2000/199/EC: Commission Decision of 17 March 1999 on State aid given by Greece to Heracles General Cement Company (notified under document number C(1999) 716) (Text with EEA relevance) (Only the Greek text is authentic)
Date: 1999-03-17
Institutions: European Commission
Subjects: Greece, State aid, cement, control of State aid, industrial restructuring, infringement of EU law

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EN

Official Journal of the European Communities

L 66/1

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 17 March 1999

on State aid given by Greece to Heracles General Cement Company

(notified under document number C(1999) 716)

(Only the Greek text is authentic)

(Text with EEA relevance)

(2000/199/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

II

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

Background to the dispute

Having given notice to the Parties concerned to submit their
comments in accordance with the same provisions (1) and
having regard to those comments,

(2)

Whereas:

I

The Heracles Decision and its annulment

(1) On 6 July 1995,

the Court of First
annulled (2)

Instance of
the
a Commission
European Communities
Decision, notified to the Greek authorities by letter of 1
August 1991 (3), to authorise aid granted by the Greek
Government
to Heracles General Cement Company
(hereinafter (cid:145)Heracles(cid:146)), a Greek cement manufacturer.

(1) OJ C 84, 21.3.1996, p. 3.
(2) Joined Cases T-447/93, T-448/93 and T-449/93, AITEC and Others

v. Commission [1995] ECR II-1971.

(3) OJ C 1, 4.1.1992, p. 4.

to

the
of

remedy

(Organismos

In 1983, the Greek authorities adopted a number of
structural measures
serious
designed
including Law
disturbances in the country’s economy,
financial
for
organisation
1386/83 for
the
reconstitution
(cid:145)Law
(hereinafter
undertakings
1386/83(cid:146)), adopted on 5 August 1983. That law created
an organisation known as the Business Reconstruction
Organisation
oikonomikis Anasygrotiseos
Epicheiriseon or OAE (cid:151) the (cid:145)BRO(cid:146)). The purpose of the
BRO was to (cid:145)contribute to the social and economic
the country through the financial
development of
rejuvenation of undertakings, the import and application
of foreign technology, the development of Greek-based
technology and the establishment and operation of
socialised or mixed economy undertakings(cid:146). The BRO
was empowered in particular to administer and manage
undertakings, participate in the capital of undertakings
and grant
loans. Law 1386/83 also authorised the
capitalisation of the debts of the undertakings concerned
by the issue of new shares.

(3) By Ministerial Decree of 7 August 1986,

the Greek
the
Government applied Law 1386/83 to Heracles,
balance sheet of which had shown a substantial deficit
since 1983, by bringing it under public control and
its debts
converting into capital
to Greek public
institutions
to GRD 27 755 million
amounting
(approximately EUR 84 million).

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to

have

appear

(4) Law 1386/83 was not notified to the Commission by
the Greek authorities prior to its adoption. Nor does the
advance
Commission
received
notification from the Greek Government
that Law
1386/83 was going to be applied to Heracles in August
1986. However, following the granting of the aid, the
matter was brought to the Commission’s attention by
competitors of Heracles. The Commission therefore
requested the Greek Government, by telex of 18
September 1986, to provide clarification on the point
within seven days and to notify it of any application of
Law 1386/83 in that
In response to that
instance.
request,
the Greek Government provided detailed
information by letter of 10 October 1986, pointing out
in particular
the conversion of
in its view,
Heracles’ debts into shares did not constitute aid within
the meaning of Article 92 of the Treaty.

that,

(5) On 29 October 1986,

the Commission initiated
administrative proceedings in respect of Law 1386/83;
these culminated in the adoption on 7 October 1987 of
Commission Decision 88/167/EEC (4), which authorised
(cid:145)the implementation of the law(cid:146) under Article 92(3)(b) of
the Treaty, on the ground that
it was intended to
remedy a serious disturbance in the economy of a
Member State.

(10) By letter dated 15 February 1988,

the Commission
informed the Greek Government that it had decided to
initiate administrative proceedings under Article 93(2)
of the Treaty against the aid granted to Heracles. Noting
that
there had been an increase in Greek cement
exports, particularly those of Heracles, to other Member
States, the Commission found that the aid could distort
competition and affect
trade between Member States
within the meaning of Article 92(1) of the Treaty, since
Heracles had been making losses since 1983 whilst
engaging in intra-Community trade. It pointed out that
the only derogation applicable to the aid was that
provided for by Article 92(3)(b) of the Treaty but that
the application of that provision was subject to certain
conditions which were not, in its view, met in the case
of Heracles.

(11) On 9 March 1988, Titan sent

to the Commission

further comments on the aid granted to Heracles.

(12) Following its decision to open proceedings under Article
the Commission published a
the Treaty,
93(2) of
notice (5)
than the
inviting parties concerned other
Member States to submit their comments on the aid to
Heracles within one month.

(6) The implementation of Law 1386/83 was made subject,
including the
to a number of conditions,
notify

however,
requirement
individual cases exceeding certain thresholds.

the Greek Government

that

(13)

(7)

In the recitals to the Decision, the Commission found
that Law 1386/83 and the operations of
the BRO
fulfilled the conditions for the application of the second
part of Article 92(3)(b), particularly in view of Protocol
7 to the Act of Accession of Greece, on the economic
and industrial development of Greece. Protocol 7
provides that (cid:145)in the application of Articles 82 and 93
of
it will be necessary to take into
account the objectives of economic expansion and the
raising of the standard of living of the population(cid:146).

the EEC Treaty,

(8) The Greek Government was

informed of Decision
88/167/EEC by letter from the Commission dated 17
November 1987. Thereafter, by letter dated 3 December
1987, the Greek authorities provided detailed additional
information concerning Heracles, while repeating their
view that the intervention in question did not constitute
State aid.

(9) On 8 December 1987, Titan Cement Company ((cid:145)Titan(cid:146)),
lodged a complaint
a Greek competitor of Heracles,
with the Commission opposing the granting of the aid
to Heracles.

(4) OJ L 76, 22.3.1988, p. 18.

to that notice,

In response
several of Heracles’
competitors claimed that serious disturbance had been
caused to the Community cement market as a result of
the intervention by the Greek authorities, which had
very greatly strengthened Heracles’ competitive position.
Thereafter,
of
correspondence took place between, on the one hand,
the Commission and the applicants and, on the other,
the Commission and the Greek Government.

several meetings

exchanges

and

(14) The procedure was terminated by the Commission with
the adoption of a Decision to approve the aid (6). In that
Decision the Commission concluded that
aid
awarded to Heracles in 1986, by transforming parts of
its debt
into capital, could be considered to be in
conformity with Decision 88/167/EEC.

the

(15)

to Article 93(2) of

In parallel with the procedure relating to Heracles, the
Commission on 3 April 1989 initiated proceedings
pursuant
the Treaty against aid
granted on the basis of Law 1386/83 to Halkis, the
third largest Greek cement producer. Those proceedings
led to Commission Decision 91/144/EEC (7) ((cid:145)the Halkis
Decision(cid:146)), in which the Commission found that the aid
to Halkis had been granted in breach of the rules set out
in Article 93(3) of the Treaty and was incompatible

(5) OJ C 124, 11.5.1988, p. 4.
(6) See footnote 3.
(7) OJ L 73, 20.3.1991, p. 27.

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with the common market, since it did not qualify for
exemption under Article 92(2) and (3) of the Treaty,
having regard in particular to the increase in Halkis’
exports to Italy. The Commission concluded that the aid
was contrary to (cid:145)the common interest(cid:146).

IV

The main findings of the Court of First Instance

III

The Parties challenging the aid before the Court

(16) By application lodged at the Court of

Justice of the
European Communities on 27 March 1992,
the
Associazione Italiana Tecnico Economica del Cemento
((cid:145)AITEC(cid:146)), an Italian cement producers’ association,
brought an action for the annulment of the Commission
Decision approving the aid granted to Heracles, which
had been notified on 1 August 1991 (8).

(17) Similarly, by applications lodged at the Court of Justice
on 30 March 1992, Titan and the British Cement
Association ((cid:145)BCA(cid:146)), together with three of the BCA’s
member companies, Blue Circle Industries plc, Castle
Cement Ltd and Rugby Group plc, which are the
principal cement manufacturers in the United Kingdom,
brought actions for the annulment of the same Decision
((cid:145)the contested decision(cid:146)).

(18) The three cases before the Court of Justice, which were
numbered C-97/92, C-105/92 and C-106/92, were
joined for purposes of the proceedings.

(19) By orders of the President of the Court of Justice of 12
October 1992 and 24 March 1993 respectively,
the
Hellenic Republic and,
subsequently, Heracles were
given leave to intervene in support of the form of order
sought by the defendant in the three cases, pursuant to
applications lodged by them at the Registry of the Court
and 10 August 1992
of
respectively.
in
intervention, which were common to the three Joined
Cases, on 7 December 1992 and 3 July 1993
respectively.

