of
the time when FMC decided to invest in the Delfzijl site.

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The same applies to the remark made by one of the
parties, the complainant’s parent company, that according
to its expectations in 1994, which were subsequently
proven right, the overcapacity that existed at that time
would continue for many years. One may question the
consistency between what the company says now and
what it said in 1994. According to its 1995/96 annual
report, which the Netherlands authorities have supplied
to the Commission, the hydrogen peroxide industry was
then in continuous growth. The same report stated that
growth of 7 % to 8 % a year was expected on the world
market.

This company attributes the stagnation of growth in the
hydrogen peroxide market to the fact that the changeover
from chlorine to hydrogen peroxide in the bleaching of
cellulose came largely to an end in 1994. The annual
report
just referred to, however, states that hydrogen
peroxide is increasingly replacing the chlorine products
used previously in a variety of uses in industries such as
textiles and paper.

expanding capacity. If the same analysis is applied to
statistical data supplied by third parties in the course of
the proceedings, bearing in mind that they give a picture
of the past only and do not forecast the future, it can be
concluded that demand in 1996 was between 90 % and
100 % of the capacity actually installed in 1994.

Lastly, on the basis of all the information it has received,
the Commission notes that FMC was by no means the
only firm to expand its capacity in the second half of the
1990s. Several competitors set up new production plants,
frequently with production capacities larger than that of
Delfzijl, despite their claims that there was overcapacity
on the market at that time.

Between 1994 and 1996 the
expansions
announced totalled 245 000 tonnes, only 35 000 tonnes
was to be installed by FMCI (2).

capacity

for a changeover

Another of the parties agrees with FMC that pressure
from environmental activists
from
chlorine to hydrogen peroxide has fallen off in recent
years, with the result that demand has increased more
slowly than most producers expected at the beginning of
the hydrogen peroxide
the 1990s. In 1993, 42 % of
produced was used for the bleaching of
textiles and
paper (1). The same party claims that in 1993 demand for
hydrogen peroxide was expected to grow by 8,2 % a year
for the bleaching of paper, and 2,6 % a year for the
bleaching of textiles, over the period 1991-2000.

the

takes

The Commission accordingly
view that
although there may have been overcapacity on the market
in hydrogen peroxide in 1994 (data from before that year
would be needed to allow a more precise assessment),
nevertheless at
the time FMC decided to expand its
capacity it might reasonably expect the market to grow by
about 7 % a year, as many of its competitors did. The
competitors also confirm that most of
them did not
foresee the later stagnation of growth. The growth in the
market was consequently sufficient to encourage firms to
invest in order to take advantage of it. Between 1993 and
1995 various other firms announced comparable invest-
ments (in the former German Democratic Republic and
Scandinavia).

To determine whether there is overcapacity account must
be taken of the time between the investment decision and
the opening of the new plant. A decision whether or not
to invest will be taken on the basis of current expecta-
tions. FMC is of the opinion that the gap amounts to
eighteen months. In the light of
figures
received from all the parties, the Commission must work
on the basis of a period of two years.

the annual

In these circumstances, FMC’s decision to build a works
in Delfzijl was not exceptional. There is a difference,
however, in that FMC received State aid for the purpose,
which several of its competitors did not. Indeed, some of
the interested parties take the view that the Commission
ought to challenge the whole of the aid received by FMC.
The aid allegedly received by other hydrogen peroxide
producers at about the same time as FMC is the subject of
a separate Commission inquiry.

authorities,

From the tables drawn up using the data supplied by the
to which the Commission
Netherlands
referred when it initiated the proceedings, it will be seen
that effective capacity (90 % of theoretical capacity) of
year ‘t' is lower than anticipated demand in the year t +
2, a difference which can be overcome only by increasing
the effective capacity utilization rate to over 90 % or by

The Netherlands authorities have stated that they grant
aid only provided the applicant satisfies the requirements
for eligible costs laid down in the relevant legislation. Aid
is paid only once the costs have been audited. The
Commission does not propose to pursue its examination
of this point.

