1999/450/EC: Commission Decision of 28 October 1998 on State aid which Spain is planning to implement in favour of AG Tubos Europa SA (notified under document number C(1998) 3438) (Only the Spanish text is authentic) (Text with EEA relevance)
Date: 1998-10-28
Institutions: European Commission
Subjects: Spain, State aid, aid to undertakings, investment aid, regional aid, steel

L 177/24

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Official Journal of the European Communities

13. 7. 1999

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 28 October 1998

on State aid which Spain is planning to implement in favour of AG Tubos Europa SA

(notified under document number C(1998) 3438)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(1999/450/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

The Commission called on interested parties to submit their
comments.

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

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

Having called on interested parties to submit their comments
pursuant to those provisions (1) and having regard to their
comments,

Whereas:

I. PROCEDURE

By letter dated 29 October 1997,
the Spanish Permanent
Representation to the European Union notified the Commis-
sion of a plan to grant regional investment aid to AG Tubos
Europa SA, a new subsidiary of the Spanish group Alfonso
Gallardo, to be created in the region of Extremadura. It furn-
ished the Commission with supplementary information by
letter dated 22 January 1998.

By letter dated 11 March 1998, the Commission informed
Spain of its decision to initiate the procedure laid down in
Article 93(2) of the EC Treaty in respect of the aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communities (2).

The Commission received comments from the United Kingdom
Steel Association, the Wirtschaftsvereinigung Stahlrohre (the
German association of steel tube producers) and the German
Ministry for Economic Affairs. It forwarded them to Spain,
which was given the opportunity to react. Spain’s initial
comments were received by letter dated 9 April 1998 and its
reaction to third parties’ comments by letters dated 23 July and
4 August 1998.

II. DETAILED DESCRIPTION OF THE AID

The aid consists of a regional grant of ESP 1 175 million
towards an initial
investment of ESP 5 596 million, repre-
senting an aid intensity of 21 %. The new company is to
produce steel tubes, and in particular large and small welded
hollow sections. Technically, it will have an annual maximum
production capacity of 225 000 tonnes, but its annual produc-
tion is, however, to be limited initially to 100 000 tonnes. It
will produce both large (diameter larger than 406,4 mm) and
small tubes, round and shaped. Production of large tubes is
expected to represent around 25 % of total production. The
plant will employ 60 people.

State aid to the sector of large welded steel tubes is subject to
prior notification to the Commission in accordance with point
4.1(a) of the Community framework for certain steel sectors
not covered by the ECSC Treaty (3) (hereinafter ‘the EC frame-
work for steel'), and it cannot be implemented before it has

(1) OJ C 156, 21.5.1998, p. 11.
(2) See footnote 1.

(3) OJ C 320, 13.12.1988, p. 3.

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been agreed to. Although the company will produce tubular
products of different sizes, only about 25 % fall under this
obligation. However, because it can switch between product
sizes according to demand, without any technical adaptation,
the Commission has to assess the aid as if all the company’s
production were of large welded steel tubes.

As stated at the time of opening of the procedure, when
assessing aid to a company covered by the EC framework for
steel, the Commission assesses the market situation of the
sub-sector of the undertaking, in particular whether or not it
suffers from structural overcapacity, and the effect the aided
investment may have on that situation and on competition in
general. The Commission also takes into account the regional
dimension of the aided investments: if the company in receipt
of the aid is located in an assisted area, the potential benefits
that the aided investment brings to the development of the
region are to be balanced against any negative effects on
competition. Finally, the Commission has to satisfy itself that
no aid will be transferred to the ECSC steel sector, inasmuch as
aid awarded to subsidiaries of steel groups, for non-ECSC activ-
ities could ultimately benefit ECSC activities.

In the steel tubes sector, excess production capacity has existed
since the mid-1980s. In 1997, the rate of capacity utilisation in
large
the Community was only 49 % in the sub-sector of
welded steel tubes in general, where the company will be
active.

examination,

a preliminary

Following
the Commission
concluded that negative effects on competition could not be
excluded from the outset and that they might overweigh the
potential benefits that the region would receive from the aided
investment. Also, the possibility that the aid to be granted to
AG Tubos Europa SA might be transferred to the ECSC steel
sector was not clearly excluded.
It accordingly decided to
initiate the procedure laid down in Article 93(2) of the Treaty
in respect of this aid.

III. COMMENTS FROM INTERESTED PARTIES

All the third parties who intervened in the procedure referred
to the existing excess capacity in the sector of steel tubes in
general, and of large welded tubes in particular. For that reason,
they took the view that the Commission should oppose the aid
because, if the aid were to be granted, it would make matters
worse and might even jeopardise the future of existing compa-
nies that were also located in depressed areas.

The United Kingdom Steel Association argued that the invest-
ment could not be justified on grounds of insufficient Euro-
pean supply of the type of hollow section to be marketed by
AG Turbos Europa SA. In its view, it was questionable whether
there was room in the market for new capacities starting at
100 000 tonnes, given the limited demand for such a product.