Justice on 14 August
lodged
They

statements

their

(21) As to the substance of

laid

down

the case,

in essence,

simply examine whether

the Court of First
Instance ((cid:145)the Court(cid:146)) found that all of the applicants
maintained,
that, when assessing the
compatibility of the aid at issue with the Treaty, the
Commission could not
it
fulfilled
by Decision
conditions
the
aid scheme
88/167/EEC, which declared that
established by Law 1386/83, on the basis of which the
contested aid was granted, was compatible with the
Treaty. According to the applicants,
the Commission
should have carried out a specific examination of the
compatibility of
issue with the common
market. It was appropriate, therefore, for the Court to
determine first of all the scope of Decision 88/167/EEC
and then to verify whether or not the contested decision
disregarded Decision 88/167/EEC and Article 92 of the
Treaty.

the aid at

the

Instance found that

(22) As regards the scope of Decision 88/167/EEC, the Court
of First
the Commission had
approved the implementation of Law 1386/83 on the
ground that it fulfilled the conditions of the second part
of Article 92(3)(b) of the Treaty, read in conjunction
with Protocol 7, since it was intended to remedy a
serious disturbance in the Greek economy. However, the
Commission authorised the implementation of the law
subject
the Greek Government
shall notify the individual cases of intervention in firms
made subject
to the law employing 300 or more
persons in the case of non-sensitive branches and 100
or more persons in the case of sensitive branches.

to the condition that

(23)

In the Court’s view it followed that the Commission
considered that interventions by the BRO on a certain
scale should be subjected to a specific examination, first,
of whether the aid fulfilled the (cid:145)conditions(cid:146) imposed by
Decision 88/167/EEC and, second, of whether or not it
resulted in the undertakings concerned (cid:145)being left in a
in
stronger competitive position vis-(cid:224)-vis
other Member States than would otherwise occur had
those difficulties not arisen in the first place(cid:146). The Court
concluded that the need for such an examination was in
line with Article 92 of the Treaty, whose purpose was
to prevent aid granted by Member States from distorting
competition or affecting intra-Community trade.

industries

(20) On 27 September 1993, the Court of Justice referred

the proceedings to the Court of First Instance.

(8) See footnote 3.

(24) As to the contested decision, the Court of First Instance
noted that the Commission pointed out therein that the
obligation to notify individual significant cases had been
imposed (cid:145)so that these could be considered from the
point of view of their impact on intra-Community trade

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and competition(cid:146). However,
in the contested decision,
the Commission merely considered the consequences of
the aid in Greece, and concluded that the aid fulfilled
the conditions of Decision 88/167/EEC, particularly as
regards
the absence of any increase in production
capacity and the viability of the undertaking. Whilst it
was indeed necessary for those factors to be taken into
consideration for
examining the
compatibility of the aid with the common market, they
were not enough for any conclusion to be reached in
that regard, since Decision 88/167/EEC also required
the Commission to examine the extent
to which
intra-Community
competition might be distorted or
trade might
had
undertaken no such examination in any way.

affected. The Commission

the purposes of

be

(25) The Commission had therefore disregarded the scope of
its obligation under Decision 88/167/EEC and Article
92 of the Treaty to examine whether the aid in question
distorted competition and affected intra-Community
trade.

V

The enlargement of the Article 93(2) proceedings

(26)

In its judgment the Court of First Instance annulled the
the Article 93(2)
Commission’s decision to close
proceedings initiated in 1988;
those
proceedings are still open, and a new final decision is
called for.

this means that

(27)

93(2)

so that

Decision

88/167/EEC;

In order to comply with the judgment, therefore, the
Commission decided on 14 November 1995 to enlarge
the Article
The Commission
proceedings.
observed that it had originally initiated proceedings only
the aid to Heracles might be
on the ground that
the
incompatible
with
proceedings needed to be broadened,
the
Commission could carry out a full investigation of the
compatibility of the aid with Article 92, as the Court
had required, without infringing the rights of defence of
the Greek Government. The recapitalisation of Heracles
constituted aid caught by Article 92(1) of the EC Treaty.
There was at least serious doubt whether the aid could
be considered compatible with the common market.
The Commission also raised the question whether or
not the aid was restricted to the minimum necessary to
enable Heracles
profitability. The
regain
Commission had now compared Heracles with its
slightly smaller but profitable competitor Titan, and

its

to

concluded that Heracles
overcapitalised
(approximately EUR 15,5 million).

some

by

appeared to have been
GRD 5 000 million

(28) The Commission informed the Greek authorities of its
decision to enlarge the Article 93(2) proceedings by
letter dated 29 November 1995. The Greek authorities
replied by letter dated 13 February 1996; a summary of
their arguments is given below.

(29) The Commission announced its decision to enlarge the
proceedings in a notice published in the Official Journal
of the European Communities (9). The notice invited other
Member States and other Parties concerned to submit
comments. In response to that notice information was
submitted by three national cement associations, by one
of Heracles’ competitors, and by some other interested
parties. Those comments are summarised in Section VI.

(30) The observations received from interested parties were
submitted to the Greek Government for its comments
by letter dated 17 June 1996. In letters dated 23 July
and 12 September 1996 the Greek authorities requested
extensions of the deadline within which they were to
comment, and ultimately submitted their comments by
letter dated 8 November 1996. Heracles
submitted
information by letters dated 12 December
additional
and 23 December 1996. Further to those answers, the
Commission, by letter dated 16 January 1997, asked the
Greek Government to provide additional
information.
That information was submitted on 6 February 1997.

(31) A series

took place

of meetings

and interested parties

between the Commission
in
departments
summer and autumn 1997: Commission staff met the
Agrupaci(cid:243)n de Fabricantes de Cemento de Espaæa
((cid:145)Oficemen(cid:146)) on 29 July; AITEC on 30 July;
the old
shareholders in Heracles on 31 July; Lafarge CoppØe SA
the British
((cid:145)Lafarge(cid:146)) on 31 July;
cement
industry on 1 August; and Titan on 17
September. A joint meeting with Heracles and the Greek
Government took place on 19 September.

representatives of

for

further

information.

(32) On 12 August 1997, the Commission asked the Greek
authorities
The Greek
authorities replied by letter of 17 November. Heracles’
competitor Titan submitted further information to the
Commission by
letter of 2 December. Heracles
addressed a memorandum to the Commission by letter
of 23 January 1998. The Greek authorities
sent
In
additional
addition to its memorandum of 23 January, Heracles
submitted further information in a letter of 6 April.

information by letter of 10 February.

(9) See footnote 1.

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information was

(33) A meeting with the Greek authorities took place on 5
sent by
October 1998. Additional
Heracles on 24 November and 29 December. Another
meeting with Heracles’ representatives took place, at
their
request, on 12 January 1999. The Greek
authorities sent final submissions to the Commission on
8 February 1999, summarising the discussion to date
and the information already supplied.

VI

Observations received in the course of the
Article 93(2) proceedings

VI.1. Observations submitted by the Greek

Government and Heracles

to this meeting,

(34) Following the Commission’s initial decision to open
proceedings, in 1988, the Greek Government submitted
its first observations by letter dated 27 April 1988. A
bilateral meeting with representatives of
the Greek
Government and of Heracles took place on 29 June.
the Commission requested
Further
additional information by letter dated 18 July, the reply
to which was received on 26 October. An additional
meeting took place on 30 May 1989, further to which
the Greek Government
supplementary
information by letter dated 18 July 1989. Another
meeting was held on 13 December 1989, followed by a
letter from the Greek Government dated 6 March 1990.
Further meetings took place on 19 October 1990, 16
November 1990 and on 11 January 1991. The Greek
Government submitted written information on 3 March
1991.

submitted

(35)

In 1988, the Greek Government rejected the point of
view taken by the Commission in its entirety:
it
contended that the BRO’s intervention had been limited
to the absolute minimum necessary for the company to
it defended the necessity of maintaining fixed
survive;
low domestic cement prices;
it denied that Heracles’
productive capacities had been or would be increased; it
claimed that
regional aid had been
awarded in 1985 but not yet paid, and that without this
aid the conversion of debt into capital would have been
GRD 3 billion higher; and it submitted information on
Heracles’
investments in order to show that a real
restructuring had taken place.

the additional

(36)

In 1989, the Greek Government announced that some
of the Commission’s objections would be met. The fixed
and
domestic

cement price had been abolished,

Heracles’
would be boosted,
Finally,
award the additional regional investment aid.

investment programme for 1987 to 1990
thus accelerating its restructuring.
to

the Greek Government had decided not

(37)

In 1990 and 1991,
the discussion focused on the
remaining problem, namely the amount of aid, and on
the Greek Government’s newly announced intention to
privatise Heracles.