(1) Source: Chem Systems; data supplied by the Netherlands

(2) Source: Chem Systems; data supplied by the Netherlands

authorities.

authorities.

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B. Exceeding the maximum permitted aid intensity

FMC was given aid in three forms: a direct grant, a
subordinated loan, and a site sold at a price apparently
below the market value.

(1) As regards the grant, the Commission cannot accept
the Netherlands authorities’ view that while the costs
eligible for aid are less than the total investment, the
aid intensity should nevertheless be calculated by
reference to the total sum invested.

According to the Netherlands authorities, there is a
misunderstanding regarding the maximum rate of aid
under the IPR scheme. The scheme allows aid to be
granted at a maximum intensity of 20 % of
the
eligible costs, and the eligible costs may amount to a
maximum of NLG 18 million. This rule applies in
normal cases. In more important cases, known as
‘major cases' (belangrijke gevallen), in which the NLG
18 million eligible costs ceiling set by the scheme is
exceeded, the responsible Minister may exceed the
amount of aid authorized by the scheme (20 % of
NLG 18 million). Article 5(2) of the 1991 IPR rules
(Subsidieregeling
investeringsprojecten
1991) provides that if the costs of a project within the
scope of paragraph 1(a) or (b) of that Article amount
to more than NLG 18 million and the project is of
special importance to the development of a regional
economy, the Minister may decide to give a grant
higher than the maximum amount referred to in
paragraph 1. The Netherlands authorities consider
that the Minister was entitled to award a grant which
was higher in amount and intensity. A grant of 20 %
net to FMC was therefore in accordance with the
scheme.

regionale

The Commission does not
share this opinion,
because the scheme does not provide that in ‘major
cases' aid may exceed the maximum aid intensity.
Only the amount of the aid can exceed the ceiling
laid down for normal cases. When they notified the
IPR scheme,
the Netherlands authorities nowhere
mentioned that they wished to allow a special aid
intensity for ‘major cases'. The Commission decision

on the IPR scheme specifies that the maximum aid
intensity is 20 % gross. Before this particular case the
Netherlands Government had never challenged that
decision. That intensity must therefore be taken as
the ceiling. The grant actually given amounts to 25 %
gross.

the whole of

(2) The Commission takes note of the fact that FMC has
made early repayment of
the loan
granted to it by NOM, and has contracted another
loan on more advantageous terms with a foreign
bank. Both the recipient and the Netherlands author-
ities maintain that the NOM loan did not constitute
aid, because NOM acted on the basis of purely
commercial considerations. NOM was able to grant
this subordinated loan of NLG 12,5 million at an
interest rate of 5,92 % as a result of the 100 % guar-
antee that FMC provided. The account from which
the funds were lent to FMC earned NOM a rate of
interest lower than what it charged FMC, so that there
does not appear to be any advantage granted through
state resources of the kind referred to by the Court of
Justice in the Sloman Neptun judgment (1), to which
the recipient company refers. Lastly, the reference
rate that the Commission was using in the calculation
of regional aid in 1994 was 6,27 %, which differed by
35 basis points from the rate charged to FMC. That
reference rate included a risk premium calculated at
75 basis points in the case of the Netherlands, repre-
senting the risk associated with the average debtor. As
FMC acted as guarantor for the whole amount of the
loan, and even then NOM charged a risk premium of
40 basis points, it must be concluded that the loan is
outside the scope of Article 92(1) of the Treaty.

(3) As regards the sale of

the site,

the Netherlands
Government takes the view, for the reasons set out in
Section III above, that the sale is not a measure
caught by Article 92(1) of the Treaty. The fact that no
buyer was found for the site over a very long period is
in its opinion sufficient proof that the price paid by
FMC corresponds to the market value.

initiated the
As the Commission stated when it
proceedings, it considers as a rule that the value of a
site put up for sale by the public authorities may be
determined most accurately by an open and uncondi-
tional bidding procedure. During such a procedure
potential purchasers are able to make their bids, the
highest of which is accepted. This procedure also
shows how great an effort the vendor has made to
procure the best
terms available. This view was
discussed in the Commission’s Fresenius decision (2).

