1999/374/EC: Commission Decision of 28 October 1998 on aid granted by Germany to Neptun Industrie Rostock GmbH (notified under document number C(1998) 3435) (Text with EEA relevance) (Only the German text is authentic)
Date: 1998-10-28
Institutions: European Commission
Subjects: Germany, State aid, application of EU law, control of State aid, industrial restructuring, shipbuilding

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COMMISSION

COMMISSION DECISION

of 28 October 1998

on aid granted by Germany to Neptun Industrie Rostock GmbH

(notified under document number C(1998) 3435)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/374/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having given the interested parties notice, in accordance with the abovementioned Articles, to
submit their observations,

Whereas:

I

By letter No 1015 dated 11 February 1997, the Commission informed Germany that it had
decided to initiate proceedings pursuant to Article 93(2) of the EC Treaty in respect of aid
granted for the rescue of Neptun Industrie Rostock GmbH (hereinafter ‘NIR').

The Commission’s decision to initiate proceedings was published in the Official Journal of the
European Communities (1); the other Member States and interested parties were asked to submit
their comments.

Germany replied to the notice of 11 February 1997 by letters dated 10 March and 29 April 1997.
In reply to further questions by the Commission, it sent further information by letters dated 28
May, 16 June, 1 July, 4 July, 22 July, 10 September, 29 September, 5 December and 8 December
1997, and 29 January, 15 May, 19 June, 17 September and 19 October 1998.

The Commission’s letters asking Germany for further information on the restructuring were
dated 2 May, 19 June, 5 August and 23 December 1997, and 30 March, 2 September and 30
September 1998.

One Member State submitted comments to the Commission.

(1) OJ C 119, 17.4.1997, p. 4.

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II

By letter dated 13 June 1996, Germany sent notification of a loan of DEM 15 million granted by
the Bundesanstalt für vereinigungsbedingte Sonderaufgaben (Federal Institute for Special Tasks
associated with Unification; hereinafter the ‘BvS') to NIR as rescue aid.

In a letter dated 12 September 1996, Germany confirmed that the amount of the loan had already
been paid to NIR on 4 April 1996. It was initially to be repaid by the end of that year (1).

The loan had not been notified to the Commission prior to its grant and/or payment.

Furthermore, the Commission found that the Land of Mecklenburg-Western Pomerania had
decided to provide a 100 % guarantee in respect of a DEM 63 million loan on 15 May 1996. By
decision of 2 September 1996, the Land extended the guarantee until the end of 1996 (2).

The guarantee was not notified to the Commission prior to its grant.

In its decision to initiate proceedings pursuant to Article 93(2) of the EC Treaty, the Commission
took the view that, in line with the ‘market economy investor principle', the two financial
measures had to be regarded as State aid.

The Commission also considered the aid to be illegal, since Germany had failed to fulfil its
obligations pursuant to Article 93(3) of the EC Treaty by granting the aid before notification. The
Commission considered that the belatedly notified loan constituted rescue aid and assumed that
the non-notified guarantee constituted rescue aid as well.

It expressed doubts as to the compatibility of the aid with the criteria laid down in the
Community guidelines on State aid for rescuing and restructuring firms in difficulty (‘the
guidelines') (3), especially as Germany had failed to provide any restructuring plan by the time the
Commission decided to initiate the proceedings. The initiation of proceedings therefore
comprised a formal injunction requiring Germany to provide full information on the financial
situation of NIR, the total amount of aid granted and the restructuring programme.

III

Following the initiation of proceedings, the government of one Member State sent comments to
the Commission. It called for rapid clarification of the actual amount of aid paid and shared the
Commission’s doubts as to the compatibility of the aid.

IV

(1) In the former GDR, there were two big shipyards in the Rostock area, VEB Schiffswerft
Neptun in Rostock and VEB Warnow Werft in Rostock-Warnemünde. These two yards were
merged in 1991 to form a new company, Neptun-Warnow Werft GmbH. At the same time,
the Neptun yard in Rostock stopped building new ships and continued only with ship repair.
The Warnemünde yard was privatised in late 1992/early 1993 in the form of an ‘asset deal'
and sold to Kvaerner AS.

The residual parts, with a workforce of some 1 500, not having been sold to Kvaerner AS,
were combined under a new holding company, NIR. NIR was set up on 1 March 1993 and
privatised later that year. Neptun Betriebsgesellschaft took 20 % of the shares as part of a
management buy-out (MBO), while the Bremer Vulkan company Hanse Holding purchased
the other 80 %.

(1) For final terms, see point IV.6.
(2) This guarantee was later extended several times, see point IV.6.
(3) OJ C 368, 23.12.1994, p. 12.