(38) Throughout the proceedings, both before the judgment
of the Court of First Instance and during the formal
investigation initiated by the Commission in 1988 and
subsequently enlarged in 1995, the Greek Government
has maintained that the conversion in 1986 of a part of
Heracles’ debts into shares held by the BRO, that is to
say by the Government, did not constitute State aid
within the meaning of Article 92(1). The Greek
authorities have criticised the Commission for failing to
intervention by the
ascertain, when it approved that
Greek State in August 1991, whether the intervention
could in fact be considered State aid under Article 92(1),
rather than simply taking the view that anything done
under Law 1386/83, which was the legal basis of the
measure in question and which the Commission had
approved under Article 92(3)(b)
in October 1987,
would necessarily constitute State aid.

is

as

private

investor

satisfied,

(39) More specifically, the Greek Government contends that
the
the
test
GRD 20 775 million invested by the Greek Government
in Heracles gave a return of GRD 120 790 million six
years later when the company was privatised in 1992.
The Greek Government further contends that the aid is
not caught by Article 92(1), owing to the lack of trade
the
between Member
comparison between Heracles and Titan also shows that
the aid had no adverse effect on the position of
Heracles’ main competitor, and that the aid was the
minimum required for Heracles to remain viable, since
Titan’s sales did not drop either at home or abroad, nor
was there any adverse effect on its turnover. Titan’s
pre-tax
debt-to-share
the
conversion, outstripping Heracles’ profits.

It points out

increased

profits

States.

after

that

(40) Heracles

it

that

itself

stresses

fully supports

the capitalisation of

the
forward by the Greek Government.
observations put
Heracles contends that
its debts
does not constitute aid, but that even if it did it ought
to be approved in its entirety. Heracles argues that the
Commission approved the aid to the company in 1991
on the basis of specific information and considerations
that still apply today. If the Commission were now to
come to a different conclusion on the basis of the same
facts, it would violate the principle of legal certainty and
the principle of sound administration. Moreover, given
the time that has elapsed, the Commission has failed to

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take a decision within a reasonable time, and is clearly
it
rendered responsible. Heracles also maintains that
cannot be possible, in view of the principle of sound
administration which Community institutions must
observe in the exercise of
for their
proven errors to have an adverse effect on a private
individual acting in good faith and to damage or
undermine his interests.

their authority,

VI.2. Observations submitted by interested parties

(a) R e a c t i o n s t o t h e C o m m i s s i o n n o t i c e

p u b l i s h e d o n 1 1 M a y 1 9 8 8 (10)

(41) Following its initial decision to initiate proceedings in
1988 in respect of aid to Heracles,
the Commission
received observations from the Governments of three
other Member States, seven national associations, four
competitors of Heracles, and the old shareholders in
Heracles, all of them in support of the Commission’s
own position.

(42) The Belgian, Dutch, French and German associations of
cement manufacturers emphasised that their members
had undergone heavy restructuring programmes, which
included cuts in production capacity and substantial
investment, without
receiving any special aid. The
Belgian association added that its members were facing
serious disruption of the market which was partly the
result of cheap imports of Greek cement. The Dutch
association feared that
the overcapacity created and
maintained in Greece by means of State aid would force
the Greek cement industry, and notably Heracles, to sell
large volumes of cement in other countries, even at very
low prices. The German association added that Greek
cement, and Heracles cement in particular, was being
offered in several western European countries, including
Germany, at prices below comparable production cost.

(43) The Luxembourg association of construction materials
manufacturers and traders pointed out
that cement
produced by Heracles had found its way to Luxembourg
via the Netherlands at prices one third lower than those
charged by the cement industry in Luxembourg.

(44) The

Italian

association

cement manufacturers
of
protested against the increasing imports of cheap Greek
cement in Italy, more than half of which came from
Heracles. Both the Italian association and an Irish
producer stressed that the Greek cement industry had
had the benefit of various general aid schemes, notably
such as a
export aid. Any further operating aid,

conversion of debt into capital, would be incapable of
satisfying the tests of Article 92(3).

(45) The British Government objected in particular to rescue

aid not linked to a sound restructuring plan.

(46) Two Greek competitors of Heracles stressed that the best
industry as a whole
way to help the Greek cement
would be the abolition of price control for cement in
Greece.

(47) The Governments of Denmark

an
association in the United Kingdom and a manufacturer in
Denmark protested against
the aid in more general
terms.

and Germany,

(48) The Commission submitted these observations to the
Greek Government by letter dated 18 September 1989;
the Government commented by letter dated 6 March
1990.

(49) The old owners of Heracles

submitted confidential
information in November 1990. This information could
not be submitted to the Greek Government, and must
therefore be disregarded.

(b) R e a c t i o n s t o t h e C o m m i s s i o n n o t i c e
p u b l i s h e d o n 2 1 M a r c h 1 9 9 6 (11)

(50) The reactions of interested parties to the Commission’s
notice announcing the enlargement of the proceedings
against
the aid granted to Heracles are summarised
below. They include submissions from a competitor of
Heracles, from three national cement associations and
from the old shareholders in Heracles. Following the
enlargement of the proceedings lawyers representing a
French cement manufacturer several
times submitted
observations on the aid.

(51)

In general these interested parties argue that the aid
unlawfully granted to Heracles is incompatible with the
common market and should be recovered with accrued
interest. They submit that the aid to Heracles cannot be
authorised under Article 92(3)(b), because it does not
remedy a serious disturbance in the Greek economy.
They contend that the Commission has not shown how
the aid might have remedied such a disturbance, nor
what the effect on the economy might have been if the
aid had not been granted.

(10) See footnote 5.

(11) See footnote 1.

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Titan

(52) Titan argues that

the aid accorded to Heracles,

its
in the common market, has
principal business rival
caused it serious injury. Titan is of the view that the
Commission should have calculated the minimum level
of debt
ensured
capitalisation which would have
Heracles’ survival by estimating the level of aid that was
to reduce the financial costs of Heracles’
sufficient
indebtedness to a level where they could have been met
out of cash flow.

(53) Titan regards the approach taken by the Commission,
which compared Heracles’ financial position with that of
Titan, as flawed in several respects. First, it did not take
account of the viability test: Heracles would have been
perfectly viable even if its financial position remained
weaker than that of Titan,
the industry leader. That
Heracles should have had to carry higher financial costs
was perfectly natural, since it had invested much more
heavily and recently than Titan. Second, Titan questions
the validity of
the data used by the Commission in
making such comparisons, particularly in respect of the
year 1987.

The British cement industry

(54) The British cement

that

states

industry (12)
the aid
enabled Heracles to export to the United Kingdom in
volumes that would not have been possible otherwise:
the volume of cement exported by Heracles to the
United Kingdom increased from 12 500 tonnes
in
1986 to 388 000 tonnes
in 1988, and was over
400 000 tonnes a year in the period 1989 to 1995. The
aid permitted Heracles to produce cement at low unit
cost, without
financing costs
associated with the setting-up of the plant, which had
been built and modernised using the aid. The effect on
Heracles’ profitability enabled it to sustain a substantial
flow of unprofitable exports to the United Kingdom.

the burden of

the

(55) The British cement industry submits that had no aid
been given, Heracles would not have ceased to trade
altogether, but would merely have been forced to take
appropriated restructuring measures more promptly;
further
these would very likely have
rationalisation of
its production capacity to match
demand. In its notice, the Commission does not indicate
how such a restructuring would necessarily have led to
any serious disturbance in the Greek economy.

included a

(12) The observations summarised here are those submitted by the
BCA and by three of its members, Blue Circle Industries plc, Castle
Cement Ltd and Rugby Group plc. These Parties are referred to
collectively as (cid:145)the British cement industry(cid:146).

prevented manufacturers

(56) The State-imposed price controls that operated on the
from
domestic market
obtaining a commercial rate of return on cement sold at
home, and contributed to the difficulties of the Greek
cement industry in general. Had the Greek Government
acted to remedy that situation in 1986, for example,
rather than in 1989, it would certainly have relieved the
problems of
industry without
requiring the award of State aid. And if Heracles had
been liquidated sooner, rather than being allowed by the
Greek Government to benefit as a result of unlawful aid,
the industry would have been rationalised more rapidly.

the Greek cement

(57) The British cement industry calls for the Commission to
assess whether the aid granted to Heracles was necessary
in order to remedy a serious disturbance in the Greek
economy on the
the Greek
Government had not granted unlawful State aid to
Halkis, permitting Halkis to be liquidated and thereby
making possible the restructuring of the Greek cement
industry, and (ii)
the Greek Government had moved
earlier to lift the domestic price controls.

assumption that:

(i)

is

based

on 1987 figures,

(58) The British cement industry submits, however, that this
comparison,
unduly
favourable to Heracles, and that a correct analysis shows
that
the excess capitalisation was even greater. The
Parties also criticise the Commission on the ground that
it
capital
injection was needed to maintain Heracles’ business
substantially in its existing form, and simply assumed
that this was necessary in order to prevent a disruption
of the Greek economy.

contended itself with considering what

AITEC

(59)

In its comments, AITEC refers to the distortions of
competition caused by increasing levels of exports by
Heracles to Italy from 1988 onwards: the volume of
cement exported by Heracles
to Italy grew from
34 000 tonnes in 1987 to 885 000 tonnes in 1991, an
increase from 1 % to 32 %. AITEC claims that Heracles
has attained its market penetration in Italy by charging
abnormally low prices and pursuing an aggressive
pricing policy.
It quotes figures which indicate that
prices for Greek cement are on average 22,5 % lower
than those in Italy, and up to 30 % lower than prices on
the Greek market.