(1) ECR [1993] I-887.
(2) OJ C 21, 25. 1. 1994, p. 4.

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the responsible authorities do not

follow this
If
procedure, the Commission is of the opinion that the
market price of the site should be established by an
independent
accepted
using
methods, working in particular from recent sales of
comparable sites.

generally

valuer

These criteria have recently been confirmed in the
Commission Communication on State aid elements
in sales of land and buildings by public authori-
ties (1).

The Commission does not share the recipient com-
pany’s scepticism regarding the valuation of the site
in March 1994. The valuer’s report, which the Neth-
erlands authorities supplied with their letter of 9
January 1997, is sufficiently detailed, and in arriving
at a final valuation takes account of a range of factors
(geographic location, proximity of waterways and rail-
ways, the state of the property, and valuations carried
than
in the past). No considerations other
out
economic ones are considered in the report, apart
perhaps for the observation that the State attaches
great importance to the definitive conclusion of the
deed of transfer of the property rights and the estab-
lishment of the company on the site. The valuer
nevertheless valued the land at NLG 10 per square
metre; the harbour authority sold it for one tenth of
that price.

As the valuer reported that his own office had valued
the site in 1987, and added that at the second valua-
tion in 1994 the plots had previously (1993) formed
part of an area for the dumping of silt, but that the
land was now cleared and could be used as an indus-
trial site, the Commission is satisfied that he took
account of all relevant factors in valuing the property.
that while the
It
company has voiced various objections, it acknowl-
edges that the valuation may reflect the possibility of
using the site for industrial purposes.

is important

therefore,

to note,

the Fresenius precedent does apply in this
that
case (2), and that, as no other buyer has come forward,
the valuer’s valuation can be reduced by 10 %. This
approach is in line with the Commission Communi-
cation on State aid elements in sales of lands and
buildings by public authorities, which has applied
since 1996, except that the Communication considers
that where the authorities have made vain efforts to
sell the land the market price may be reduced by
5 %.

Given the area sold (10,5 ha), and the price the
Commission regards as compatible with the market
in view of the Netherlands authorities’ efforts to sell
the site (NLG 9 per square metre), FMC should have
been buying the site for a total of NLG 945 000. The
State aid component is consequently NLG 840 000.
This brings the total aid received by FMC to NLG
29,09 million (NLG 28,25 million +NLG 840 000).
The costs eligible for aid under the IPR scheme
amount to NLG 113,945 million (NLG 113 million
plus the corrected value of the site), so that the aid
intensity is 25,52 % gross. In cash terms the excess is
the equivalent of a sum of NLG 6,3 million. Given
the position of the Netherlands in trade in hydrogen
peroxide between Member States, this aid affects trade
between Member States. As the aid did not comply
with the ceiling set by the applicable regional
scheme,
it distorts or
threatens to distort competition, as it reduces the
investment costs which would otherwise have to
borne by the company. The aid is therefore caught by
Article 92(1) of the Treaty, and does not qualify for
any of the exemptions allowed.

it must be concluded that

The Commission concludes that the market price of
the site for industrial use at the time FMC bought it
was NLG 10 per square metre, as determined by the
valuer, whose report clearly states that the site can be
used for that purpose and that there are no special
rights over the land or obligations borne by it which
might reduce its value. In order to determine whether
there is State aid, therefore, this is the price which
must be taken as the point of reference.

