1999/227/ECSC: Commission Decision of 29 July 1998 on aid granted by the Land of Lower Saxony (Germany) to Georgsmarienhütte GmbH (notified under document number C(1998) 2556) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-07-29
Institutions: European Commission
Subjects: Lower Saxony, State aid, aid to industry, iron and steel industry, redemption

L 83/72

EN

Official Journal of the European Communities

27. 3. 1999

COMMISSION DECISION

of 29 July 1998

on aid granted by the Land of Lower Saxony (Germany) to Georgsmarienh(cid:129)tte
GmbH

(notified under document number C(1998) 2556)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/227/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having regard to Commission Decision No 2496/96/
ECSC establishing Community rules for State aid to the
steel industry (1), and in particular to Article 3 thereof,

Having, in accordance with Article 6(5) of the abovemen-
tioned Decision, given notice to interested parties to
submit their comments,

Whereas:

I

On 15 July 1997, the Commission decided to initiate
to Article 6(5) of Decision No
proceedings pursuant
2496/96/ECSC in respect of DEM 61,64 million paid by
the Land of Lower Saxony to Georgsmarienh(cid:129)tte GmbH
(hereinafter referred to as ‘GMH')
for the removal of
industrial dust.

of

in the Official Journal

Interested parties were informed by publication of a
notice
the European
Communities (2). Comments were sent by Neue Maxh(cid:129)tte
Stahlwerke, the UK Steel Association and the United
Kingdom Permanent Representation to the European
Union. The German authorities
initial
comments by letter dated 13 October 1997 and their
observations on the third parties’ comments by letter
dated 13 March 1998. On 13 July 1998, Germany sent a
further letter setting out its final position on the case.

their

sent

II

GMH was formed through a management buy-out opera-
tion in April 1993, when Kl(cid:148)ckner Edelstahl GmbH,
Duisburg, a subsidiary of Kl(cid:148)ckner Werke AG, was sold.

Kl(cid:148)ckner Werke AG had applied for composition
proceedings (Vergleichsverfahren) on 11 December 1992,
and these were formally initiated on 5 May 1993. On 15
June 1993, the Court approved the final composition
arrangement, which led to a reduction of the company’s
indebtedness by 40 % (approximately DEM 1,46 billion).

The new management of GMH decided, as part of its
furnace and
restructuring,
to replace the old blast
converter by an electric arc furnace.
In July 1993
Germany notified an aid plan covering R&D aid of DEM
32,5 million. The aid was intended to cover part of the
research costs of examining how old dust could be
recycled economically in an electric arc furnace. At
present, in such cases or when the level of zinc is too
high for it to be re-injected into the sinter installations
(blast furnace production process), blast furnace dust is
stored, for example, in disused mines.

In proceedings pursuant to Article 6(4) of Commission
Decision No 3855/91/ECSC of 27 November 1991 estab-
lishing Community rules for aid to the steel industry (3),
initiated in November 1993 (4), aid of DEM 15,243
million was approved by the Commission by Decision
95/437/ECSC in February 1995 (5). In that Decision, the
Commission refused as eligible costs the cost of construc-
tion of the electrical arc furnace and de-dusting installa-
tion (DEM 62,7 million).

III

GMH produces steel, including special steels and quality
steels. Up until September 1994 the crude steel produc-
tion was carried out in a blast furnace/converter plant.
Filter dust, containing ferrum, zinc, carbon and various
heavy metals, was collected from the waste air of the
converter. Since September 1994 the company has been
producing steel using an electric arc furnace.

(1) OJ L 338, 28. 12. 1996, p. 42.
(2) OJ C 323, 24. 10. 1997, p. 4.

(3) OJ L 362, 31. 12. 1991, p. 57.
(4) OJ C 71, 9. 3. 1994, p. 5.
(5) OJ L 257, 27. 10. 1995, p. 37.

27. 3. 1999

EN

Official Journal of the European Communities

L 83/73

After the company applied for composition proceedings
at the end of 1992, the Land of Lower Saxony assumed
the obligation of providing for proper disposal of the filter
dust on stock at the GMH site. The new shareholders of
GMH intended to cease blast furnace steel making and to
replace it by electric steel making. In electric arc furnaces
using current technology, converter filter dust cannot be
recycled economically.