(60) AITEC argues that the aid granted to Heracles gave it an
advantageous position vis-(cid:224)-vis its competitors in Italy
and enabled it to secure a substantial share of the Italian
market. The fact that there was no restructuring linked
to the conversion of
the debts of Heracles in 1986
the company’s production capacity, as it
meant
that
its annual
stood in 1985,

remained unaltered. But

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output increased, despite the fact that the number of its
the period
employees diminished considerably over
from 1988 to 1994, from 3 600 to 3 000. It should
also be noted that during that same period, 1988 to
1994, the ratio of investment to the company’s turnover
increased from 2 % to about 4 %. This AITEC considers
to have been made possible by the aid that Heracles
received. Heracles’
the
association claims, to the loss of a total of 350 to 400
jobs in Italy.

to Italy have

exports

led,

Oficemen

its output

industry that most of

(61) Oficemen notes in its letter that it is characteristic of the
is
Greek cement
the total volume of Greek cement
exported. Out of
exported in the years 1989 to 1995,
the share of
exports to Spain increased from 1 % to 12 %, or in
absolute terms from 62 000 tonnes to 929 000. The
volume of exports by Heracles to Spain increased from
29 000 tonnes in 1989 to 370 000 tonnes in 1994; the
latter figure amounts to approximately 50 % of Greek
exports to Spain in that year. Oficemen maintains that
so great an increase in Heracles’ share of exports within
five years was due to the aid it received from the Greek
State, which allowed it to sell below production costs.
Spanish cement manufacturers found themselves in a
disadvantageous position vis-(cid:224)-vis Heracles.

Old shareholders in Heracles

(62) The old shareholders in Heracles regard themselves as
interested parties because the enforced increase in the
company’s had the effect of diluting the control of the
original shareholders. They also observe that it is not
surprising that Heracles became overcapitalised, since
the capital increase was a disguised man(cid:156)uvre aimed at
taking control of the company, and was not motivated
by purely financial considerations. The old shareholders
the aid was granted by an unlawful
argue
that
it was not notified in advance, and it
mechanism:
infringed Council Directive 77/91/EEC (13),
last
amended by the Act of accession of Austria, Finland and
Sweden ((cid:145)the Second Company Law Directive(cid:146)). An aid
measure cannot be found compatible under Article
92(3) when the mechanism by which the aid is granted
itself infringes a provision of Community law other than
those laid down in Articles 92, 93 and 94 of the Treaty,
in this case the Second Company Law Directive. Even if
it were to be found compatible, the aid should not be
authorised, since it was granted by unlawful means. In
accordance with the case-law of the Court of Justice, the
old shareholders should recover their original position
of control.

as

(13) OJ L 26, 30.1.1977, p. 1.

Lafarge

is

even further. Heracles

(63) Lafarge, a French cement manufacturer, criticises the
Commission decision to enlarge the proceedings for
failing to take account of the fact that the aid might
enable Heracles to take over a loss-making cement
producer, Halkis, and subsequently to increase its
capacity
controlled by
Concretum SA, through Cal-Nat SA, and Lafarge here
refers indirectly to the fact that Heracles has purchased
from its parent Concretum at least 50 % of Concretum’s
holding
controlling
shareholder in Halkis, and owns 70 % of Halkis’ shares.
Lafarge contends that even if this does not formally
constitute a takeover of Halkis by Heracles, the result in
economic terms is the same, namely a reinforcement of
the production capacity of two manufacturers who have
taken advantage of state aid. Lafarge argues that the
proceedings have not been broadened sufficiently, and
do not cover the question of the economic unification
of Heracles and Halkis.

in Halkis. Concretum is

the

VII

Application of Article 92 of the EC Treaty

VII.1. Application of Article 92(1) of the Treaty

(64) For

the

reasons

the Commission
set out below,
considers that the aid granted to Heracles in 1986 is
caught by Article 92(1) of
the Treaty, and more
specifically that is was granted through State resources
to a specific undertaking and threatened to distort
competition and to affect trade between Member States.

(65) Decision

that

88/167/EEC
the

concerning
interventions

Law 1386/83
determined
the BRO
of
constituted State aid. Heracles had been loss-making
since 1983, and by the end of 1985 had accumulated
to
losses of GRD 7 249 million, which was equal
approximately three times its share capital at the time;
by Ministerial Decree of 7 August 1986 it was made
subject to Law 1386/83, and its debts were converted
into capital. Heracles owed GRD 27 755 million to
public institutions, and capitalising this gave it a share
capital 10 times greater than before, 93 % of it owned
by the Government.

(66) As

the Commission observed when it decided on
15 November 1995 to enlarge the Article 93(2)
proceedings,
aid granted to Heracles distorts
competition and affects trade between Member States
within the meaning of Article 92(1).

the

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VII.2. Distortion of competition and effect on trade

between Member States

(a) T h e E u r o p e a n c e m e n t m a r k e t (14)

(67) Cement

a

is

goods,

tradable

although its

low
price-to-weight ratio makes it competitive only at short
distances from its production site when transported
overland. Consequently, practically all
international
trade in cement
is either cross-border over a small
radius, or seaborne in large vessels at much larger
distances.

(68) The rate of activity in the cement industry is related to
the rate of activity in the construction industry, which is
directly dependent on the economic situation. Cement is
an important basic material
in construction and civil
engineering, which account for substantial public and
private investment.

(69) Cement production consists of two essential phases:

(cid:151) the manufacture of a semi-finished product, known
as (cid:145)clinker(cid:146), which is obtained from the calcination
in a high-temperature kiln of raw materials (cid:151) clay,
limestone, etc. (cid:151) previously prepared in paste or
powder form depending on the production process
used (wet or dry),

Dyckerhoff,
Switzerland;
Scancem AB, Sweden.

Heidelberger,
Italcementi,

Germany;

Italy; Lafarge, France

Holderbank,
and

(72) As a result of the decline in building in Europe as a
whole during the period from 1979 to 1985,
total
Community consumption fell from 164 million tonnes
in 1979 to 134 million in 1985. But during the second
half of the 1980s there was an increase in demand for
the
cement across the Member States as a result of
spreading use of concrete in road construction and of
reinforced concrete in railway networks, the renovation
of ageing infrastructures, etc. Imports accounted for a
relatively small proportion of consumption in the
Community as a whole: 3,9 % in 1979, and 4,6 % in
1986. Total Community imports were stable between
1979 and 1986, at 6,4 million tonnes. Total output in
Europe decreased from 185 million tonnes in 1979 to
153 million tonnes in 1986, reflecting a slowdown in
consumption
of
Community output which was exported was 13 % in
1986, equivalent to 19,1 million tonnes.

proportion

building.

The

and

(73) Consumption of cement decreased over the period from
1979 to 1986, in Greece and in the Community as a
whole. But the negative trend was much steeper in the
case of the whole Community than it was in the case of
Greece. The proportion of the total Community market
accounted for by Greek output rose from 6,5 % in 1979
to 8,6 % in 1986. This was due to the combined effect
of an increase in Greek output and a decrease in
Community output.

(cid:151) the manufacture of cement as a finished product,
obtained by the homogeneous mixture of ground
clinker and calcium sulphate with or without one or
more
fly ash,
pozzolana, filler, etc. (cid:151) depending on the type of
cement.

components (cid:151) slag,

additional

(74)

(70) Cement production requires large quantities of energy.
Significant advances have been made in recent decades
in reducing the energy required to produce a tonne of
cement.

in

consolidated

(71) There are no generally accepted criteria for ranking
cement companies or groups, as both turnover and
capacity can be defined in different ways. Published
include
turnover
accounts may
non-cement activities, and the existence of
trading
affiliates can lead to different quantities of cement being
company.
produced and distributed by the
Capacity in part-owned companies can be calculated
differently. Subject
the largest
companies in the world having cement interests in the
Community are considered to be, in alphabetical order:
Cemex, Mexico;
Blue

to these reservations,

Circle, United

Kingdom;

same

(14) Institute of Economic and Industrial Research, The Competitiveness
of
June
the Greek Industry, Part D, The Cement Industry, Athens,
1987 (report prepared on behalf of the Commission’s DG III).

falling oil prices

In the second half of the 1970s and at the beginning of
the 1980s, Greek cement producers increased their
production capacities by some seven million tonnes, to
meet strong demand from markets in the middle East,
which at that time were in full expansion owing to
higher prices being paid for oil products. Greece had
traditionally exported cement to countries in the Middle
East and North Africa, and until 1986 it exported
In the
hardly anything to other Member States.
mid-1980s, however,
led to the
collapse of the middle eastern markets; this, combined
with the expansion of local cement firms, created huge
industry,
overcapacity
and
in the Greek cement
for domestic
prompted a search for new markets
output, which
domestic
consumption. Since then Greek exporters have been
diverting an increasing portion of their production to
other Member States. Whereas in 1987 Greece exported
six million tonnes of cement to third countries and only
0,5 million to other Member States, exports to other
Member States had grown to 2,6 million tonnes in
1990 and 2,8 million tonnes in 1992.

considerably

outstripped

(75) At the end of 1985 and the beginning of 1986, Greek
producers looked towards western Europe, especially to
those markets it regarded as more easily accessible: first
the United Kingdom, because it had the highest cement
prices
small
associations formed by consumers and import/export

and second Italy, where

in Europe,

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14.3.2000

companies had taken the step of
cement.

importing Greek

(b) T h e s t r u c t u r e o f t h e c e m e n t i n d u s t r y i n

G r e e c e (15)

(76) The manufacture of cement is one of Greek industry’s
most
traditional sectors. The two largest companies,
Heracles and Titan, account between them for 80 % of
the Greek cement market (approximately 40 % each).
The third-largest company, Halkis, has a market share of
13 to 14 %, and the fourth, Halyps, has 6 to 7 %. The
market shares of the four cement manufacturers differ
considerably from region to region in Greece. Each
company has a larger market share in the areas closest
to its own plants and distribution centres.

