1999/395/EC: Commission Decision of 28 October 1998 on State aid implemented by Spain in favour of SNIACE SA, located in Torrelavega, Cantabria (notified under document number C(1998) 3437) (Text with EEA relevance) (Only the Spanish text is authentic)
Date: 1998-10-28
Institutions: European Commission
Subjects: Cantabria, Spain, State aid, man-made fibre, regional aid

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COMMISSION

COMMISSION DECISION

of 28 October 1998

on State aid implemented by Spain in favour of SNIACE SA, located in Torrela-
vega, Cantabria

(notified under document number C(1998) 3437)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(1999/395/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having called on interested parties
their
comments pursuant to the provisions cited above (1), and
having regard to their comments,

to submit

Whereas:

I. PROCEDURE

(1)

By letter dated 17 April 1997 the Commission
received a detailed complaint
from a law firm
representing the Austrian company Lenzing AG,
the largest Community producer of viscose fibres,
concerning various elements of illegal aid awarded
to its Spanish competitor ‘Sociedad Nacional de
Industrias y Aplicaciones de Celulosa Espanola' SA
(hereinafter referred to as SNIACE). The complaint
included new information not provided with its
original complaint dated 4 July 1996, in respect of
which the Commission had found that there was
insufficient evidence of State aid. The new informa-
tion provided to the Commission included a copy
of a viability plan for SNIACE produced by a
private consultancy firm. The complainant alleged

(1) OJ C 49, 14.2.1998, p. 2.

that SNIACE had received significant sums of State
aid over a period of several years, stretching back to
the late 1980s. That aid had not been notified to
the Commission in accordance with Article 93(3) of
the EC Treaty nor with the Code on aid to the
synthetic fibres industry. The aid had distorted
competition in a sector suffering from structural
overcapacity and had served to keep SNIACE alive
artificially.

(2)

(3)

(4)

There followed a lengthy preliminary investigation,
which included meetings between DG IV,
the
complainant, and the Spanish authorities on 17
May 1997 and 16 June 1997 respectively. The
complaint was registered as non-notified aid under
NN 118/97 on 17 July 1997.

By letter dated 7 November 1997 the Commission
informed the Spanish Government of its decision
to initiate the procedure laid down in Article 93(2)
of
the Treaty in respect of several elements of
presumed aid (see below).

The Commission decision to initiate the procedure
was published in the Official Journal of the Euro-
pean Communities (1). The Commission invited
interested parties to submit their comments on the
presumed aid.

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L 149/41

(5)

(6)

(7)

By letter dated 19 December 1997, the Spanish
Government replied to the Commission’s letter
opening the procedure which provided further
information in support of its view that none of the
matters under investigation constituted aid within
the meaning of Article 92(1) of the EC Treaty.

By letter dated 23 February 1997, the Commission
requested clarification on certain points. The
Spanish Government replied by letter dated 16
April 1998.

The Commission received comments from inter-
ested parties. It forwarded them to the Spanish
authorities, which was given the opportunity to
react; its comments were received by letter dated 24
June 1998.

(8)

(9)

II. SNIACE

SNIACE was founded in 1939 and is a producer of
cellulose, paper, viscose fibres, synthetic fibres and
sodium sulphate.
is based in Torrelavega,
Cantabria, which since September 1995 has been a
region eligible for aid pursuant to Article 92(3) (a).
Before that date it had been a region eligible for aid
pursuant to Article 92(3)(c).

It

currently

approximately

SNIACE
600
has
employees. It is one of five viscose fibres producers
in the European Union with a capacity of approxi-
mately 32 000 tonnes (about 9 % of Community
capacity). SNIACE also produces synthetic fibres,
including polyamide filament yarn. SNIACE has
obtained the following results in recent years:

Turnover

Profit (loss)

1994

6 540

(1 780)

1995

10 970

1996

5 750

153

(1 951)

(ESP million)

1997

5 600

(500)

(10) When opening the Article 93(2) procedure,

the
Commission noted that the company had suffered
financial difficulties for several years, which had
featured in numerous press reports. Following an
application made by the company in 1992, the
Spanish Courts ordered suspension of payments in
March 1993. This was lifted following a creditors’
agreement in October 1996, whereby SNIACE’s
private creditors agreed to convert 40 % of their
debts into shares. The public creditors did not
participate in the agreement.

(11) At the end of 1997 the company’s current liabilities
totalled ESP 8,37 billion compared with ESP 4,54
billion of current assets and the net worth of the
company was ESP 1,73 billion. In recent years the
problems facing the company, which have included
industrial relations disputes, have led to periodic
shut-downs of production. The company ceased
production for much of 1993. Production was again
stopped for much of 1996 and early 1997. Produc-
tion resumed in February 1997 and the company is
currently trading as a going concern.

III. DETAILED DESCRIPTION OF THE AID

MEASURES

(a) the non payment of environmental levies owed
by SNIACE since 1987. The Commission noted
the possibility of an element of State aid arising
from the withholding over a period of several
years of environmental
levies owed by the
company
to the public Water Authority
(Confederation Hidrogràfica del Norte). Given
that the company appeared to have been in
financial difficulties for some years, the effect of
not paying these levies may have been to avoid
the liquidation of the company;

(b) non-enforcement of

security contribu-
social
tions since 1991. The Commission expressed
doubted whether the terms and conditions of
two debt
rescheduling agreements with the
Social Security Treasury reflected market condi-
tions:

(i) an agreement dated 8 March 1996 covering
rescheduled debts totalling ESP 2,9 billion
for the period February 1991 to February
1995 and imposing terms of 96 monthly
payments from 1996 to March 2004 at the
legal interest rate of 9 %; and

(12)

The Commission opened Article 93(2) proceedings
in respect of the following elements of presumed
aid:

(ii) an agreement dated 7 May 1996 allowing a
first year’s grace and 84 monthly payments
at the legal interest rate of 9 %;

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(c) a loan guarantee approved totalling ESP I
billion approved by law 7/93. The Commission
expressed doubts that law 7/93 by which the
Cantabrian regional government authorised a
loan guarantee of ESP l billion to SNIACE
contains a degree of State aid;

(d) the financing arrangements for the planned
construction of a waste treatment plant. The
Commission said it could not
state with
certainty that there would be no aid involved in
the financing arrangements for a planned waste
water treatment plant;

(e) partial

cancellation by Torrelavega City
Council of debts totalling ESP 116 million.

The Commission noted that the actions taken
by the Torrelavega City Council appeared to
have reduced de facto the company’s debts by
ESP 116 million and that the fact that the City
Council had reached a ‘special agreement' with
the company implied that it has used discre-
tionary powers and that consequently State aid
could be involved; and

(f) agreements between SNIACE and the wages
guarantee fund FOGASA covering the repay-
totalling ESP 1,702
ment of an amount
billion, corresponding to overdue salaries of
the workforce paid by FOGASA on behalf of
SNIACE:

Date
of agreement

Principal
(ESP)

Interest
(ESP)

Rate of interest
(legal interest)

Other terms/conditions

5.11.1993

897 million

465 million

10 %

31.10.1995

229 million

110 million

9 %

Eight years repayment; mortgage on
SNIACE’s assets

Eight years repayment; mortgage on
SNIACE’s assets

(13)

The Commission doubted whether the terms and
conditions of
reflected
market conditions.

the above agreements

IV. COMMENTS FROM INTERESTED PARTIES

(14) Comments were received from one Member State
(the United Kingdom),
several Community
competitors of SNIACE and the International
Rayon and Synthetic Fibres Committee (CIRFS).
Comments by the Bavarian Ministry of Economy,
Transport and Technology were submitted well
after the expiry of the deadline and consequently
may not be taken into account in the context of
this procedure.

