Report from the Commission on the implementation of Decision No 2496/96/ECSC of 18 December 1996 establishing Community rules for aid to the steel industry (Steel Aid Code) in 1997
Date: 1998-03-11
Institutions: European Commission
Subjects: State aid, aid for restructuring, industrial policy, iron and steel industry

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  11.03.1998 
COM(1998)  140 final 

REPORT FROM THE COMMISSION 

on the implementation of 

Decision No  2496/96/ECSC  of  18 December  1996 establishing 

Community rules for aid to the steel industry 

(Steel Aid Code) 

in  1 997 

Report from the Commission on the implementation of 
Decision No 2496/96/ECSC of 18 December 1996 establishing 
Community rules for State aid to the steel industry (Steel Aid Code) 

in 1997. 

1. 

Introduction 

Article 8 of the  Commission's  Decision  2496/96/ECSC  of  18  December  1996 
establishing  Community  rules for  State  aid to  the  steel  industry1  (hereinafter 
referred  to  as  Steel  Aid  Code  or  SAC)  requires  the  Commission  to  draw  up 
annual  reports  on the  implementation  of the  Decision for the Council and, for 
information, for the European Parliament and the Consultative Committee. 

2. 

General overview 

2.1.  This  report  describes  the  first  cases  decided  by  the  Commission  under  the 
sixth  Steel  Aid  Code.  In general,  the  Commission  has  been  able  to  use  the 
new instrument of controlling State aid in the sensitive sector of ECSC steel in 
a satisfactory way. 

In two cases  it made  use of the  new possibilities  given to  it by article 6(4)  of 
the  SAC  and  it  used  the  enlarged  scope  of  Article  3  of  the  SAC  to  allow 
exemptions from CO2 taxation for the ECSC steel industry. 

OJ No L 338, 28.12.1996, p. 42 

1 

The monitoring of the implementation of the Article 95 ECSC cases  previously 
decided was  continued  in  1997. The  Commission  submitted  its  seventh2 and 
eight3 monitoring report to the Council, covering  in particular the  restructuring 

of the companies concerned and the payment of the aid authorized. 

2.2. 

In 1997 the  Commission took 5 final  negative  decisions  and  in 2 two cases  it 

took  final  positive  decisions.  In  one  case  the  procedure  was  closed  after  a 

withdrawal  of  the  notification  by  the  relevant  authorities.  In  7  cases  the 

Commission  did  not  raise  objections  without  an  opening  of  the  procedure, 

including  two  cases  where  it  came  to  the  conclusion  that  no  State  aid  was 

involved.  For  7  other  cases  the  Commission  decided  to  open  the  procedure 

pursuant to Article 6(5) of the Steel Aid Code. 

2.3  Chapter  3 of the report gives a description of the individual cases decided by 

the Commission in 1997. Cases notified to the Commission in 1997 but not yet 

decided upon are not presented in the report. Annex I presents all the relevant 

information in a table. 

3. 

Description of aid cases to the steel industry per Member State 

3.1.  Belgium 

3.1.1.  Forges de Clabecq / Duferco Clabecq 

The  Commission  decided  that  the  financial  assistance  from  the  Walloon 

Region  in favour  of  Duferco  Clabecq,  in the  form  of  a  capital  acquisition  of 

BEF 350  million  (25% of the capital)  and a  10-year  loan of  BEF 550 million, 

constitutes  a genuine  provision  of  risk  capital  according to  usual  investment 

practices in a market economy. 

The assistance does therefore not contain any element of State aid. 

SEC (97) 673 final 
SEC (97) 1898 final 

2 

In concluding that no aid is involved the  Commission took  into consideration, 

as regards the  capital  participation, that the  SWS  (Société Wallonne  pour  la 

Sidérurgie)  acquired  its  minority  shareholding  of  25%  under  the  same 

conditions  and at the  same time as a private  investor  who  owns the  majority 

of the capital. 

The private partner  has a solid financial  structure, and the new investment  is 

part  of  its  entrepreneurial  strategy.  Investments  are  to  be  undertaken  which 

will  make  it  possible  to  give  practical  shape  to  a  precise  industrial  strategy 

and  the  business  plan  predicts  a  positive  operating  margin from  year  2  and 

profits from year 5. 