The Commission notes that the Netherlands author-
ities tried in vain to sell the site in the 1980s and at
the beginning of the 1990s. It therefore takes the view

The granting of the aid is also motivated by the
difficulties and handicaps suffered by the Delfzijl area
and by the favourable impact the assisted project is
expected to have. These considerations are already
reflected, however, in the applicable regional scheme,
and in the authorized aid intensity, which is based on
objective criteria (unemployment
rate, GDP per
capita, etc.). Although the sum involved is small, the
fact that the authorized aid ceiling has been exceeded
raises a problem of principle. The Commission can
scarcely allow the aid ceiling permitted by the
scheme to be exceeded without robbing the scheme
of its purpose, and without setting a very dangerous
precedent which would be invoked systematically in
similar cases.

(1) OJ C 209, 10. 7. 1997, p. 3.

(2) OJ C 21, 25. 1. 1994, p. 4.

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17. 6. 98

C. The environmental investments

The Commission cannot accept that the maximum inten-
sity should be exceeded in the case of aid which is invest-
ment aid only, but it might nevertheless be permissible to
exceed the ceiling if
the Netherlands authorities had
provided different forms of aid towards different classes of
costs all being eligible for assistance (regional investment
aid and environmental aid, for example), and the total
then exceeded the maximum intensity for regional aid.
When it
the Commission
confirmed that it would consider whether FMC qualified
for aid under the Community guidelines on State aid for
environmental protection (1).

initiated the proceedings,

To justify exceeding the regional ceiling, the Netherlands
authorities have stated that a large proportion of
the
investment
(NLG 63
million out of NLG 115 million).

in environmental measures

is

It is stated in point 3.2.B of the guidelines that: ‘Aid for
investment that allows significantly higher levels of envir-
omnental 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 for exceeding standards must be in
proportion to the improvement of the environment that
is achieved and to the investment necessary for achieving
the improvement (. . .). If both Community and national
mandatory standards exist for one and the same type of
the
nuisance or pollution,
purposes of applying this provision shall be the stricter
one'.

standard for

the relevant

In this case, it is clear that the area in which FMC is
established is a nature conservation area which is
protected under both Community and domestic legisla-
tion. The Netherlands Government confirms that FMC
had to apply for a number of authorisations from different
authorities in order to be able to build the plant in
Delfzijl. It can be gathered that
there are mandatory
environmental standards in force in the area which are
especially strict in view of its exceptional character.

recently sent

In order to show that FMC had made particularly stren-
uous efforts in the environmental sphere, the Netherlands
Government
the Commission a report
analysing the proportion of the investment that can be
considered ‘excessive' by comparison with what
is
customary in other Member States. An FMC plant in
Spain is used as a yardstick to measure what is an ‘exces-

sive' effort in Delfzijl. The comparison identifies invest-
ments between NLG 12 million and NLG 21 million.
The Netherlands authorities also claim that some of these
investments (between NLG 1,4 million and NLG 2,65
million) are ‘locally excessive', meaning that the company
had to undertake these investments in order to adapt to
local circumstances (a protected and vulnerable area).

The Commission is obliged to note that the Netherlands
authorities are unable precisely to quantify these ‘extra'
investments on the part of FMC. The Commission
wonders, therefore, what figure it should take as a basis for
an assessment of the compatibility of these environmental
aid measures with the Treaty. In addition, a large part of
the sums in question relate to safety measures and ac-
cident prevention measures: in a recent State aid case (C
6/96, Hoffmann La Roche v. Austria) (2), the Commission
decided that investment of this kind was in the com-
pany’s own interests, as the company would be liable for
any damage or injury, and consequently did not qualify
for State aid.

The Netherlands authorities have not produced anything
to show that FMC has gone beyond what is required by
Netherlands environmental legislation, or if so that it has
done so to any appreciable extent; nor have they shown
that the aid is in proportion to the investment or to the
extent to which standards have been exceeded. It may be
added that the Commission allows aid up to the ceiling of
30% gross of the eligible costs referred to in the guide-
lines only in cases in which the measures being taken go
very substantially beyond the compulsory standards.