(15)

in Italy,

Säteri, a producer of viscose staple fibres, stated it
had experienced unfair competition from SNIACE,
the United Kingdom,
particularly
Germany and France. As a result of illegal aid
SNIACE had been able to set its prices at 10 to
20 % below those of Säteri. Svenska Rayon, a
producer of viscose staple fibre, stated that in its
view SNIACE had disturbed the viscose staple-fibre
market over several years by selling at artificially
low prices. This had particularly affected Svenska
Rayon in the Italian market.

(16) Nylstar said it had been hit by unfair competition
from SNIACE in the polyamide textile filament
sector, particularly in the Spanish market. Textil
Finanz, part of the Radici Group, said it was also
particularly concerned about the possibility of the
effect of illegal aid to SNIACE in the polyamide
textile filament yarn sector. Bemberg referred to
unfair competition from SNIACE in the polyamide
textile filament yarn sector, especially in Italy,
Germany, the United Kingdom, Spain, France and
Switzerland due to the loss of sales and contracts
caused by yarn price levels quoted by SNIACE
which did not reflect current market conditions.

(17) Courtaulds plc,

the second largest producer of
viscose staple fibre in Europe, referred to overca-
pacity in the industry and to the action it had taken
over the previous 10 years to reduce capacity and
costs which had led to job losses in the United
Kingdom, Germany and France. It stated that the
migration of textile manufacturing to lower-cost
economies had resulted in a long-term reduction in
mill consumption in Europe of between 1,5 and
2 % per annum. This consumption had been
replaced by imports of yarns, fabrics and garments,
primarily from Asia and India. As a result, capacity
had fallen in Europe from 687 000 tonnes in 1980
to 355 000 tonnes in 1998. Courtaulds alone had
reduced capacity by 195 000 tonnes over the last 20

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L 149/43

years, including a reduction of 30 000 tons at its
Grimsby site in 1997. Courtaulds stated that there
was clear evidence from trade data that SNIACE
priced below other competitors. It stated that in the
United Kingdom, Germany, Italy, Spain, France
and Belgium SNIACE’s prices were at least 20 %
below Courtaulds’ average prices. Moreover,
it
believed that
the size of SNIACE’s plant was
uneconomic.

that this would inevitably lead to unemployment
elsewhere in Europe, given the existing overca-
pacity in the synthetic fibres industry.

(21)

In addition, Lenzing and Courtaulds expressed
their concern, based on press reports, that a further
new aid measure had been granted to SNIACE by a
State-owned savings bank Caja de Cantabria, in the
form of a loan with profit participation amounting
to ESP 2 000 million which did not conform to
normal market conditions.

(18)

The law firm representing Lenzing AG, whose
original complaint had led to the opening of the
proceedings, reiterated its view that
the various
elements of aid were illegal and incompatible with
the common market. In particular it stressed that
they were discretionary measures and did not
constitute, as was claimed by the Spanish Govern-
ment, general measures. It also reiterated its view
that
the aid measures had served to keep the
company alive artificially.

fibres

industry.

(19) CIRFS stated that it was the representative body for
the European man-made
Its
membership accounted for 92 % of production of
viscose staple fibre and 76 % of production of
polyamide textile filament yarn (the two main fibre
types produced by SNIACE). It favoured the strict
application of the State aid rules by the Commis-
sion. It emphasised that the viscose staple market
in the Community is a mature market, with
consumption in long-term decline. It forecast a
further 7 % fall in consumption by 2002. Capacity
was continuing to be reduced by European produ-
cers to bring it more closely into line with demand.
Furthermore, capacity utilisation was at an unsatis-
factory level for such a capital-intensive sector at
about 81 and 84 % in 1996 and 1997 respectively.
Viscose staple producers normally aimed for at least
90 % capacity utilisation in order to achieve a
reasonable return on capital. It believed that in
1997 all of the five European Community produ-
cers had made losses on their viscose production.
With regard to the polyamide textile filament yarn
sector, CIRFS stated that this, too, was in a gradu-
ally declining long-term trend. Capacity in the
Community was being gradually reduced, by a
market-driven process
rationalisation and
restructuring, to bring it more closely into line with
demand. Capacity utilisation remained at below the
90 % level required to achieve satisfactory levels of
profitability.

of

V. COMMENTS FROM THE SPANISH GOVERN-

MENT

(22)

In general terms, the Spanish Government reit-
erated the views it had expressed prior to the
opening of the procedure, notably that the various
public authorities concerned had followed the
normal procedures laid down in Spanish law for
the management of tax and social security debts
and that they had in no way granted the company
preferential treatment.

Non-payment of environmental levies owed
by SNIACE since 1987

(23)

The Spanish Government stated that in accordance
with the provisions of the Water Act (Law 29/1985
of 2 August 1985) and implementing regulations,
the Confederacion Hidrografica del Norte began in
1988 issuing assessments of the amount of waste
levy payable for discharges made in 1987 and
subsequent years, by individuals and businesses
discharging waste water in the catchment area for
which it was responsible. It
issued SNIACE in
1988 with assessment No 282/1988, which calcu-
lated the company’s tax liability at ESP 210 million
in respect of effluents generated by its production
processes during 1987.

(20)

The United Kingdom Representation to the Euro-
pean Union supported the view that aid had been
used to allow SNIACE to continue in business and

(24)

The company brought an economic/administrative
the
complaint
assessment before
this
Regional Economic Administrative Court
of
Asturias (TEARA), contesting its legality.

against

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a

court

guarantee

the complainant

(25) Article 81 of the Rules of Procedure for Economic/
Administrative Complaints, which were approved
by Decree 1999/1981 of 20 August 1981 and were
in force in 1988, provides that enforcement of deci-
to be
sions which have been challenged is
lodges with the
suspended if
economic
covering
bank
payment of the debt. In accordance with that provi-
sion, SNIACE provided TEARA with a guarantee
amounting to ESP 210 million issued by Banco
Espanol de Credito and covering assessment No
282/1988. The TEARA considered this to consti-
tute a sufficient guarantee and suspended enforce-
ment of the tax assessment pending its decision on
the complaint. It eventually adopted a decision in
which it upheld SNIACE’s complaint and revoked
and cancelled the effects of the tax assessment,
returning the bank guarantee which the company
had presented. The Confederacion Hidrografica del
Norte refused to accept this decision and brought
an appeal before the Central Economic Adminis-
trative Court (TEAC).

(26)

(27)

In 1989 the Confederacion Hidrografica del Norte
issued an assessment for 1988 which put SNIACE’s
tax liability in respect of that year at ESP 315
million (assessment No 271/89) and SNIACE, as in
the case of the levy for the previous year, lodged a
complaint with the TEARA and provided a bank
guarantee issued by Banco Espanol de Crédito, as a
result of which enforcement was suspended in
accordance with the above rules of procedure. On
the basis of the same legal arguments, the TEARA
upheld SNIACE’s complaint and revoked and
cancelled the effects of tax assessment No 271/89
and, as in the previous case, returned the bank
guarantee which SNIACE had presented. The
Confederacion Hidrografica del Norte in turn
brought an appeal against
this second decision
before the TEAC.

The TEAC joined the two appeals and ruled on
them in a single judgment which it delivered on 28
November 1990 and which upheld and confirmed
the legality of the assessments for 1987 and 1988
(assessments Nos 282/88 and 271/89). Since the
bank guarantees had been returned to SNIACE
pursuant to the earlier decisions of the TEARA, the
Confederacion Hidrografica handed over the two
assessments to the State Tax Agency (Agencia Trib-
utaria del Estado)
for collection through the
enforcement procedure.

