2000/17/EC: Commission Decision of 30 March 1999 on the aid for the project 'Process Integrated Gas Turbine at the Nerefco refinery' which the Netherlands is planning to implement in favour of Nerefco (notified under document number C(1999) 904) (Text with EEA relevance) (Only the Dutch text is authentic)
Date: 1999-03-30
Institutions: European Commission
Subjects: Netherlands, State aid, aid to industry, energy industry, gas, turbine

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Official Journal of the European Communities

11. 1. 2000

COMMISSION

COMMISSION DECISION

of 30 March 1999

on the aid for the project ‘Process Integrated Gas Turbine at the Nerefco refinery’ which the
Netherlands is planning to implement in favour of Nerefco

(notified under document number C(1999) 904)

(Only the Dutch text is authentic)

(Text with EEA relevance)

(2000/17/EC)

(3)

(4)

(5)

(6)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

Having called on interested parties to submit their comments
pursuant to that provision (1),

Whereas:

I. PROCEDURE

(1)

(2)

By letter dated 10 October 1997, registered on 14
October 1997 by the Secretariat-General of the Euro-
pean Commission, the Netherlands, in accordance with
Article 93(3) of the EC Treaty, notified an aid for the
project ‘Process Integrated Gas Turbine at the Nerefco
refinery’.

The Commission has requested additional
information
by its letter dated 4 December 1997, to which the
Netherlands replied by a letter dated 8 January 1998. A
second letter for further information was sent on 26
January 1998 and a reply was received by a letter dated
9 March 1998. A third request for further information
was sent on 8 April 1998 and a meeting between repre-
sentatives of the Netherlands and the Commission was
held on 25 May 1998. In response to this meeting the
Netherlands
faxed
authorities have
message dated 28 May 1998.

transmitted a

(1) OJ C 334, 31.10.1998, p. 3.

By letter referenced SG(98) D/5699 dated 13 July 1998,
the Commission informed the Netherlands Government
of its decision to initiate the procedure laid down in
Article 93(2) of the EC Treaty in respect of this aid.

The Commission decision to initiate the produre was
published in the Official Journal of the European Communi-
ties (1). The Commission called on interested parties and
other Member States than the Netherlands to submit
their comments.

II. DESCRIPTION OF THE AID

The project involving a process-integrated gas turbine at
the Nerefco refinery forms part of a general CO2 reduc-
tion plan launched by the Netherlands Government in
the autumn of 1997. The Government's aim, through
this plan, is to encourage projects that will
lead to a
significant reduction in CO2 emissions, thus contributing
to sustainable economic growth.

2

The purpose of the project is to help reduce CO
emis-
sions. The project entails the construction of a gas
turbine that is fully integrated with a process unit of a
refinery, replacing conventional separate heat and elec-
tricity generation. The use of gas turbines in combined
heat and power plants results in a substantial improve-
ment in energy efficiency and lower CO
emissions than
conventional,
separate heat and power generation.
However, gas turbines have not so far been used in
process installations, because they are less reliable. Gas
turbines tend to break down much more frequently than
conventional equipment and require more maintenance.
The installation of gas turbines also involves higher
investment.

2

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Official Journal of the European Communities

L 6/47

(7)

The project is being carried out at the Nerefco refinery at
Rotterdam. The following companies are involved:

205 000 tonnes. This decrease corresponds to an
increase in energy efficiency from 60 % to 80 %.

— Texaco Nederland BV,

— Eneco BV, a regional electricity provider,

— Nerefco, a joint venture of BP and Texaco.

The recipient
between Eneco BV and Texaco Nederland BV.

is a joint venture,

to be established

(8)

(9)

Nerefco operates a refinery at Rotterdam Europoort. The
refinery has two distillation towers for the primary distil-
lation of crude oil. At present, the crude oil is heated to
process temperature in two oil-fired furnaces. During the
distillation process, Nerefco produces process heat (avail-
able capacity [...] (*) MW thermal energy), steam for the
refinery in its own boilerhouse (available capacity [...] *
kte/year) and part of its electricity requirements.

the crude oil

turbine directly heat

The installation of a process-integrated gas turbine will
increase energy efficiency. The integrated gas turbine
works as follows. Primarily, the gas turbine drives a
generator. In a heat exchanger, the exhaust gases of the
gas
to process
temperature (375 °C). Subsequently, the remaining heat
in the exhaust gases is used to generate steam for the
refinery. By directly heating the crude oil to a high
temperature, a very high level of efficiency is obtained.
The new installation will replace 40 % of the heating (to
process temperature) capacity of crude oil, will replace
10 % of steam production and will produce 70 MW of
extra electricity. Implementation of the project will not
result in an increase in distillation capacity.