The Land of Lower Saxony instructed Nieders(cid:132)chsiche
Landesentwicklungsgesellschaft mbH (hereinafter referred
to as NILEG), a company entirely controlled by the Land,
to provide for the proper recycling or disposal of the dust
and paid it DEM 69,14 million for doing so. In February
1994, NILEG signed a contract with GMH and instructed
GHM, the initial producer and owner of the dust, to try
and dispose of it by recycling it using new industrial
the
technology, which was under research as part of
abovementioned R&D project. For this, NILEG paid
DEM 61,64 million to GMH in three instalments as
follows:

— March 1994: DEM 21,82 million,

— November 1994: DEM 18,00 million,

— February 1995: DEM 21,82 million.

At the same time, in February 1994, GMH sold to NILEG
several real estate assets, including the land where the old
dust is stored (Westerkamp), for a total of DEM 14,5
million. The overall book value of the assets sold was set
at DEM 38,996 million, implying that the Westerkamp
land was sold at a loss price of DEM 24,496 million. The
value of the assets sold, excluding the Westerkamp site,
was later confirmed by an external assessment in June
1998, ordered by Germany.

IV

As part of the proceedings, Neue Maxh(cid:129)tte Stahlwerke
GmbH,
the UK Steel Association and the United
Kingdom Permanent Representation to the European
Union sent their comments on the case. They all took the
position that the relief of GMH from the disposal/treat-
ment of the dust constituted State aid which they con-
sidered to be operating aid and accordingly incompatible
with the steel aid code.

The United Kingdom Permanent Representation further
stated that it believed the reason for the payment was to
make the company more attractive to a potential buyer.
Neue Maxh(cid:129)tte Stahlwerke GmbH referred to a contract
between GMH and another company ‘Relux' to which
GMH pays DEM 108/tonne for it to remove its industrial

dust. It then compared the total price that will be paid to
Relux, assuming a total of 150 000 tonnes of dust, and
concluded that NILEG paid DEM 43,8 million too much
to GMH.

V

In the earlier correspondence, Germany argued that the
amount of DEM 61,64 million was paid by NILEG to
GMH in the context of a normal services contract, in
relation to the possibility of recycling the dust on the
Westerkamp site, and that therefore there was no aid
element in the payment.

According to Germany, there was no legal obligation for
GMH to recycle the dust (it can stay in Westerkamp or be
stored underground in old mines) and it was NILEG, as a
public company and owner of the land where the dust is
deposited,
for
environmental reasons.

that wanted to have the dust recycled,

The amount paid by NILEG to GMH under the contract
is even less than the expenses thus far incurred by GMH
for having accepted to take part in this operation: the
price of the furnace acquired was much higher in order to
be able to recycle the dust and the running costs of this
special furnace are much higher (particularly in elec-
tricity) than those of a normal production furnace. Also, if
the company is to readapt the existing furnace to its
it has again to incur high
normal production needs,
expenses.

The DEM 61,64 million paid by NILEG was used to
cover that extra cost of the furnace (DEM 17 million) and
the costs of recycling incurred until the end of 1996
(DEM 55 million). By then, GMH had informed NILEG
that the recycling cost could not be brought down to
much less than DEM 400/tonne, stopped the recycling
operation and requested NILEG to revise the initial
contract price upwards (the request was not accepted for
lack of money). Also, during the first half of 1997, GMH
claimed to have incurred DEM 2,5 million more as
running costs, with its own production activity, because of
the particularities of the electric arc furnace.

In a letter dated 26 June 1998, Germany also argued that
GMH should be allowed to keep the amount corres-
ponding to the extra expenses it had incurred as this did
not constitute aid, and it arrived at an amount of DEM
38,586 million which it considered to be the aid paid to
GMH. This amount would still have to be reduced by the
negative selling price in view of the cancellation of the
sale of the Westerkamp site.

L 83/74

EN

Official Journal of the European Communities

27. 3. 1999

As regards the third parties’ comments, Germany reit-
erated its position that GMH had no legal obligation to
recycle the dust and that
therefore there was no aid
involved. As to the particular comments made by the
United Kingdom Permanent Representation to the Euro-
pean Union concerning the ‘incentive for a potential
buyer', Germany pointed out that GMH was formed in
April 1993 and that the amount in question was paid
under a contract subsequently entered into with the new
company. As to the comments made by Neue Maxh(cid:129)tte
concerning the Relux contract, Germany stated that the
data on which the comments were based were not ac-
curate, since the Relux contract related only to the dust
newly produced by GMH, the transport costs were not
included in the contract price but were GMH’s respons-
ibility and the quantity of old dust was not 150 000
tonnes but 300 000 tonnes.