(28)

In April 1990 SNIACE was issued with waste levy
assessment No 421/90, which put its liability in
respect of 1989 at ESP 525 million and against
which, as in the case of the assessments for 1987
and 1988, it lodged a complaint with the TEARA

(29)

(30)

and provided a bank guarantee issued by Banco
Espanol de Crédito.

In the light of the ruling by the TEAC of 28
November 1990, the TEARA rejected the compa-
ny’s complaint on this occasion (on 8 March 1991 )
and confirmed the legality of assessment No 421/
retaining the bank guarantee pending the
90,
outcome of the appeal brought by SNIACE. Since
the bank guarantee presented had been retained,
once the Court had dismissed SNIACE’s appeal
to the
Banco Espanol de Crédito made over
Confederacion Hidrografica the ESP 525 million
covered by the guarantee plus the corresponding
interest on late payment.

The Spanish Government emphasised that
the
Rules of Procedure for Economic/Administrative
Complaints, approved by Decree 1999/1981 of 20
August 1981 leaves the decision on whether or not
to provide a guarantee to the discretion of the
complainant; the advantage of the guarantee is that,
the
once it has been accepted, enforcement of
contested decision is suspended until
the court
rules on the complaint.

(31) Given this situation, it was in the Spanish Govern-
ment’s view reasonable, from a legal standpoint, for
SNIACE to provide bank guarantees when
contesting the waste levy assessments issued in
1988, 1989 and 1990, since there was no uniform
view of their legality. However, once the TEAC had
ruled on 28 November 1990 that the assessments
were lawful and the Confederación Hidrográfica
had called in the guarantee covering assessment No
421/90 (amounting to ESP 525 million plus
interest), this being the only guarantee that could
be put into effect since, as mentioned above, those
corresponding to 1987 and 1988 had been returned
by the TEARA, it can be assumed that SNIACE
would have found it difficult to persuade banks to
issue guarantees
that
would probably be rejected.

in respect of complaints

(32) Consequently, the assessments issued in 1991 and
subsequent years, although challenged before the
TEARA, were not guaranteed, nor was the enforce-
ment procedure suspended: once the periods of
time allowed for voluntary payment had expired,
the assessments were in every case handed over to
the State Tax Agency for collection throught the
enforcement procedure.

(33) According to the Spanish authorities, the debts run

up by SNIACE are as follows:

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Period

Principal

Surcharge

Collected

Interest

Total due

(ESP)

1987

1988

1990

1991

1992

1993

1994

1995

210 000 000

42 000 000

54 129 095

167 318 219

473 447 314

315 000 000

63 000 000

31 254 644

250 977 329

628 977 329

525 000 000

105 000 000

525 000 000

105 000 000

525 000 000

105 000 000

525 000 000

105 000 000

525 000 000

105 000 000

525 000 000

105 000 000

400 172 260

1 030 172 260

339 761 301

969 761 301

263 470 890

893 470 890

200 327 055

830 327 055

147 323 630

777 323 630

89 415 411

719 415 411

Total

3 675 000 000

735 000 000

85 383 739

1 858 766 095

6 354 149 834

(34)

Interest for late payment has been calculated up to
1 March 1998. This interest is calculated from the
due date for payment at the official interest rate for
each year; interest is payable on repayment of the
debt.

SNIACE creates problems deriving both from the
company’s situation and from the nature of the
goods attached:

(35) All debts arising from waste disposal levies to be
paid by SNIACE and entrusted to the State Tax
Agency for collection are now subject to compul-
sory collection procedure, in accordance with Book
III of the General Regulations for Collection (Royal
Decree 1684/1990 of 20 December, amended by
Royal Decree 448/1995 of 24 March).

(36)

(37)

the
The compulsory collection procedure for
payments has now reached the
attachment
(embargo) stage. This means that measures have
been implemented ordering the attachment of
goods and titles belonging to the debtor, to an
amount sufficient to cover the total debt to be
collected.

The proceeds from the attachment of monies and
short-term credits have already been applied to
repayment of the debts and are included in the
‘collected' column of the debts table above. The
next step in the compulsory collection procedure is
execution, by means of public auction, against
including the factory and its
immovable goods,
plant and equipment belonging to SNIACE and
subject to attachment.

(38)

The Spanish authorities have stated that execution
against attached immovable goods belonging to

(a) The site of the attached factory and its plant
and equipment are officially classified as land
for industrial use, and both the factory and its
plant and equipment are designed for SNIACE
activities. This means the market for any sale is
very limited, given that the land may not be
utilised otherwise than for industrial purposes
and that the modification of the facilities for
any other activity would be too costly. Besides,
the property has already been mortgaged for
over ESP 5 000 million with a number of
banking institutions as a result of trading loans
granted to SNIACE prior to the institution of
procedures for the redemption of debts for
waste disposal levies. These mortgages, which
date from before attachment, would remain
effective in case of the sale of immovable goods,
which very much diminishes the chances of
sale.

(b) SNIACE is a going concern with a large work-
force. The sale of the factory and its plant and
equipment would very probably mean ending
production and closing down the company.
This in turn would lead to the creation of
further debts for unpaid wages and compensa-
tion paid out
for extinguishment of work
contracts. Even if a purchaser were to be found
for SNIACE’s immovable goods, the proceeds
these wage credits,
would go to paying off
which have priority over amounts due to the tax
authorities in accordance with Spanish regula-
tions.

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an irreversible

(c) The debts which resulted in the attachment of
the company’s immovable goods are at present
the subject of a number of administrative and
legal proceedings and, as such, are not sound.
Even though execution has not been suspended
because SNIACE has not offered a guarantee
before the courts, the tax authorities must at
least act with due caution before proceeding
with the sale of the immovable goods, since this
action which could be
is
declared invalid if the courts were to find in
SNIACE’s favour. Due caution has,
indeed,
characterised administrative behaviour in such
cases up to now. Law 1 of 26 February 1998 on
Rights and Duties of Tax Payers expressly
covers this question, furnishing further proof of
the sensitivity with which the tax authorities
should proceed when taking irreversible deci-
sions in regard to debts which are not defin-
itive. This rule, which came into effect on 19
March 1998,
the tax
authorities to proceed with the disposal of
goods attached in cases where repayment of the
debt justifying attachment has been guaranteed.
As for the steps taken by the Agenda Tributaria
in order to ensure the payment of debts, the
Spanish authorities stress that in this case the
Agenda Tributaria has implemented all possible
actions provided for in the law. Credits and
titles have been attached, along with the factory,
plant and equipment used for company activi-
ties.

the powers of

limits

(39) According to the Spanish authorities, the difficul-
ties which have arisen during the execution proce-
dure for the collection of the debt have led to
discussions with the company and with the
Confederacion Hidrografica del Norte, the body
charged with redemption of
the waste disposal
levies owed by SNIACE, in order to reach a nego-
tiated settlement
in
accordance with the stipulations of the General
Collection Regulations
in regard to deferred
payment and payment in instalments. The terms
and conditions for payment in instalments and the
guarantees which SNIACE would have to pledge
are at present under discussion.

for repayment of

the debt

(40)

The Spanish authorities stressed that the fact that
payment in instalments is being discussed with the
this
company does not necessarily mean that
option will be adopted; the outcome will depend
on conformity with relevant
legal requirements,
especially those regarding guarantees.

