2001/88/EC: Commission Decision of 21 April 1999 concerning aid granted by Greece to two fertiliser companies (Text with EEA relevance) (notified under document number C(1999) 1120)
Date: 1999-04-21
Institutions: European Commission
Subjects: Greece, State aid, control of State aid, fertiliser industry, infringement of EU law

1.2.2001

EN

Official Journal of the European Communities

L 30/45

COMMISSION

COMMISSION DECISION

of 21 April 1999

concerning aid granted by Greece to two fertiliser companies

(notified under document number C(1999) 1120)

(Only the Greek text is authentic)

(Text with EEA relevance)

(2001/88/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

certain specific points in the case. The Greek authorities' reply
was received in a letter dated 21 November 1997.

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

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

II

A.

THE RECIPIENTS

Whereas:

PKT and Drapetsona Fertilisers (DF)

I

The Commission's attention was drawn by a complaint to aid
given by the Greek authorities to two fertiliser companies:
Protypos Ktimatikif Touristiki Ltd, also known as Moretco
(Model Real Estate and Tourism Co.,
(PKT)), and Anonimi
Eteria Biomihania Azotouhon Lipasmaton, also known as
AEVAL (Nitrogen Fertiliser Industry Ltd (NFI)).

According to the Commission's original
information as
submitted when the procedure was launched, until 1992 PKT
was called Anonimi Elliniki Eteria Himikon Proiondon ke
Lipasmaton (Hellenic Chemical Products and Fertilisers Ltd
(AEEHPL). This company was placed in the hands of
the
receiver for failing to pay off an outstanding debt of GRD 18
billion to the National Bank of Greece (NBG). Its fixed assets
were bought by the NBG for GRD 9 billion and used to set up
PKT. At the same time, the bank wrote off the remaining
GRD 9 billion of unpaid debt.

On 3 October 1996, the Commission decided to initiate the
procedure provided for in Article 93(2) of the EC Treaty with
respect to the aid under consideration. The Greek authorities
were informed by letter of 16 October 1996 that the procedure
had been initiated. Their reply was received by the Commission
in a letter dated 7 January 1997, which was registered on 15
January.

The assets were transferred to PKT on certain conditions, of
which the main ones were that it should continue to operate
the fertiliser factory on a temporary basis and later refund the
purchase price of the assets to the NBG. According to the
available information, the factory continued to operate and the
NBG allowed unlimited time for payment of the first instal-
ments.

The text of the letter to the Greek authorities was published in
the Official Journal of the European Communities (2) and prompted
reactions from three interested parties, namely two European
industrial associations in the field concerned and a chamber of
commerce from one Member State. The views of the interested
parties were conveyed to the Greek authorities for their obser-
vations in a letter of 23 September 1997. In this letter, the
information regarding
Commission also asked for

further

(1) OJ C 82, 14.3.1997, p. 5.
(2) footnote 1.

Furthermore, PKT was in a poor financial position. The balance
sheets for 1994 and 1995, covering the first two years of
operation, show that losses greatly exceeded the company's
equity, with the result that its overall net position came out as
negative from the first year. The second financial year also
losses even though PKT had, on 30
closed with substantial
November 1995, ceased to engage in fertiliser production,
which was taken over by a newly established subsidiary, Lipas-
mata Drapetsonas (Drapetsona Fertilisers (DF)). In 1995, DF
registered losses of GRD 1,3 billion, reducing its equity to
approximately GRD 1,2 billion.

L 30/46

EN

Official Journal of the European Communities

1.2.2001

NFI

According to the information which the Commission holds
and which was submitted to it when the procedure was
launched, NFI belongs to the Agricultural Bank of Greece
(ABG), which is controlled by the Greek State. NFI has been
running at a loss since 1992. In 1993,
in
practice, to nil. From then on the equity became largely nega-
tive, owing to further losses. There was doubt as to whether
the company could meet its short-term obligations, as a serious
liquidity problem had already arisen in 1994.

its equity came,

B.

