1999/269/EC: Commission Decision of 16 September 1998 authorising, subject to condition, aid granted by Italy to Italstrade SpA - (notified under document number C (1998) 2859) - (Only the Italian text is authentic) - (Text with EEA relevance)
Date: 1998-09-16
Institutions: European Commission
Subjects: Italy, State aid, aid to undertakings, capital increase, public works, technology

27.4.1999

EN

Official Journal of the European Communities

L 109/1

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 16 September 1998

authorising, subject to condition, aid granted by Italy to Italstrade SpA

(notified under document number C (1998) 2859)

(Only the Italian text is authentic)

(Text with EEA relevance)

(1999/269/EC)

THE
COMMUNITIES,

COMMISSION OF

THE

EUROPEAN

controlled by the Italian Treasury.
In 1993 IRI
decided, in the context of restructuring its engineering
and constructions,

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

— to put Iritecna into liquidation at a total cost of

ITL 4 490 billion (ECU 2,3 billion, and

Having regard to the Agreement on the European
Economic Area, and in particular Article 62(1)(a)
thereof,

Having given notice to the parties concerned to submit
comments (1),
the
in
their
aforementioned provisions,

accordance with

I

Italstrade SpA ((cid:28)Italstrade’) is a company operating in
infrastructure
engineering
construction
(roads,
it was previously wholly
controlled by Iritecna SpA ((cid:28)Iritecna’), a wholly owned
subsidiary of IRI SpA ((cid:28)IRI’), which was itself wholly

and civil
railways, etc.);

(1) OJ C 328, 30.10.1997, p. 3.

— to set up a subholding company, Fintecna SpA
Iritecna’s

to privatise

((cid:28)Fintecna’), which was
profitable businesses.

Italstrade, despite heavy losses recorded in the period
from 1992 to 1994 was initially transferred to Iritecna
it was considered
to be disposed of. Subsequently,
potentially attractive to private investors,
largely
because of the size of its order book; the main items in
the order book derived from its membership of the
Iricav 1 and Iricav 2 consortia, the contractors for the
Rome-Naples and Verona-Venice stretches of
the
projected Italian high-speed rail network. Accordingly
the entire share capital in the company was transferred
to Fintecna with a view to privatisation.

In the period from 1991 to 1994,
the company
recorded losses totalling ITL 267 billion (ECU 137
million).
from 9 % of
turnover in 1991 to 15 % of turnover in 1994. In this

Its gross profit margin fell

L 109/2

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Official Journal of the European Communities

27.4.1999

period Iritecna had to intervene frequently with
financial support
injections and writing-off
debts) amounting in all to ITL 450 billion (ECU 231
million).

(capital

In order to replenish Italstrade’s share capital, which
had been eroded by its losses, Fintecna was obliged to
provide fresh funding totalling ITL 126 billion (ECU
64 million) in the period 1996 to 1997.

by

the

restructuring

The
company
undertaken
(reduction in its work force from 1 447 to 866,
writing down the value of work in hand, etc.) together
with the prospects generated by the resumption of
work on the high-speed rail network, led Fintecna to
believe that the company could be quickly privatised.
The restructuring plan submitted to the Commission
made express provision for placing the business’s
construction sectors,
including Italstrade, on the
market as early as 1995. At the end of 1994 an
advisor was appointed to sound out the market for
potential buyers.

By Decision 95/524/EC (1), the Commission declared
the aid granted to Iritecna and Fintecna in
that
liquidation was
connection with
Iritecna
the
compatible with the
also
authorised Iritecna to cover Italstrade’s losses up to 31
December 1994, which amounted to ITL 450 billion
(ECU 231 million).

common market.

It

Article 1 of the Decision required compliance with the
restructuring plan approved by the Commission,
which among other things called for the privatisation
of Fintecna’s subsidiaries, including Italstrade, within
a reasonable time limit and without further State aid.

After the Decision was adopted, however, the Italian
Government informed the Commission that the sale of
the company had been suspended in order to allow
time for an assessment of the legal
implications of
guarantees given by IRI
in connection with the
high-speed rail network.

When that assessment was completed, the procedure
for the sale of the company was set in motion once
again in November 1995, the objective now being to
sell off a minority holding: the whole of the capital
was to be sold only when IRI had discharged the
guarantees
the work on the high-speed rail
network.

for

Italstrade
these went

continued to record
In the meantime
substantial
from ITL 15 billion
losses:
(ECU 8 million) in 1995 (including revaluations of
to ITL 96 billion (ECU 49
over ITL 16 billion)
million) in 1996.

On 24 June 1997, in response to requests from the
Commission, the Italian authorities informed it of the
measures taken to replenish Italstrade’s share capital
and reported that negotiations for the sale of the
company had resumed. The Italian authorities took
the view that Fintecna’s funding of Italstrade must be
considered a duty (atto dovuto) within the meaning of
the Civil Code, as Italstrade would otherwise have had
to be put into liquidation.

Finally,
in March 1997 Fintecna sold 49 % of the
capital in Italstrade to a private investor, Astaldi SpA
((cid:28)Astaldi’); the contract of sale includes the following
clauses:

— Astaldi gives Fintecna the option to buy the
remaining shares at a predetermined price,
the
option being valid from January 1999 until six
months after the expiry of IRI’s guarantees on the
work on the high-speed rail network or,
in the
event of early discharge by IRI itself, until 30 June
1999,

— the selling price is based on an overall valuation of
Italstrade amounting to ITL 30 billion (ECU 15
million),

— Fintecna must replenish Italstrade’s share capital to
the

to ITL 30 billion at

the time of

bring it
transfer.