IV. COMMENTS FROM SPAIN

On the possible transfer of aid to the ECSC activities of the
group that controls AG Tubos Europa SA, Spain stated that
such a possibility did not exist. The new company would be a
legally independent subsidiary and it would not buy its input
material from other group companies. There was no transfer of
losses/profits between the various subsidiaries and Spain would
monitor the correct use of the aid.

On the question of excess capacity in the market, Spain took
the view that the company was to produce a new product
which, by its technical characteristics and uses, was not in
competition with the existing Community production of large
welded tubes. That product, structural hollow sections, was a
relatively new product being used more and more in non-resi-
dential construction. In view of the advantages of that type of
material over
construction materials. Spain
foresaw an expansion in demand for the product. The sector
therefore did not suffer from any surplus production capacity
in Europe, but on the contrary was a growth market. Moreover,
the production process differed from that of conventional steel
tubes in such a way that, if AG Tubos Europa SA were to
switch its production to that type of product, it would have to
investments.
make quite substantial

conventional

V. ASSESSMENT OF THE AID

The key to assessing the compatibility of the aid to AG Tubos
Europa SA lies in ascertaining the exact market segment in
which the company is to operate. From this, it can then be
established whether the new company will, by its production,
further increase the current excess production capacity in the
large welded steel tubes sector, as feared by the Commission
following its preliminary examination and expressed in its
decision to initiate formal proceedings.

According to the information submitted by Spain, including
technical specifications of the installations to be acquired, AG
Tubos Europa SA will produce only structural hollow sections.
They will be produced by cold forming and will have a diam-
eter up to 600 mm and above.

Large structural hollow sections, whilst being classified under
the heading of ‘large welded steel tubes' for different purposes,
differ from conventional steel tubes in terms of production
process and end use and are subject to different European
standards. They constitute what may be considered a subsector
under the general heading of ‘steel tubes'. The installations for
their production cannot be used for the production of tubes
without further substantial
investment and their destination
market is that of non-residential construction, a market not
served by normal large welded tubes, which are used mainly
for the transport of liquids and gas. Accordingly, large struc-
tural hollow sections and conventional large welded steel tubes
cannot be classed as substitute products either at production
level or at consumption level.

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The products of AG Tubos Europa SA will compete with other
construction materials such as concrete rather than with other
steel tubes. Indeed, this type of product is being used more and
more in non-residential construction. Not only is its use in
replacing other materials increasing, but construction in Europe
is set to continue its positive trend of recent years. It can
therefore safely be concluded that there is a new market for
large cold welded hollow sections, which is expanding in
Europe.

AG Tubos Europa SA will be the first producer of structural
hollow sections with a diameter above 406,4 mm. There is
therefore no production overcapacity for
such products.
Indeed, the company will be the first producer of cold formed
welded structural hollow sections with a diameter above
200 mm and the first producer of (hot and cold formed)
structural hollow sections with a diameter above 406 mm. The
current European producers of structural hollow sections only
cover the range up to 400 mm and their production process is
hot forming, unlike AG Tubos Europa SA, which will produce
them by cold forming. Its production in the product range that
qualifies as
therefore not affect
Community production capacity.

large welded tubes will

VI. CONCLUSIONS

The Commission therefore concludes that, contrary to its initial
view and the comments submitted by third parties, the new
company’s production of large welded steel tubes (diameter
above 406,4 mm) will not further increase the existing excess
capacity in the sector. The specific product of AG Tubos
Europa SA has a specific market, which is expanding, and the
company will be the first producer of such a product
in
Europe.

As regards the possibility of transfer of the aid to ECSC activi-
ties of the group which controls the company, the Commis-
sion, in view of the information and assurances provided by
Spain (legally independent company, no transfer of
losses/
profits and monitoring of the correct use of the aid) agrees that

in the present case the risk of transfer of the aid is minimal or
even non-existent.

What is more, the company will be located in a region classi-
fied under Article 92(3)(a) of the Treaty with a regional aid
ceiling of 60 %. The aid, with an intensity of only 21 %, is well
within this ceiling and the aided investment will bring
economic and social benefits to the region, with the direct
creation of 60 jobs and the potential impact it will have on the
local economy through the development of anciallary activities.

In view of the above, the Commission concludes that the aid
proposed by Spain to AG Tubos Europa SA fulfils the condi-
tions of the EC framework for steel and is compatible with the
common market within the meaning of Article 92(3)(a) of the
Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The State aid notified by Spain, which is to be granted to AG
Tubos Europa SA, amounting to ESP 1 175 million, is compat-
ible with the common market within the meaning of Article
92(3)(a) of the Treaty.

Implementation of
million,

is accordingly authorised.

the aid,

to the amount of ESP 1 175

This Decision is addressed to the Kingdom of Spain.

Article 2

Done at Brussels, 28 October 1998.

For the Commission

Karel VAN MIERT

Member of the Commission