As  regards  the  loan,  it was  concluded  that  no  State  aid  is  involved  as  the 

risk of not recovering the capital  is shared by both shareholders  in proportion 

to  their  respective  shareholding  positions.  In  addition,  the  loan  generates 

interest  on  a  half  yearly  basis,  irrespective  of  the  firm's  performance,  at  a 

fixed annual rate of 5.55% over ten years.  The rate, which is the same as the 

reference rate used by the Commission since  1 August  1997 to determine the 

aid element  of government  loans  in Belgium, may be regarded  as the  market 

rate applicable to this type of loan and this type of risk. 

3.2.  Germany 

3.2.1.  Investment programme for the reduction of environmental  pollution 

In  January  1996  the  Commission  opened  the  procedure  in  respect  of  a 

German aid scheme aimed at the stimulation of projects demonstrating  in what 

way  an  application  of  processes  and  technology  can  lead  to  significant 
reductions  in  air  and  water  pollution  as  well  as  waste-disposal  and  noise 

levels. 

The  Commission  considered  that  the  aid  intensity  allowed  under  the  scheme, 

i.e.  50%,  was  too  high  taken  into  account  that  demonstration  projects  are 

rather  close to the  market  place  and  it furthermore  held that the  costs  eligible 

for support were not only proper R and D costs but could also entail  investment 
costs. 

1 

In  October  the  Commission  closed  the  procedure  following  the  withdrawal  of 
the  notification  by the  German Government.  The measures  have  not  been put 
into effect. 

3.2.2. Eisen- und Stahlwalzwerke  Rôtzel GmbH 

In July the Commission decided to open the procedure pursuant to Article 6(5) 

SAC  in  respect  of  guarantees  granted  by  the  Land  Nordrhein-Westfalen  in 

1995 to the company Eisen- und Stahlwalzwerke Rôtzel GmbH. 

The guarantee covered 80% of a bank-credit  amounting to DM 15 million for 

investment purposes. 

3.2.3 Grôditzer Stahlwerke and Walzwerk Burg GmbH 

The  Commission opened in July the  procedure  of Article 6(5)  SAC  in respect 
of  the  privatisation  of  these  companies  and  some  financial  interventions 
undertaken in the years 1993-1996. 
The  Commssion  had  serious  doubts  whether  the  privatisation  process  by 

which  the  companies  were  sold to  affiliates  of  Georgsmariënhùtte  GmbH  did 
not constitute State aid. 
As to the financial  interventions,  the  Commission  investigated  investment  aid 
in the form  of  interest-free  loans amounting to  DM 96.9  million  and  operating 
aid,  also  in the form  of  shareholder  loans,  amounting  to  DM  166.8  million.  It 
has to be noted here that the shareholders at the time were State agencies. 
Furthermore some guarantees and grants are the subject of the procedure. 

In  this  case  the  Commission  has  taken  the  position  that  Grôditz  GmbH  is  a 
company  that  is engaged  in production  in the  steel  industry  and  consequently 
falls  under  Article  80  of  the  ECSC  Treaty,  although  the  company  mainly 
produces  non-ECSC  products.  The fact  that  it  produces  also  ECSC  steel  and 
sells  parts  of  its  ECSC  steel  production  on  the  market  was  considered 
sufficient  to  label the company  as one that falls  under  Article  80  of the  ECSC 
Treaty. 

H 

3.2.4.  MCR Gesellschaft fur metallurgisches Recycling mbH 

In  December  1994 the  Commission  took  a favourable  decision  in  respect  of 
regional investment aid to this company. 
It did so pursuant to Articles  1 and 5 of the previous Steel Aid Code4. 