THE AID

These proceedings have been initiated in respect of
following measures:

the

— The writing off of the abovementioned GRD 9 billion debt
by the NBG and the indefinite postponement of payment
of at least the first instalment of the refund of the purchase
price of GRD 9 billion paid by the NBG.

— The loan of GRD 500 million made to PKT by the NBG
on 7 September 1995 and the corresponding State guar-
antee granted on 18 October 1995.

— The loan of GRD 1,2 billion made to DF by the NBG on
16 January 1996, and the corresponding State aid; this
the losses the company
loan was intended to cover
and 1995
sustained
(GRD 700 million), although,
the
company had not yet been set up at that time.

in 1994 (GRD 500 million)

it should be noted,

— The loan of GRD 600 million also made to DF by the
NBG in 1996, and the corresponding State aid granted on
30 July 1996.

— The capital

injection of GRD 1 billion which the ABG
carried out in favour of NFI and the support given by
National Electricity Board in not enforcing payment of the
outstanding debts of GRD 4,5 billion.

— The quota system brought into operation in 1995 by
Synel, a fertiliser marketing organisation in Greece which is
controlled by the State-owned bank ABG, for the purpose
of ensuring a certain level of outlet and turnover for
PKT/DF and NFI which they would not have been able to
achieve under ordinary market conditions.

III

The interested third parties unanimously backed the Commis-
sion's position, stressing the difficulties which Community
producers face on the Greek fertiliser market because of the
State support which certain local companies receive.

IV

(a) The NBG did not write off any of AEEHPL's debts. The
assets of that company, which was placed in the hands of
the receiver, have already been liquidated, virtually in their
entirety. The NBG was admitted as a creditor both for
claims prior to the commencement of receivership and in
respect of loans granted while the company was being
wound up.

(b) Payment of the purchase price for the factory by PKT was
made following an increase in its equity by an amount
equal to each annual instalment, with the amount of the
increase covered by its shareholder the NBG. The first
three instalments (1995 to 1997) were paid normally and
the balance will be paid on the agreed payment dates. The
statements of discharge in respect of these payments have
been passed on to the Commission.

(c) The difficulties faced by PKT and subsequently DF were
due to the annulment by the Council of State of the
Government order granting the then AEEHPL company
authorisation to modernise its plant. Following the annul-
ment, the State ordered certain production units to cease
(contaminating
operating
activity in a densely populated area). This led to a 50 % fall
in production, which meant that enough sales could not
be made to reach break-even point.

environmental

reasons

for

The purpose of the NBG loans and the Greek State guaran-
tees was to enable the company to cope with the operating
difficulties it was facing after certain production units were
shut down. Furthermore, the factory is operating on a
temporary basis, as the Prefecture of Piraeus has ordered it
to cease operating for good by 31 July 2000 at the latest.
In other words, the object of the State contribution was to
enable the firm to restructure while scaling down produc-
tion for environmental reasons.

The Greek authorities consider that the aid measures under
consideration may be regarded as compatible with the
Treaty by virtue of
the exemptions allowed in Article
92(3)(a) and/or (c) and in the Community rules on State
aid for environmental protection (3), particularly point 3.4,
which refers to operating aid.

(d) The aid does not affect trade between Member States, since
Greece's share of this trade is only minimal, fluctuating
between 0,4 % and 1,1 %.

(e) As regards NFI, in February 1995 its chief shareholder, the
ABG, increased its equity so that it could launch an invest-
ment plan to modernise its plant with a view to manufac-
turing new products. By increasing production the
company hoped that it would improve its financial situa-
tion. The scheme did not produce the results hoped for
and the company failed to overcome its financial difficul-
ties; in August 1997, in fact, it was forced to close down
its operations. The bank's contribution does not fall within
the category of State aid since the bank's object
in
investing in its subsidiaries is to maximise its profits.