(10) According to the Netherlands authorities, the integration
of process unit and energy generation on this scale has
never before been carried out in the Community. The
advantages of such integration are as follows:

(a) CO

2 emissions from the refinery will be reduced
from 790 000 tpa (tonnes per annum) to 530 000
tpa, giving a reduction of 260 000 tpa. This means a
reduction of 0,2 % for the Netherlands as a whole;

(b) a number of other noxious emissions will be
reduced. This is in particular the case with SO
2 and
NOx, which will be reduced by 16 % and 11 %
respectively;

(c) the energy consumption for the generation of elec-
tricity, steam and process heat, expressed in oil
equivalent, will be reduced from 270 000 tonnes to

In order to increase the chances of follow-up projects,
the companies are setting up a user group,
in which
interested people from other companies participate. The
group will be directly involved in the preparation of the
project.

(11)

The technical risks associated with the project are as
follows:

(a) the operational reliability of a gas turbine is less than

that of a conventional furnace;

(b) a reliable control system must be developed for the
gas turbine, the heat exchangers and the furnace.

In order to limit the risks associated with the new unit
and ensure continuous heat supply, the old energy-inef-
ficient unit is to be kept as a back-up system.

(12)

The overall
investment amounts to NLG 93 million
(around EUR 42,2 million). This includes the construc-
tion of the gas turbine, a furnace and a residual-heat
boiler.

(13) At the time when the proceedings were initiated, the
eligible costs were calculated by the Netherlands authori-
ties as follows. In the first place, a correction was made
to the anticipated saving in energy costs. Over a ten-year
period, such saving was estimated at NLG 39 million
(around EUR 17,7 million). These future savings were
deducted from the total investment cost in determining
the eligible costs. Subsequently, a correction was made
to the replacement cost of the furnace and the mainte-
the old furnace of NLG 3,3 million
nance costs of
(around EUR 1,5 million). The eligible costs of
the
project thus amounted to NLG 50,7 million (around
EUR 23 million).

(14)

The aid proposed by the Netherlands authorities in noti-
fying the project amounted to a maximum of NLG 15
million (around EUR 6,8 million) — equivalent
to
29,6 % of the eligible costs.

In the notification, the construction period was expected
to last from the end of 1997 to the beginning of 1999.
However, the project has been postponed until there is
greater certainty as to the admissibility of the aid. The
construction period will be a little over one year.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

(15)

There are no statutory environmental requirements that
make it necessary for Nerefco to change the refinery's
present energy-supply arrangements.

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III. REASONS FOR INITIATING PROCEEDINGS

V. COMMENTS SUBMITTED BY THE NETHERLANDS

(16)

The Commission informed the Netherlands by letter
dated 13 July 1998 that it was initiating proceedings
because it had doubts as to whether the aid complied
with the conditions laid down in the Community Guide-
lines on State aid for environmental protection (1). The
doubts related to the determination of the amount of the
extra investment costs. The Community Guidelines stip-
ulate that the eligible costs must be strictly confined to
the extra investment costs necessary to meet environ-
mental objectives (point 3.2.1). The following are briefly
the points at issue:

(a) The replacement costs. It is the Commission's usual
practice to calculate the extra investment costs by
comparing the new, environmentally friendly invest-
ment with the costs of setting up similar production
capacity using conventional technologies.

The Commission was unable to determine the extra
investment costs on the basis of the information
received, since information on the replacement costs
was lacking. The Commission believes that the pres-
ervation of the old unit does not dispense the Neth-
erlands authorities from the obligation of comparing
the planned investment with the overall costs of a
conventional unit calculated at current prices.

(b) The 70 MW increase in electricity generation. It is
stated in the notification that the project will result
in an increase in electricity capacity. Total capacity
for the Netherlands will be increased by some 0,3 %.
When the proceedings were initiated, it was not clear
to the Commission how this was taken into account
in calculating the eligible costs.

Lastly, the Commission noted that in calculating the
eligible costs, cost savings were deducted at a discount
rate of 10 %, after deduction of corporate taxes. Further-
more, these costs were calculated over a period of only
ten years, which did not seem to tally with the amortisa-
tion period for the relevant investment. With a view to
determining the eligible costs of the proposed aid, the
Commission asked the Netherlands authorities to apply
rate in
the Commission's current
discounting future costs and benefits. Furthermore, the
Commission pointed out that,
in order to be able to
compare the calculated aid intensity with the aid intensi-
ties laid down under 3.2.3.B of the Community Guide-
lines mentioned in point 16,
the relevant amounts
should be gross (before tax). Finally, the period for the
discounting of future benefits should be the same as the
amortisation period.

reference interest

(17)

IV. COMMENTS SUBMITTED BY INTERESTED THIRD

PARTIES AND BY OTHER MEMBER STATES

(18)

The Commission did not receive any comments from
third parties nor from other Member States.