(77) The domestic cement market is an oligopolistic market.
Of the four manufacturers, only one, Titan, is a purely
three are controlled by
Greek company. The other
them, Heracles and
foreign multinationals,
two of
Halkis, by the
In reality,
same
Italian company.
two companies, Heracles/Halkis and Titan,
therefore,
account for 93 % of the domestic market. The market is
thus a highly concentrated one. At present there is no
external competition in the domestic market, because
imports are negligible and it
for foreign
companies to establish themselves in Greece because of
the
environmental
access
regulations, permits for operation as in all European
countries, high transport costs,
the strong position
and comparative advantages of the Greek companies,
etc.).

restrictions

is difficult

(strict

on

(78) The following table shows the market shares in Greece of the four Greek cement manufacturers

Titan, Heracles, Halkis and Halyps from the mid-1980s onwards.

Domestic market shares of Greek cement manufacturers, 1985 to 1994

(%)

Firm

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Titan

Heracles

Halkis

Halyps

44,6

43,3

8,8

3,4

43,6

42,9

9,1

4,4

43,2

43,6

8,4

4,9

43

43,1

9

4,9

43,3

42,6

9,4

4,7

42,4

42,1

10

5,5

41,8

41

11,3

5,9

42

40,1

11,6

6,3

41,5

40,5

11,4

6,6

39,6

38,7

13

8,6

Source: Hellenic Cement Association/Cembureau

(79) As regards the profitability and financial

indicators of the Greek cement industry during the
mid-1980s,
it may be noted that gross operating profits per tonne of output increased overall
during the period from 1979 to 1985, as a result of gains in operating cost efficiency in the
industry, although export prices decreased and prices in the domestic market were at comparatively
low levels. An analysis of profits before and after financial charges indicates the adverse effect of
financial charges on the industry’s profitability. High financial charges were incurred in order to
finance the modernisation of the industry. The charges grew further because most of the long-term
debt
incurred in connection with modernisation was in foreign currencies, so that at each
devaluation of the drachma there was a corresponding relative increase in interest payments and in
the outstanding debt, directly affecting the financial structure of the companies; the drachma was
devalued by a factor of 3,2 against the US dollar between 1979 and 1985.

Consolidated profits of the Greek cement industry

(GRD billion)

1979

1980

1981

1982

1983

1984

1985

Profits before financial charges

Financial charges

Net profits before tax

2,3

1,2

1,1

2,7

1,6

1,1

3,7

2,2

1,5

3,2

2,8

0,4

2,6

5,5

ﬂ 2,9

4,0

9,4

ﬂ 5

4,5

13,3

ﬂ 8,8

Source: Companies’ balance sheets

(15) The information on the Greek cement industry in this section is
based mainly on two studies:
Institute of Economic and
Industrial Research, The Competitiveness of the Greek Industry, Part D,
The Cement Industry, Athens, June 1987 (report prepared on behalf
of
Institute of Economic and
Industrial Research, Cement Industry, Athens 1997.

the Commission’s DG III);

(ii)

(i)

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(80) Turning to financial indicators, it is worth noting that the heavy impact of accumulated losses on
the financial structure of the two companies in 1985 completely eroded the book value of their net
worth, which meant that the net worth of the whole industry was negative. The table below shows
that:

(cid:151) the gearing of the industry deteriorated from 1982 onwards, and by 1985 long and short-term
liabilities exceeded total assets, which meant that the total assets of the industry as a whole
were financed by long and short-term debt,

(cid:151) liquidity, which was satisfactory until 1982, also deteriorated thereafter, reflecting acute

problems of cash flow for the industry as a whole,

(cid:151) profitability, in terms of netprofit, deteriorated throughout the period.

Financial indicators for the Greek cement industry

Long and short-term liabilities/Total assets

Current assets/Short-term liabilities

Net profit or loss before tax/Total assets

Source: Companies’ balance sheets, current prices.

1979

0,75

0,85

0,06

1982

0,81

0,75

0,01

1985

1,07

0,43

(0,10)

The respective profile of each Greek producer in the year 1985 is shown in the table below:

Heracles

Titan

Halkis

Halyps

Total industry

(GRD million)

Number of workers

1 937

2 076

1 288

Total assets

Net worth

Current liabilities

Long-term liabilities

Net income (before tax)

Source: Companies’ balance sheets.

43,6

ﬂ 2,2

31,8

14,0

ﬂ 4,2

20,7

3,7

10,2

6,8

0,4

16,7

ﬂ 8,3

19,2

5,8

ﬂ 5,0

270

6,3

0,2

4,4

1,7

(cid:151)

5 571

87,4

ﬂ 6,6

65,6

28,3

ﬂ 8,8

prices

declined

(81) One factor that was crucial to the development of the
cement industry in Greece around that time was that
selling prices on the domestic market were low in
comparison to prices in other domestic markets in the
Community. This was in part due to the fact
that
cement prices in Greece were set by the State. Greek
a
export
development which adversely affected similar companies
elsewhere in the Community too. As recalled above, a
high proportion of
long-term loans, which had been
used to finance investments in the early 1980s, were in
foreign currencies. This
the
industry because of the weakness of the drachma in
comparison to foreign currencies. Manufacturers had to
face high financial charges, the impact of which led to
heavy losses for the industry as a whole in 1983 to
1985.

caused difficulties

sharply

1983,

after

for

(82) Lastly, energy prices were an important factor, in view
of the cost structure of the cement industry. Energy

prices, and specifically the prices of coal, oil and
electricity, had a particular significance for the Greek
cement industry: they accounted for 53 % of total costs,
whereas the European average in 1984 was some 39 %.
But coal, the main fuel for the industry in both Greece
and the Community as a whole, was considerably less
costly in Greece from 1984 onwards.

(c) D e v e l o p m e n t o f H e r a c l e s ’ e x p o r t

p a t t e r n

(83) The Greek cement

industry has traditionally been a
considerable exporter. Greek exports grew strongly
during
from
4,9 million tonnes in 1979 to 7,6 million tonnes in
1985. The proportion of Greek cement output which
was exported was 55,9 % in 1985, 43,6 % in 1990 and

from 1979 to 1986,

the period

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its competitors which enable it

51,7 % in 1995. The Greek cement industry has several
to
advantages over
export effectively. First of all, given the characteristics of
Greece’s geography, production can be located closer to
where the raw materials are mined and at the same time
to places where the final product is loaded for transport
by sea; the most economical method of transporting
cement is by sea, especially over long distances. Most of
the Greek companies have modern plants, and their
production costs are lower too because their production
units are larger. Finally, the largest Greek companies
have cargo vessels of their own for the transport of
cement.

(84) Heracles is the largest Greek exporter. Between 1983
and 1984, Heracles’ exports fell by 6 %. In 1985, they
grew by 3 %, an increase similar to that of all Greek
In 1986 and 1987 exports were
cement companies.
maintained at
the 1985 level. They fell by 18 % in
1988, when total Greek exports decreased by 11,3 %.

Heracles’
exports
(million tonnes)

Greek
exports
(million tonnes)

Heracles’
share

3,4

3,4

3,4

2,8

2,4

2,8

7,6

7,1

7,1

6,3

5,1

5,9

45 %

48 %

48 %

44 %

47 %

47 %

1985

1986

1987

1988

1989

1990

(88) At

the time,

the Greek Government accepted risks
which would have been prohibitive to other investors.
The Greek Government has in any event failed to show
that Heracles could have found the means necessary for
its survival on the capital market. It has also failed to
show that the State measure to assist Heracles did not
constitute aid because on the basis of the structure and
prospects of the company a reasonable return in the
form of dividends or capital growth could be expected
within a reasonable time.

(89) The Greek Government claims that the private investor
principle was satisfied, but contradicts itself when it
argues on the one hand that
the financial problems
faced by Heracles in 1986 were caused by short-term
problems in the economy and on the other hand that
Law 1386/83 and the operations of the BRO were a
necessary response to the particular economic situation
and developments in Greece.