The position of the Greek authorities in these proceedings can
be summarised as follows:

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

1.2.2001

EN

Official Journal of the European Communities

L 30/47

(f) Synel is a private company. At no time (since 1992, when
the fertiliser market was liberalised) has it imposed produc-
tion quotas on the fertiliser manufacturers who supply it.
Payment
terms are fixed by agreement and may vary
depending on the quantities of fertiliser purchased. Synel is
a nationwide company with customers all over Greece; the
factor which determines its choice of suppliers is therefore
the comparative advantage of their physical location. Thus,
PKT/DF is more competitive in terms of the cost of trans-
porting the product to Central and Southern Greece, since
its competitors are established in Northern Greece.

V

A.

THE EXISTENCE OF STATE AID WITHIN THE MEANING OF
ARTICLE 92(1) OF THE TREATY

Operations by the NBG, the Greek State, the ABG, the National
Electricity Board and Synel need to be considered in this
context.

(a) The actions of the NBG

According to the complaint in this case, the NBG is indirectly
controlled by the Greek State. Another complaint tangentially
related to this case and also referring to the activities of the
NBG claims that the bank is to all intents and purposes iden-
tical with the Greek State, since to a large extent the shares in it
belong to the State and to legal persons governed by public
law.

According to the information in the second complaint,
although it is true that the State holds approximately 5 % of
the bank's capital, holdings by organisations controlled by the
State come to 43,67 %. Therefore the total State holding is
48,779 %. The remaining 51,221 % is divided up among a
great many shareholders who have no real control over the
running of the bank.

According to the same source, the board of directors is elected
by the general meeting of shareholders. However, at least four
of the total of 15 board members, namely the governor and
the three deputy governors of the bank, who are simultane-
ously the chairman and vice-chairmen of the board respec-
tively, are appointed by the Government before appearing
before the general meeting. Other members of the board repre-
sent public interests, as, for example, a bishop representing the
Greek Church, which, under the Constitution, is not separate
from the State.

In other cases (particularly State aid cases NN 137/97 and NN
138/97 — Greece),
the Commission has asked the Greek
authorities whether the NBG is a public-sector or private-sector
body. From the answers received, particularly those from the
bank, it emerges that under Article 91 of Law No 1892/1990

the NBG is no longer within the public sector, since the State
no longer holds either the whole of its capital or a majority
stake in it. Direct State participation in the bank's capital comes
to 5,097 %, while total State participation comes to 49,194 %.
The shares held by the public sector do not confer any special
rights.

The board of directors is elected freely and is controlled by the
general meeting of shareholders. All the provisions entitling the
State to appoint certain members of the board were repealed
by Law No 2076/1992. The same law also repealed the provi-
sions requiring public-sector organisations to be represented at
the general meeting of shareholders by the Ministries of
Finance, Labour, etc., or by a shared representative. Conse-
quently, the Greek authorities maintain that it can no longer be
argued that the acts of the bank's governing bodies are acts of
the State. The bank's decisions do not, therefore, constitute
State aid.

The Commission takes into account the composition of the
bank's capital, the larger share of which belongs to the private
sector. In so far as none of the information passed on to it
shows that a majority of the members of the board of directors
of
the
Commission concludes that the bank is not controlled by the
Greek State.

the NBG are representatives of

the public sector,

The board of directors' decisions do not, therefore, fall within
the scope of Article 92(1) of the Treaty. The Commission has
already notified the Greek authorities of this conclusion, in the
context of another case, on 24 April 1997. Consequently,
neither the possible writing off of the GRD 9 billion debt in
favour of AEEHPL nor the possible deferment of PKT's debt
payments to the NBG - which the Greek authorities deny took
place — constitutes a State aid measure. The Commission can
therefore close the procedure in respect of those matters and of
the loans granted to PKT and DF. It remains to be considered,
however, whether the bank would have granted loans to those
two firms if there had not been the State guarantees.

(b) The State guarantees in favour of PKT and DF

These guarantees were given by ministerial decisions of 16
October 1995 and 16 January and 23 June 1996, and were
published in the Greek Government Gazette (4). As these were
ad hoc measures, they favour certain undertakings or certain
production units within the meaning of Article 92(1) of the EC
Treaty.