By faxes of 10 and 13 July 1998, however, Germany
informed the Commission that the sale of Westerkamp to
NILEG would be annulled and that GMH would reim-
burse the amount received from NILEG, DEM 61,64
the negative sale price of
million, after deduction of
Westerkamp of around DEM 37 million. The letter dated
26 June was to be considered null and void. Furthermore,
Germany informed the Commission that the environ-
mental responsibility for the disposal/treatment of the old
dust would remain with GMH.

VI

GMH is an undertaking within the meaning of Article 80
of the ECSC Treaty which produces products listed in
Annex I to the ECSC Treaty, so that the provisions of the
ECSC Treaty and of Decision No 2496/96/ECSC are
applicable.

time to enable it

Pursuant to Article 6(1) of that Decision, the Commission
must be informed,
to
in sufficient
submit its comments, of any plans to grant aid to an
ECSC steel undertaking. The term ‘aid' also covers the aid
elements contained in transfers of State resources by
Member States, regional or local authorities or other
bodies to steel undertakings in the form of acquisitions of
shareholdings or provisions of capital or similar financing
(such as bonds convertible into shares, or loans on non-
commercial conditions or the interest on or repayment of
which is at least partly dependent on the undertaking’s
financial performance,
including loan guarantees and
real-estate transfers) which cannot be regarded as a
genuine provision of
risk capital according to usual
investment practice in a market economy.

According to Community and German law, applying the
polluter-pays principle,
the producer and/or owner of
waste is responsible for ensuring its environmentally

acceptable disposal or recycling. The responsibility of the
polluter is in principle an obligation to act and not
simply to pay. The polluter may, of course, instruct a
qualified third person to carry out the necessary disposal
on his behalf and pay that third person for the services
provided. The obligation of the polluter is independent of
his financial situation. Even if he is in financial diffi-
culties and has applied for composition proceedings
(Vergleichsverfahren)
to negotiate a partial
in order
waiving of claims by his creditors, he is still obliged to
dispose properly of the waste he has produced.

If a particular polluter does not comply with his obliga-
tion, the public authorities may issue a removal order. If
such order is not complied with, the State may decide to
dispose of the waste and charge the expenses to the
polluter. The risk of insolvency is in this case borne by
the State, but the fact that a person might be unable to
pay debts to the State does not mean that the State has a
‘subsidiary responsibility' for his obligations. Since GMH
was established under composition proceedings,
the
environmental liability of the old company remains with
the new company. Discharging GMH from its obligations
in this regard therefore constitutes State aid.

The relief of a particular company from the general
responsibility to provide for the proper disposal or recyc-
ling of industrial dust represents State aid. A competitor is
thereby relieved of production costs. Such relief is oper-
ating aid within the meaning of point 1.5.3. of
the
Community guidelines on State aid for environmental
protection. The amount of State aid involved in such
relief is in principle to be evaluated in accordance with
the normal costs for the disposal or recycling of the waste
in question.

In the current case, the Land of Lower Saxony assumed
the responsibility for the disposal of industrial dust arising
from the steel-making activities of GMH. The company
was thereby relieved from the costs of the appropriate
treatment of this dust. Subsequently the Land of Lower
Saxony paid, via NILEG, DEM 61,64 million to GMH for
the recycling of such dust which the company itself
produced and which, under normal circumstances, it has
to treat or dispose of appropriately at its own expense.

The fact that GMH sold the land where the dust is
deposited to NILEG at a loss price of DEM 24,496
million could be accepted as entailing the transfer of
GHM’s environmental obligations only if the negative
price paid covered the total cost of complying with such
obligations. The German position that, because the land
where the dust is deposited belongs to a public company,
the latter is responsible for its disposal and that therefore
any payments made in relation to that operation do not
constitute aid, cannot be accepted.

27. 3. 1999

EN

Official Journal of the European Communities

L 83/75

After having valued the land at the negative price of DEM
24,496 million, which could be interpreted as being the
amount necessary to clean it, GMH received, in its turn,
DEM 61,64 million from NILEG in order to try and
recycle its own dust, using the new technology for which
it had also received aid.