Commission

had
1987
Law 1386/83 subject

(90) By failing to notify the aid prior to the recapitalisation,
the Greek Government
failed to comply with its
obligations under Article 93(3) of the Treaty. Moreover,
the
the
in
to the
implementation of
condition that the Commission was to be notified of
individual cases in which a firm was brought within the
scope of the law if the firm employed 300 or more
persons in the case of non-sensitive branches and 100
or more persons in the case of sensitive branches (see
Decision 88/167/EEC). The aid was, therefore, granted
unlawfully.

approved

(85) During the period from 1985 to 1987, Heracles
managed to increase its share of exports to the other
Member States from 14,8 % to 18,8 %.

VIII

(86) From the information presented above it can be
concluded that the State aid granted to Heracles in 1986
resulted in the survival of the company and enabled it
its output
to export an increasing proportion of
to
other Member States. For
reasons Heracles’
recapitalisation constitutes aid caught by Article 92(1)
of the Treaty, since it distorted competition and affected
trade between Member States.

these

Assessment of the compatibility of the aid with the
common market under Article 92

VIII.1. The exemptions in Article 92(2) and (3) of

the Treaty

(87) Thus

the Commission does not accept

the Greek
Government’s contention that the aid to Heracles was
outside the scope of Article 92(1). Nor can the
there was no
the argument
Commission accept
trade between Member States,
the
requirements of Article 92(1) were met: it was already
foreseeable at the time that Greek exports would be
directed towards other Member States, as the Court of
First Instance found in its judgment.

so that not all

that

(91) The Commission is accordingly required to assess
whether any of the clauses in Article 92(2) and (3) can
be applied so as to exempt the aid from the general
prohibition in Article 92(1).

(92) The exceptions laid down in Article 92(2) do not apply
in this case, given the nature of the intervention, which
did not pursue any of the objectives listed there.

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(93) Greece may be regarded as meeting the definitions in
(cid:145)aid to promote the
Article 92(3)(a), which allows
economic development of areas where the standard of
living is abnormally low or where there is serious
underemployment(cid:146);
regional
the
development to which that exception is linked is based
essentially on the provision of aid for new investment
or major expansions or conversions of undertakings
involving large-scale investments of a physical nature
and the costs associated with these. The recapitalisation
of Heracles cannot be considered to fall within the
scope of that exemption.

concept

but

of

(94) Article 92(3)(c) cannot apply to the aid granted to
Heracles, which was not designed (cid:145)to facilitate the
development of certain economic activities or of certain
economic areas(cid:146). In other words, the aid had no regional
objectives, nor was it linked to any restructuring of the
company in question.

(95) Article 92(3)(d) cannot apply, because the aid was not
intended (cid:145)to promote culture and heritage conservation(cid:146).

(96) The first part of Article 92(3)(b) makes provision for
(cid:145)aid to promote the execution of an important project of
common European interest(cid:146); this cannot apply to the aid
granted to Heracles, which was not intended to promote
the execution of such a project.

(97)

It was under the second part of Article 92(3)(b) that the
Commission authorised Law 1386/83, on the ground
that it was intended to remedy a serious disturbance in
the Greek economy, and that law provided the legal
basis for the granting of aid to Heracles, so that an
individual award of aid of this kind may be permitted
solely under that exemption.

VIII.2. Applicability of Article 92(3)(b)

(98) As stated above, Law 1386/83 forms the legal basis
under which the aid was granted to Heracles. The
implementation of the law was made subject, however,
to a number of conditions,
including the requirement
the Greek Government was to notify individual
that
cases
specific
notification requirement was imposed in order to enable
the Commission to consider significant individual cases
from the point of view of their impact on trade between
Member States and competition.

thresholds. This

exceeding

certain

the

In particular,

abolition of wage

(99) The Commission wishes to emphasise that the Heracles
case was not a one-off case but clearly a part of the
whole programme pursued by the BRO. The economic
situation in Greece had been constantly deteriorating up
to October 1985. Both internal and external imbalances
had created a difficult situation which demanded firm
policy measures.
the Greek authorities
were confronted with very serious external payments
and pressures on the exchange rate in September 1985.
Thus, in October 1985, they introduced an economic
stabilisation and recovery programme. This programme
included measures to devalue the drachma by 15 %; the
introduction of a non-interest-bearing import deposit
scheme;
indexation; major
changes to the tax system; and a tightening of credit
austerity
and monetary policy. By the
programme was instituted many Greek companies had
got into financial difficulties as a result of the previous
policy on wages, limits on making workers redundant,
interest rates and overvaluation of the
price controls,
drachma. When the Commission adopted Decision
88/167/EEC authorising the implementation of Law
it had to be regarded as
1386/83,
important
their
economic performance if the objectives of the austerity
programme were to be achieved. Given the major effort
the Greek Government was undertaking to reverse past
policies in the October 1985 stabilisation programme,
the Commission concluded that Law 1386/83 and the
the
operations of
programme and were compatible under Article 92(3)(b).

the BRO were an integral part of

it observed that
that Greek

companies maximise

time

the

(100) On the question of the purpose of the aid, that is to say
whether reorganising and recapitalising Heracles would
help to remedy a serious disturbance within the Greek
economy, it should be noted that Heracles was at the
time, and still is, an enterprise important to the Greek
economy. The Greek Government stressed this in its
letter of 3 December 1987, pointing out that in the
absence of an intervention on the part of the BRO, the
existence of the largest cement group with a workforce
of approximately 2 000 directly employed in the second
largest exporting industry of Greece would have been
threatened. This would have had grave social and
regional consequences, and repercussions on the Greek
balance of payments.

(101) The Commission would point out that under the Treaty
the aid must be limited to the minimum necessary to
achieve the goal for which it was granted, in order to
avoid undue distortion of competition.

(102) The Commission accepts, then, that aid to Heracles was
necessary in order to achieve the objectives of
the
measures taken by the Greek authorities to remedy the
serious disturbance in the Greek economy; but
the
Commission is of the opinion that the aid granted was
not limited to the minimum necessary, because it went

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the

left

the

objective

remedying

this enabled it

in the destination of

beyond
serious
of
disturbance in the Greek economy and thus distorted
competition and affected trade between Member States
to an extent contrary to the common market. The
immediate result of the measures taken in respect of
Heracles was a debt write-off, which brought substantial
cost savings, since there was now no need to pay
interest on the debts capitalised or default interest on
institutions. The
liabilities overdue
to the public
company’s
since its
liquidity increased considerably,
debts were capitalised and it no longer had to pay
interest or capital
to
to its creditors;
improve the credit terms it offered to its customers on
the domestic and export markets, and to export a
greater proportion of its output to other Member States.
in a stronger competitive
The company was
position, by reason of an increase in its exports and a
shift
its exports towards other
Member States. Only that part of the aid which was
necessary to restore Heracles’ viability without affecting
trade between Member States to an extent contrary to
the common market, and which would not place the
company in a more favourable position vis-(cid:224)-vis its
competitors, may be said to be compatible under Article
92(3)(b) of the Treaty. That part of the aid helped to
remedy a serious disturbance in the Greek economy; it
did affect trade, since the State intervention enabled the
company to stay in business and to increase its exports
to the other Member States, but not
to an extent
contrary to the common market. The increase in
Heracles’ exports to other Member States has to be seen
in the light of a general shift of Greek exports towards
other Member States which took place from 1986
onward. As has been pointed out above, the collapse of
the middle eastern markets, which were the traditional
export markets of Greece, caused the diversion to the
Member States of an increasing proportion of
the
output of all Greek exporters, mainly because of the
competitiveness of Greek exports as compared with
European production, which was not sufficient during
the period from 1986 to 1990 to meet the increase in
internal consumption.

capital

negative

disclosed

it
of
GRD 2 163 million, net losses of GRD 4 216 million,
of
activities
and
GRD 4 623 million. By
its
end of 1985,
accumulated losses amounted to GRD 7 249 million.

ordinary
the

reserves

losses

and

net

on

(105)

In 1985 and 1986, before State intervention, Heracles
faced the following situation:

(cid:151) it was equipped with modern production facilities,
owing to a major investment programme carried
out in the early 1980s (1983 was the last year in
which capital expenditures were high),

(cid:151) this investment programme had been financed very
foreign

if not exclusively, by additional

largely,
borrowing,

(cid:151) the devaluation of the drachma had had a negative

impact on the cost of this borrowing,

(cid:151) sales revenue prospects were hit by domestic price

controls,

(cid:151) declining demand in the

company’s

in

export markets
hand-in-hand with
1985/1986, which
oil-exporting
countries
construction programmes.

the Middle
oil
the
reduced
to

price
the

finance

East

traditional
came
of
of
major

shock
capacity

(103)

to establish what part of

In order
the aid is not
justifiable under Article 92(3)(b), because it went beyond
the scope of remedying a serious disturbance in the
Greek economy, and left the company in a financial
situation which was better than necessary in order to
the Commission has
ensure its
carried
economic
development and financial situation and has examined
the most appropriate methods for its calculation.

long-term viability,

of Heracles’

analysis

out

an

thus

(106) The economic and financial position of the company
was
characterised by sharply rising financial
charges resulting from borrowing, which not only had a
in fact
negative
impact on its profitability but
threatened it with liquidation. On the other hand,
it
could
substantial
to
look
forward
in production efficiency, owing to the
improvement
investment programme undergone in the early 1980s.

relatively

a

(a) E c o n o m i c d e v e l o p m e n t a n d f i n a n c i a l

s i t u a t i o n o f H e r a c l e s

(104) Heracles had been loss-making since 1983. In 1985, it
in its annual report,

was in acute financial difficulty:

(107) By Ministerial Decree

into

share

of 7 August 1986,

the
Greek Government
capital
converted
GRD 27 755 million in commercial debt owed by
Heracles to various public institutions, in order to save
the company from insolvency. This relieved Heracles of
part of its debt and financial burdens, because it did not
have to pay interest on this borrowing or to pay
dividends to its shareholders. Heracles was rescued, and
continued to export a proportion of its output to other
Member States.