In April and August 1997, in order to comply with the
clause requiring it
share
capital, Fintecna provided further funding of ITL 27
billion (ECU 14 million).

to replenish Italstrade’s

The Commission now decided to initiate
the
procedure pursuant to Article 93(2) of the Treaty in
respect of the fresh capital contributed in the years
from 1995 to 1997, the unsatisfactory restructuring
measures taken, and the terms of the privatisation of
the company, which appeared to conflict with the
conditions laid down in the Decision in 1995.
It
informed the Italian Government of its decision to
initiate proceedings by letter of 1 August 1997 (2).

(1) OJ L 300, 13.12.1995, p. 23.

(2) OJ C 328, 30.10.1997, p. 3.

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L 109/3

The
submitted
observations in a letter of 20 October 1997.

Government

Italian

formal

No other Member State or interested party submitted
observations within the time allowed. By letter of 30
January 1998 the Commission requested more
authorities. That
information
information was supplied in a letter of 6 March 1998.
Lastly, on 5 May the Commission received a copy of
the
for 1997 and its
industrial plan for the period 1998 to 2000.

company’s balance

from the

Italian

sheet

The information furnished by the Italian authorities
showed that on 31 December 1997 Fintecna provided
Italstrade with a further capital injection amounting to
ITL 52 billion as an adjustment for the purchaser
following further falls in the value of
Italstrade’s
assets. With this injection, the total funding provided
by Fintecna to Italstrade after 1994 was brought to
ITL 178 billion (ECU 91 million).

II

In its observations presented on the initiation of the
procedure, the Italian Government argues:

(i)

that the Decision makes provision for injections
of fresh capital into Italstrade;

(ii)

that Fintecna provided the fresh capital out of its
own resources and acted as a private investor
would have done, so that the funding does not
constitute State aid; and

(iii) that

there has been no infringement of

the

conditions imposed by the Decision.

The Italian Government further argues that, even if
the measures referred to are to be considered State aid,
they should in any event be declared compatible with
the common market pursuant to Article 92(3) of the
Treaty.

First (point (i)), the Government contends that at the
time of the Decision the Commission was already
aware of the need for further funding for the company
in order to allow privatisation to take place and that it
the
was
recapitalisation operations at
the
progress of the sale of the company.

each of
Italstrade and of

informed in good time of

The restructuring plan approved in the Decision
provided that sound businesses, and those that could
be returned to a sound footing, were to be transferred
to Fintecna with a view to privatisation. The
the Decision
therefore,
Government argues,
allowed for
the need to finance a measure of
restructuring, particularly in the construction industry,
which is the industry in which Italstrade operates.

that

IRI kept

After the Decision, the Government contends, both
Fintecna and its parent
the Commission
regularly informed of the progress of the privatisation
process. At a meeting in Rome in June 1997, for
example, IRI and Fintecna supplied all the information
needed for an assessment of the facts at issue in the
present Article 93(2) proceedings.

(ii)),

Secondly (point
the Government argues that
Fintecna helped Italstrade using resources generated by
Fintecna’s own activities, without any contribution on
the part of
the State, and that Fintecna acted in
accordance with the private investor principle, so that
its action cannot be considered State aid.

recapitalising

The Government states that Fintecna compared the
cost of putting Italstrade into liquidation with the cost
the
and privatising
of
that of
foreseeable cost of a liquidation exceeds
recapitalisation and sale of
the
Government argues, there is no State aid caught by
Article 92(1).

it. Where

company,

the

The Government states in particular that Fintecna
estimated the cost of putting Italstrade into liquidation
at ITL 535 billion, if the company were wound up in
an orderly fashion, and at ITL 1 500 billion, if it were
wound up in free fall. Fintecna concluded that
it
would be preferable to recapitalise Italstrade and to
keep it in operation pending privatisation. With that
end in view, Fintecna behaved as a private investor
would have done, and the funds it
injected into
Italstrade do not constitute State aid.

Thirdly (point (iii)), the Government maintains that it
has complied with all the conditions imposed by the
Decision, with particular reference to the total cost of
restructuring,
the
commitment
group, and the privatisation of Italstrade.

to restructure

the

the plan approved by the
On the total cost of
Commission,
the
Decision authorised a total of ITL 4 490 billion in aid,
ITL 1 090 billion being money already given to

the Government points out

that

L 109/4

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Official Journal of the European Communities

27.4.1999

subsidiaries, including Italstrade, in the period 1991 to
1993, and ITL 3 400 billion being the estimated cost
of putting Iritecna into liquidation, after deduction of
ITL 1 653 billion in proceeds from sales by Fintecna.

that

the final cost will be less

the Italian authorities
As things stand at present,
than the
expect
maximum just mentioned, despite the lower returns on
the sale of
the Decision has thus been
complied with.

Italstrade:

— that

in any event Fintecna complied with the
condition,
a
(cid:28)reasonable time limit’ as required by the Decision.

Italstrade within

having

sold

its

the

decision

the
In
procedure,
initiating
Commission argued that on the basis of
the
information at its disposal the sale of Italstrade could
not be considered a genuine privatisation: out of the
shares in its possession Fintecna had sold only 49 %
and had kept the remaining 51 %.

Turning to the restructuring operations provided for in
the Decision, the Government argues that the action
taken does in reality comply with the plan approved
by the Commission. As regards the reduction in the
workforce (and thus indirectly in production capacity),
the forecast figures which the Commission cites in the
decision initiating the proceedings refer to the active
workforce on open-ended contracts, while the figures
taken from the annual reports include other staff, such
as those on fixed-term contracts and those laid off
under
Integrazione Guadagni wage
compensation scheme.

the Cassa

that

The Government argues
the privatisation of
Italstrade must be considered genuine and definitive.
The sale of 49 % is linked to specific contractual
clauses which make the sale of the remaining 51 %
inevitable. The decision to sell the company in two
instalments is due to the presence of a contractual
clause in the agreement between the high-speed rail
company TAV SpA ((cid:28)TAV’) and the Iricav consortium,
of which Italstrade is a member. The consortium has
won the contracts awarded by TAV for the building of
the high-speed rail
the Rome-Naples
stretch of
network. The clause requires
to preserve its
IRI
(cid:28)majority participation’
in the consortium until the
work is completed.