Non-enforcement of social security contribu-
tions since 1991

(41)

The Spanish Government stated that a further
rescheduling agreement for the outstanding debt to
in
the social security system had been made,

accordance with the provisions of Article 40 and
following the General Regulations on Collection of
Social Security Contributions, approved by Royal
Decree 1637/1995, of 6 October (Official State
Gazette of 24.10.1995), namely an agreement dated
30 September 1997 covering rescheduled debts
totalling ESP 3 510 387 323 for the period February
1991 to February 1997 plus surcharges of ESP
615 056 349 and imposing terms of 120 monthly
instalments with interest payments only payable in
the first and second years at the legal interest rate
of 7,5 % followed by repayments in years three to
10 of
increasing
annual rates of 5, 5, 10, 10, 15, 15, 20 and 20 %
respectively.

the principal plus interest at

(42) As at April 1998 SNIACE, SA had made ESP
216 118 863 in repayments to Social Security under
the new deferment Agreement.

(43)

(44)

(45)

The Spanish Government stated that
this new
deferral of debt repayment incorporates the debt
referred to in the aforementioned agreement of 8
March 1996, amended by the deferral granted on 7
May 1996, which was rendered invalid due to non-
payment of the repayment schedule instalments,
no sum relating to the same having been deposited
by the company.

reiterated that

The Spanish Government
the
General Social Security Treasury had acted in
accordance with the applicable rules and regula-
tions and that their behaviour cannot be deemed to
involve the grant of State aid. The rules and regula-
tions in question are generally applicable to all
firms in any of the situations specified therein, and
do not relate to specific companies or sectors.
Action taken by the Social Security authorities with
a view to collecting the monies owed by SNIACE
had at all times followed the procedure laid down
by law in the General Regulations for the Collec-
tion of Social Security Revenue.

The Spanish Government stressed that postpone-
ment of debt is allowed for as a general measure
and is not decided on a discretionary basis by the
authorities. The procedure for such postponement
is laid down in Articles 40 to 43 of the General
Regulations for the Collection of Social Security
Revenue, which were approved by Royal Decree
No 1637/1995 of 6 October 1995. According to
those Regulations, social security debts may be
postponed or paid in instalments, at the request of

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L 149/47

those liable for payment, where their economic or
financial situation prevents them from paying their
debts (Article 40). In other words, postponement is
granted whenever a firm so requests and fulfils the
conditions laid down in the Regulations. Postpone-
ment decisions are in the interests of recovery of
the debt by the social security system, since any
other course of action would result in closure of the
firm concerned, destroying any chances of securing
payment.

(46)

(FOGASA),

The Spanish Government added that as a guarantee
for the repayment of the debt, the company offered
to take out a first mortgage on the factory, plant
and equipment located at Torrelavega in favour of
the General Treasury for Social Security and the
jointly.
Fund
Salary Guarantee
According to an evaluation made by American
Appraisal Espana SA on 31 December 1996, the
real value of the assets concerned amounted to ESP
the
25 580 000 000 However,
complexity and difficulty of the measures required
to ensure that the security offered had full legal
effect, SNIACE requested an extension to the dead-
line for setting up the guarantee. This extension
was granted by the Director-General of the General
Social Security Treasury on 19 December 1997, for
a maximum of six months, in accordance with the
provisions of Article 21 of the Order of 22 February
1996, during which time the notices of seizure
issued by the General Social Security Treasury
would not be acted upon.

because

of

(47) During the extension period, since the difficulties
mentioned above persisted and the enterprise could
not specify a definite date for final settlement, the
company made a request for ‘substitution of the
security' in order to ensure that notices of seizure
would not be acted upon. According to the Spanish
authorities, an examination is underway to deter-
mine whether the new security would sufficiently
cover the deferred debt.

of debt
is a discretionary government measure
adopted after examination of each individual case;
but while they accept that Article 20 of the General
Social Security Law uses the word ‘podran' (may)
when referring to the authority’s power to grant a
deferment of payment of social security debts, only
by an absolutely literal
interpretation could the
authority be said in the Spanish Government’s view
to have discretionary power. It argued that discre-
tionary is not the same as arbitrary, which would
imply the capricious and nonuniform application
of the law to similar situations. The reality was that
whenever
deferment
because it is in an economic or financial situation
that makes it impossible for it to pay its debts, and
provided that it complies with the legal require-
ments laid down by current law (which would, of
course, imply individual examination of the case),
such a deferment is granted. In this context, the
Spanish authorities argue that
this measure is
general practice and that
the same criteria are
applied in all cases.

an enterprise

requested

(50)

Finally,
the Spanish Government maintains its
argument that the granting of deferments protects
the interests of the social security system, in terms
of recovering debts, better than any other form of
action that would imply the closure of enterprises,
thus making it absolutely impossible for all, or
even a significant part, of the debts involved to be
recovered. Hence, preference is given to the
method that is most advantageous to the social
security system.

Loan guarantee approved totalling ESP 1
billion approved by Law No 7/93

(48) According to the Spanish authorities, this post-
ponement cannot be deemed to constitute State aid
to the company concerned since the terms under
which the debt has to be paid, with interest payable
at the statutory rate applicable on the date the
postponement was granted, are in accordance with
generally applicable and mandatory rules laid down
in Spanish legislation.

(49) However, by letter dated 24 June 1998 the Spanish
authorities stated that their position did not contra-
dict the view of the complainant that deferment

(51)

The Spanish Government maintained its view that
there was no aid involved since the loan guarantee
had never been formalised. It reiterated that Article
2 of Law No 7/1993 of 16 September 1993 simply
authorised the Regional Government
to award
SNIACE a guarantee covering an ESP l billion
loan. This had not in fact occurred, since the Law
laid down a number of strict conditions that had to
be met if the Regional Government was to provide
the guarantee and which had not so far been met.
Thus the guarantee had not been granted and had
not been put into effect. Indeed, the company had
not even requested it. The Spanish Government
repeated that prior to any possible formalisation of
this guarantee, it would submit a prior notification
to the European Commission.

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16. 6. 1999

(52)

The Spanish Government further argued that under
Spanish private law (Article 440 of the Commercial
Code and Articles 1822 to 1856 of the Civil Code)
a guarantee is defined as a formal transaction: this
means that, if a guarantee document is not supplied
to the entity which is to undertake the risk, the
guarantee does not exist and no rights or obliga-
tions are created by it. A guarantee is more than a
mere declaration of intent. In order for the guar-
antee in question to be implemented, the following
conditions would have to be fulfilled:

(a) confirmation of conformity with provisions of

Law 7/93;

(55) According to the technical studies carried out so far
under the general plan for waste water treatment in
the Saja/Besaya basin, waste water discharged by
industrial firms in the area, including SNIACE, will
have to be treated at source by the firms them-
selves, and treated effluents will be allowed to be
fed into the waste water system in accordance with
laid down in the Regulations on
the limits
Discharges and subject
to the payment of user
charges reflecting the permissible pollutant load.
The option of treating all the industrial waste water
in a specific treatment line alongside the municipal
water treatment plant has been rejected on the
grounds of the complexity of such a solution.

(b) a legal report on the guarantee document to be

(56)

drawn up;

(c) a general audit report;

By letter dated 16 April 1998 the Spanish authori-
ties added that SNIACE had already acquired the
constituent parts of the waste water treatment plant
without any form of public assistance and that
there are consequently no concrete plans for the
granting of any assistance of this nature.

(d) a proposal

for offering a guarantee by the
the

for

Regional Government Minister
Economy and Taxation;

(e) regional Government approval of the guarantee;

(f) drawing up of the guarantee document.