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(108) The table below shows Heracles’ financial and economic situation in the period from 1985 to 1989

and thus the effects of the State aid measure on the company’s accounts.

Fixed assets

Current assets

Capital and reserves

Long-term liabilities

(GRD million)

1985

1986

1987

1988

1989

27 627

24 507

22 194

26 854

24 572

14 301

14 987

17 078

20 438

25 132

ﬂ 2 163

23 054

23 751

32 402

35 866

13 990

4 841

2 768

1 506

687

Short-term liabilities

30 933

12 679

12 155

12 305

11 249

Total assets

Turnover

43 583

40 919

39 820

47 607

49 934

29 928

29 840

30 480

34 923

39 549

Operating costs

28 020

27 356

26 840

29 777

31 940

Operating profit or loss

1 908

2 484

3 640

5 146

7 609

Financial charges

ﬂ 6 530

ﬂ 4 202

ﬂ 2 388

ﬂ 2 087

ﬂ 1 992

Profit or loss on ordinary activities

ﬂ 4 622

ﬂ 1 718

1 252

3 059

5 617

Extraordinary profit or loss

407

ﬂ 230

ﬂ 1 144

ﬂ 1 634

ﬂ 2 151

Net profit or loss

ﬂ 4 215

ﬂ 1 948

108

1 425

3 466

Source: Company’s annual reports 1985 to 1989.

(109) The table below shows the trend in some major financial indicators for Heracles before and after

the conversion of debt into capital.

1985

1986

1987

1988

1989

Long- and short-term liabilities/Total assets

Current assets/Short-term liabilities

1,03

0,46

0,43

1,18

Net profit or loss before tax/Total assets

ﬂ 0,1

ﬂ 0,05

0,37

1,41

0

0,29

1,66

0,03

0,24

2,23

0,07

Source: Company’s annual reports 1985 to 1989.

(110) As indicated by Heracles’ annual reports,

its financial
situation before the debt-to-equity conversion was very
precarious:
the high financial outgoings due to high
levels of outstanding debt had resulted in substantial
losses which had eroded the company’s capital. But
during the most critical years for the company’s activity,
Heracles registered positive operating results, if financial
costs are left out of consideration, and its poor financial
results were closely linked to the extremely weak
situation of the Greek economy as a whole.

(b) A l t e r n a t i v e m e t h o d s f o r c a l c u l a t i n g t h e
p a r t o f t h e a i d w h i c h w a s n o t r e s t r i c t e d
t o t h e m i n i m u m n e c e s s a r y

(111) At

the

time

it

proceedings (16), and following the judgment of
Court of First

93(2)
the
the Commission seriously

the Article

Instance,

enlarged

(16) See footnote 1.

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the

In particular,

aid to Heracles

doubted whether
could be
considered compatible with the common market, as has
been recalled above.
the Commission
doubted whether
the exemption in Article 92(3)(b)
could apply in Heracles’ case. The Commission was of
the opinion that the aid might well have left Heracles in
a stronger competitive position than would have been
necessary in order to ensure its viability.

(112) The Commission examined the financial costs of Titan
and Heracles in relation to their turnover and volume
sold, and concluded that Heracles was overcapitalised by
approximately GRD 5 billion, so that the aid had not
been limited to the minimum necessary.

(113) Following

the

enlargement of

the Article 93(2)
proceedings, the Commission received comments from
numerous interested parties, including some concerning
the method for calculating the minimum level of debt
conversion needed to ensure Heracles’ viability.

(114) On behalf of its members, the BCA commissioned a
study of the economic aspects of the aid from Prof.
George Yarrow, of Hertford College. In his first report,
Prof. Yarrow estimated
of Heracles’
overcapitalisation by analysing its cash flow as indicated
in its accounts. At the Commission’s request, the British
cement
Prof. Yarrow to provide
additional observations, since the conclusions drawn in
the first report were more of an ex post nature and
could be used only as factual evidence.

industry

degree

asked

the

(115)

In his subsequent ex ante evaluation and calculations
financial structures, Prof.
based upon comparison of
Yarrow assumed that Heracles’
investment (relative to
Titan) was financed in the same way as Titan’s activities
as a whole, i.e. by a similar mix of debt and equity and
with similar payments and charges in respect of debt
and equity. On such assumptions, the depreciation and
asset
indicated that Heracles’ debt capacity
would, other things being equal, have been about twice
that of Titan in the mid-1980s. On this basis, the BCA
the
arrived at
conversion of
the
Heracles’ debts
excessive by about
GRD 15,5 billion.

conclusion that
in 1986 was

figures

accordingly proceeded to analyse Heracles’ expected
cash flows after 1986, given that cash flows are what is
used to pay debts.

(117) According to Titan’s calculations, based on financial
data extracted from Heracles’ annual reports, Heracles
generated enough cash in the years 1987 and onwards
to sustain at least GRD 15 billion more in debt, or even
GRD 20 billion if the capital repayments were weighted
towards the later years.

(118) Heracles, in order to demonstrate that the debt-to-equity
conversion in 1986 had not overcapitalised it, submitted
to the Commission a report drawn up by Prof. Joseph
Hassid, of Piraeus University, and Prof. Emmanuel
Sakellis, of
the Panteion University of Athens. Their
calculations were made by comparing various capital
structure ratios for Heracles with corresponding ratios
extracted from four
international
cement producers (17). The samples comprised not only
viable companies but also some facing difficulties.

large samples of

(119) The starting point of the report was to determine the
amount by which the net worth of Heracles would have
had to be increased on 31 December 1985 in order to
ensure the company’s viability. For a company to
qualify as viable, its long-term capital had to exceed the
value of its fixed assets. Otherwise it would have to
through short-term
finance part of
fixed assets
borrowing,
in an
unhealthy condition, since its working capital, which
included stocks that were not readily liquid, would not
be sufficient to cover such short-term liabilities.

something which would leave it

its

(120) To determine the amount that needed to be converted
from short-term liability to equity, financial information
was taken from the balance sheets of the four samples,
to estimate individual and group average
in order
financial indicators, and to use the geometric average of
the four sample averages as an appropriate critical value
towards which Heracles’ financial structure should aim
to converge. For the samples the following ratios were
calculated: (i) net worth plus long-term liabilities divided
by fixed assets; (ii) fixed assets divided by net worth; and
(iii)
the
probability of bankruptcy.

the Z-score, a ratio for

the evaluation of

(116)

In its complaint, Titan claimed that
the amount of
capitalisation was excessive and that a conversion of
that magnitude was not only unnecessary but also
disproportionate in relation to the company’s size and
needs.
the minimum level of debt
capitalisation that would have ensured Heracles’ viability
would have been one which allowed it to continue to
service its debt and still remain in production. Titan

In Titan’s view,

(17) First sample: Troy Almanac of Business and Financial Ratios (441
companies engaged in cement production during the period from
July 1984 to June 1985). Second sample: Value Line databases (all
cement industries in the USA in 1985). Third sample: Robert
Morris & Associates, Annual Statement Studies (209 companies
engaged in the production of cement and related products during
the period from April 1985 to March 1986). Fourth sample:
Robert Morris & Associates, Annual Statement Studies
(136
ready-mix concrete companies during the period from April 1985
to March 1986).

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(121) Applying the first ratio,

the amount by which the
long-term capital of Heracles should have increased was
estimated at GRD 27,5 billion. That amount would have
had to be converted from short-term liabilities into
either long-term loans or equity in order to achieve the
same ratio as the four samples. The amount of Heracles’
short-term liabilities converted into equity in August
1986 was GRD 20,2
remaining
GRD 7,5 billion represented a conversion of long-term
loans to equity); this was less than what was called for
by the ratio. The results with the other ratios were
similar.

billion

(the

(122) The Commission takes

in order

the view that

to
examine to what extent the debt conversion was greater
than what was needed to maintain the company’s
viability it is appropriate, because of the specificity of
the cement market in Greece, to compare Heracles with
its slightly smaller but consistently profitable Greek
competitor Titan, as it did when it enlarged the Article
93(2) proceedings in November 1995. Both companies
operated in the same difficult economic circumstances,
and faced similar costs for such things as labour, energy
and interest rates. At the time of the capitalisation the
for Greek producers
prevailing market
differed significantly from those of
their European
competitors, in particular as regards the macroeconomic
input prices and conditions, national
environment,
corporate law obligations, the system of fixed prices,
and dependence on export markets.

conditions

(123) Moreover, as regards the financial year chosen for the
comparison, the Commission considers, as it did when
it enlarged the Article 93(2) proceedings, that 1987 is
the proper reference year, because it was Heracles’ first
normal
aid.
Comparing figures for 1987 will allow an examination
to be made of
the time the State
intervention took place.

the situation at

operating

receiving

after

year

the

(124) The Commission believes that the comparison between
Heracles’ and Titan’s
structure should be
financial
carried out on the basis of three financial ratios, namely
net financial charges divided by turnover, net financial
charges per tonne sold, and net financial charges per
tonne produced. When it decided to enlarge the Article
93(2) proceedings in November 1995, the Commission
used the first two ratios; in the light of the information
exchanged in the course of the proceedings it is now of
the opinion that it is appropriate to add the third ratio,
namely financial charges per tonne produced. This will
enable the Commission to carry out a better comparison
of
for
the two companies, because it compensates
differences in supply strategies whereby one company
stocks its output while the other supplies direct from
production.