(1) OJ C 72, 10.3.1994, p. 3.

(19)

The Netherlands responded to the initiation of proceed-
ings by a letter dated 15 October 1998. The comments
may be summarised as follows.

(20)

In order to take account of the Commission's comments,
the Netherlands applied a new approach in determining
the eligible costs. According to the Netherlands authori-
ties, the new approach complies with the principles and
provisions of the Guidelines at point 16. Under the new
approach, the increase in electricity production capacity
(extra 70 MW) is entirely separated from the project. For
investment
this purpose,
is
the eligible amount of
that would be
corrected by the investment amount
necessary to achieve the same extra electricity generation
capacity at a small electricity plant. Such investment in
conventional electricity capacity is estimated by the
Netherlands authorities at NLG 43,9 million (around
in determining the
EUR 19,9 million). Consequently,
eligible costs, the investment amount should be reduced
by this sum.

(21) A second correction in determining the eligible costs is
made by taking into account the benefit deriving from
the operating costs of the heating part in comparison
with conventional generation. This benefit is capitalised.
In calculating this benefit, the Netherlands authorities
have taken account of the current reference interest rate
applied by the Commission, and gross amounts have
been used in the calculation that is, before tax. The
calculations have also been based on a realistic deprecia-
tion period of 15 years. The benefit amounts
to
NLG 2,6 million (around EUR 1,2 million). This benefit
is deducted from the investment.

(22)

(23)

The Netherlands authorities take the view that, following
these corrections, the investment amount consists of the
extra investment required to achieve the environmental
improvement. They do not consider it necessary to
make a correction in connection with partial replace-
ment of the conventional unit. A number of arguments
are adduced in this respect. In summary, the Netherlands
argument boils down to the following.

That part of the new installation that can be used for the
production of process heat and steam is entirely neces-
sary in order to achieve the environmental effects. The
new installations will be built alongside the existing
installations at the Nerefco refinery. Although the new
installation will take over part of the production of
process heat (40 %) and steam (10 %), there will still be a
need to keep the old installations functional. The closure
of the conventional installations would lead to an unac-
ceptable reduction in the operability and reliability of
the refinery installations. It must also be borne in mind

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Official Journal of the European Communities

L 6/49

than for

that what is involved here is a risky project. The relia-
bility of the integrated gas turbine has still to be demon-
strated in practice. Furthermore, the planned and unfore-
seen maintenance periods for gas turbines are more
frequent
the existing refinery installations.
During such periods, the conventional installations will
be used in full, so that whether or not the gas turbine
installation is operating, this will not have any effect on
refining activities. The Netherlands authorities take the
view, therefore, that the investment here is entirely extra
investment. In this connection, they also point out that
there is no increase in the capacity of the refinery instal-
lations. Although the capacity for heating crude oil will
increase, the capacity for processing crude oil will not.
That will be determined by the distillation towers, whose
capacity will remain unchanged.

(24) On the basis of this line of argument, the Netherlands

calculates the eligible costs as follows:

Total investment

Correction for electricity production capacity

Correction for advantages in respect of lower vari-
able costs

(Million NLG)

93,0

– 43,9

– 2,6

Total eligible investment costs

46,5

(25)

In the light of this, the Netherlands has reduced the
proposed aid from NLG 15 million (around EUR 6,8
million) to NLG 13,91 (around EUR 6,33 million). This
is equivalent to an aid intensity of 30 %, on the basis of
the abovementioned eligible costs of NLG 46,5 million
(around EUR 21,1 million).

VI. ASSESSMENT

(26)

The notified aid will favour a specific firm and therefore
falls within the scope of Article 92(1) of the EC Treaty.

(28)

The provisions of Article 92(2)(a), (b) and (c) are not
applicable in this instance, since the aid is not aid having
a social character, aid to make good the damage caused
by natural disasters or exceptional occurrences or aid
granted to an area referred to in Article 92(2)(c).

(29) Article 92(3)(a), (b) and (d) are not applicable, since the
aid is not intended to promote the economic develop-
ment of a disadvantaged area,
to remedy a serious
disturbance in the economy of a Member State or to
promote culture and heritage conservation.