The guidelines do not allow aid to be authorised for
investment going beyond the standards in force in other
Member States, but only for investment going beyond
compulsory standards in the Member State concerned,
and the Commission accordingly takes the view that the
investments of an environmental nature carried out by
FMC on this site do not qualify for aid under the guide-
lines. The fact that the regional aid ceiling applicable has
been exceeded consequently cannot be justified on envir-
onmental grounds.

VII

It must be concluded, then, that the sum of NLG 6,3
million in aid by which the regional aid ceiling applying
under the IPR scheme is exceeded should be declared
unlawful and incompatible with the common market.

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

(2) OJ L 103, 3. 4. 1998, p. 28.

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Where aid granted unlawfully is found to be incompatible
with the common market, Article 93(2) of the EC Treaty
requires the Commission to request the Member State to
recover it from the recipient, as the Court of Justice has
confirmed in its judgments of 12 July 1973 in Case 70/72
Commission v. Germany (1), of 14 February 1987 in Case
310/85 Deufil v. Commission and of 20 September 1990
in Case C-5/89 Commission v. Gemany
(BUG-
Alutechnik) (2).

obligation to take the steps necessary to implement a
Commission decision instructing it to recover the aid. If it
could do so, Articles 92 and 93 of the Treaty would be set
at naught, since national authorities would thus be able to
rely on their own unlawful conduct in order to deprive
decisions taken by the Commission under provisions of
the Treaty of their effectiveness.'

The lawyers representing FMC have argued that if the
Commission finds that the aid is unlawful and incompat-
ible with the common market, any decision to require
repayment would not only be contrary to the principle of
the protection of legitimate expectations but would also
be out of time.

In the BUG-Alutechnik case, the Court of Justice had
this to say: ‘However, it must be noted that, in view of the
mandatory nature of the supervision of State aid by the
Commission under Article 93 of the Treaty, undertakings
to which an aid has been granted may not, in principle,
entertain a legitimate expectation that the aid is lawful
unless it has been granted in compliance with the
procedure laid down in that article. A diligent busi-
nessman should normally be able to determine whether
that procedure has been followed.

regard,

it must be pointed out

In that
that, by a
Communication published in the Official Journal of the
European Communities,
the Commission informed
potential recipients of State aid of the risk attaching to
any aid granted them illegally, in that they might have to
refund the aid (OJ C 318, 1983, p. 3).

It is true that a recipient of illegally granted aid is not
precluded from relying on exceptional circumstances on
the basis of which it had legitimately assumed the aid to
be lawful and thus declining to refund the aid. If such a
case is brought before a national court, it is for that court
if necessary after
to assess the material circumstances,
obtaining a preliminary ruling on interpretation from the
Court of Justice.

According to the observations submitted by FMC, it had a
legitimate expectation that the aid would be compatible
with the common market because it had been very careful
to enquire into the aid schemes available and to establish
that they had been authorized by the Commission. At the
meeting with the Commission, FMC developed this argu-
ment, and stated that it had assurances from the Nether-
lands authorities that the aid was covered by a Commis-
sion authorisation. At no stage in these proceedings was
any detailed account or documentary evidence provided
of the approaches FMC allegedly made to the authorities.

FMC also refers to a point in the Twentieth Report on
Competition Policy, 1991, point 330; but it is there stated
that for ‘regional aid programmes in the Netherlands' the
Commission ‘agreed to investment aid up to 20 % gross'.
The Report does not mention the ‘major cases' because
the scheme does not provide for any special aid intensity
in such cases.

At no stage has FMC shown that its alleged legitimate
expectation was attributable to any act on the part of the
Commission. At the time it received the aid, FMC did not
ask the Commission, nor does it claim to have asked the
Commission, for a copy of the Decision of 12 December
1990 on the scheme. Only after the aid had been granted,
in point of fact after the Commission decided to initiate
the Article 93(2) proceedings, was this request first made
to the Commission.