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The closure of the Neptun yard’s capacity for building and converting merchant ships was
part of the capacity reductions in the East German shipbuilding industry. These capacity
reductions were a condition in the special rules for the restructuring of the shipbuilding
industry in East Germany, which were adopted in 1992 (Council Directive 92/68/EEC of 20
July 1992 amending Directive 90/648/EEC on aid to shipbuilding (1)). NIR therefore had to
diversify into areas outside shipbuilding. According to the first provisional business plan of
December 1992, NIR was to become an industrial conglomerate with a loosely annexed
repair yard.

(2) Germany notified the aid to be granted for this first privatisation and restructuring by letters
dated 27 and 29 July 1993. According to the notification and the privatisation contract, the
new owners were to make investments of DEM 357,1 million by the end of 1996. They had
to guarantee a minimum workforce of 1 200, including no more than 200 in the repair yard.
The ship repair capacity was limited to 300 000 hours/year. It was further clearly stipulated
that no aid must spill over to the repair yard (as required by the relevant provision in Council
Directive 90/648/EEC of 21 December 1990 on aid to shipbuilding (2)).

The restructuring aid consisted of a lump-sum payment of DEM 159 million from the
Treuhandanstalt and investment aid from the Land of Mecklenburg-Western Pomerania of
up to DEM 92,8 million under regional aid schemes. The Commission approved the
restructuring aid by letter No 18963 of 23 November 1993.

(3) From the end of 1993 until early 1996, NIR belonged to Bremer Vulkan Verbund AG as part
of the intermediate holding company ‘Vulkan Industrie Holding GmbH' (hereinafter ‘VIH'),
which held 80 % of NIR’s equity. During that period, a number of enterprises in this group,
mostly located in the Bremen region, were transferred to NIR. Towards the end of 1995,
Bremer Vulkan ran into severe financial difficulties, had to apply for debt composition
proceedings on 21 February 1996 and went bankrupt on 1 May 1996.

(4) In preparation for an intended sale of Bremer Vulkan’s holding in NIR (which was held by
its intermediate holding company, VIH) to an investment company, VIH, Neptun Vermö-
gensverwaltungsgesellschaft, the BvS, NIR and Neptun Betriebsgesellschaft agreed by means
of a contract dated 25 March 1996 that the 80 % holding of Bremer Vulkan should be placed
with a company held by the administrator (3). In this arrangement, the BvS released Bremer
Vulkan from its investment obligations under the privatisation agreement of 1993, which in
practice were no longer enforceable anyway because of the imminent full bankruptcy of
Bremer Vulkan Verbund AG and VIH. The contract of 25 March 1996 stipulated that the
holding was to be sold as soon as possible, and by the end of 1997 at the latest. However, the
plans for rapid sale of the holding came to nothing as the results of a ‘due diligence'
examination were not satisfactory to the investment company. Subsequently, the investment
bank ‘C. S. First Boston AG' was entrusted by the BvS with the task of looking for potential
investors. In addition, NIR supervisory board members also tried to find a suitable investor
for the company. However, although C. S. First Boston contacted a large number of potential
buyers of NIR by the summer of 1997 and although NIR’s interest in finding a new owner
was made public in the specialised press, these activities had no tangible results. It was only
in the autumn of 1997 that the owners of Meyer shipyard in Papenburg (hereinafter ‘Meyer')
made an offer to buy NIR. The only alternative to Meyer’s offer was a continuation of the
restructuring under the existing MBO. However, the plan worked out by Neptun Betriebsge-
sellschaft turned out to be financially hardly viable and would have needed very high State
guarantees over an extended period. Consequently, the MBO plan was given up. Meyer, as the
only bidder, then acquired all the shares of NIR.

(1) OJ L 219, 4.8.1992, p. 54 and the preceding ‘Proposal for a Council Directive providing for changes to
the seventh Council Directive on aid to shipbuilding of 21 December 1990' (OJ C 155, 20.6.1992, p. 20.).

(2) OJ L 380, 31.12.1990, p. 27.
(3) The financing institution in question was the venture capital wing of Vereins- und Westbank, a private
German bank. The BvS acted in this agreement as a private investor would have done in a similar situa-
tion, as it gave up certain rights under the previous privatisation agreement with Bremer Vulkan in return
for a share in the proceeds from the sale of the holding of Vulkan Industrie Holding in NIR.

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(5) Germany further explained in its letter of 22 July 1997 that the separation of NIR from
Bremer Vulkan in early 1996 was necessary in order not to jeopardise the restructuring and to
avoid the imminent bankruptcy of NIR. A bankruptcy would have risked losing the entire
investment in the hatch covers production facility and the boat service yard, both in the
Rostock region. NIR had at the time large payment obligations stemming from this invest-
ment, which was nearing completion. NIR had participated in the cash concentration system
of the Bremer Vulkan group until end of 1995, though it did not benefit from the misuse of
aid meant for MTW and Volkswerft (1). It left this system in the end with balanced accounts,
but due to its previous linkage with Bremer Vulkan it was not able to get any loans from
banks without a State guarantee.