In the course of the procedure, the Greek authorities have
given an assurance that no guarantee was ever given for the
GRD 500 million loan in 1995. The authorities produced a
letter from the Ministry of Finance to the Ministry of Economic
Affairs, dated 7 October 1997, which showed that the guar-
antee for the loan in question was withdrawn for lack of
first-rate security. It has to be concluded, then, that the PKT did
not receive a State guarantee for a loan of GRD 500 million.
The Commission is therefore able to close the procedure
relating to this matter.

In their observations in the course of the procedure, the Greek
authorities have not denied that the guarantees in favour of the
PKT (evidence of the cancellation of which was produced only
later) and DF did constitute aid. They consider that they consti-
tuted operating aid granted for the purpose of meeting envir-
onmental requirements.

(4) Refs

FEK 876, 20.10.1995;

FEK 34, 19.1.1996;

FEK 658,

30.7.1996.

L 30/48

EN

Official Journal of the European Communities

1.2.2001

The Greek authorities also maintain that the State contributions
under consideration did not have any impact on trade between
Member States, since Greece's share in that trade was limited in
scope, as described by the Commission in the course of the
procedure.
therefore, be concluded, although the
Greek authorities, contradicting their own line of argument, do
not do so, that the measures in question do not constitute aid
within the meaning of Article 92(1) of the Treaty.

It might,

This argument does not stand up Greece does in fact have a
share, albeit slight, in intra-Community trade, as the Commis-
sion stated in initiating the procedure. The Commission there
showed that trade on the Community fertiliser market was
substantial: 16.8 million tonnes in 1992 and 19,5 million
tonnes in 1994. Greece's exports to the other Member States
accounted (in terms of volume)
the intra-
Community trade in 1993 and 0,44 % in 1994. Still in terms
of volume, Greece's imports came to 1,1 % of
the intra-
Community trade in the sector in 1993 and 0,89 % in 1994.
The Commission concluded its survey of the fertiliser market
with the information that imports from other Member States
meet from 10 % to 15 % (depending on estimates) of the
country's requirements.

for 0,66 % of

The importance of the trade has also been stressed by third
parties who have played a part in the procedure. According to
one of the European fertiliser producers' associations involved
in this case, Greece's
fluctuate between
350 000 and 400 000 tonnes, of which 150 000 tonnes
involve types of
these
150 000 tonnes, 90 % comes from members of the association
in question.

fertilisers produced in Greece. Of

fertiliser

imports

Furthermore, according to another producers' association
involved in the procedure, Greece imported 63 700 tonnes of
fertiliser from other Member States in 1996, which comes to
roughly 5 % of domestic consumption.

In so far as the Greek authorities acknowledge that DF used to
export part of its production to the other Member States, the
Commission concludes that
the State intervention for the
purpose of sustaining the company's viability had an effect on
its production and, therefore, on its exports. Consequently, the
State intervention in question affects trade between Member
States.

As regards distortion of the rules of competition, the 1997
Survey of Community Industry (5) reports that the fertiliser trade in
Western Europe shrank in the first half of the 1990s, hit by a
fall in consumption and slightly higher prices. The financial
situation of producers in Western Europe deteriorated with the
rise in imports into the European Union and competition on
overseas markets
in Central and Eastern
Europe.

from producers

This development led to many factories restructuring or closing
down more rapidly. The trend continues in certain Member
States even today. In 1983, the Community fertiliser industry

employed 140 000 people, while in 1995 the figure had
dropped to 20 000.

Since the mid-1990s, the industry has recovered its competi-
tiveness and is once again technically and financially in a
position to service the European market in terms of the quant-
ities and qualities of fertiliser in demand. According to the
forecasts, the market appears stable for the near future. This
trend was apparent in 1995, as the Survey of Community Industry
for that year (6) reported that production would stabilise over
the coming few years, following a number of years of excess
production capacity and low demand.