The Government argues that the decline in Italstrade’s
performance as compared with the forecasts in the
plan (net profits of ITL 24 billion in 1995 and ITL 26
billion in 1996) was due
to worsening market
conditions, and not to a failure to restructure the
company.

According to the Government, that clause could be
cancelled by agreement between the Iricav consortium
and TAV. In that event the contract for the sale of
Italstrade would already entitle Fintecna to sell the
remainder of its holding.

The Government contends that the results obtained by
Italstrade in 1995 and 1996 cannot be compared
directly with the
restructuring plan which the
Commission approved in the Decision. The failure to
achieve the turnover called for in the plan caused a
ITL 170 billion in Italstrade’s gross
reduction of
the
margin
of
over
non-operational
items amounting to ITL 99 billion
have to be added to that negative effect, items which
were not foreseeable at the time the plan was drawn
up; once this has been done, it can be seen that the
restructuring effort provided for has actually been
exceeded.

years. A number

two

On the obligation to privatise laid down in the
Decision, the Government points out:

In support of its claim that the sale of Italstrade has to
be considered definitive, the Government cites two
other points:

— the fact that the Italian competition authority, the
Autorita` Garante della Concorrenza e del Mercato,
its own inquiry that,
found in the course of
the
although the sale related to only 49 % of
capital,
transferred
nevertheless
managerial responsibility to the purchaser,

directly

it

— the fact

that

the auditors certifying Italstrade’s
accounts intended to exclude the company’s 1997
results from Fintecna’s consolidated accounts on
the grounds that there was no effective control.

— that the same question is pending before the Court
of First Instance of the European Communities,

The Decision also required that the privatisation of
Italstrade be carried out without
further aid. The
Government maintains that the financing that Fintecna
gave to Italstrade after 1994, amounting to some ITL

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Official Journal of the European Communities

L 109/5

178 billion (about ECU 91 million) , should not be
considered State aid within the meaning of Article 92,
on the grounds explained with reference to point (ii).
Alternatively, any aid should be considered compatible
with the common market because:

— the funds were provided in connection with a
restructuring plan aimed at restoring the company
to profitability, as is confirmed by its privatisation,

(iv) no further State aid was

to be granted in

connection with the privatisations,

(i) the obligation to carry out
measures called for in the plan.

the

restructuring

— the funds were limited to what was

strictly
Italstrade returned to

necessary to ensure that
market viability.

III

In the light of what has been said, it will first have to
be determined whether or not the measures described
infringe the conditions laid down in the Decision. If
they do, the question of the compatibility of the aid
given to Italstrade up to 1994, which was approved in
that Decision, will have to be reconsidered. In order to
determine whether the conditions laid down in Article
1(4) and (5) of the Decision have been complied with,
it will also have to be established whether the funds
given to Italstrade after 1994 constitute State aid
caught by Article 92 of the Treaty, and, if more State
aid has in fact been granted, whether the measures
taken as a whole are compatible with the common
market.

As has been explained, the Decision found that the aid
granted to Italstrade up to 1994 (ITL 450 billion or
ECU 231 million) was compatible with the common
market subject to a series of conditions, including the
following:

(i)

Italstrade was to carry out the measures called for
restructuring plan approved by the
in the
Commission;

(ii) Fintecna and its subsidiaries, including Italstrade,
were to be privatised in accordance with the
time-scale submitted to the Commission, and in
any case within a reasonable time limit;

decision

the
In
the
Commission
of
Italstrade called for by the restructuring plan had not
been completed. In particular, it observed that:

procedure,
reorganisation

initiating
that

argued

the

the

— the number of employees on open-ended contracts
in 1994 was 866 (a figure reduced to 793 in 1995)
and thus exceeded the total for the construction
sector laid down in the restructuring plan,

— this

coincided with a very
increase
unfavourable
the
company incurred losses of ITL 15 billion in 1995
and ITL 96 billion in 1996.

in staff
economic

situation, while

In its observations, the Italian Government contends
that
the figures used by the Commission include
workers who are on the company’s payroll but are not
actually working, such as those laid off under the
Cassa Integrazione Guadagni scheme. According to
the Government, comparing comparable figures gives
the following picture:

Staff provided for in
restructuring plan
(average)

Staff at end of year (as
shown in personnel
register)

1993

1994

1995

1996

1997

1 003

759

550

609

854

645

680

642

543

NB: Figures

for entire construction sector

(Societa`

Italiana per

Condotte d’Acqua SpA and Italstrade).

According to the Italian Government, these figures
show that the efficiency objective in the plan has been
achieved.

(iii) the income from the sale of companies was not to
be used to assist companies in difficulty which
had not yet been sold;

To make a proper comparison, however, the figure
that must be looked at is the average number of
employees over the year (estimated on the basis of the
arithmetic average of the end-of-year figures for two
successive years):

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Official Journal of the European Communities

27.4.1999

1993

1994

1995

1996

1997

conditions;
rationalised its organisational structure.

it cut its operating costs and thereafter

Annual average staff
(Commission estimate)

n.a.

750

663

661

592

It will be seen that only in 1994 was the real average
figure in line with the restructuring plan; subsequently,
in both 1995 and 1996, it easily exceeded the figure in
the plan.