(6) In its reply of 10 March 1997 regarding the initiation of proceedings and the injunction to
provide the relevant information, Germany informed the Commission of the various aid
measures. The aid given consists of:

1. a loan from the BvS of DEM 15 million for operating expenditure, disbursed on 10 April
1996, originally to be repaid on 31 December 1997, later prolonged until 31 December
1998;

2. a loan from the BvS of DEM 5,4 million for ongoing investments, disbursed in March

1997, with due dates as under 1;

3. a loan from the BvS of DEM 14,1 million for ongoing investments, social plan expendi-
ture and operating purposes, disbursed in three trenches between February and June 1997,
with due dates as under 1;

4. a 100 % State guarantee under the Mecklenburg-Western Pomerania guarantee scheme to
secure loans of up to DEM 63 million (DEM 40 million for investments, DEM 11 million
overdraft facility, DEM 12 million procurement financing), granted on 15 May 1996,
prolonged several times up to the envisaged approval of the restructuring aid plan by the
Commission;

5. a 100 % counter-guarantee up to DEM 8 million provided by the BvS for order financing,

granted on 11 March 1997, provisionally prolonged as under 4.

All these loans and guarantees were provided against securities from NIR. The BvS set up a
detailed monitoring system to ensure correct use of the funds. Of the loans totalling DEM
34,5 million, an amount of DEM 25,6 million was spent on the completion of investments in
two factories in Rostock (Neptun Stahlobjektbau and A&R Neptun Boatservice), DEM 3,5
million on staff costs and DEM 5,4 million on other operating expenditure. Germany
considers the measures introduced up to 31 March 1997 to be rescue aid, and their prolonga-
tions after that date to be restructuring aid.

The proceedings cover only the loan mentioned under point 1 and the guarantee mentioned
under point 4 up to 31 December 1997. The Commission registered their prolongations and
the additional measures as new aid under State aid case NN 102/97.

(7) By letter dated 10 March 1997, Germany sent the Commission a provisional restructuring
programme drawn up by the enterprise. It was evident from the documents and the subse-
quent discussion that an initial restructuring report had already been established by external
advisors in September 1996 and a second in December 1996. These had not been sent to the
Commission as there was a disagreement between the advisors, the management of NIR,
Mecklenburg-Western Pomerania and the BvS on how to proceed. The reports of the auditors
on the business years 1993 to 1995 and the analyses of the advisors showed that the situation
of NIR was much worse than had been expected up to the autumn of 1996. Reported losses

(1) See the Commission Decision of 23 July 1998 on State aid C 7/96 (not yet published). NIR terminated its
participation in the cash concentration system by a separate agreement between Bremer Vulkan, NIR and
the relevant commercial bank. In the agreement, NIR claims on Vulkan Industrie Holding were set off
against Neptun Techno Products liabilities to Vulkan Industrie Holding, so that both companies left the
cash concentration system with balanced accounts.

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shot up from DEM 5,2 million (1994) to DEM 122,9 million (1995), and even then the
auditors indicated that the pending risks would need further corrections. In its letter of 2 May
1997 to Germany, the Commission therefore expressed serious doubts about the viability of
the restructuring plan notified in the spring of 1997.

(8) By letters dated 1 July and 22 July 1997, Germany informed the Commission of revisions to
the restructuring plan and a modification of the financing programme. The programme was
again modified in the autumn of 1997 after the sale of all the shares in NIR for a total price
of DEM [ . . . ] (1) by the administrator of Bremer Vulkan and Neptun Betriebsgesellschaft to
Meyer. The main elements of this revised restructuring programme are:

(a) the concentration of NIR’s activities on the maritime core business with five companies:

 MACOR-Neptun Rostock (primarily production of hatch covers for container vessels;

expected long-term workforce in 1999: 255)

 Neptun Reparaturwerft (ship repair; expected workforce: 59)
 A&R Neptun Boatservice (construction of yachts, repair of small naval and coastguard

vessels; expected workforce: 29)

 Möhring Klimatechnik (air conditioning equipment, mainly for ships, expected work-

force: 83)

 Personalservice Rostock (a personnel leasing company for craftsmen in the maritime

trades; expected workforce: 55);

(b) the sale of the holdings in or closure of companies no longer belonging to the core

business:

 Neptun Isolierglas
 Neptun-Scanhus Fertigungsgesellschaft
 Neptun Systemtechnik
 NIR Hotelbetriebsgesellschaft
 Oberflächentechnik Rostock;

(c) the sale of all properties and assets no longer needed for business operations (Neptun

owns large areas close to the city centre of Rostock);

(d) a reduction in the number of directly employed staff to around 800 initially and from
1999 onwards to about 530 (the workforce at the beginning of 1996 was 1 200).