The  Commission  decided to open the procedure  in December  1997  pursuant 
to  Article  6(5)  of the  SAC  concerning  two  loans  totalling  at  DM 97  million, a 
guarantee and the grant of DM 24 million authorised previously. 
The  loans and the guarantee were intended to cover  environmental  costs but 
the Commission had serious doubts whether all the conditions of the Steel Aid 

Code  and  the  Community  guidelines  on  State  aid  for  environmental 
protection5 were met by the project in question. 
The  subsidy  of  DM 24  million was  authorised  in  December  1994  and  had to 
be paid to the company before the end of that year. The Commission received 
information  that  the  subsidy  had  not  been  paid  in  accordance  with  this 
deadline and consequently  it opened the procedure. 
It also took the first  step  in the decision to come to a suspension  of  payment 
of the subsidy pursuant to Article 6(4) of the Steel Aid Code. 

3.2.5.  GeorgsmarienhUtte 

The  Commission  initiated,  in  July,  a  procedure  under  the  Steel  Aid  Code  to 
examine  whether  the  relief  from  environmental  obligations  covering  the 
recycling  and  disposal  of  industrial  dust  granted  by  the  German  Land 
Niedersachsen  to  the  steel  ECSC  undertaking  GeorgsmarienhUtte  GmbH, 
located close to Osnabruck, represents State aid. 

In  1993 the  steel  companies  of  the  German  Klôckner  group  were  financially 
restructured  through  a  composition  procedure.  The  subsidiary  Klôckner 
Edelstahl  GmbH  in  GeorgsmarienhUtte was  subsequently  sold  and  renamed 
GeorgsmarienhUtte  GmbH.  During  the  composition  procedure  the  Land 
Niedersachsen relieved the company from the obligation to dispose or recycle 
industrial dust arising from the steel making process.  Subsequently, the Land 

OJ No L 362, 31.12.91, p. 57 
OJNOC72,  10.3.94, p. 3 

h 

charged the public Niedersâchsische Landesentwicklungsgeseilschaft mbH to 
provide  for  the  proper  disposal  of  the  dust.  This  company  then  charged 
Georgsmarienhutte  to  recycle  the  dust  and  paid  61.64  Mio  DM  for  this 
service. 

The Commission  is of the opinion that the relief  by the State from the  general 
obligation  under  public law to dispose or recycle industrial waste, arising from 
the  polluter-pays-principle,  reduces  the  production  costs  of  the  company 
concerned  and  may  therefore  represent  operating  aid,  which  would  not  be 
compatible with the Steel Aid Code. 

3.2.6.  Elbe Stahlwerk  Feralpi GmbH 

The Commission  initiated in November a procedure  under the Steel Aid Code 
concerning  State  aid  -  9.4  million  DM  investment  grant  and  guarantees 
covering  42  million  DM  -  granted  by  Saxony  to  the  ECSC  steel  undertaking 
ESF  Elbestahlwerk  Feralpi  GmbH  in  Riesa.  The  Commission  had  received 
information  that  a  certain  portion  of  investment  aid  that  was  authorized  in 
1993/94  under  a  special  derogation  for  steel  undertakings  located  in  the 
In  addition  it 
former  GDR  may  have  been  misused  for  operating  purposes. 
had received information that supplementary  investment aid and operating aid 
was  granted  in  1995/96  after  the  expiry  of  the  derogation  for  the  former 
Eastern  Germany.  This  aid  was  granted  without  prior  notification  and 
therefore  in  breach  of  the  procedural  rules  of  the  Steel  Aid  Code.  The 
Commission invited the German Government to submit its comments covering 
an intended order to suspend the disbursement  of any further  aid in favour  of 
ESF Elbestahlwerk Feralpi. 

3.2.7. Stahlwerke Bremen GmbH 

investment  company  Hanseatische 

The  Commission  decided  in June that  an intended  injection  of  capital  by  the 
public 
Industriebeteiligungen  GmbH 
(Hibeg), Bremen, to the equity of Stahlwerke  Bremen GmbH did not constitute 
State aid. 