(30)

(31)

(32)

The only provision under which the aid may be accepted
is Article 92(3)(c), which covers measures to facilitate
the development of certain economic activities. The
State aid in this case relates to an environmental objec-
tive. The Commission has accordingly assessed the
project in the light of the Community Guidelines on
State aid for environmental protection. If the aid meets
the criteria laid down in the Guidelines, it can, under the
derogation provided for in Article 92(3)(c) of the EC
Treaty, be considered to be compatible with the
common market.

The Commission notes that the notified aid is to be
granted to help reduce CO
emissions, which is an
important objective of the Community (1). Carrying out
the project will substantially reduce the amount of CO2
emitted and will also bring considerable energy savings
and reduce other harmful emissions such as SO
and
NOx.

2

2

There are not as yet any national or Community manda-
tory standards requiring firms to reduce their CO
2 emis-
sions. Consequently,
the aid comes under heading
3.2.3.C of
the Community Guidelines mentioned in
point 16 (‘Aid in the absence of mandatory standards’).
Under heading 3.2.3.C of the Guidelines, firms under-
that will significantly improve on
taking investment
their environmental performance are eligible for aid. The
Commission notes that the project is to cut CO2 emis-
sions by 260 000 tonnes a year. The Commission takes
the view that this is a significant improvement in envir-
onmental performance and that the result is sufficiently
substantial to meet the criterion set out in 3.2.3.C.

By notifying the aid measure,
the Netherlands has
fulfilled its obligation under Article 93(3) of the EC
Treaty.

(33)

Point 3.2.1 of the Community Guidelines stipulates that
the eligible costs must be strictly confined to the extra
investment costs necessary to meet environmental objec-
tives.

(27)

The Commission has to assess whether the aid can be
considered to be compatible with the common market
under Article 92(2) and (3) of the EC Treaty.

(1) COM(97) 481 final:

the European Parliament,

‘Communication from the Commission to the
Council,
and Social
Committee and the Committee of the Regions — Climate Change
— The EU Approach for Kyoto’; SEC(1998) 615: Energy policy
options for responding to the climate change challenge: towards the
definition of a ‘post-Kyoto energy policy strategy’.

the Economic

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(34)

(35)

The Commission's doubts regarding the way in which
the Netherlands had determined the amount of eligible
investment costs were the reason why the proceedings
were initiated. The Commission's comments focused in
particular on the way in which account had been taken
of electricity production and of replacement costs. In its
reaction to the initiation of proceedings, the Netherlands
presented a new approach for determining the eligible
costs. As was described in section V, total electricity
production is separated from the project in the new
approach. Investment in new production capacity is not
eligible under the environmental guidelines. It is normal
Commission practice to separate costs for new produc-
tion capacity from eligible costs. The Commission takes
through the exclusion from the total
the view that,
investment amount of the investment cost relating to
electricity generation, an appropriate correction has been
made to determine the eligible costs. The Commission
therefore considers that the costs incurred in extending
electricity generation capacity by 70 MW, namely
NLG 43,9 million (around EUR 19,9 million), are not
eligible.

the Netherlands has made a
In the new approach,
correction to the eligible investment amount by taking
account of the benefit stemming from the operating
costs of the heat section as compared with conventional
generation. The Commission takes the view that this
correction of NLG 2,6 million (around EUR 1,2
million) by the Netherlands is appropriate. The future
benefit does not exert any pressure on the investment
burden, and a correction is therefore necessary in order
to determine the actual extra investment. In calculating
this benefit, the Netherlands has taken account of the
current reference rate stipulated by the Commission and
has based its calculations on gross amounts — pre-tax
amounts — as was requested by the Commission in its
letter of 13 July 1998. The actual amortisation period
has also been taken into account.

(36) With regard to the replacement costs, the Netherlands
argued, as was noted in points 22 and 23, that a correc-
tion was not necessary. However, the Commission takes
the view that it is in fact necessary to take account of the
replacement costs of a conventional unit. The Commis-
sion's normal practice is to calculate the amount of extra
investment costs by comparing the environmental
investment with the costs of establishing similar produc-
tion capacity using conventional technologies. The fact
that the capacity of the old plant is being maintained as
a back-up for breakdowns or maintenance periods for
the gas turbine integrated with the refinery process, is of
no relevance. In fact, the new plant will be inseparably
linked to the refinery process and will account for 40 %
of the heating of crude oil and 10 % of steam produc-
tion. Only in the event of breakdown or maintenance

will the old plant be used. What is clearly involved,
therefore, is functional replacement by modern equip-
ment. The fact that the old equipment is being main-
tained as a back-up is not relevant. The Commission
therefore considers that, in this situation too, a correc-
tion must be made for the costs that would be incurred
in the event of the replacement of the crude-oil heating
capacity and steam production by conventional equip-
ment.