At
the same time, and partly as a consequence,
Italstrade’s financial results were heavily negative, in
contrast to what had been provided for in the plan.
The plan anticipated a net profit of ITL 24 billion in
1995, when there was in fact a net loss of ITL 15
billion, and a net profit of ITL 26 billion in 1996,
when there was in fact a net loss of ITL 96 billion.
Only in 1997 did the company generate a net profit,
of ITL 2 billion, but that was in fact accounted for by
extraordinary items of income, in the form of funds
amounting to ITL 66 billion largely injected by
Fintecna.

is not

sufficient

to say here, as

It
the Italian
Government does, that the worsening situation was
due to an unforeseeable decline in the market. The
plan provided that, beginning in 1995, the internal
restructuring measures would enable Italstrade to
achieve a gross industrial margin, before structural
costs, equal to 7 % of turnover. In theory, that margin
would have allowed the company to generate a profit
of about ITL 12 billion in 1995 and ITL 13 billion in
1996, despite the fall
in revenue that actually took
place.

Italstrade’s effort included reducing its structural costs
more drastically than assumed in the restructuring
plan approved by the Commission. As can be seen
from Table 1, despite a deterioration in its gross
margin as in 1995 and 1996, the company cut its
structural costs from ITL 15 billion in 1995 (6 %
below the cut envisaged in the plan) to ITL 13 billion
in 1997 (35 % below the cut envisaged in the plan).

those restructuring measures,

By dint of
Italstrade
maintained a gross margin of around 6 % of turnover
although its income remained at a level 70 % below
that anticipated in the plan. As a result of
those
restructuring measures
the company was able to
achieve a profit, albeit modest, for the first time in
many years.

Table 1

Italstrade’s financial results

(in ITL billion)

1995
plan

1995
outturn

1996
plan

1996
outturn

1997
plan

1997
outturn

Net turnover

503

197

790

239

854

330

Gross margin

28

(10)

35

(2)

35

18

Structural costs

(16)

(15)

(19)

(16)

(20)

(13)

Operating loss

24

(15)

26

(96)

27

2

Source: Iltalstrade’s annual accounts

for 1995, 1996 and 1997

reclassified in the IRI note of 19 January 1998.

With an industrial margin of 7 % the Commission
took the view that, even on a relatively pessimistic
forecast of the market (which proved to be justified),
the company would be able to maintain a substantial
economic balance without resort to further capital
injections. However,
Italstrade’s 1995 and 1996
industrial margins were negative and indeed in 1996 it
made at net loss in excess of its corporate assets.

However, the years 1996 and 1997 were among the
more difficult periods experienced by the construction
industry in Italy (where Italstrade won over 60 % of
its orders) and there was a significant fall in major
in the area of public
contracts awarded (above all
procurement) and a drastic
reduction in profit
margins. Italstrade undertook a more stringent effort
than that in the plan that had been approved in order
to deal with the manifest deterioration in market

In fact, much of the company’s net losses in the period
resulted from writing down assets in line with the
smaller margins which were all
could be
generated on work in progress and work already
completed.

that

Moreover, Italstrade’s rationalisation measures were
made even more stringent, particularly regarding
central structural costs, than those prescribed in the
plan presented to the Commission.

It can be concluded that the condition imposed by
Article 1(2) of the Decision has been complied with,
more especially in view of the action taken by the
company to contend with a market less favourable
than that anticipated in the restructuring plan.

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(ii) The obligation to privatise Italstrade in accordance
with the time-scale submitted or, in any case,
within a reasonable time limit

— the terms of the transfer of the remaining 51 % of

the capital,

the factors which was felt

One of
to justify the
Decision was the Italian Government’s undertaking to
privatise Italstrade rapidly in accordance with the
restructuring plan; on the basis of the information
submitted it was considered in the Decision that
privatisation would be possible in a very short time (1).
The intention to sell off Italstrade rapidly was a major
factor in the assessment of the aid granted to Iritecna,
among other things, in view of the enormous aid given
to Iritecna’s construction sector up to that time.

The Commission accepted that some restructuring of
the construction sector was still going on at the time
of the Decision but, in the light of the Iritecna plan, it
expected that this (cid:28)should be completed by the end of
1995’ (2), allowing the companies to be sold off. For
the Decision
this
expressly required that Fintecna’s
subsidiaries be
privatised in accordance with the time-scale submitted
in any event, within a
to the Commission or,
reasonable time and that no further State aid be given.

reason Article 1(3) and (5) of

But the procedure for the sale of the companies was
suspended shortly after the Decision was adopted, and
set
in motion again only in November 1995.
According to the Italian Government, this was because
implications of the
of the need to study the legal
contractual guarantees given by IRI for the work on
the high-speed rail network.

Only in March 1997 was a contract concluded for the
sale to Astaldi of 49 % of the capital of Italstrade,
being part of Fintecna’s holding. When it initiated the
present procedure,
the Commission did not have
sufficient information to establish whether the sale
could be considered genuine and irreversible so as to
satisfy requirements of the Decision. The Commission
raised doubts
in
particular:

regarding the following aspects

— the transfer from Fintecna to the buyer of power

to appoint the management,

— the financial

implications
further losses by Italstrade,

for Fintecna of any

(1) See Part III, point 6.
(2) See Part IV, point 3.

— the possibility that the IRI guarantees in respect of
the high-speed rail network contracts might have
to be met.

In its
supplied
reply the Italian Government has
sufficient information to dispel the doubts raised by
the Commission.