(9) According to the business plan sent with Germany’s letter dated 8 December 1997 and the
provisional annual report for 1997, the maritime core business of NIR will continue to make
losses until the end of 1999. The first modest profits are expected as from the year 2000. A
major part of the losses are expected in the repair yard, which has not received and will not
receive any aid. These losses are to be covered by the sale of property belonging to the yard
and by Meyer.

The total expected annual results of the other operative companies are: DEM [ . . . ] (*) in 1997
(provisional outturn), DEM [ . . . ] (*) in 1998 (including staff reduction costs of DEM 3,5
million), DEM [ . . . ] (*) in 1999, DEM [ . . . ] (*) in 2000 and DEM [ . . . ] (*) in 2001. A major
part of the losses will occur in Neptun MACOR. This enterprise was formed through a
merger of MACOR in Bremerhaven and Neptun Stahlobjektbau in Rostock. The restruc-
turing plan makes it clear that major improvements in the organisation and in sales

(1) Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are

enclosed in square brackets and marked with an asterisk.

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management will be necessary to achieve positive results from the year 2000 onwards. Minor
and rapidly decreasing losses are expected in Neptun Boatservice up to the year 2000.
Möhring has been profitable until now and is expected to remain profitable. De facto, this
company is hardly affected by the restructuring. Personalservice made losses of DEM 0,8
million in 1997, but expects small profits from 1998 onwards.

(10) As regards the financing of the other restructuring measures, the following was agreed

between Meyer, the BvS and the Land:

(a) Meyer will provide a subordinated loan of DEM 20 million to strengthen the capital base
of NIR. This loan will be used primarily to finance necessary investments in the repair
yard, which must not benefit from State aid.

(b) Neptun Development GmbH, a newly founded subsidiary of NIR, will repay the bank
loans taken up by NIR in 1996/97 from the proceeds of property sales by the end of
2002. The present State guarantee provided by Mecklenburg-Western Pomerania to
secure these loans (DEM 63 million in total) in favour of the lending bank will be
replaced by a guarantee amounting to some DEM 28 million after approval of the aid
programme by the Commission.

(c) After approval from the Commission, the BvS will waive repayment of the loans of a total

amount of DEM 34,5 million given to NIR in 1996/97 (1).

(d) At Meyer’s request, the BvS will prolong the refund guarantee for a credit line of up to
DEM 8 million until 31 December 1998 against securities on the property of NIR and
payment of fees of 0,5 % p.a.

(e) Mecklenburg-Western Pomerania will provide aid of up to DEM 1,7 million under the
regional aid programme ‘Gemeinschaftsaufgabe zur Förderung der regionalen Wirt-
schaftsstruktur' for residual investments of DEM 9,8 million for the production of hatch
covers by MACOR Neptun. This aid is a residual amount of the regional aid committed
in 1994, which was suspended after the collapse of Bremer Vulkan.

Germany gave an assurance that NIR and its enterprises undergoing restructuring would not
receive any additional aid during the restructuring period, which runs until the end of 2001.
Germany will provide the Commission with annual reports on the progress of the restruc-
turing and the disinvestment measures. These reports will be certified by the company’s
auditors. For Neptun Reparaturwerft, separate accounts will be maintained, and annual
reports will be submitted to the Commission in order to make sure that no aid spills over to
the repair yard.

Germany and the company confirmed that Neptun Reparaturwerft will continue to comply
with its capacity limitation of 300 000 hours per year. By letter dated 10 September 1997,
Germany agreed to provide six-monthly production control reports to the Commission.
These will also deal with the status of investments in the yard. Neptun Reparaturwerft will
not resume conversion activities for merchant ships before 2001, when the 10-year closure
period of the former Neptun Werft comes to an end (2). Germany and the company
confirmed further that the facilities of A&R Neptun Boatservice will not be used for the
building, conversion or repair of vessels falling under the scope of Community legislation on
aid to shipbuilding. The auditor will check compliance with this commitment.

(1) See point 6 items 1 to 3.
(2) See Article 7 of Directive 90/684/EEC, which stipulates a 10-year closure period.

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(11) In view of the developments in the enterprise, this Decision deals with the rescue aid on
which the Article 93(2) proceedings were initiated (1) as well as with all other aid granted or
planned for the rescue and restructuring of NIR.

V

(1) The loans and the guarantee given by the BvS in 1996/97, like the State guarantee of DEM
63 million provided by Mecklenburg-Western Pomerania in 1996 (2), are State aid. In its
letter of 10 March 1997, Germany stated that these measures were indispensable as banks had
refused to give loans to NIR, even after the separation from Bremer Vulkan, without a full
refund guarantee from the State. It is therefore uncontested that all the financial measures of
the BvS and Mecklenburg-Western Pomerania, including those notified in 1997, are State aid
within the meaning of Article 92(1) of the EC Treaty.