Partial cancellation by the Torrelavega City
Council of debts totalling ESP 116 million

Financing arrangements
construction of a waste treatment plant

the planned

for

(53)

(54)

The Spanish Government stated that the construc-
tion of a treatment line is planned as part of the
the River
integrated water
Besaya and not for the exclusive use of SNIACE,
but that the project was currently only at the plan-
ning stage.

treatment plan for

The company is currently taking steps to install a
waste recovery plant. Any action taken with regard
to the treatment of discharges made by the
company into the River Besaya is linked to meas-
ures taken under the general plan for waste water
treatment in the Saja/Besaya basin, which has been
declared as being in the national interest and is
currently undergoing technical appraisal. Until this
is impossible to
phase has been completed it
indicate what measures will ultimately have to be
taken by firms making discharges into the River
Besaya.

(57)

(58)

The Spanish authorities stated that the Munici-
pality of Torrelavega had acted in all respects
within its powers and that the ‘release' of the said
amount of taxes did not constitute in Spanish law a
‘cancellation' of debt.

the

framework of

The Torrelavega City Council had not participated
in the Creditors’ Agreement of October 1996
suspension of
within the
payments procedure, but had instead reached a
separate special agreement based on the ‘release'
(‘quita') and postponement (‘espera') provisions of
Spanish tax law and by which they accepted the
same sacrifices as private creditors. That is, they
agreed to grant the reduction of amount and exten-
sion of time laid down in the creditors’ agreement
and to allow payment in instalments over a period
of five years, with a grace period and interest rates
as laid down in the Creditors Agreement. The sole
purpose of signing the special agreement was to
guarantee the recovery of SNIACE’s tax liability
with regard to the municipal authorities, since the
amounts ‘released' were not covered by any form of
guarantee and there were no assets free of lien. The
agreement was strictly in accordance with Article
129, paragraph 4 of the General Tax Law.

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(59) According to the Spanish authorities, Spanish bankruptcy law draws a clear distinction
between the concept of cancellation and that of reduction of amount and extension of
time. Cancellation may be granted only by law and usually concerns disaster situations that
make it appropriate to waive taxes. Reductions of amount and extensions of time are
granted purely with a view to the recovery or possibility of enforcing payment of at least
part of a debt and are granted only in respect of bankruptcy proceedings in which, as in
the case in question, the incontestable preference of mortgage creditors (Banco Espanol de
Crédito) with a lien on land and buildings renders impossible any recovery measures.

(60)

(61)

The Spanish authorities supplied the Commission with a copy of Mayoral Decision of the
Torrelavega City Council No 4358/97 of 15 December 1997, which states inter alia that
the amount of SNIACE’s tax debts reached, at that date, a principal of ESP 216 245 424
plus business tax for 1996 of ESP 37 523 859 to which surcharges and statutory interest
payments may be added. An amount of ESP 10 193 800 was guaranteed by distraint and
some ESP 45 000 000 is pending compensation; under Article 73 of the General Tax Law,
property tax has special preference under an Implicit Legal Mortgage.

The Spanish authorities emphasised that the ‘release' of debts relates to tax assessments not
covered by priority claims or prior distraint and those which, like business tax (impuesto
sobre actividades economicos  IAE), could and should have been annulled since they are
based on a complete year’s activity (circumstances which do not apply in the case of 1995
and 1996 when the company was closed down for many months):

(ESP)

Water and refuse collection fourth quarter 1994

Water and refuse collection first quarter 1995

Water and refuse collection second quarter 1995

Water and refuse collection third quarter 1995

Water and refuse collection fourth quarter 1995

Business tax 1995

Surcharges for enforced collection

Water and refuse collection first quarter 1996

Water and refuse collection second quarter 1996

Road tax 1996

Business tax 1996

Direct assessment of business tax 1995

3 808 525

1 230 231

1 410 205

1 205 407

1 217 353

37 854 610

24 837 978

1 254 510

1 404 795

6 700

37 523 859

4 449 635

Total

116 197 108

(62) According to the Spanish Government, the release from debt of ESP 116 million cannot be
deemed to constitute direct or indirect aid because the City Council’s decision was
confined to eliminating, so to speak, those debts that could not be collected, some of
which (such as the assessments of business tax for 1995 and 1996 and the surcharges for
enforced collection) must be partly cancelled since the assessment was made on the basis
of a year’s full activity, whereas the company was hardly active at all in 1995 and 1996.
Business tax is a tax whose rate is set by Central Government and is based on full
economic activity. That is, they assume a full workforce and energy consumption in line
with the enterprise’s normal level of activity. In fact, production was suspended during this
period and the amounts for both years should be automatically cancelled.

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Official Journal of the European Communities

16. 6. 1999

(63) Consequently, of the total amount covered by the
agreement
to ‘release' debts, ESP 100 216 447
represented unenforceable debts  the amount for
business tax because of the invalidity of the charge,
and the surcharges which were an accounting item
relating to the actual tax debt concerned by the
release, so that the amount of this item should be
understood as nothing more than accounting infor-
mation without any practical effects whatsoever.

(64)

(65)

(66)

The remaining amounts, for water rates and waste-
collection charges, were also the subject of serious
miscalculation, since the rate charged for waste
collection, at least, is based on the assumption of
full economic activity, which did not apply in the
years 1994, 1995 and 1996. Those assessments will
consequently be replaced with new assessments
reflecting the real level of activity. The assessments
of business tax for
the years 1995 and 1996,
amounting to ESP 79 497 353 were therefore
completely unrealistic and ultimately have to be
partly cancelled.

The remainder of the debt included in the decision
could under no circumstances be
recovered
through enforcement procedures since it enjoys no
priority, and the City Council’s decision therefore
has no practical effect on the company since it
relates to amounts that cannot be collected and
amounts that had to be cancelled on account of the
firm’s lack of real economic activity.

The Spanish authorities concluded that the muni-
cipal authorities of Torrelavega acted simply to
ensure real and effective protection of their finan-
cial interests, doing everything possible to recover
the SNIACE debt. Their actions had been in full
compliance with the law and had never had the
effect of diminishing the Municipality of Torre-
lavega’s funds; neither could they be deemed to
involve direct or indirect aid to SNIACE, since the
release from debt was confined to amounts which,
for a variety of reasons, could not actually be recov-
ered.

that entitlement

to wage guarantees

means
is
exclusive to workers and never involves the provi-
sion of aid or loans to enterprises with labour-
related debts. the Ministerial Order of 20 August
1985 governs the conclusion of agreements for the
repayment of amounts paid by the Wages Guar-
antee Fund and expressly includes the possibility of
agreements for the deferment and payment
in
instalments of debts, which may be entered into by
the Wages Guarantee Fund, subject to the regula-
tions laid down by the Order.

(68)

In accordance with the Order of 20 August 1985,
which enforces Article 32 of Royal Decree 505/85
of 6 March 1985, FOGASA signed two repayment
agreements with SNIACE:

(a) dated 5 November 1993

Total
1 362 708 700

amount

including

interest:

ESP

Payment period: eight years

Instalments due: every six months

Interest rate: 10 %, which was the legal interest
rate for 1993, in accordance with the provisions
of the Order of 20 August 1985

Security: property mortgage

(b) dated 31 October 1995

amount

Total
339 459 878

including

inte

rest: ESP

Payment period: eight years

Instalments due: every six months

Interest rate: 9 %, which was the legal interest
rate for 1995, in accordance with the provisions
of the Order of

20 August 1985

Security: property mortgage

Agreements between SNIACE and the wages
guarantee fund FOGASA covering the repay-
ment of an amount
totalling ESP 1,702
billion, corresponding to overdue salaries of
the workforce paid by FOGASA on behalf of
SNIACE

(67)

The Spanish Government reiterated that FOGASA
pays to employees the amounts owing to them for
wages and compensation from enterprises that are
insolvent or involved in bankruptcy proceedings.
These benefits are paid to the workers, which

(69)

The amount repaid by the enterprise under the two
agreements as at June 1998 amounted to ESP
186 963 594.