As regards the transfer of managerial power, the buyer
is given the responsibility for appointing the managing
director (amministratore delegato), who has the power
to manage the company subject to the authorisation of
the board of directors (consiglio di amministrazione).
The only restrictions relate to acts which might be
damaging to Fintecna or IRI in connection with the
work on the high-speed rail network. The board of
directors itself is made up of seven members, three of
them,
being
the managing
appointed by Astaldi,
three by Fintecna, and the
chairman by Astaldi, subject to Fintecna’s agreement.

including

director,

On the basis of this information it can be concluded
that the buyer takes over from Fintecna full power to
manage Italstrade.

Turning now to the possibility that Fintecna might
have to meet future losses by Italstrade, the contract
lays down that
the shareholders are to meet any
financial liabilities incurred by Italstrade in proportion
to their holdings in the company’s capital up to the
transfer of the residual holding owned by Fintecna.
Naturally, from that point Astaldi undertakes entire
financial responsibility for Italstrade’s results.

Under this arrangement Fintecna will be again under
an obligation to inject public funds into Italstrade in
the case of any further capital
increase. However,
under the terms of the contract, those capital increases
will entail
the joint participation of Fintecna and
Astaldi in proportion to their holdings. Moreover, the
presence of a private shareholder ensures that any
investment in Italstrade will be made on the basis of
the
if
Italstrade’s prospects appear poor, a private investor
will not provide further funding and will prefer to
wind up the company.

return expected on the

injected;

funds

However,
Italstrade will receive
further public funds through Fintecna; those would

is possible that

it

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Official Journal of the European Communities

27.4.1999

nevertheless, be regarded as normal
investments on
market conditions in so far as they are provided with
(almost equal) contribution from a
a significant
private investor:
those funds cannot be considered
State aid within the meaning of Article 92 of the
Treaty.

When capital injections are provided, the Commission
presumes that State aid is not involved where public
funds are provided along with a similar investment by
private shareholders (1).

In the present
case, Fintecna and Astaldi will
participate in any increase in Italstrade’s capital on the
sole basis of their holdings in the company. It may be
assumed here that any capital Fintecna injects into
Italstrade will be on terms acceptable to a private
investor operating on normal market conditions.

Regarding the terms for the transfer of the remaining
51 % of Fintecna’s capital
the
contract Fintecna is entitled to transfer its 51 % to
Astaldi at the pre-determined price between 1 January
1999 and 30 June 1999 or until six months after the
discharge by IRI of the guarantees for the high-speed
rail network.

to Astaldi, under

the information provided by the
On the basis of
there is manifestly no legal
Italian Government,
obligation on the parties to complete the transfer of
Italstrade. Fintecna is merely entitled to transfer the
remaining capital holding and only when it exercises
that right is the other party obliged to complete the
conceivably
transaction. However, Fintecna may
refrain form exercising its right:
in that case the
transfer of Italstrade would not be completed and the
conditions laid down in the Decision would not have
been complied with.

Although Fintecna
to hold 51 % of
continues
Italstrade, the condition laid down in Article 1(3) of
the Decision has been complied with. The delays in
the sale were due to circumstances beyond Fintecna’s
control (the contractual clause in respect of the work
on the high-speed rail network); as far as was in its
power, Fintecna acted with the objective of privatising
Italstrade as rapidly as possible. That objective has
been achieved, as explained above, by virtue of the
clauses in the contract of sale and the commitment
given by the Italian authorities that the transfer of the
remaining holding will be completed as
soon as
possible.

clauses

Regarding the
concerning work on the
high-speed rail network, the Commission notes that
negotiations are taking place between IRI and TAV,
the company which awarded the contract, with a view
to removing the clause that requires IRI to continue
holding an absolute majority of
in
Italstrade. It notes that a positive outcome to those
negotiations could speed up the formal transfer of the
entire capital of Italstrade to Astaldi.

capital

the

(iii) The prohibition on using the proceeds of the asset
sales by Fintecna to assist companies in difficulty,
and (iv) the prohibition on granting further State
aid in connection with privatisations.

In order to decide whether Fintecna has complied with
the conditions set out in Article 1(4) and (5) of the
Decision, and in particular with the prohibition on the
granting of
to be established
whether the funding Italstrade received after 1994 can
lines or
be considered an investment on market
whether it constitutes State aid for the purposes of
Article 92(1) of the Treaty.

further aid,

it has

the

the option itself.

However,
Italian Government has given an
undertaking that Fintecna will transfer the remaining
holding in Italstrade on the contractual conditions,
with particular reference to the deadlines for the
exercise of
that
commitment Fintecna’s remaining holding in Italstrade
can be considered a temporary one only, serving
merely to protect IRI with respect to the guarantees it
gave
the
high-speed rail network regarding the acquirer’s
possible failure to complete.

in connection with the

In view of

contracts

for

(1) See application of Articles 92 and 93 of the Treaty to
public authorities’ holdings in company capital, EC Bull.
9-1984, point 3.2.

When it has
the financial
to determine whether
relations between a State and a public enterprise
include a State aid component caught by Article 92,
the Commission applies the private-investor test to the
financial flows between them. In the present case this
funds given to
means
considering whether
if so, whether
Italstrade were public resources and,
they would
the
applying
invested
have
private-investor test.

been

the

Under the Iritecna plan, Italstrade was transferred to
IRI, an
Fintecna, a wholly owned subsidiary of
industrial holding company itself wholly owned by the
Italian Treasury. The Italian Government appoints the
board of directors of IRI, which in turn appoints the
board of Fintecna.