(37)

The replacement costs of the furnace by a conventional
one — applying a replacement ratio of 40 % and taking
the extra maintenance costs for the old
account of
furnace — amount
to NLG 3,8 million (around
EUR 1,7 million) (1). According to the Netherlands
authorities, the replacements costs of the steam-produc-
tion — of equal size of the capacity of the new installa-
tion — by a conventional boiler amounts to NLG 5
million (around EUR 2,26 million). The total correction
for
therefore to
these replacement costs amounts
NLG 8,8 million (around EUR 3,9 million).

(38)

Correction of the total investment amount as regards the
abovementioned points gives the following:

(Million NLG)

Total investment costs

Correction for electricity generating capacity

Correction for benefits as regards lower variable
costs

Correction for replacement costs

93,0

– 43,9

– 2,6

– 8,8

Extra investment costs

37,7

the capacity of

the extra maintenance costs of

(1) To determine the replacement cost, 40 % (the replacement ratio, i.e.
the heating capacity of the crude oil of the new installation related
to the capacity of the old installation) of the costs of replacement
(NLG 15 million) of
the old installation by a
conventional one has been taken into account. Furthermore, 40 %
of
the old installation has been
the annual
taken into account by taking the discount value of
amount of the real maintenance costs (NLG 0,56 million) over a
period of 15 years with a reference rate of 5,5 % resulting in an
amount up to NLG 2,2 million. The Commission considers the
latter correction here appropriate, since the old equipment must be
maintained as a back-up, partly because of the experimental nature
of the integrated gas turbine, resulting in extra maintenance costs.
Therefore, the total replacement costs of the ovens can be deter-
mined up to NLG 3,8 million (around EUR 1,7 million). The repla-
cement costs of the steam capacity (corresponding with 10 % of the
steam production) by a conventional steam unit are NLG 5 million
(around EUR 2,26 million). Therefore, total replacement costs are
NLG 8,8 million (around EUR 3,9 million).

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L 6/51

(39)

(40)

(41)

The remaining costs of NLG 37,7 million (around
EUR 17,14 million) are, in the Commission's view, to
be regarded as extra investment costs that are incurred
solely for environmental objectives. Under heading
3.2.3.C of
the Community Guidelines mentioned in
intended to achieve a
point 16, aid for investment
higher level of environmental protection in cases where
there are no mandatory standards may be authorised up
to a maximum of 30 % of
the eligible costs. The
Commission can therefore authorise aid of NLG 11,31
million (around EUR 5,14 million).

It should be noted in conclusion here that the Commis-
sion generally takes a very positive view of CHP
plants (1). Heat and power exchange is designed to take
place in the integrated gas turbine. The fact that this
equipment is being employed for the first time on such a
scale is a positive factor in the Commission's assessment.
The fact that no comments were forthcoming from third
parties strengthens the Commission in its view in this
case that trade will not be affected to an extent contrary
to the common interest.

VII. CONCLUSION

The notified aid falls within the scope of Article 92(1) of
the EC Treaty. In the Commission's view, aid amounting
to NLG 11,31 million (around EUR 5,14 million) is in
this instance compatible with the common market. Aid
of NLG 11,31 million (around EUR 5,14 million) can
therefore be authorised on the basis of Article 92(3)(c) of
the EC Treaty and Article 61 (3)(c) of the EEA Agree-

ment, given that the aid is in line with the Community
Guidelines on State aid for environmental protectiont (2),

HAS ADOPTED THIS DECISION:

Article 1

The State aid which the Netherlands is proposing to grant to
the Nerefco project,
in respect of a process-integrated gas
turbine, amounting to NLG 15 million, subsequently reduced
to NLG 13,91 million, is, pursuant to Article 92(3)(c) of the
EC Treaty and Article 61 (3)(c) of the EEA Agreement, compat-
ible with the common market up to a maximum of
NLG 11,31 million. The part of the proposed aid that is in
incompatible with the
excess of NLG 11,31 million is
common market and may not be granted.

The granting of this aid measure to an amount of NLG 11,31
million is therefore authorised.

This Decision is addressed to the Kingdom of the Netherlands.

Article 2

Done at Brussels, 30 March 1999.

For the Commission

Karel VAN MIERT

Member of the Commission

(1) COM(97) 514 final, Communication of

October 1997,
and power (CHP) and to dismantle barriers to its development’.

the Commission of 15
‘A Community strategy to promote combined heat

(2) OJ C 72, 10.3.1994, p. 3.