1999/196/ECSC: Commission Decision of 14 July 1998 on guarantees granted to Eisen- und Stahlwalzwerke Rötzel GmbH (notified under document number C(1998) 2369) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-07-14
Institutions: European Commission
Subjects: North Rhine-Westphalia, aid to industry, guarantee, iron and steel industry, redemption, regional aid

12. 3. 1999

EN

Official Journal of the European Communities

L 63/63

COMMISSION DECISION

of 14 July 1998

on guarantees granted to Eisen- und Stahlwalzwerke R(cid:148)tzel GmbH

(notified under document number C(1998) 2369)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/196/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Coal and Steel Community, and in particular point (c) of
Article 4 thereof,

Having regard to Commission Decision No 2496/96/
ECSC of 18 December 1996 establishing Community
rules for State aid to the steel industry (1), and in particular
Article 6 thereof,

After giving notice to the parties concerned to submit
their comments,

Whereas:

I

the Commission
By letter dated 12 August 1997,
informed the German Government of
its decision to
initiate the procedure under Article 6(5) of Decision No
2496/96/ECSC (hereinafter referred to as the ‘Steel Aid
Code') in respect of an 80 % deficiency guarantee granted
by the Land of North Rhine-Westphalia to Eisen- und
Stahlwalzwerke R(cid:148)tzel GmbH (‘R(cid:148)tzel').

On 25 April 1995 the Land of North Rhine-Westphalia
granted an 80 % deficiency guarantee to R(cid:148)tzel to cover a
bank credit amounting to DEM 15 million. The guarantee
was granted on the basis of an approved guarantee
scheme of the Land (N 155/88; letter of 9 June 1988,
SG(88) D/6814). Approval was given only under the EC
Treaty and not under the ECSC Treaty. It was also condi-
tional
individual cases in sensitive
sectors such as steel had to be notified individually. No
notification of aid was made in this case.

in the sense that

The credit and the deficiency guarantee were designed to
support the restructuring plan of the company. R(cid:148)tzel
manufactures hot-rolled strip, cold-rolled strip and some
profiled/alloyed products as its plant in Nettetal. Its hot-
rolling production capacity is 54 000 t/year. The company

(1) OJ L 338, 28. 12. 1996, p. 42.

produces some 50 000 t/year of steel products in total, of
which 30 000 t are hot-rolled and 20 000 t cold-rolled
products. Approximately half of its hot-rolled production
is consumed internally. R(cid:148)tzel employs 170 people, of
whom 95 are engaged in the production of cold-rolled
products and 35 in the production of hot-rolled products.

In the period 1950-1993 the company also operated a
plant in Dinslaken with a hot-rolling capacity of 264 000
t/year. On account of market conditions the annual
production of hot-rolled products decreased in the period
1976-1994, and R(cid:148)tzel expanded its cold-rolling facilities
in Nettetal, at an investment cost of some DEM 20
million. In the 1990s the situation worsened and R(cid:148)tzel
decided to close its plant in Dinslaken. The German
Government puts the costs of closure at DEM 10,5
million. The production capacity of 264 000 t/year of
hot-rolled products was dismantled. The closure of such a
large part of the company prompted some restructuring
that led to the reopening of hot-rolling mill No IV in
Nettetal.

The restructuring costs of the company following the
closure of Dinslaken necessitated the sale of real estate
and required in its last phase the abovementioned bank
credit of DEM 15 million. The credit was secured for an
amount of DEM 5 million by the two shareholders and as
to 80 % by the Land of North Rhine-Westphalia in the
form of a deficiency guarantee. According to the German
Government, the investments did not concern the hot-
rolling facilities in Nettetal.

R(cid:148)tzel’s products are covered by two different Treaties,
the EC Treaty and the ECSC Treaty. Its hot-rolled prod-
ucts fall under the ECSC Treaty. When initiating the
procedure, the Commission argued that, since R(cid:148)tzel is an
undertaking engaged in production in the steel industry,
it is caught by Article 80 of the ECSC Treaty and by the
State aid rules set out in that Treaty. Although the afore-
mentioned guarantee might have been granted only in

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Official Journal of the European Communities

12. 3. 1999

respect of a bank credit for investment in the cold-rolling
production facilities, as
is claimed by the German
Government, the restructuring of R(cid:148)tzel, of which the
investment formed part, also entailed the reopening of
hot-rolled production facilities. Furthermore, there is a
risk that the effects of the guarantee may spill over to the
ECSC steel-making sector since the degree of integration
of the cold-rolling activities with the ECSC activities is
significant as both activities are combined in a single
company.

Since, the Land of North Rhine-Westphalia undertook a
degree of risk in guaranteeing the bank credit without
charging a risk premium, the Commission considered
that it was not acting in accordance with the private-
investor principle. Consequently,
it regarded the guar-
antee as State aid.

Point (c) of Article 4 of the ECSC Treaty recognises as
incompatible with the common market subsidies or aids
granted by States in any form whatsoever. Exceptions to
this rule are to be found in the Steel Aid Code, adopted
on the basis of Article 95 of the ECSC Treaty.