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According to the settled case law of the Court of
Justice of the European Communities, in particular its
judgment in Case C-305/89 Italy v. Commission (1), in
order to establish whether an aid measure can be
considered State aid within the meaning of Article 92
of the Treaty, (cid:28)no distinction should be drawn between
cases where aid is granted directly by the State and
cases where it is granted by public or private bodies
established or appointed by the State’. So, even if the
funds given to Italstrade did not come directly from
the State, it may nevertheless be that they are public
funds.

is not enough to affirm here, as

It
the Italian
Government does in its observations, that the financial
measures taken by Fintecna used resources generated
by the operation of its own business and not obtained
from the State. If Fintecna’s operating cash flow is
used for an unprofitable purpose, as it was in the case
of
the profit accruing to
Fintecna’s shareholder, IRI, and thus ultimately to the
State. Fintecna might have used its own funds for
activities with a better return, which would have
enabled IRI, and consequently the State, to obtain a
better economic return on its investment.

Italstrade,

reduces

that

A smaller return on IRI’s investment in Fintecna will
ultimately be reflected in a loss of profit to the State
so that, even though the funds given to Italstrade were
can
not provided directly by
nevertheless be said to constitute State resources. In
order to establish whether or not they are caught by
the prohibition in Article 92(1), then, they have to be
studied in the light of the private-investor principle (2).

State,

they

the

if

According to that principle, a financial transaction
between the State and a public undertaking contains a
State aid component
it would not have been
acceptable to a private investor operating under
normal market economy conditions. In particular, the
presence of State aid can be presumed (cid:28)where the
financial position of the company, and particularly the
structure and volume of its debt, is such that a normal
return (in dividends or capital gains) cannot be
expected within a reasonable time from the capital
invested’ (3).

Accordingly, an analysis has to be made of Italstrade’s
financial position in the years before the increases in
capital; this is shown in Table 2.

(1) [1991] ECR I-1603, paragraph 13.
(2) Commission communication to the Member States on the
application of Articles 92 and 93 of the EC Treaty and of
Article 5 of Commission Directive 80/723/EEC to public
undertakings in the manufacturing sector, OJ C 307,
13.11.1993, p. 3, see Part III.

(3) Ibid., paragraph 16.

Table 2

Iltalstrade’s financial results

(in ITL billion)

1993

1994

1995

1996

Net turnover

n.a.

245,1

197,3

238,9

Gross margin

n.a.

(37,5)

18,9 (2)

(2,0)

Net profit (loss)

(183,0)

(19,3) (1)

(15,0) (2)

Net worth

n.a.

(30,0)

15,0

(96)

32,0

(1) After writing off debts of ITL 186 billion by Iritecna.
(2) Taking account of extraordinary items amounting to ITL 45,8
billion including ITL 22 billion relating to the sale of businesses
to controlled companies and Iritecna.

Source: Italstrade’s annual accounts.

The figures set out above show that Italstrade was not
a profitable concern when Fintecna provided the
funds. Fintecna provided further funding in 1996
although, given Italstrade’s results, Fintecna could not
return on its
reasonably expect any significant
investment.

It is not sufficient to invoke the fact that the costs of
putting the company into liquidation would have been
higher than those of the recapitalisations carried out.
A private shareholder faced with declining market
prospects and the impossibility of a return to viability
would have put the company into liquidation well
before 1996, and indeed before 1994, thus avoiding
costly recapitalisations and substantially reducing the
costs of the liquidation itself.

if

The financial resources given by Fintecna to Italstrade
after 1994 therefore constitute State aid within the
meaning of Article 92(1)
the Treaty. Thus the
condition laid down in Article 1(5) of the Decision has
not been complied with; consideration will accordingly
have to be given not only to the compatibility of the
fresh aid granted, but also to the compatibility of the
aid received by Italstrade and approved in the
Decision (ITL 450 billion).

In assessing compliance with the Decision, it is not
enough to say that the total volume of aid approved
has not been exceeded. Article 1(5) of the Decision
the individual privatisation
expressly provided that
operations were not to be financed by further State
aid. The purpose of this obligation was to reduce the
distorting effect of the aid granted, and consequently,
to ensure that any resources acquired as a result of the

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Official Journal of the European Communities

27.4.1999

sell-offs were devoted to reducing the costs of putting
the Iritecna/Fintecna group into liquidation.

IV

In addition, given that the businesses likely to be most
attractive to potential private investors had been
transferred to Fintecna primarily with a view to sale,
and only within limits with a view to restructuring,
the Decision expressly prohibited further aid to those
businesses.

businesses

State-owned

principle, when

In
are
privatised it may be permissible to grant State aid for
acquirers where the sale does not take place on market
conditions or for the business where the contract of
sale requires the acquirer of the business to carry on
unprofitable
segments which would have been
discontinued by an investor operating on market
conditions.

Regarding the sale of Italstrade to a private investor,
that sale was carried through in compliance with the
relevant Community rules. Both the 1994 procedure,
which was subsequently abandoned, and the 1995
procedure, which terminated in the sale of
the
company to Astaldi, entailed public bids to buy the
business. Thus about 20 investors were initially
interested in the sale of Fintecna’s civil engineering
businesses. Of the 20, 13 submitted offers, of which
three were placed on a short
list. Only Astaldi
submitted a binding offer and therefore it alone was
admitted to the due diligence stage.

In the procedure followed by Fintecna all potential
investors were placed on an equal footing in the sale
and the best offer was chosen. That gave the
Commission reason to conclude that the sale took
place at the market price and thus that no aid was
given to Astaldi in the acquisition of Italstrade.

Moreover the contract of sale does not contain any
clauses specifically obliging the acquirer to continue
any loss-making activities. In any case no element of
aid for Italstrade can be discerned in the terms of sale.

Pursuant to Article 92(2) and (3) of the Treaty certain
aid is, or may be considered, compatible with the
common market.

