1999/580/ECSC: Commission Decision of 11 November 1998 concerning aid granted by Germany to ESF Elbestahlwerk Feralpi GmbH, Riesa, Saxony (notified under document number C(1998) 3556) (Text with EEA relevance) (Only the German text is authentic)
Date: 1998-11-11
Institutions: European Commission
Subjects: Germany, State aid, aid to industry, control of State aid, investment aid, iron and steel industry

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Official Journal of the European Communities

20. 8. 1999

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 November 1998

concerning aid granted by Germany to ESF Elbestahlwerk Feralpi GmbH, Riesa, Saxony

(notified under document number C(1998) 3556)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/580/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Coal and
Steel Community,

Having regard to Commission Decision No 2496/96/ECSC of
18 December 1996 establishing Community rules for State aid
to the steel industry (1), and in particular Article 6(5) thereof,

Having given notice in accordance with that Article to inter-
ested parties to submit their comments, and having regard to
those comments,

Whereas:

By letter dated 6 January 1998, Germany requested an exten-
sion of the deadline for its reply until 5 February. By letter
dated 9 February 1998, it requested a further extension until
27 February. By letter dated 23 February 1998, the Commis-
sion accepted this request but stressed that a further extension
could not be considered. By letter of 3 March 1998, received
on 5 March, Germany submitted its comments concerning the
main aspects of the initiation of the proceedings. It submitted
additional comments by letter dated 19 March 1998.

On 17 March 1998 the Commission received comments from
a national steel producers association. It forwarded them to
Germany on 1 April 1998 with the request that the latter
submit its comments by 17 April. Germany submitted addi-
tional comments with regard to the initiation of proceedings
by letter dated 25 March 1998 and comments regarding the
position of the national steel producers association by letter
dated 22 April 1998.

I

the Commission informed
By letter dated 24 April 1998,
Germany of
its preliminary view regarding the scope of
application of the ECSC Treaty. Germany replied by letter of 6
May 1998, received on 8 May.

The Commission decided on 18 November 1997 to initiate
proceedings pursuant to Article 6(4) of Decision No 2496/96/
ECSC (hereinafter referred to as ‘the Steel Aid Code’) in respect
of certain payments made by Germany to the ECSC steel
undertaking ESF Elbestahlwerk Feralpi GmbH, Riesa/Saxony
(hereinafter referred to as ‘ESF’). Germany was informed of the
Decision by letter dated 2 December 1997 and was requested
to submit its comments within one month. The Decision was
published in the Official Journal of the European Communities (2)
and interested parties were invited to submit their comments.

II

In March 1993 the Commission, acting in accordance with
Article 5(iii) of Decision No 3855/91/ECSC (3) (Fifth Steel Aid
investment aid for ESF covering
Code), authorised regional

(1) OJ L 338, 18.12.1996, p. 42.
(2) OJ C 51, 18.2.1998, p. 3.

(3) OJ L 362, 31.12.1991, p. 57.

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investments totalling DEM 85 million (1). An investment grant
of DEM 19,55 million, an investment premium of DEM 5,3
million, an ERP environmental loan of DEM 6,215 million and
a public guarantee for loans amounting to DEM 60,8 million
were approved. In January 1995 additional aid covering invest-
ments of DEM 51 million (2) was approved,
including an
investment grant of DEM 11,73 million, an investment
premium of DEM 4,98 million and a guarantee for a loan of
DEM 23,975 million.

In 1995 an additional non-notified investment grant of
DEM 9,35714 million was disbursed. In addition, ESF received
an investment premium of DEM 1,236 million. In 1997 a
public guarantee covering operating loans of DEM 12 million
was granted. It was decided to grant a further public guarantee
for investment loans totalling DEM 18,2 million. The guar-
antee documents were submitted to the banks on condition
that the guarantee be activated only with the approval of the
Commission.

At the Commission's request, Germany informed it prior to the
initiation of the present proceedings that DEM 7,2 million of
the approved DEM 60,8 million guarantee (N 351/92) and
DEM 4,8 million of the approved DEM 23,975 million guar-
antee (N 673/94) were used for operating loans and that the
latter guarantee had been increased by DEM 25 000 to
DEM 24 million.

an

that

By letter dated 25 March 1998, Germany informed the
Commission
of
additional
DEM 1,35586 million which was presented in a letter dated
13 October 1997 simply as a planned increase in aid (in
response to increased investment costs) had in fact been
disbursed at that time.

investment

grant

The following table gives an overview regarding the amounts in
question.