(125) On the basis of the information received from the Greek
authorities on 8 February 1999, which enables the
Commission better to document its final conclusion, the

Commission is thus in a position to refine the financial
method for calculating Heracles’ overcapitalisation. The
calculation is based on more detailed configurations of
financial charges, for both Heracles and Titan, in that
income from participating interests can be deducted
financial
from the total amount of both companies’
charges.

(126) Applying this method,

the Commission finds

that
Titan’s net financial charges represented 10,1 % of its
turnover, whereas the quotient
for Heracles was just
8,1 %. In terms of net financial costs related to volume
sold, the quotients are GRD 469,9 per tonne for Titan
and GRD 392,7 per tonne for Heracles; in terms of net
financial costs per tonne produced, the quotients are
GRD 423,5 per tonne for Titan and GRD 471,2 per
tonne for Heracles.

(127) The Commission has applied Titan’s ratios to Heracles
in order to calculate the average theoretical amount of
saved by Heracles, and
net
concludes that Heracles’ overcapitalisation amounts to
GRD 2 488 million (approximately EUR 7 million).

expenditures

financial

(128) This method results in a smaller differential between the
two companies’
financial charges, and thus a smaller
degree of overcapitalisation of Heracles as compared to
Titan. The reasoning behind the method is that
the
financial charges used in the comparison between
Heracles and Titan correspond, because they are both
net amounts, which makes them comparable.
In the
financial world, net financial charges are preferred to
gross financial charges for analyses of this kind, because
they provide more accurate figures.

(129) The figure of GRD 2 488 million represents the amount
of the debt-to-equity conversion which exceeded what
was necessary to ensure Heracles’
long-term viability.
The overcapitalisation had distortive effects on the
European cement market,
in that it left Heracles in a
from the
stronger competitive position, as appears
increase in its exports, and the shift in the destination of
its exports towards other Member States. This part of
the aid was not necessary to restore Heracles’ viability,
went beyond the
serious
disturbance in the Greek economy, unduly placed the
company in a more favourable position vis-(cid:224)-vis its
competitors, and is not compatible with the common
market under Article 92(3)(b) of the Treaty. In order to
restore the previous competitive position, the benefits
which the company derived from it must be returned.

remedying a

scope of

(130) The approach followed here enables the Commission to
calculate Heracles’ overcapitalisation on the basis of the
information available at
the time when the State
intervention took place, without making use of ex post
information based on events which happened after the
debt conversion and which were not known at the time

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14.3.2000

For

the State

intervention.

of
the
Commission disputes the approach taken by Titan in
order to calculate Heracles’ excess equity, which is based
on the analysis of the company’s cash flows after 1986
and its capacity to service its debt.

reasons

these

(131) Furthermore, the Commission’s method for determining
Heracles’ overcapitalisation relates the financial charges
of the two companies directly to their output, expressed
both in monetary and in physical values. This makes it
possible to reject certain artificial assumptions used by
the BCA in determining Heracles’ excess equity capital,
such as the assumptions that Titan and Heracles had
similar financial structures or that both financed their
business using a similar mix of debt and equity, which
do not correspond completely to the reality of
that
time.

in order

to demonstrate that

(132) The Commission also disputes the approach taken by
it was not
Heracles
overcapitalised, which was based on a comparison of
Heracles with a large number of international cement
producers. As has been pointed out,
the prevailing
market conditions for Greek producers at the time of
the capitalisation differed significantly from those of
their world competitors, and an analysis based on a
comparison of
companies
financial
operating in different environments and under different
circumstances is not considered to be accurate.

ratios of

the

that

(133) The analysis set out above takes account not only of the
formulated
the Commission initially
doubts
regarding the compatibility of the aid in question, but
also of the Commission’s examination of the distortive
effects of the aid in the Community. In this context the
Commission has assessed whether the aid was granted
in conformity with Decision 88/167/EEC, that is to say
with Law 1386/83, and with Article 92 of the Treaty.
This assessment has shown that the conversion of part
of Heracles’ debts
in 1986 can be
into capital
considered to have been undertaken by the Greek
Government in conformity with Decision 88/167/EEC.

(134) Turning to the question of compatibility with Article 92
of the Treaty, the examination demonstrates that one
part of the total aid of GRD 27 755 million, amounting
to GRD 25 267 million, can be considered compatible
with the common market under Article 92(3)(b) of the
Treaty on the ground that it helped to remedy a serious
disturbance in the Greek economy without affecting
trade to an extent contrary to the common market and
company in a more
without unduly placing the
the
favourable position vis-(cid:224)-vis its competitors. But
analysis also shows that Heracles was overcapitalised by
GRD 2 488 million. In order to rectify the distortive
effect of the aid in the market, the Commission should
accordingly require the Greek Government to recover
the sum of GRD 2 488 million from Heracles. The sum

to be repaid should bear interest
from the date on
which it was made available to the recipient until the
date on which it is repaid. Interest should be calculated
on the basis of the reference rate which was used for
calculating the grant equivalent of regional aid at the
time the aid was granted.

(135) When the Court annulled the Commission’s earlier
positive decision on aid to Heracles it imposed a duty
on the Commission to examine whether
the aid
distorted competition and affected trade between
Member States, and in the analysis set out above the
Commission has accordingly performed that duty.

IX

Conclusions

(136) The Commission has demonstrated here that the aid is
unlawful and in part incompatible with the common
market.

of

principles

(137) Heracles argues that any reversal of the Commission’s
Decision on the compatibility of the aid would be in
legitimate
contradiction with
the
expectations and of
sound administration. Heracles
contends that the facts on which the Commission based
its decision remain the same; but it should be noted that
in its judgment the Court of First Instance not only
requires the Commission to assess the foreseeable effects
of the aid but also (cid:151) implicitly at least (cid:151) places a duty
on the Commission to consider the effects which were
in fact observed in the years 1986 to 1991. Thus the
facts the Commission has to consider are not confined
to those relating to the time when the aid was granted,
but include those which arose later.

that,

Justice has consistently held (18)

(138) The Commission would point out, too, that the Court
in view of
of
the mandatory nature of the supervision of State aid
by the Commission under Article 93 of
the Treaty,
undertakings to which an aid has been granted may not,
in principle, entertain a legitimate expectation that the
aid is lawful unless it has been granted in compliance
with the procedure laid down in that Article. The fact
the Commission initially approved the aid to
that

(18) See the judgments of

Justice in Case C-5/89
the Court of
Commission v Germany [1990] ECR I-3437, paragraph 14, and
Case C-169/95 Spain v Commission [1997] ECR I-135, para-
graph 53.

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Heracles cannot be regarded as capable of having caused
to entertain any
the recipient undertaking, Heracles,
legitimate
that Decision was
expectation,
challenged in due time before the Court, which annulled
it. The Commission’s error cannot, therefore, erase the
consequences of the unlawful conduct of Greece,

since

2.
Recovery shall be effected in accordance with the
law. The sums to be recovered shall
procedures of national
bear interest from the date on which they were made available
to the recipient until their actual recovery. The interest shall be
calculated on the basis of the reference rate used to determine
the grant equivalent of regional aid at the time when the aid
was granted.

HAS ADOPTED THIS DECISION:

Article 1

The recapitalisation of Heracles General Cement Company to
the amount of GRD 27 755 million constitutes aid within the
meaning of Article 92(1) of the EC Treaty. Out of this aid a
section amounting to GRD 25 267 million is hereby found to
be compatible with the common market, on the ground that it
satisfies the tests for exemption under Article 92(3)(b) of
the Treaty. The
to
GRD 2 488 million, is incompatible with the common market.

remainder of

amounting

aid,

the

Article 3

Within two months of notification of this Decision, Greece
shall inform the Commission of the measures it has taken to
comply with it.

Article 4

This Decision is addressed to the Hellenic Republic.

Article 2

Done at Brussels, 17 March 1999.

1.
Greece shall take the measures necessary to recover from
the recipient the incompatible aid referred to in Article 1,
which was granted to it unlawfully, and to secure the
repayment of the sum of GRD 2 488 million in aid referred to
in Article 1.

For the Commission

Karel VAN MIERT

Member of the Commission