(70) According to the Spanish authorities, the agree-
ments do not involve an aid or subsidy granted by
the State, as defined in Article 81 of the revised text
of the General Budget Law: that is to say any free
provision of public funds by the State or its auto-
nomous bodies to public or private individuals or
bodies to promote an activity of social interest or to
facilitate the achievement of a public aim, or, in a
more general sense, as in the case of any form of
aid that is granted and charged to the State budget

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Official Journal of the European Communities

L 149/51

(71)

(72)

(73)

(74)

or the budget of any of its autonomous bodies, as
well as subsidies or aids financed, in whole or in
part, by European Union funds. Rather,
they
concern credits to which the body in question is
entitled with regard to enterprises because of subro-
gation of the rights and actions of workers who
have received benefits.

Finally, the Spanish Government argued that the
rules and regulations in question are generally
applicable to all firms in any of the situations spe-
cified therein, and do not relate to specific com-
the
panies or
amounts that are owed to them and never makes
any payment to the companies concerned;
it is
forbidden from doing so by
applicable
legislation.

sectors. Fogasa pays employees

the

the procedure,

In addition to commenting on the issues under
investigation under
the Spanish
Government also reacted to the observations by
third parties that the reported loan of ESP 2 000
million by the Caja Cantabria in favour of SNIACE
contained State aid. It refuted the allegations and
stated inter alia that the Caja is a credit institution
governed by private law which has to take its
investment decisions on the basis of profitability
and solvency criteria. In the light of the informa-
tion available at this stage, the Commission accepts
that the alleged aid awarded by the Caja Cantabria
does not fall within the scope of the procedure.
However it can by no means exclude the possibility
that aid may be involved and reserves the right to
continue its investigation into this matter outside
the context of this procedure.

period by 11 %. The average capacity utilisation
rate in that period was about 84 %, which is low
for such a capital-intensive sector. In addition to
supplying the Spanish market, SNIACE has tradi-
tionally supplied other European markets, notably
Italy and France. In addition SNIACE produces
synthetic fibres, namely polyamide filament yarn.
This is a sector which also suffers from substantial
overcapacity, with an average capacity utilisation
rate in 1995 to 1997 of only 76 %.

Non-payment of environmental levies owed
by SNIACE since 1987

(75) As at l March 1998, it appears that the total value of
unpaid debts on environmental
levies for waste,
including surcharges and interest charges for the
period 1987 to 1995 had risen to about ESP
6 268 766 095 (rather than the ESP 6 354 149 834
stated by the Spanish authorities, which did not
take account of the amounts already collected in
1987 and 1988). Yet the enforcement procedure for
the collection of these debts was apparently insti-
tuted some eight years ago, following the ruling
made on 28 November 1990 by the Central
Economic Administrative Court on the legality of
the assessments for 1987 and 1988. As the Spanish
the enforcement
authorities
procedure has no suspensory effect in this case,
since SNIACE has not secured bank guarantees
against the contested environmental
levy assess-
ments (except for 1988).

themselves

admit,

VI. ASSESSMENT OF THE PRESUMED AID

The Commission must first determine whether or
not the various measures subject to the procedure
contain State aid within the meaning of Article
92(1) of the EC Treaty. In the light of the informa-
tion available the Commission’s assessment is as
follows.

(76) However,

that under
the Commission accepts
Spanish law it is the tax authority and not the
Confederación Hidrográfica del Norte which is the
responsible body for managing the collection of
these debts from SNIACE. As at June 1998 ESP
85 383 739 had been recovered, which represents
little more than a mere 1 % of the total claim.
Meanwhile the amount of debts, including interest
at the legal interest rate and surcharges, continues
to rise.

SNIACE is one of five viscose fibres producers in
the Community. Its products are traded between
Member States, and there is competition among
producers. Intra-Community trade for viscose fibre
(Combined Nomenclature number 5504 10 00)
amounted to approximately 101 000 tonnes
in
1997. SNIACE operates in a sector in decline,
which has resulted in rationalisations in capacity
being made by some of its competitors. Production
in the EEA of these fibres declined from 760 000
tonnes in 1992 to 684 000 tonnes in 1997 (a reduc-
tion of 10 %) and consumption fell in the same

(77)

The Commission notes that it has proved difficult
to execute the collection of
the debts, notably
because of the serious financial situation facing
SNIACE and the legal challenges brought by
SNIACE against the annual assessments. By not
proceeding to execution so far and thereby possibly
provoking the liquidation of the company, the tax
authority may have acted in such a way as to maxi-
mise its prospects of recovering at least a propor-
tion of
levies which
would otherwise have been impossible due to the
existence of other creditors with a higher priority.

the unpaid environmental

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Official Journal of the European Communities

16. 6. 1999

(78)

In conclusion, the investigation carried out by the
Commission has not allowed it to conclude at this
stage that the non-payment of environmental levies
definitely constitutes State aid. In view of
the
complex legal issues surrounding the question of
whether or not the public authorities have offered
SNIACE preferential treatment by not recovering
the unpaid levies, the Commission intends to defer
a decision on this element until a later stage.

Non-enforcement of social security contribu-
tions since 1991

(79)

argument

The Commission does not dispute the Spanish
the Social Security
that
authorities’
Treasury has acted in such a way as to protect its
claims. The Commission must also stress that it in
no way questions the general social security system
in Spain.

if

(80) Nevertheless the Spanish authorities have acknow-
ledged that
the Social Security Treasury had
proceeded to enforce its claims, the consequence
could have been the closure of the company. It is
thus evident
in this case tolerance by the
Social Security Treasury of deferred payment of
security contributions over a
SNIACE’s
period of many years has conferred an appreciable
advantage on the company.

social

that

(81)

It is also evident that the applicable Social Security
regulations afford the authorities a margin of
discretion in the treatment of individual cases and
that this is precisely what has occurred in this case.
The Commission must stress that it is the degree of
discretion which the Social Security Treasury was
able to exercise in this particular case, and more-
over to a firm which appeared to be suffering from
a lack of viability, which leads the Commission to
reject the Spanish authorities’ contention that the
action taken by the Social Security Treasury with
regard to SNIACE constitutes general measures (1).

(82) Notwithstanding the fact that the Social Security
Treasury has acted in accordance with the applic-
able legislation, the treatment of SNIACE’s debts,
through various rescheduling agreements, does not
seem to have been consistent with prevailing
market conditions. The Commission’s practice has
been to make a comparison with the value at the

(1) Advocate-General Jacobs

in his opinion of 24
indicates
September 1998 in Case C-256/97 D. M. Transport SA that ‘it
is clear that in certain circumstances continued and generous
tolerance of late payment of social security contributions may
confer an appreciable commercial advantage on the recipient
undertaking and in extreme cases be tantamount
to relief
from those contributions'

(point 33).

relevant time of the reference rate fixed for the
Member State concerned. However, no such rate
was fixed for Spain until August 1996. Therefore, in
determining whether or not such a rate is consis-
in previous cases
tent with market conditions,
involving rescheduling of social security debts (2),
the Commission has made a comparison with the
prevailing average rate of
interest charged by
private banks in Spain on loans over more than
three years. In this case, according to statistics
published by the Spanish Central Bank, the average
rate of interest charged by private banks on loans
longer than three years during the period in ques-
tion was as follows: 1991 18,24 %; 1992 17,28 %;
1993 16,19 %; 1994: 12,51 %; 1995: 13,09 %;
1996: 11,06 % (3). The other conditions of
the
rescheduling agreements, with the bulk of
the
repayments of principal and interest timed towards
to facilitate the
the end (apparently in order
company’s recovery) are also not in confomity with
credits under normal market conditions.