Germany proved with certified detailed reports from the auditors that Neptun Reparaturwerft
has not so far received any aid. An assurance has also been given that Neptun Reparaturwerft
will not benefit from the rescue and restructuring aid in future either. The expected losses of
Neptun Reparaturwerft will be covered by sales of company assets and by Meyer. In the case
of A&R Neptun Boatservice, it is clearly set out that this small yard will limit its activities to
yachts and small naval boats  in other words, to vessels not falling under the scope of the
specific Community legislation governing the building of merchant ships. The rescue and
restructuring aid for NIR is therefore not to be regarded as aid to shipbuilding. The aid is to
be assessed pursuant to Article 92 of the Treaty in the light of the criteria set out in the
Community Guidelines on State aid for rescuing and restructuring firms in difficulty (3).

(2) The loans and the guarantee from the BvS and the guarantee on an amount of DEM 63
million from Mecklenburg-Western Pomerania have to be regarded as non-notified aid as all
the aid was granted before the Commission could state its position on it. Germany failed to
fulfil its notification obligations pursuant to Article 93(3) of the EC Treaty. The Commission
cannot fully accept the argument put forward by Germany that the guarantee from Mecklen-
burg-Western Pomerania was granted under an aid scheme approved by the Commission in
November 1991. It should be borne in mind that the Commission requested Germany by
letter No 15716 of 9 November 1994 to take appropriate measures within the meaning of
Article 93(1) of the EC Treaty for the operation of the guarantee scheme. One important
measure was the individual notification of guarantees granted for large enterprises in diffi-
culty as required by the guidelines. As Germany did not implement this measure, the
Commission found in Decision 96/475/EC (4) that the guarantee scheme of Mecklenburg-
Western Pomerania was incompatible with the common market. Since 1 July 1996, the
individual notification of guarantees for large enterprises has been obligatory. The decision of
the guarantee board to grant the first guarantee until 31 August 1996 dates from 15 May
1996. While the Commission therefore concedes that the first granting of the guarantee by
Mecklenburg-Western Pomerania did not require an individual notification, Germany was
bound to notify its extension from 1 September 1996 onwards. This was not done.

(3) The guidelines distinguish between rescue and restructuring aid. In the present case this
distinction is difficult to apply. NIR was already undergoing restructuring at the time of its
separation from Bremer Vulkan. While it was clear from the beginning that the previous
restructuring plan needed some modification, the full scope of the problems became visible
only towards the end of 1996, when the auditors had finalised their work on the annual
report for 1995 and the external advisors from UBB had presented their analysis. Matters

(1) See Section II.
(2) See the detailed description in point IV.6.
(3) OJ C 368, 23.12.1994, p. 12.
(4) OJ L 194, 6.8.1996, p. 25.

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were further complicated by the fact that the NIR holding company consisted of some 15
rather small enterprises, at different locations and working in very different fields. In many
cases these enterprises had strong commercial links with other parts of the former Bremer
Vulkan group, whose future was uncertain as well. The continuing viability of these firms had
‘Neptun 2000' of
to be examined in each individual case. The first restructuring plan,
December 1996 prepared by NIR itself, was based on over-optimistic assumptions. It was
accepted neither by the NIR’s bankers nor by the BvS. To arrive at a feasible solution, the
restructuring plan had to be modified several times. This process was painful and difficult, as
each step involved further closures and further reductions of staff. At the same time, the
restructuring of the residual parts had to be continued. It therefore took 15 months to arrive
at a new restructuring plan agreed between the relevant parties in Germany (1). When the
shares of the company were sold to Meyer, the new owners made further modifications up to
November 1997 (2). This is far more than the period of six months laid down in the
guidelines. The Commission acknowledges the particular difficulties involved in the rescue
and restructuring of NIR and can therefore as an exception accept the delays which occurred
in this case. The Commission regrets, however, that Germany failed until March 1997 to
fulfil its obligations of providing information on the progress achieved in drawing up a
restructuring plan.

(4) Due to the fact that no viable restructuring plan was available until 28 May 1997, the aid
given up to that date, as described under point IV.6, is to be regarded as rescue aid. According
to the guidelines, rescue aid must meet the following conditions:

(i) It must consist of liquidity help in the form of loan guarantees or loans bearing normal
commercial interest rates. The rescue aid was given in this form. The loans from the BvS
carried an interest rate of 3 % above the discount rate, which can be regarded as a
market rate in view of the collateral provided by NIR. The loan secured by the State
guarantee carries a market interest rate as well. The Commission estimated the aid
intensity of the guarantees at 15 % per annum, due to the fact that the securities
provided by NIR would not have allowed a full recovery in the event of a default (the
corresponding aid amount over an approximate period of two years is therefore DEM
21,3 million (3)).