(DEM million)

Investment grant

Investment premium

Guarantees

Authorised

Granted

Authorised

Granted

Authorised
for investment

Granted

Investment
aid

Operating
aid (1)

N 351/92

N 673/94

NN

19,550

11,730

Total

31,280

19,550

11,730

10,713

41,993

5,300

4,080

5,300

4,080

1,236

60,800

23,975

53,600

19,200

9,380

10,616

84,775

72,800

7,200

4,800

12,000

24,000

(1) Guarantees authorised as investment aid and non-notified guarantee for operating loans.

III

Germany is of the opinion that some of the investments aided
by the non-notified investment grant and the investment
premium of DEM 11,949 million were related to the invest-
ment aided under aid projects N 351/92 and N 673/94 but
concerned activities covered by the ECSC Treaty. It intends
therefore to reduce the intensity aid for this project to 23 %,
the maximum possible under the regional aid rules in force in
1994, and to recover the difference.

Germany would also like to recover a further amount
connected with the 1995 investment project which, in its view,
concerned production covered by the ECSC Treaty.

The distinction made by Germany between the ECSC and the
non-ECSC sector is prompted by an expert report prepared by
Professor Hensel of Montanuniversität Freiberg/Saxony, who
the dividing line
based his conclusions on the view that
between ECSC and non-ECSC production is determined by the
temperature of the material being processed in the different

(1) Letter SG(93) D/3322, 1.3.1993.
(2) Letter SG(95) D/0343, 13.1.1995.

installations. According to this view, cold-rolling of steel is not
covered by the ECSC Treaty. Consequently, stretching of hot-
rolled long products is also regarded as an activity not covered
by the ECSC Treaty.

Germany considers that aid in favour of undertakings covered
by the ECSC Treaty should not be judged solely in the light of
i.e. the Steel Aid Code.
the rules applicable to this sector,
Recent developments in the sector that could not be antici-
pated when the ECSC Treaty was drafted would, as a result of
demand, have led to a higher degree of integration of ECSC and
non-ECSC products. Investments by undertakings within the
meaning of Article 80 of the ECSC Treaty may, therefore, be
eligible for aid under the EC Treaty.

With regard to the guarantees authorised under State aids
N 351/92 and N 673/94, Germany is of the opinion that their
partial use for financing operating loans was authorised by the
Commission. It refers to a fax sent on 17 December 1992 to
the administrator in DG IV responsible for Case N 351/92 in

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which it mentioned that DEM 18 million of the 80 % defi-
ciency guarantee was used to cover losses incurred and interest
falling due during the investment period. It also refers to a
letter dated 26 September 1994 and concerning Case
N 673/94 in which it was explained that DEM 4,8 million of
the guarantee was granted for operating loans (‘4,8 Mio. DEM
für Betriebsmittel’). According to the letter, the fact that the
Commission authorised these guarantees as investment aid did
not mean that the intended use notified had been prohibited
since the Commission was allowed to impose conditions on or
request changes to a notified aid project only if it initiated
proceedings. Germany thus regards the guarantees as aid
authorised according to the notification even though the two
final Decisions refer to them as investment aid.

With regard to the non-notified guarantee of DEM 12 million,
Germany intends — in line with its position concerning the
investment grant and the investment premium — to recover an
amount that had been granted for the investments which it
regards as being covered by the ECSC Treaty.

IV

ESF is a company manufacturing products listed in the Annex
to the ECSC Treaty and therefore falls within the scope of
Article 80 of the ECSC Treaty. Financial measures in favour of
ECSC steel undertakings must, pursuant to the Steel Aid Code,
be notified and must not be granted without the prior author-
isation of the Commission.

The measures taken by Germany in favour of ESF and
described above constitute aid within the meaning of Article
4(c) of the ECSC Treaty and Article 1 of the Steel Aid Code.