(83)

It must therefore be concluded that the agreements
contained State aid within the meaning of Article
92(1) of the Treaty which was illegal not having
been been notified to the Commission pursuant to
Article 93(3) of the Treaty. It is difficult to quantify
the precise amount of illegal aid involved but it is
at least equal to the financial advantage arising
from the reduced interest rate applied and effective
from when the debts were incurred.

Loan guarantee approved totalling ESP 1
billion approved by Law No 7/93

(84) While it is unfortunate that the Spanish authorities
did not notify the Commission of the intention of
the Cantabrian regional assembly to authorise the
granting of the guarantee in question, especially
the company
bearing in mind the fact
produces inter alia polyamide fibre, a product
falling within the scope of control of the Code on
aid to the synthetic fibres industry, the Commis-
sion can accept that the regional assembly itself
does not grant guarantees and that a number of
separate additional administrative steps would have
been required to put the guarantee into effect. In
the Commission is unaware of any
addition,

that

(2) For example in the Tubacex Case; OJ L 8, 11.1.1997.
(3) The reference rates which have subsequently applied to Spain
are as follows: 1.8.1996 to 1.11.1996: 13,45 %; 1.11.1996 to
1.1.1997: 11,40 %; 1.1.1997 to 1.8.1997: 10,56 %; 1.8.1997 to
1.1.1998: 6,22 %; 1.1.1999 to date 0,620 %.

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Official Journal of the European Communities

L 149/53

evidence demonstrating that the passing of the Law
conferred a commercial advantage on SNIACE.
Consequently, on condition that
the Spanish
Government notifies the Commission in advance
of any proposal to formalise the guarantee, the
Commission concludes that Law 7/93 of itself does
not confer any special advantage on SNIACE and
does not therefore constitute a State aid.

the ‘release'

agreement. On the contrary,
from
debts was confined essentially to amounts which
could not actually be recovered, notably since the
company was not economically active for much of
1995 and 1996 and that the amounts due have
consequently to be reassessed, though no details of
the modified assessments have yet been provided to
the Commission.

Financing arrangements
construction of a waste treatment plant

the planned

for

(85)

The Commission notes that according to the in-
formation provided by the Spanish Government
the implementation of the regional plan for treat-
ment of waste in the Saja/Besaya basin is at the
technical appraisal stage and that until this phase
has been completed it will not be known what
measures may ultimately have to be taken with
regard to discharges made by firms (including
SNIACE) into the River Besaya. The Commission
also notes the assurances given by the Spanish
Government that action already taken by SNIACE
with regard to the installation of waste water treat-
ment facilities has been made without any form of
public intervention and moreover that no such
public assistance is envisaged. Accordingly,
the
investigation by the Commission has not allowed it
to establish the existence of aid elements in this
respect.

Partial cancellation by the Torrelavega City
Council of debts totalling ESP 116 million

(86) On the basis of the information provided by the
Spanish Government, Torrelavega City Council
appears to have acted in such a manner as to
protect all those claims against SNIACE which it is
legally able to enforce under Spanish law. The
Commission has also examined whether the public
creditor’s behaviour in this case was determined by
the intention to maximise the chances of recovery
of the unpaid taxes and whether its actions were
comparable to those of the private creditors. As the
Commission acknowledged when opening the
procedure, by not subscribing to the private cred-
itors’ agreement of October 1996 (which stipulated
inter alia the conversion of 40 % of the debts into
shares) within the framework of the suspension of
payments procedure, the public authorities were
able, in principle, to protect their entire claims. In
addition, the Commission can accept that the sep-
arate agreement between Torrelavega City Council
and SNIACE, which effectively went in parallel
with the creditors’ agreement, does not appear to
have accorded SNIACE any more generous treat-
ment than that reached in the private creditors’

(87) Accordingly, on the basis of the available informa-
tion the Commission can accept that the actions of
the municipal authorities in Torrelavega coming
within the scope of the proceedings did not confer
any undue advantage on SNIACE or result in the
cancellation of debts and did not therefore consti-
tute State aid.

Agreements between SNIACE and the wages
guarantee fund FOGASA covering the repay-
ment of an amount
totalling ESP 1,702
billion, corresponding to overdue salaries of
the workforce paid by FOGASA on behalf of
SNIACE

(88)

the

regulations,

The Commission reiterates, as it stated in the
opening of the procedure, that it does not object to
the intervention of FOGASA in so far as it settles
on behalf of the company, in accordance with its
(FOGASA’s)
valid claims of
employees of SNIACE that they would not other-
wise have received. However, in accordance with
constant Commission practice any discretionary
contribution by the State to these costs must be
regarded as aid and not as a general measure if it
conferred financial advantages on the company
regardless of whether the payments are directly to
the company or are administered to the employees
through a government agency.

(89) According to the Commission’s understanding of
these arrangements, FOGASA has discretionary
power to postpone or split up the repayments up to
a period of eight years. The deferred payments
accrue at the legal interest rate. Notwithstanding
that these arrangements are in accordance with the
applicable legislation, they do not seem to have
been consistent with the prevailing market condi-
tions. For the same reasons as given in relation to
the social security debts above (the fact that there
was no reference rate fixed for Spain until August
1996), the Commission has made a comparison
with the average rate of interest charged by private
banks on loans longer than three years during the
period in question, which was as follows:- 1993:
16,19 %; 1994: 12,51 %; 1995: 13,09 %; 1996:
11,06 %. These rates are considerably more than

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Official Journal of the European Communities

16. 6. 1999

the rates payable under the agreements. Further-
more, the Commission continues to have doubts
that the company is able to meet the terms of the
agreements in the light of its financial difficulties.
Despite repeated requests, the Spanish Government
failed to provide specific details of the nature of the
mortgage put up as security to FOGASA.

(90) Consequently,

following the approach adopted
above in relation to social security debts it must
therefore be concluded that the rescheduling agree-
ments with FOGASA contained State aid within
the meaning of Article 92(1) of the EC Treaty
which was illegal, not having been notified to the
Commission. As in the case of the social security
debts, quantification of the precise amount of the
illegal aid is difficult, but the aid is at least equal to
the financial advantage arising from the fact that
the interest rate payable under the rescheduling
agreements were only 10 and 9 % respectively.

(91) Having

State

illegal

established that

aid is
contained in the non-payment of environmental
levies, rescheduling of the social security debt and
the FOGASA repayment agreements, the Commis-
sion must decide whether or not such aid is incom-
patible with the common market and the working
of the EEA Agreement.

(92) Article 92(1) of the EC Treaty lays down the prin-
ciple that aid having the characteristics specified
therein is incompatible with the common market.
in
The derogations from that principle set out
Article 92(2) of the EC Treaty do not apply to the
case in point, given the nature and objectives of the
aid.

the requisite features to facilitate the development
of certain economic areas within the meaning of
this Article, inasmuch as it was granted in the form
of operating aid, that is to say, not conditional on
investment or job creation. Furthermore, operating
aid in Article 92(3)(a) areas could only exceptionally
be covered by this exception when granted under
restricted and controlled conditions in relation to
firms in difficulty (see below).

(94) As far the derogation pursuant to Article 92(3)(b) is
concerned,
intended to
the aid was clearly not
promote a project of common European interest or
to remedy a serious disturbance in the Spanish
economy. Nor has
the Spanish Government
attempted to justify the aid on such grounds.

(95) As

the derogation pursuant
the Treaty,

to Article
regards
92(3)(d) of
the aid was clearly not
intended to promote culture and heritage conserva-
tion.