Q 

The  shareholders  of  Stahlwerke  Bremen  are  the  Belgian  steel  company 
Sidmar  NV  (67.6835%)  and  Hibeg  (32.3165%).  They  intended  to  inject  DM 
150  million  to  the  equity  of  their  company  to  allow  the  financing  of  certain 
the 
investments,  which  are  considered  suitable  to  contribute 
profitability  of Stahlwerke  Bremen. The shareholders would cover this amount 
in  accordance  with  their  percentage  of  shareholding.  The  public  contribution 
had to be notified to the Commission according to Article 6 (2) of the Steel Aid 
Code.  The  Commission  examined  the  intended  financial  measure  and 
concluded  that  the  behaviour  of  Bremen  represented  normal  private  market 
investors'  behaviour. 

towards 

3.3.  Greece 

3.3.1. Halyvourgia  Thessalias 

In September the Commission authorised regional investment aid to the steel 
company  Halyvourgia  Thessalias  SA  pursuant  to  Article  5  of  the  Steel  Aid 
Code. 
The investment focused on the purchase and installation of a new controlled 
cooling  system  and  a  new  high-technology  shear  and  the  resiting  in  another 
part of the plant of the cooling bed. 
The aid consisted of two grants of DRA 69.6 million and DRA 26.4 million and 
interest subsidies for bank loans amounting to DRA 114 million. 
The investment did not lead to an increase of the production capacity. 

3.4. 

Italy 

3.4.1. Acciaieria ISP Cremona. 

In April the Commission declared compatible with the common market by virtue of 

Article  2  of  the  Steel  Aid  Code  a  grant  of  LIT  25.9  billion  to  Acciaieria  ISP 

Cremona. 

The  R &D  should  identify  and define the  technical  conditions for  the  industrial 

manufacture on the ISP plant of stainless steels, and for obtaining directly the hot 

2 

manufacture  in the austenitic phase of thins gauges of less than 1.5 mn which 

cannot be manufactured with the current rolling plants. 

The  R  and  D  was  considered  to  represent  industrial  research  and  the  aid 

intensity  of  36.6%  was  well  below  the  threshold  of  50%. As  to  the  incentive 

effect of the aid, it must be observed that this condition was met considering the 

special risks and costs involved in the projects and the fact that Cremona's R&D 

spending represents some 4.5% of its turnover which is significantly  higher than 

the average R&D spending of other steelmaking companies (about  1% -2%). 

3.4.2. Bresciani 

in  February the Commission decided to close the open  procedure with  regard 

to  the  public  interventions  for  six  iron  and  steel  companies  within  the 

framework  of  the  dismantling  of  the  private  steel  sector  in  Italy,  it  seems 

appropriate  to  recall  that  in  April  1996,  the  Commission  had  initiated  the 

procedure with respect to the State aid that the government  Italian had planned 

to  grant to the following  companies:  Diano,  Lamifer,  Demafer,  LMV,  MAO  and 

Sidercamuna. 

Following its analysis of the cases, the Commission  noted that, exception made 

for the MAO cases and Diano the aid of which was permitted, in the other cases 

all the conditions provided for in Article 4 of the Steel AID Code were met except 

that  referring  to  the  regularity  of  production.  In  this  respect  the  Commission 

observed  that  the  criteria  provided  by  the  Italian  authorities  (valid  electricity 

contract, investment and handling of the facilities, personnel etc) were not likely 

to  show that the  companies  in question  produced  in a  regular way  but, that  in 

fact, they were just ready to do so. 

Thus, the Commission considered that in these four cases the condition  relating 

to  the  regularity  of  production  is  not  met  and  that  Italian  allegations  could  not 

modify the first appraisal carried by the Commission at the time of its decisions 

for opening the procedure. 

? 

3.4.3. Ferdofin Sri 

In  April,  the  Commission  decided  to  close  by  a  negative  decision  the 

procedure open against the public interventions in favour of Ferdofin Sri. 

Having taken note of the decision of the Italian authorities, following the opening 

of  the  procedure,  to  withdraw  the  planned  public  guarantee  envisaged  by  the 

Italian law n.95/1979, the Commission assessed whether the Italian law as such 

constitutes state aid 

In  this  respect,  it  is  appropriate  to  observe  that,  contrary  to  the  bankruptcy 

procedures  envisaged  by  the  Italian  law,  the  procedure  in  question  is  not 

reserved  for  all  the  companies,  but  only  for  the  major  companies,  i.e.,  the 

companies  employing  at  least  300 persons  and  who  are  in  situation  of 

insolvency. 