The relief from the costs of the appropriate treatment of
the filter dust by the State represents State aid. The exact
amount of the presumed aid is unknown, since the opera-
tion has not been carried out and therefore the final and
total costs of the operation are not known. DEM 61,64
million have so far been paid in relation to this operation.

However, as Germany stated in its fax of 10 July 1998,
the sale of the Westerkamp site is to be cancelled, so that
the responsibility for treating the dust/cleaning the land
belongs to GMH. Once the annulment of the land sale
has been formally confirmed, the aid element linked to
the relief from environmental obligations will disappear.

As regards the DEM 61,64 million paid by NILEG, since
GMH did not recycle the dust and is not going to,
the
because it proved not
to be economically viable,
amount cannot be considered to be aid under
the
Community Guidelines on State aid for environmental
protection (no improvement in environmental protection
took place). Nor can it be considered under the R&D aid
framework since, in Decision 95/437/ECSC, the Commis-
sion already approved the maximum of such aid for this
project.

The German authorities now state that GMH and NILEG
are to cancel the sale contract concerning the Wester-
kamp site and that Germany accepts that the environ-
mental responsibility for cleaning the land belongs to
GMH. Provided that this cancellation actually takes place,
it can be accepted that the negative price for which GMH
had sold Westerkamp to NILEG (DEM 24,496 million)
be set off against the DEM 61,64 million. If Westerkamp
had not been included in the sale of real estate assets,
GMH would have received DEM 24,496 million more for
the sale of the other assets. Moreover, the market value of
those assets was confirmed in June 1998 by an inde-
pendent assessment ordered by the German authorities.
This means that, following cancellation of the sale of the
Westerkamp site, the amount of illegal aid from which
GMH benefited is DEM 37,144 million.

common market. GMH must therefore pay back this aid,
plus interest, in order to restore the normal market condi-
tions that existed prior to the disbursement of such aid.

VII

In conclusion, the net amount of State aid from which
GMH benefited under the contract signed between GMH
and NILEG after deduction of the negative price for the
sale of Westerkamp site and on condition that this sale is
cancelled, is DEM 37,144 million. In view of the type of
costs that GMH financed with the aid, that constitutes
operating aid, which is not compatible with Decision No
2496/96/ECSC or with the ECSC Treaty. The aid in ques-
tion must
therefore be abolished and repaid by the
company.

Repayment must be made in accordance with national
procedures and legal provisions, with the interest being
calculated, as from the date of disbursement of the aid, on
the basis of the reference rate used in the calculation of
the net grant equivalent of regional aid measures. This
measure is necessary in order to restore the situation that
existed prior to the aid disbursement by removing all the
financial advantages from which the company benefited,

HAS ADOPTED THIS DECISION:

Article 1

The aid granted by Germany through Nieders(cid:132)chsiche
Landesentwicklungsgesellschaft mbH to Georgsmarien-
h(cid:129)tte GmbH in the amount of DEM 61,64 million was
paid unlawfully without prior notification to the Commis-
sion, as provided for in Article 6 of Decision No 2496/96/
ECSC. The aid is incompatible with the ECSC Treaty and
the common market since it does not fulfil any of the
conditions for derogation from Article 4 of the ECSC
Treaty laid down in Decision No 2496/96/ECSC.

Article 2

Germany shall abolish the aid referred to in Article 1 and
require its recovery within two months from the noti-
fication of this Decision.

This aid constitutes operating aid, which is not covered by
Decision No 2496/96/ECSC. Operating aid to ECSC steel
companies cannot be regarded as compatible with the

Provided that the sale of the Westerkamp site is cancelled,
as announced by Germany in its last letter, the amount of
aid to be repaid is reduced by DEM 24,496 million to
DEM 37,144 million.

L 83/76

EN

Official Journal of the European Communities

27. 3. 1999

Repayment shall be made in accordance with national
procedures and legal provisions with interest, based on
the interest rate used as the reference rate in the calcula-
tion of the net grant equivalent of regional aid measures
at the time when the aid was disbursed, starting to run on
the date on which the aid was granted.

has been annulled, so that this element can be taken into
consideration in the amount of aid to be repaid.

Article 4

This Decision is addressed to the Federal Republic of
Germany.

Article 3

Done at Brussels, 29 July 1998.

Germany shall
inform the Commission, within two
months of being notified of this Decision, of the meas-
ures
taken to comply therewith and shall provide
evidence that the sale of the Westerkamp site to NILEG

For the Commission

Karel VAN MIERT

Member of the Commission