The Steel Aid Code does not identify separately aid to cover
part of the cost of fixed investment by an ECSC steel under-
taking which, taken on its own, would not necessarily relate
directly to the production of products listed in the Annex to
the Treaty. Article 4(c) of the ECSC Treaty prohibits aid in
favour of ECSC undertakings; it does not refer to aid covering
part of the cost of assets that is directly related to the produc-
tion of products covered by the ECSC Treaty. Consequently, aid
for certain investments that may be used also for activities not
covered by the ECSC Treaty is caught by the Treaty if granted
in favour of an ECSC undertaking and if no clear distinction is
made between ECSC and non-ECSC activities.

In the present case, the aid regarded by Germany as not being
covered by the ECSC Treaty is related to the investment in
stretching installations. Stretching of steel
is simply a tech-
nology to improve the quality of the hot-rolled wire rod so that
it meets the technical specifications prevailing in the construc-
tion sector. The final product, stretched wire rod, is an ECSC
product according to Annex I of the ECSC Treaty that falls
under code 4400 ‘wire rod’ as well as under CN code 7213,
which relates to ECSC products. The view of Germany that

stretching of steel is not related to the production of ECSC
products cannot therefore be shared.

Some undertakings, e.g. so-called steel service centres, not
falling within the scope of Article 80 of the ECSC Treaty, use
stretching facilities to treat unstretched wire rod purchased
from ECSC undertakings, but they would not be regarded as
undertakings covered by the Treaty by virtue of that activity.
As a result, aid to cover part of the cost of investment in
stretching facilities in the case of these undertakings would be
examined in the light of the EC Treaty and might be regarded
investment aid under Article 92(3)(c) of the EC
as regional
Treaty. This, however, does not mean that investments by
ECSC undertakings in assets that would also meet the needs of
non-ECSC undertakings are, in principle, to be scrutinised in
the light of the rules of the EC Treaty. The prohibition of State
aid under Article 4(c) of the ECSC Treaty aims at ensuring fair
competition between undertakings which manufacture ECSC
products. Generally speaking, and in the present case too, these
undertakings are eligible for investment aid only if the activity
carried out with the assets financed is totally separate from the
remaining ECSC activities.

Consequently, the view of Germany that the aid for the invest-
ments described above should be examined in the light of the
EC Treaty cannot be shared. Instead, it is to be considered in
the light of the rules of the ECSC Treaty and the Steel Aid
Code. Since the aid constitutes general
investment aid not
related to research and development (R & D) or environmental
protection, it cannot be deemed compatible with the Steel Aid
Code. Moreover, it does not constitute closure aid or aid within
the meaning of Article 5 of the Fifth Steel Aid Code or of the
Sixth Steel Aid Code. The special derogation for eastern
Germany under Article 5 of the Fifth Steel Aid Code expired at
the end of 1994. The aid was granted at a later date.

Therefore, the investment grant of DEM 10,713 million, the
investment premium of DEM 1,236 million and the guarantee
of DEM 12,0 million cannot be considered compatible with
the Steel Aid Code and must be recovered.

Germany is of the opinion that the use of parts of the author-
ised guarantees as investment aid for operating loans was
permissible since the Commission was notified before author-
isation was granted. In the first case (N 673/94) the informa-
tion was contained in a diagram faxed direct to the responsible
administrator in DG IV. In the second case the information was
ascertained from the use of the words ‘für Betriebsmittel’. The
final Commission Decisions do not refer to the intention to use
parts of the guarantees to cover operating loans. It was there-
fore obvious to Germany that the Commission had not author-
ised any general operating aid in favour of an ECSC under-
taking which could not be deemed compatible with the ECSC
Treaty or the Steel Aid Code.

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In cases where the Commission has expressly authorised aid for
a special purpose that was initially notified, the Member State
concerned is not entitled to use the amounts covered by the
Decision for any other purpose by simply arguing that the
Commission could have ascertained this intention from infor-
mation provided previously. A Commission Decision to
authorise aid not only refers to the amount and form of the
measure, but the purpose for which the aid is expressly author-
ised is also to be considered an integral part of the Decision.
This follows from the relevant provisions of the Steel Aid
Code, whereby aid may be deemed compatible with the
common market by virtue of the purposes for which it is
granted, and not according to its amount or form. The same
applies to aid under the EC Treaty, which specifies in Article
92(2) and (3) aid for certain purposes that is exempt or can be
exempted from the general prohibition of State aid under
Article 92(1).