Concerning  the transfer  of  official  resources, the  Commission  has  noted  that 

the  extraordinary  administration  comprises  certain  economic  advantages 

giving concrete expression to the transfer of resources of the state or  affecting 

the budget of the state.: 

Therefore, the  Commission  comes to  the  conclusion  that  the  law  in  question 

constitutes  state  aid.  It  follows  from  the  file  that  the  public  intervention  in 

question  can  aim  at  neither  environmental  protection,  neither  research  and 

development nor, finally, closure. 

3.5. Luxembourg 

3.5.1. ARBED S.A AND ARES S.A.. 

Notified  aid  concerns  projects  which  were  undertaken  and  were  carried  out  in 

1995  and  in  1996. The  Community  framework  of  the  State  aid  with  research-
development6 establishes (point 6.5) that the Commission will attach importance 

particular  to  the  analysis  of  the  incentive  effect,  in  order  to  ensure  that  the 

planned  aid  is  under  no  circumstances  operating  aid, in  the  case  of  research 

projects  close  to  the  market  and  when  a  significant  part  of  expenditure  was 

carried out beforehand at the request of aid. The Commission observes that, in 

the  case  in  point,  it  appears  extremely  difficult  that  one  could  invoke  the 

incentive  effect,  and  that  companies  would  not  have  carried  out  these  R&D 

projects  without  government  aid, since  the  notified  projects  had  already  been 

carried out and that without any public intervention. 

Similarly, the framework  establishes  in its  point 6.1 that the  aid for  R&D  has to 

provide an incentive for the companies to undertake additional R&D activities, in 

additional  to  those  that  they  undertake  within  the  framework  of  their  daily 

activities. However, it arises from the file that the Luxembourg authorities did not 

justify  why  described  work  does  not  constitute  any  normal  activity  of  the 

company,  or  in  which  project  aid  could  contribute  to  increasing  the  efforts  of 

research  and of development  of the companies  in question  beyond which  they 

usually do. 

Therefore,  the  Commission  decided  to  initiate  the  procedure  provided  for  in 

Article 6 (5) of the steel aid code against the aid mentioned. 

6 

OJEC  No. C 45, 17.2.96, p.5 

3.6.  Sweden, Denmark and the Netherlands 

3.6.1. CO2 taxation 

In these  three  Member  States  legislation  exists  that  introduces  a taxation  of 

CO2 output.  The taxation  itself  is not considered to be State aid. However  an 

essential  element  of the  legislation  is that  certain  industries  are  charged  at a 

lower  rate  in  comparison  with  other  consumers  of  energy.  Such  derogations 

constitute  State aid. For the  non-ECSC  industry  they  have been approved by 

the Commission under the EC Treaty. 

The  ECSC steel  industry  is an  important  consumer  of energy  and  contributes 

in a significant way to the production of CO2 gasses. The steel  industry  in the 

three Member States is likely to be put on disadvantage  in comparison with its 

competitors  from  Member  States  where  there  is  no  such  CO2 taxation  if  it 

were to be fully subjected to the tax. 

It is for this reason that the three Member States concerned have included the 

steel industry on the list of industries charged at a lower level. 

On the basis of Article 3 of the Steel Aid Code and the Community  guidelines 
on  State  aid  for  environmental  protection7  this  type  of  operating  aid  is 

compatible  with  the  common  market  and  consequently  the  Commission 

decided not to raise objections. 

Before  the  adoption  of  the  new  Steel  Aid  Code  such  a  decision  would  not 

have been possible except by invoking Article 95 of the ECSC Treaty. 

3.7.  Spain 

3.7.1. Law 43/1995 

In July  the  Commission  decided to  investigate  steel  corporations  tax  credits 

granted  connection  with  the  realization  of  export  related  activities  companies 

located  in  Spain  are  entitled  to  receive  tax  credits  of  up  to  25%  of  their 

investments as long as these investments are related to: 

7 

See footnote 5 

// 

the  creation  of  branches  or  permanent  establishments  abroad  as  well  as  the 

acquisition  of  shares  in foreign  corporations  or  setting  up  subsidiaries  directly 

related to exporting goods and services; 

the advertising and publicity undertaken abroad for the international  launching of 

products, market penetration and foreign market surveys; 

trade fairs, expositions and other analogue public events, in this case  including 

those events taking place in Spain of an international nature. 