(ii) It must be restricted to the amount needed to keep a firm in business. Germany
provided evidence that the funds were limited to the minimum and only disbursed when
the payment obligations became due. This also applies to the large payments for
investments, which had to be made under existing contracts. The investments were about
80 % complete at the beginning of 1996. Any termination of the contracts with the
suppliers would have caused excessive costs and most likely the bankruptcy of NIR. In
addition, it would have left major production facilities incomplete and therefore without
any economic use.

(1) Fortschreitung der Unternehmenskonzeption ‘Neptun 2000': this restructuring plan handed over to the
Commission at a meeting on 30 June 1997 in Brussels contains the essential elements of the final restruc-
turing plan. It is the first restructuring plan which can be considered feasible within the meaning of the
guidelines.

(2) The final business plan dates from 12 November 1997 and was sent to the Commission by Germany by

letter dated 8 December 1997.

(3) The guarantees in question are shortfall guarantees. The guarantor has to meet the shortfall after liquida-
tion of all collateral securities. The collateral securities provided are mortgages on all real properties belon-
ging to NIR. In its analysis, the Commission estimated the default risk on the basis of the value of the
collateral securities, based on assessment of the value of the property. It came to the conclusion that the
collateral securities, which had a book value of some DEM 144 million at the end of 1995, would not
have been sufficient to repay all loans (some DEM 115 million) from the proceeds of a forced sale of the
property. A shortfall in the range of 30 % could have been expected in the two-year guarantee period.
This 30 % shortfall on the amount of the guarantees corresponds to an amount of DEM 21,3 million.

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(iii) It must be paid only for the time needed to devise the necessary and feasible recovery
plan (1). As set out above, the Commission can accept in this particular case the reasons
given for the delays in drawing up a feasible restructuring plan. The Commission can
also agree to the prolongation of this aid until it has taken a decision on the restruc-
turing programme and the restructuring aid linked to it.

(iv) It must be warranted on the grounds of serious social difficulties and have no unduly

disruptive effects on the industrial situation in other Member States.

Most parts of NIR are located in the region of Rostock, with a small proportion in
Bremerhaven. Both regions are classified as assisted areas and suffer from very high
unemployment. In addition, both areas were particularly affected by the collapse of
Bremer Vulkan, as this group was one of their main industrial employers. The rescue aid
is therefore justified on social grounds.

The analysis of the impact of the aid on the industry in other Member States can
concentrate on the maritime core business of NIR. As mentioned above, the Neptun
Reparaturwerft repair yard is not covered by the restructuring aid programme and has
not received any aid, nor will it do so. Mohring is a profitable enterprise which never
needed any aid. All rescue aid for operative and investment purposes was used for
MACOR Neptun and the A&R Neptun Boatservice with the exception of a minor part
used in the holding company to meet its social costs for the termination of a number of
activities. Boatservice is a small enterprise with less than 50 staff operating on the
regional German market for smaller yachts. Its limited activities in the repair of small
vessels belonging to the German navy are outside of the scope of Article 92 of the
Treaty, owing to the provisions of Article 223 thereof. MACOR Neptun’s main activity is
the design, engineering and construction of cargo access equipment for freight vessels,
particularly of hatch covers for container ships. The engineering and design activities are
carried out in MACOR. Three engineering companies, MacGregor (Finland), Kvaerner
(Norway) and MACOR control the world market for the design and engineering of hatch
covers, with the Finnish company MacGregor in a dominant position. The closure of
MACOR would have strengthened this dominant position. The production of hatch
covers is concentrated in countries with low labour costs outside the Community, mostly
in Asia (especially China) and Eastern Europe (Croatia, Romania, Poland) for price
reasons. The main competitor within the Community is Arend & Cie (France). The
entrance barriers to this market are extremely low, as in principle any enterprise active in
heavy steel construction would be able to manufacture hatch covers according to the
design of the engineering firms. This makes this market difficult for Community
suppliers. Their main advantage is their proximity to European shipyards and the higher
quality of their products. However, given the structure of the shipbuilding market, none
of these suppliers, including MACOR Neptun, will be able to influence the relatively low
price level. The relevant market for hatch covers is the world market, and the present
difficult situation on this market is caused by developments in East Asia, where by far
the most cargo vessels are built and equipped.

It can therefore be assumed that the rescue aid has had and is having no unreasonable
effect on the industrial situation in other Member States.

(1) As mentioned in the guidelines, the Commission will consider favourably an extension of the rescue aid

until its investigation is completed.