(96)

(97)

Thus, for the measures in favour of SNIACE the
Commission’s assessment concentrates on the non-
regionally specific element of Article 92(3)(c) of the
Treaty, which lays down an exception for ‘aid to
facilitate the development of certain activities'
where such aid does not adversely affect trading
conditions to an extent contrary to the common
interest. The aid to SNIACE could be categorised
as an aid to a firm in difficulty, given its financial
position during the period when the aid was
awarded.

The Commission considers that aid to firms in
difficulties carries the greatest risk of transferring
unemployment and industrial problems from one
Member State to another; it acts as a means of
preserving the status quo by preventing forces at
work in the market economy from their normal
consequences in terms of disappearance of uncom-
petitive firms in their process of adaptation to
changing conditions in competition; at the same
time, such aid may bring about disruptive effects
on competition and trade through its influence
upon the pricing policies of beneficiaries opting for
undercutting strategies to stay on the market.

(93) With regard to the exceptions provided for in
Article 92(3)(a) and (c) for aid that promotes or
facilitates the development of certain areas,
the
Commission notes
the region in which
that
SNIACE is located has since September 1995 been
a region eligible for regional aid pursuant to Article
92(3)(a) and prior to that date was eligible for
regional aid pursuant to Article 92(3)(c). However,
the assistance afforded to SNIACE does not have

(98)

For this reason, the Commission has over the years
developed a special approach for the assessment of
aid to firms in difficulty. The Community guide-
lines on State aid for rescuing and restructuring
firms in difficulty (1) define a number of conditions
fulfil. They distinguish
which such aid must
between rescue aid and restructuring aid.

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

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Official Journal of the European Communities

L 149/55

(99)

Rescue aid, that is, aid merely granted to keep a
firm in business while the causes of their diffi-
culties are discovered and a remedy worked out,
can be authorised as compatible with the common
market if it:

(a) consists of liquidity help in the form of loan
guarantees or loans bearing normal commercial
interest rates;

(b) is restricted to the amount needed to keep the
firm in business (for example, covering wage
and salary costs and routine supplies);

(c) is paid only for the time needed (generally not
exceeding six months) to devise the necessary
and feasible recovery plan; and

(d) is warranted on the grounds of serious social
difficulties and would not have any adverse
effects on the industrial
situation in other
Member States.

to curb the provision of aid that would result in an
increase in capacity for the production of the main
synthetic fibres. As SNIACE is a producer of
synthetic fibres and as the aid in question appears
in part to be by way of support for such activities,
the measures in question could only be considered
compatible with the common market if they also
conformed with the Code on aid to the synthetic
fibres industry. Although the aid goes back over a
period of several years, it must be examined against
the terms of the current version of the Code. The
Code covers inter alia investment aid for the
extrusion and texturisation of four fibres  poly-
ester, polyamide, acrylic and polypropylene. The
Code states clearly that, with respect to larger firms
(that is, firms which are not SMEs), the Commis-
sion will only authorise such aid (at up to 50 % of
the applicable aid ceiling) if the aid would result in
a significant reduction in the relevant capacity, or if
the market for the relevant products was character-
ised by a structural shortage of supply and the aid
would not
increase in
capacity.

in a significant

result

(100) The general principle is that restructuring aid will
only be authorised where it is in the Community
interest and is linked to a viable restructuring/
recovery programme submitted in detail
to the
Commission. A restructuring plan must satisfy all
of the following conditions:

(102)

In this case the Spanish Government did not seek
to argue that the measures constituted rescue or
restructuring aid. Nor did it put
forward any
evidence of any valid restructuring plan or a
proposed reduction in SNIACE’s market presence.
This would appear to confirm that the aid had the
effect simply of allowing the company to continue
in business.

(a) the plan must restore the long-term viability
and health of
the firm within a reasonable
timescale and on the basis of realistic forecasts
of future operating conditions;

(b) the plan must offset as far as possible any
potential adverse effects on competitors;

(c) the amount and intensity of the restructuring
aid must be restricted to the minimum needed
to enable the restructuring to take place and be
related to the benefits anticipated from the
Community’s perspective. Therefore,
restruc-
turing aid beneficiaries are normally expected
to make a significant contribution to the
restructuring plan from internal resources or
from external commercial financing.

(103) As far as the viability plan submitted to the
Commission by the complainant prior
to the
opening of the procedure is concerned, the Spanish
Government merely confirmed its view that the
consultant’s conclusion ‘the viability of SNIACE is
only possible through the granting of subsidies
which would enable investment projects to be
undertaken and debts renegotiated' was purely a
private opinion reflected in a private study and did
not necessarily reflect the views of the Spanish
authorities.

(101) Finally, since 1977, the freedom of Member States
to award aid to the synthetic fibres industry has
been subject to constraints, which were introduced

(104) Moreover, with regard to SNIACE’s synthetic fibres
activities, the Commission is not aware of any plans
which would lead to a significant reduction in
capacity. In addition, capacity utilisation rates in
this sector,
intra-
Community trade, remain unsatisfactory.

in which there is substantial

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Official Journal of the European Communities

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VII. CONCLUSIONS

(105) Accordingly, the Commission finds that Spain has
unlawfully implemented aid in the form of the
rescheduling of the social security debt and of two
FOGASA repayment
to
Article 93(3) of the Treaty and that it is incompat-
ible with the common market and the functioning
of the EEA Agreement.

agreements

contrary

(106) Since the aid is illegal and incompatible with the
common market, it should be recovered and its
economic effect annulled,

HAS ADOPTED THIS DECISION:

Article 1

The following State aid which Spain has granted to Soci-
edad Nacional de Industrias y Aplicaciones de Celulosa
Espanola SA (SNIACE) is incompatible with the common
market:

(a) in so far as the rate of interest was below market rates,
the agreement 8 March 1996 (as amended by agree-
ment of 7 May 1996) between SNIACE and the Social
Security Treasury to reschedule debts covering ESP
2 903 381 848 in principal, as further amended by
agreement of 30 September 1997 to reschedule debts
covering ESP 3 510 387 323 in principal; and

(b) in so far as the rate of interest was below market rates,
the agreements of 5 November 1993 and 31 October
1995 between SNIACE and the wage guarantee fund
FOGASA covering ESP 1 362 708 700 and ESP
339 459 878 respectively (including interest).

As regards the other matters that were the subject of the
proceedings opened pursuant to Article 93(2) of the EC
Treaty, namely a loan guarantee approved totalling ESP 1
billion approved by Law No 7/93, the financing arrange-
ments for the planned construction of a waste treatment

plant and the partial cancellation of debts by the Torrela-
vega City Council, these measures do not constitute aid
and the procedure can be closed. However, Spain must
inform the Commission within a period of two months
from the date of this decision of the modified assessments
made by Torrelavega City Council
in respect of
SNIACE’s business taxes for the years 1995 to date. As
regards the unpaid environmental levies during the period
1987 to 1995,
take a separate
the Commission will
decision in due course.

Article 2

The Kingdom of Spain shall

1.
take the necessary
measures to recover from the recipient the aid referred to
in Article 1 and unlawfully made available to it.

2.
Recovery shall be effected in accordance with the
procedures of national law. The sums to be recovered
shall bear interest from the date on which they were made
available to the recipient until
recovery.
Interest shall be calculated on the basis of the applicable
reference rate.

their actual

Article 3

The Kingdom of Spain shall
inform the Commission
within two months of the date of notification of this
Decision of the measures taken to comply with it.

Article 4

This Decision is addressed to the Kingdom of Spain.

Done at Brussels, 28 October 1998.

For the Commission

Karel VAN MIERT

Member of the Commission