If the Commission authorises aid for a purpose which does not
correspond to the use indicated by the Member State
concerned, the aid is to be considered as not having been
authorised, i.e. as if the Commission had not taken a Decision
on the matter. The Member State may then inform the
Commission that it intends to rely on the principles of the
judgment of the Court of Justice of the European Communities
in Case 120/73 (Lorenz) (1), which can be applied within the
framework of the ECSC Treaty pursuant to Article 6(5) of the
Fifth Steel Aid Code and to Article 6(6) of the current Steel Aid
Code. The Member State may accordingly put the planned aid
measure into effect within a certain period if it has previously
informed the Commission of its intention to do so.

It is clear that in the present case Germany did not inform the
Commission of its intention to grant the unauthorised aid. In
actual fact, Germany gave notification of general operating aid
in favour of an ECSC steel undertaking which under no circum-
stances can be deemed compatible with the Steel Aid Code, and
went ahead as intended without informing the Commission
although it should have been aware that the Commission did
not as a matter of course approve operating aid that did not
conform to well-known principles. For the rest, under the Fifth
Steel Aid Code as well as the current one, the Lorenz principle
applies only in the specific context of Article 6(1), which
provides for notification of the types of aid referred to in
Articles 2 to 5 of the Steel Aid Code (i.e. R & D aid, aid for
environmental protection and closure aid). Given that oper-
ating aid does not fall within the scope of those Articles, the
Lorenz principle is not applicable in the present case.

tees covering the DEM 7,2 million and DEM 4,8 million oper-
ating loans must therefore be recovered.

The recipient and the bank granting the loan had the possibility
and the obligation to verify whether the aid inherent in the
public guarantee had been authorised by the Commission
pursuant
to the Steel Aid Code. Since banks differentiate
between investment loans and operating loans because of the
differing collateral requirements, it would have been evident to
both the recipient and the bank that the guarantees for the
operating loans costs were not covered by the authorisation
given by the Commission.

V

Lastly, by letter dated 9 October 1998, Germany informed the
Commission that part (DEM 2,54 million) of the DEM 10,713
million investment grant had been recovered. This aid thus
amounts to DEM 8,173 million.

The Commission has concluded that the investment grant of
DEM 8,173 million, the investment premium of DEM 1,236
million and the guarantee of DEM 12,0 million cannot be
deemed compatible with the Steel Aid Code. The guarantees
covering the operating loans of DEM 7,2 million and
DEM 4,8 million were not authorised and cannot, therefore, be
deemed compatible with the Steel Aid Code. The aid must thus
be recovered,

HAS ADOPTED THIS DECISION:

Article 1

The investment grant of DEM 8,173 million, the investment
premium of DEM 1,236 million and the guarantee (comprising
an aid element) of DEM 12,0 million which Germany granted
in 1995 in favour of ESF Elbestahlwerk Feralpi GmbH, Riesa,
are incompatible with Decision No 2496/96/ECSC and with
the common market in coal and steel.

The aid element of the guarantees covering the operating loans
of DEM 7,2 million and DEM 4,8 million granted at the end
of 1994 was not authorised and is incompatible with Decision
No 2496/96/ECSC and with the common market in coal and
steel.

Article 2

Consequently, the guarantees for operating aid are regarded as
not having been authorised. Germany was not entitled to
disburse the aid because it did not observe the procedure
provided for in Article 6(5) of the Fifth Steel Aid Code, which
was in force at the time. The same procedure is applicable
under Article 6(6) of the current Steel Aid Code. The guaran-

(1) [1973] ECR, p. 1471.

Germany shall, acting in accordance with the provisions of
German law relating to the recovery of amounts owed to the
State, recover the aid paid to ESF Elbestahlwerk Feralpi GmbH.
In order to negate the effects of the aid,
interest shall be
charged on the amount of aid from the date of payment to the
date of repayment. The rate shall be that used by the Commis-
sion during the period in question to calculate the net grant
equivalent of regional aid.

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Germany shall inform the Commission, within two months of the notification of this Decision, of the
measures taken to comply herewith.

Article 3

This Decision is addressed to the Federal Republic of Germany.

Article 4

Done at Brussels, 11 November 1998.

For the Commission

Karel VAN MIERT

Member of the Commission