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Though the rescue aid granted is non-notified aid and therefore illegal, the Commission can
declare the aid compatible with the common market, taking into consideration the excep-
tional circumstances as described above. The loans and the guarantees were provided to
ensure the short-term survival of NIR. Subject to the above qualifications, they fulfil the
criteria laid down in the guidelines.

(5) As is explained in the description under point IV.10, the support given by the State for the
completion of the restructuring by the new owners consists predominantly in a waiver of the
loans from the BvS totalling DEM 34,5 million and a prolongation of the State guarantees on
a reduced amount until the bank loans have been repaid. The aid element of the guarantee
given by Mecklenburg-Western Pomerania is limited by the fact that the bank loan in
question is primarily secured by mortgages on property and other assets valued at DEM 66,5
million. The detailed valuation was submitted to the Commission and can be accepted. The
risk relating to this guarantee is therefore limited to a shortfall or delay in the proceeds from
the sales of property in the event of a severe crisis on the local property market in the next
few years. The fees of about 1 % per annum are, however, somewhat below the expected
market price in view of the right of prior claim to 50 % of the proceeds granted to the
lending bank. The Commission estimated therefore that the aid equivalent is in the DEM 2
million range. The terms of the refund guarantee by the BvS in respect of a credit line of
DEM 8 million can be regarded as market terms in view of the collateral securities required.
This assessment by the Commission is supported by the fact that Meyer has not yet requested
issue of the guarantee bond in view of the costs.

Apart from the regional aid of DEM 1,7 million, no aid will be paid in cash. As in this case
the investment by MACOR Neptun was clearly specified in the notification, any spillover of
aid from NIR to its repair yard or to Meyer Werft in Papenburg can be virtually excluded.
Notwithstanding that, the Commission will monitor the correct use of the aid and the
repayment of the bank loans in the framework of the agreed monitoring system by means of
audited reports.

(6) The guidelines lay down the following criteria for restructuring aid:

(a) the aid must be linked to a viable restructuring/recovery programme submitted in all
relevant detail to the Commission and capable of restoring the long-term viability of the
firm within a reasonable time-scale;

(b) the aid must be in proportion to the restructuring costs and benefits;

(c) undue distortions of competition through the aid must be avoided;

(d) the firm must

fully implement

the restructuring plan and observe any conditions

imposed;

(e) the implementation of the plan and compliance with the conditions will be monitored by

requiring the submission of detailed annual reports to the Commission.

(7) Germany sent

the Commission a detailed restructuring programme (1). It comprises a
complete rearrangement of NIR’s activities, with a concentration on the core business in the
maritime sector and the termination of all other activities. The workforce will be reduced
further in this process from 1 200 to about 530 from 1999 onwards (these figures include the
repair yard). According to the business plan of Meyer, NIR as a group will be profitable as
from the year 2000. The provisional results for 1997 are basically in line with this plan. The
to future demand and prices,
planning

is based on cautious

assumptions

as

(1) See point IV.8.

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which seems realistic given developments in the shipbuilding industries in Western Europe.
It is further assumed that productivity will strongly increase in the new facilities at MACOR
Neptun and A&R Neptun Boatservice in the first three years after full commissioning in
1997. Together with the reduction in the workforce and lowering of overheads on the part of
the holding company, this will reduce production costs and eliminate the high start-up losses
in these two companies. As Möhring is already profitable and Personalservice expects a
balanced result, the assumption of relatively modest but stable profitability from 2000
onwards seems realistic. The Commission can therefore accept the viability of the restruc-
turing plan.

(8) As was shown above, the restructuring aid will basically consist of the waiver of the loans
from the BvS totalling DEM 34,5 million, the prolongation of the State guarantees on an
amount which will gradually decrease until 2002, when the sale of property no longer needed
by NIR will be completed, and DEM 1,7 million in regional investment aid. As the main
financial contribution, Meyer will provide a capital-replacing loan of DEM 20 million to
re-establish the capital base of NIR. Germany considers this package as necessary and
justified, in view of the losses made during the rescue period, the losses still expected during
the remaining restructuring period and the modest profits expected thereafter. Although the
total aid provided for the restructuring of NIR is very high in relation to the workforce
retained, the Commission can accept this argument in this specific case. The original
restructuring plan of the Bremer Vulkan period must be considered to have failed. Virtually
the total equity of NIR was used up due to this failure. Some of the investments recently
completed need to be partly written-off because of their low returns. The waiver of the rescue
loans of DEM 34,5 million covers a part of the losses run up in the past few years. It is
essential in order to restore the financial equilibrium of NIR.

The DEM 1,7 million regional investment aid for the completion of some minor investments
of a total cost of DEM 9,8 million has an intensity of 18 %. This is far lower than the
maximum of 35 % permitted in the region and can therefore be accepted. Germany gave an
assurance that no other aid will be paid to the enterprises presently under the NIR holding
company during their restructuring period, which will end in 2001. No aid will be received
by Neptun Reparaturwerft.