When initiating the procedure,
the Commission had
serious doubts whether the State aid was compatible with
the common market since none of the exemptions laid
down in the Steel Aid Code seemed to apply. It took the
view, therefore, that the guarantee was caught by the
prohibition laid down in Article 4(c) of the ECSC Treaty.

the Commission decided to initiate the
Accordingly,
procedure provided for in Article 6(5) of the Steel Aid
Code.

II

The Commission decision to initiate the procedure was
published in the Official Journal of
the European
Communities (1). It called on other Member States and
interested parties to submit
their comments on the
matter.

The UK Steel Association submitted its comments on 18
November 1997, stating that, although it disagreed with
the view that all State aid paid to a company involved in
either ECSC or non-ECSC activities should automatically
be subject to ECSC rules regardless of the use to which
the aid was put, the fact that R(cid:148)tzel’s activities are fully
integrated at a single site justifies the approach adopted
by the Commission in this case. The Commission
communicated the Association’s
to the
German Government by letter dated 10 December 1997
so as to give it the opportunity to reply.

comments

By letter dated 24 February 1998, the German Govern-
ment gave its reaction to the opening of the procedure
and to the comments made by the UK Steel Association.
It confirmed that on 18 May 1995 a deficiency guarantee

(1) OJ C 328, 30. 10. 1997, p. 11.

had been granted to R(cid:148)tzel fpr 80 % of a bank credit of
DEM 15 million comprising:

(a) a DEM 2,5 million redeemable loan for investment

purposes

(b) a DEM 4,5 million redeemable loan for operating

purposes

(c) a DEM 8 million credit line for operating purposes.

The guarantee has been taken up, since R(cid:148)tzel has now
gone into liquidation. The Land authorities have already
managed to reduce some of their loss, although at this
stage the future situation regarding the guarantee cannot
be determined since the bankruptcy proceedings will be
completed by the end of 1998 at the earliest.

III

Point (c) of Article 4 of the ECSC Treaty states that
subsidies or aids granted by States are recognised as
incompatible with the common market and must accord-
ingly be abolished and prohibited within the Community.
The only exemptions from this prohibition are spelt out
in the Steel Aid Code. They are:

(a) aid for research and development

(b) aid for environmental protection

(c) aid for closures.

Germany has not relied on any of these exemptions in
this case.

Nor has Germany contested the argument rehearsed in
the decision initiating the procedure, to the effect that the
guarantee constitutes State aid since the Land authorities
assumed a risk without charging a risk premium. The
Commission takes the view that the State aid involved is
equivalent to the full amount guaranteed. The closure of
the Dinslaken plant and the continuing need to restruc-
ture the Nettetal facilities indicate that R(cid:148)tzel was already
encountering difficulties when the guarantee was granted.
The DEM 15 million credit was necessary for the restruc-
turing of R(cid:148)tzel and, to that extent, was of vital
im-
portance to the company. Given the difficulties facing the
company, it is extremely unlikely that the credit would
have been granted without a State guarantee. Thus, the
State aid involved amounts to DEM 12 million (80 % of
DEM 15 million).

In addition, the Commission considers that, in view of
the degree of integration between ECSC and non-ECSC
activities, the guarantee must be assessed in accordance
with the provisions of the ECSC Treaty and the Steel Aid
Code. The German authorities have not provided any
information that would permit a breakdown of the costs
by sector of activity. The Commission possesses informa-
tion indicating that the restructuring led to the reopening
of a hot-rolling facility which falls within the scope of the

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Official Journal of the European Communities

L 63/65

ECSC Treaty. It also notes that the bank credit in fact
covers DEM 12,5 million for operating purposes and only
DEM 2,5 million for investment purposes. Since it is
impossible to distinguish clearly between the operating
costs arising in the production sectors covered by the two
Treaties, the Commission is obliged to examine the guar-
antee in the light of the ECSC Treaty. The UK Steel
Association supports this view and the German authori-
ties have not contested the approach in the course of the
procedure.

The Commission, therefore, concludes that the guarantee
constitutes State aid which falls under the ECSC Treaty
and is in breach of point (c) of Article 4 of that Treaty.
For the rest, none of the exemeptions laid down in the
Steel Aid Code is applicable in this case,

Article 2

Germany shall,
in accordance with the provisions of
German law relating to the recovery of amounts owed to
the State, recover the DEM 12 million which is the full
amount guaranteed in favour of Eisen- und Stahlwalz-
werke R(cid:148)tzel GmbH in Nettetal. In order to nullify the
effects of the aid, interest shall be charged on that amount
from the date on which the aid was granted to the date on
which it is repaid. The rate of interest shall be that
applied by the Commission in calculating the net grant
equivalent of regional aid during the period in question.

Article 3

Germany shall
inform the Commission, within two
months of notification of this Decision, of the measures
taken to comply herewith.

HAS ADOPTED THIS DECISION:

Article 4

Article 1

This Decision is addressed to the Federal Republic of
Germany.

The aid in the form of an 80 % guarantee granted by the
Land of North Rhine-Westphalia in respect of a bank
credit of DEM 15 million for Eisen- und Stahlwalzwerke
R(cid:148)tzel GmbH in Nettetal is unlawful since it was not
notified in advance. Furthermore, it is incompatible with
the common market for coal and steel under point (c) of
Article 4 of the ECSC Treaty.

Done at Brussels, 14 July 1998.

For the Commission

Franz FISCHLER

Member of the Commission