As for the decision to initiate the proceedings,
is
obvious that by its very nature it cannot justify an expec-
tation that the aid being examined is compatible.

it

However, a Member State whose authorities have granted
aid contrary to the procedural rules laid down in Article
93 may not rely on the legitimate expectations of recipi-
ents in order to justify a failure to comply with the

(1) ECR [1973] 813.
(2) ECR [1987] 901 and ECR [1990] I-3437 respectively.

As regards the contention that the Commission’s final
decision would be out of time, it will be sufficient to
recall the succession of steps which the Commission took
following the complaint and which are outlined in the
decision initiating the proceedings, and to point out that
the Commission had to base its decision on the situation
on the hydrogen peroxide market, so that other parties

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17. 6. 98

had to be consulted in the course of the proceedings. The
most recent information on ‘excessive' and ‘locally exces-
sive' investments was supplied to the Commission only
on 4 November 1997. The Commission could take a
decision only once it had obtained all the necessary infor-
mation, this in order strictly to ensure the right of the
Member State concerned to defend itself in the course of
the proceedings.

The lawyers representing FMC cite the arguments that
the Commission put forward for not requiring recovery in
the French biofuels case (C 51/94) (1), and ask the
Commission to follow that precedent here:

(cid:190) like biofuel, hydrogen peroxide helps to reduce pollu-
tion and is more expensive than the product
it
replaces,

(cid:190) the investment aid does not overcompensate for the

production costs,

(cid:190) there is no indication that the aid will lead to an
increase in sales and profits, as the FMC plant is still
making a loss,

(cid:190) recovering the aid would not restore the status quo

ante.

In the first place,
there is no Community policy of
encouraging the production of hydrogen peroxide similar
to that which exists in the case of biofuels. In addition,
the aid towards biofuels is intended partially to offset the
higher production costs of biofuels as compared with
fossil fuels. In the case of FMC the Commission could
not have authorized production aid or operating aid.

The aid reduced FMC’s investment costs, and it logically
follows that the cost of capital to FMC was lower than it
was for competitors who had received no State aid. The
advantage thus conferred might be reflected for example
in the form of lower financing costs, because without the
aid the company would have had to go to the capital
markets for the money covered by the aid. Such a saving
in the cost of capital might have an impact on FMC’s
results in the form of higher profits or lower losses than
previously. The Netherlands authorities have not shown
otherwise.

Lastly, the Commission takes the view that recovery of
the aid will allow the financing costs to be brought back
to the level the company would have had to bear if it had
not received the incompatible aid that conferred an artifi-
cial advantage on it; it will thus allow the status quo to be
restored.

The Commission accordingly concludes that the argu-
ments that FMC has put forward give the Commission no

cause to dispense with the recovery of the incompatible
aid,

HAS ADOPTED THIS DECISION:

Article 1

The aid amounting to NLG 6,3 million which the Neth-
erlands granted to FMC Industrial Chemicals (Nether-
lands) BV in excess of the aid ceiling laid down by the
IPR scheme approved by the Commission is unlawful, in
that it was granted before the Commission had submitted
its comments in accordance with Article 93(3) of the EC
Treaty.

That aid is also incompatible with the common market
within the meaning of Article 92(1) of the EC Treaty and
Article 61(1) of the EEA Agreement, and does not qualify
for any of the exemptions laid down in Article 92(2) and
(3) of the EC Treaty or Article 61(2) and (3) of the EEA
Agreement.

Article 2

The Netherlands shall take whatever steps are necessary
to recover the unlawful aid referred to in Article 1. Repay-
ment shall be made in accordance with the procedures
and provisions of Netherlands law; the amount to be
repaid shall bear interest from the date on which the aid
was granted until the date on which it is in fact repaid,
the interest rate being equal to the reference rate in use
on the date of repayment for the calculation of the net
grant equivalent of regional aid in the Netherlands.

Article 3

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

Article 4

This Decision is addressed to the Kingdom of the Neth-
erlands.

Done at Brussels, 21 January 1998.

For the Commission

Karel VAN MIERT

Member of the Commission

(1) OJ L 222, 12. 8. 1997, p. 26.