The planned aid measures are in line with the restructuring programme submitted and are
necessary from a commercial point of view. In view of the comprehensive restructuring of
NIR, the substantial closure costs involved and the time needed for the completion of the
restructuring, the Commission can consider the total amount of DEM 38,2 million in
restructuring aid acceptable.

(9) As the restructuring aid consists mainly in a prolongation of a State guarantee for an existing
loan, which is to be repaid by Meyer, and in a waiver of debts by the BvS, the impact on
competition will be very limited for the same reasons as discussed in relation to the rescue
aid. Therefore, no undue distortions of competition in the common market are expected.

Implementation of parts of the restructuring programme began provisionally in 1997. On 12
February 1998 Meyer took over the management of NIR. Since then, the restructuring plan
has been undergoing full implementation. Germany will provide annual reports on the
progress of the restructuring. In addition, Germany will send the Commission the abovemen-
tioned reports on the activities of Neptun Reparaturwerft and A&R Neptun Boatservice.

(10) In conclusion, the restructuring aid for NIR can be regarded as in line with the criteria set
out in the guidelines. The aid can therefore be regarded as compatible with the common
market pursuant to Article 92(3)(a) and (c) of the EC Treaty and Article 61(3)(c) of the EEA

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Agreement, subject to compliance by Germany with the conditions set out in this Decision.
Germany and Meyer on behalf of NIR have given an undertaking to implement the
restructuring programme as notified and to comply with the conditions.

Past experience, however, both after the takeover by BVV and after the latter’s bankruptcy,
has shown considerable difficulties in the drawing-up and implementation of a sustainable
restructuring plan. The Commission would therefore point out that the full implementation
of the restructuring plan is a condition for the aid. The Commission will take steps to require
the recovery of the aid if the restructuring plan is not fully implemented (unless any
modifications which may have become necessary have been accepted by the Commission) or
the conditions concerning the use of the aid are not complied with,

HAS ADOPTED THIS DECISION:

Article 1

The loans of a total amount of DEM 34,5 million granted to Neptun Industrie Rostock GmbH
(NIR) by the Bundesanstalt fur vereinigungsbedingte Sonderaufgaben (BvS), which are to be
waived as from the date of adoption of this Decision, are compatible with the common market,
subject to compliance with the conditions set out in Article 5.

Article 2

The guarantee in respect of an amount of DEM 63 million, which was granted on 15 May 1996
by the Land of Mecklenburg-Western Pomerania for NIR and which is to be replaced by a
subsequent guarantee of up to DEM 28,1 million as from the date of adoption of this Decision
until 31 December 2002 at the latest, comprises an aid equivalent of DEM 20,9 million and is
compatible with the common market, subject to compliance with the conditions set out in
Article 5.

Article 3

The counter-guarantee in respect of an amount of DEM 8 million granted on 11 March 1997
until the date of this Decision by the BvS for NIR comprises an aid equivalent of DEM 2,4
million and is compatible with the common market.

The possible renewal of this counter-guarantee until 31 December 1998 does not contain aid in
view of the fees paid by NIR and the securities to be provided by NIR to the BvS.

Article 4

The regional investment aid of an amount of DEM 1,7 million to be granted for the completion
of investments in the NIR company MACOR Neptun is compatible with the common market,
subject to compliance with the conditions set out in Article 5.

Article 5

1.
The State aid referred to in Articles 1 to 4 may be used exclusively for the rescue and
restructuring of NIR, in line with the restructuring plan notified to the Commission. The aid
must not be used for, and its benefits must not spill over to, the shipyards Neptun Reparaturwerft
in Rostock or Meyer Werft in Papenburg. Until the end of 2001, no other aid shall be paid to the
companies of the NIR group undergoing restructuring.

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2.

Germany shall ensure that:

(a) Neptun Reparaturwerft does not exceed the capacity limit of 300 000 hours for the repair of

merchant ships

(b) no conversion work is carried out on ships falling under the scope of the Community

legislation on shipbuilding

(c) the facilities of A&R Neptun Boatservice are not used for the building, conversion or repair

of ships falling under the scope of the Community legislation on shipbuilding.

Germany shall report on the progress of the restructuring by means of annual reports during
3.
the period from 1998 to 2001. The reports will also provide sufficiently detailed information on
compliance with the conditions set out in this Article. In addition, Germany shall submit
six-monthly production control reports providing information on the activities of Neptun Repar-
aturwerft.

This Decision is addressed to the Federal Republic of Germany.

Article 6

Done at Brussels, 28 October 1998.

For the Commission

Karel VAN MIERT

Member of the Commission