It  is  worth  noting  that  the  Spanish  corporate  tax  law  43/1995  consolidates 

legislation which  has  been  in force  since  1978, id est before  Spain joining  the 

Communities. Nevertheless, it must be observed that, unlike the rules under the 

EC Treaty, the notion of existing aid does not exist under the ECSC Treaty. 

Thus, the scope of the decision is the assessment of the measures at issue only 

under the ECSC rules. 

The above mentioned tax credit scheme appears to have the nature of state aid 

and to be contrary to the provisions laid down in article 4 (c) of the ECSC Treaty 

whilst the application of one of the exemptions provided for by the Steel Aid Code 

is doubtful. 

IL 

DATE 

5/11/97 

15/7/97 

21/10/97 

PUBLICA 
TION 
OJ C 20, 
22.1.98 

OJ C 395, 
31.12.97 
OJ C 377, 
12.12.97 

16/12/97 

not yet 
published 

MEMBER 
STATE 
B 

AID 
NUMBER 
N 680/97 

COM 
PANY 
Duferco 
Clabecq 

Groditzer 
Stahlwerke 
reduction 
pollution 

N 361/97 

C2/96 

N 301/97 

MCR 

N 344/97 

NN 85/97 

NN 86/97 

Stahlwerke 
Bremen 
Rotzel 

Georgs-
marienhutte 

NN  108/97 

Feralpi 

MEA 
SURE 
capital 
acquisition/ 
loan 
privatisation/ 
various aid 
randd/ 
investment 
aid 

environ 
mental/ 
investment 
aid 
capital 
injection 
guarantee 

relief from 
environment 
al obligations 
investment/ 
operating aid 

N 759/96 

C02  tax 

derogation 

NN  116/96 

Law 43/1995 

tax credits 

N 154/97 

C8/96 

Haly-
vourgia 
Thessalias 
Ferdofin  Sri 

regional 
investment 
aid 
guarantee 

N 119/97 

C 54/95 

Acciaieria 
ISP 
Bresciani 

r and d aid 

closure aid 

DECI 
SION 
no aid 
involved 

opening 
procedure 
closure 
procedure/ 
withdrawal 
notification 
opening 
procedure/ 
suspension 
order 
no aid 
involved 
opening 
procedure 
opening 
procedure 

opening 
procedure/ 
suspension 
order 
approval 

opening 
procedure 
approval 

final 
negative 
decision 
approval 

2 final 
positive 
decisions/ 
4 final 
negative 
decisions 
opening 
procedure 

18/6/97 

30/7/97 

15/7/97 

18/11/97 

5/2/97 

30/7/97 

16/9/97 

30/4/97 

2/4/97 

26/2/97 

21/5/97 

Arbed group 

r and d aid 

N 668/96 
N 72/97 
N 73/97 
N 20/97 

C02  tax 

derogation 

approval 

30/7/97 

N 742/96 

C02 tax 

derogation 

approval 

26/2/97 

D 

D 

D 

D 

D 

D 

D 

Dk 

E 

G 

I 

I 

I 

L 

NL 

SE 

OJC  1. 
3.1.98 
OJ C 328, 
30.10.97 
OJ C 323, 
24.10.97 

not yet 
published 

OJC  197, 
27.6.97 
OJ C 329. 
31.10.97 
not yet 
published 

OJ L 306, 
11.11.97 

not yet 
published 
OJL  139, 
30.5.97 

OJ C 250. 
15.8.97 

not yet 
published 
OJC  197, 
27.6.97 

/3 

ISSN 0254-1475 

COM(98) 140  final 

DOCUMENTS 

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08  10  06  11 

Catalogue  number  :  CB-CO-98-174-EN-C 

ISBN  92-78-32320-9 

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h