Article 92(2), (3)(a) and (3)(b) of the Treaty cannot be
applied to measures of the kind under consideration
here. In view of the variety of Italstrade’s activities
and locations, and the fact that the aid does not have
a regional objective, the only possible exemption is
that provided for in Article 92(3)(c), which deals with
aid to facilitate the development of certain economic
activities. By its very nature, the aid in this case must
be considered aid for the restructuring of firms in
difficulty.

Regarding such aid, the Commission has published
guidelines on State aid for rescuing and restructuring
firms in difficulty (1). In practice, if the Commission is
to approve one-off measures to restructure a firm in
difficulty, the following conditions must be satisfied:

(i)

the measures must restore the long-term viability
of the firm;

(ii)

the measures must avoid undue distortion of
competition;

(iii) the measures must be in proportion to the costs
and benefits of restructuring and thus limited to
the strict minimum needed;

(iv) the restructuring plan must be fully implemented;

(v)

the implementation of the restructuring plan must
be monitored and verified by the Commission.

these tests are satisfied can the
Only if all of
Commission take the view that the effects of the aid
are not contrary to the Community interest and
approve the aid pursuant to Article 92(3)(c).

On the basis that the aid granted to Italstrade after
1994 constitutes State aid within the meaning of
Article 92(1) and, as a result the aid received by the
1994, which the Commission
before
company
approved in the Decision,
is in principle likewise
unlawful, it has now to be considered whether all the
grants of aid, taken as a whole, are compatible with
the common market.

As regards condition (i), the restoration of viability,
the Italian authorities submitted a restructuring plan in
the context of the Decision which was intended to
restore Italstrade to profitability from 1995 onward.
The aid granted to Italstrade up to 1994 (ITL 450

(1) OJ C 368, 23.12.1994, p. 12.

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L 109/11

billion) was held to be compatible with specific regard
to that plan and to the Community guidelines. But
Italstrade did not achieve the financial results expected
and so had to fall back on public assistance once
again (receiving ITL 178 billion, as has been
explained).

Italstrade’s restructuring plan, which the Commission
approved in the Decision, was based on prudent
estimates of the future development of the company’s
order book. On 31 December 1992 that portfolio of
work amounted to ITL 2 377 billion, of which more
than ITL 558 billion related to contracts connected
with the high-speed rail network. On the basis of the
work schedule laid down by the company awarding
the contracts, it was reasonable to expect Italstrade’s
turnover and financial results to develop as shown in
Table 3.

Table 3

Forecast financial results of Italstrade

In 1996 the company produced a new internal
restructuring plan (see Table 4) with a view to
returning the business to a stable level of profitability.
The plan provided for a gradual
resumption of
operations, linked partly to work on the high-speed
rail network but mainly based on measures to contain
further structural costs below the provisions of the
plan approved in the context of the Decision.

Table 4

Italstrade’s industrial plan 1998 to 2000

(in ITL billion)

1998

1999

2000

370

21

(15)

6

400

28,5

(15)

7,5

453

31

(16)

9,5

Net turnover

Gross margin

Structural costs

Operating loss

(in ITL billion)

Source:

Italstrade’s 1998 to 2000 restructuring plan.

Net turnover

Gross margin

Operating result

Net profit (loss)

1995

503

28

12

24

1996

790

35

16

26

1997

854

35

15

27

Source: Iritecna’s restructuring plan.

However, the difficulties of the Italian civil engineering
sector proved to be more serious than expected and
the contracts already secured for the high-speed rail
network were delayed for
reasons beyond the
company’s control. In fact, as is shown in Table 1,
Italstrade’s
than
forecast:

substantially lower

turnover was

— in 1995 it amounted to ITL 197 billion , or 39 %

of the figure forecast,

— in 1996 it amounted to ITL 239 billion, or 30 %

of the figure forecast.

In both those cases, as in 1994, Italstrade’s actual
turnover was about 50 % less than in 1992, a year in
which the crisis in the industry in which Italstrade
operates was already very serious. Indeed, the fall in
Italstrade’s turnover in the period in question was
more severe than the downturn in the market as a
whole. Faced with that crisis on the market around it,
Italstrade
restructuring
reacted by taking further
measures, more stringent than the terms of the plan.

Structural costs are to be kept at 25 % below the level
fixed in the plan in order to maintain sufficient
profitability despite a turnover appreciably below
what was originally anticipated.

Italstrade was to generate a net profit about 2 % of
turnover in the period in spite of a production level of
less than 50 % of the level fixed in the Iritecna plan
for 1996. The company was able to do so by making
further cuts in structural costs,
through additional
reductions in headquarters’ staff and restructuring of
operational processes.

The fact remains that, in 1996, Italstrade recorded a
loss both in operating terms and in overall results;
however, even in 1996 there were positive signs in the
form of a reduction in operating losses indicating that
the company was improving its own competitiveness.
In 1997 those signs were confirmed both by a
favourable gross margin and by net profits.

As a result of the company’s restructuring, particularly
in the period 1996 to 1997,
in addition to the
restructuring in the plan approved by the Commission
Decision, Italstrade will be able to reach a satisfactory
level of profitability despite the forecast deterioration
in market conditions. Nevertheless, it must be kept in
long-term profitability is being attained
mind that
internal
contribution
through

crucial

the

of

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Official Journal of the European Communities

27.4.1999

rationalisations (reductions in capacity, etc.) rather
than on the basis of favourable market prospects.

It can be considered that
approval of aid for restructuring is thus satisfied.

the first condition for

The Commission notes that the company has been
transferred to a private shareholder, so that the State
terms, be made
the contractual
will not, under
financially liable for any losses that Italstrade may
incur. The
controlling
of
shareholder (see Part III(ii)) also provides a better
assurance of Italstrade’s prospects of profitability.

presence

private

a

Condition (ii) is that the aid avoids undue distortion
of competition. In principle, any aid granted by a State
to a firm causes undue distortion of free competition
since it leaves that firm in a more favourable economic
situation than its competitors. This effect consequently
in production
has
as
such
capacity,
construction, where there is substantial overcapacity.

to be balanced by reductions

especially

industry

an

in

In the present case the restructuring plan approved by
the Commission in the Decision already provided for
significant cuts in production capacity. The production
capacity of a construction firm, both in terms of its
ability to plan and design and in terms of its ability to
implement its plans,
is based mainly on its human
resources;
the significant reduction in the size of
Italstrade’s human resources base at the time of the
in
Decision,
production, pointed clearly to a substantial fall in its
market share. The Commission accordingly held that
the aid given to Italstrade up to 31 December 1994
satisfied the tests for restructuring aid.

along with

relevant

decline

the

But Italstrade received further aid after the Decision,
and it must therefore be asked whether these new
resources have not affected trade between Member
States in a manner contrary to the common interest;
this would be the case if Italstrade had been put in a
position to use the resources
to finance trading
practices enabling it to increase its own market share
at the expense of competitors without State aid.

The Commission took the view that the development
of turnover provided for in the plan (see Table 3)
would not affect trade to an extent contrary to the
common interest. As
Italstrade’s
it
turnover in the period 1995 to 1997 was about 30 %
of what was called for in the plan, and the pace of
incoming orders was a great deal slower, as shown in
Table 5.

turned out,

Table 5

Italstrade’s turnover and order book

1993

1994

1995

1996

1997

(in ITL billion)

Net turnover

660

245

197

239

370

Order book

1 653

1 284

1 256

1 077

1 036

Including
high-speed rail
network

558

530

480

380

n.a.

Source: Italstrade’s annual accounts.

It is clear form these figures that, as a result of its
restructuring, Italstrade has been competing less and
less on world markets. The pace of acquisition of
orders foreseen in the restructuring plan approved in
the Decision was largely equivalent to turnover in
each of the years covered in the plan. That level of
production and of orders was considered compatible
with the common market in view of the significant
restructuring already undertaken by the company.

Despite reducing turnover to about 70 % of the level
anticipated in the plan, Italstrade reduced its order
book by around 40 % of its level as at 31 December
1993,
limiting its competitive activities on reference
markets to levels significantly below those in the
its ultimate competitive
Iritecna plan. Accordingly,
position will not affect trade to an extent contrary to
the common interest.

Condition (iii) is that aid be in proportion to costs and
benefits: if State aid is to be declared compatible, it
must be limited to the strict minimum needed to
finance the return to viability and must not be used to
finance aggressive competitive practices, except to the
extent necessary
to
profitability.

firm itself

to restore

the

As has been explained, however, Italstrade reduced it
staff and thus its production capacity in the period
1995 to 1997, and the reductions went beyond what
was provided for in the plan.

From the
Government

information supplied by
it can be concluded that

the
Italian
the funding

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Official Journal of the European Communities

L 109/13

provided by Fintecna to Italstrade was needed to cover
losses due mainly to the writing-down of assets and to
the costs of reducing production capacity (staff cuts).
During the delays in the sale of Italstrade, Fintecna
financed further restructuring, going beyond what was
laid down in the Iritecna plan, in order to cope with
the unexpected worsening in market prospects.

The Commission takes the view, therefore, that the aid
granted did not bring the company additional liquidity
which was unrelated to the process of restructuring
and might
aggressive
commercial or investment practices not necessary to
the restructuring operation.

finance

helped

have

to

The Commission would also observe that Italstrade
will not qualify for any tax credit in respect of the
losses covered by the funds contributed by Fintecna.

the

Lastly,
significant
recipient will make
contribution to the financing to the restructuring
operation, as any further burdens are to be borne by
both owners of holdings in the company in proportion
to those holdings until the point when the remaining
51 % of the share capital is transferred.

a

The Italian Government should be required to submit
periodic reports on the progress of privatisation and
on the implementation of the restructuring plan drawn
up for Italstrade,

The aid satisfies the tests laid down in the Community
guidelines of 27 July 1994 on State aid for rescuing
and restructuring firms in difficulty. It is consequently
declared exempt pursuant to Article 92(3)(c) of the
Treaty and Article 61(3)(c) of the EEA Agreement
from the prohibition imposed by Article 92(1) of the
Treaty and Article 61(1) of the EEA Agreement, being
aid that
is compatible with the common market,
provided that Article 2 is complied with.

Article 2

Italy shall transfer its remaining shares in Italstrade
held by Fintecna to the private shareholder on the
terms and conditions stipulated in the contract of sale,
in particular
the time when the option must be
exercised.

Article 3

In order to secure full cooperation in the arrangements
for monitoring this Decision, Italy shall provide the
Commission with half-yearly reports on Italstrade’s
economic and financial situation and communicate to
it in good time the main steps in the sale of Fintecna’s
remaining holding in Italstrade.

The first report shall set out Italstrade’s economic and
financial results at 30 June 1998 and shall reach the
Commission by 31 December 1998.

HAS ADOPTED THIS DECISION:

Article 4

Article 1

This Decision is addressed to the Italian Republic.

The aid of Italstrade, namely the capital
injections
granted in the years 1995 to 1997 totalling ITL 178
billion (ECU 78 million), and the aid granted up to
1994 already approved by the Commission amounting
to a total of ITL 450 billion, constitute State aid
within the meaning of Article 92(1) of the Treaty and
Article 61(1) of the EEA Agreement.

Done at Brussels, 16 September 1998.

For the Commission

Karel VAN MIERT

Member of the Commission