In so far as the purpose of the State intervention is to speed up
the restructuring of the industry in question in Greece, while
the process has already been carried through in the other
Member States or is still under way in some of them, the
Commission concludes that the aid distorts competition.

This view is shared by the interested third parties who have
submitted comments, who have also stressed that they suffer
from a comparative disadvantage compared with undertakings
in receipt of aid, since State support enables the latter to carry
on selling at a loss.

According to figures supplied by these third parties, which the
Greek authorities have not disputed, the difficulties faced by
PKT and DF did not prevent them (or NFI) from selling their
output, in 1994 and 1995, at prices from 9 % to 25 % below
the prevailing market prices. According to the same source,
this was because the firms in question pursued a steady policy
of systematically charging lower prices than those charged by
other suppliers. It should not be forgotten that this grievance
was among those which first prompted the complainant to act
in this case.

It is therefore concluded that the aid in the form of State
guarantees affects trade between the Member States. The State
guarantees in favour of DF therefore constitute State aid caught
by Article 92(1) of the EC Treaty.

Although this analysis is in itself sufficient to demonstrate that
the measures under consideration are State aid, the Commis-
sion has felt it advisable to add further comments on certain
contentions put forward by the Greek authorities. The Greek
authorities do refer to figures which could be taken as grounds
for supposing that the guarantees in question are not aid
within the meaning of Article 92(1) of the Treaty. At no point,
however, do they explicitly make any such assertion.

In their letter of 21 November 1997, the Greek authorities say
that when DF was wound up its assets were sufficient, on being
auctioned off, to cover not only its liabilities to the NBG but
also its liabilities to third parties. Furthermore, again according
to the Greek authorities, the objective value of DF's real estate
and other immovable property came to GRD 16,34 billion.
This is certified by a declaration submitted to the Piraeus
Revenue Office.

(5) Office for Official Publications of the European Communities, 1997.

(6) Office for Official Publications of the European Communities, 1995.

1.2.2001

EN

Official Journal of the European Communities

L 30/49

This declaration actually dates from 1993 and is not consistent
with the purchase price paid by the NBG (or PKT) for the assets
in question, i.e. GRD 9 billion, also in 1993. According to the
Greek authorities, the purchase of the property by the NBG
took place on the basis of a public call for bids. Consequently,
the second of these figures must be taken, where necessary, as
a market estimate for 1993. In fact, a sum of that order was
entered in the PKT balance sheet.

The Greek authorities say that any charge registered on DF's
property in respect of the loans made to DF by the NBG is
therefore covered without difficulty by the objective value of
the company's land and other immovable property. They state,
lastly, that the value of the NBG's charge on DF's property was
GRD 5 billion. Furthermore, in their letter of 7 January 1997,
the Greek authorities certify that no problem ever arose with
the company's creditworthiness, without it being possible to
ascertain whether they mean PKT or DF; they say that thanks
to the company's turnover and the property available for liqui-
dation which it was able to mortgage, it was in a position to
obtain the requisite working capital from any bank.

Remembering that the Greek authorities at no point assert that
the security which DF was able to offer would have enabled it
to obtain the loans intended for covering its losses without
needing to have recourse to a State guarantee, the matters
referred to above require a detailed commentary.

To begin with, DF, which was set up exclusively for the
purpose of exploiting the factory, uses the plant belonging to
PKT on leasehold terms and is not, therefore, the owner. This is
demonstrated by a reading of DF's balance sheets, which do
not contain any reference to land or buildings under immov-
able assets. DF does not, therefore, possess GRD 16,34 billion
in fixed property assets. This makes one wonder how DF's
slender fixed assets (GRD 36 million in 1995 and GRD 40
million in 1996), particularly when the figure for its equity
position is negative, could be enough to cover its debts
(GRD 5,67 billion in 1995 and GRD 7,5 billion in 1996). The
current figures for property assets are slightly higher, but still
not enough (GRD 4,45 billion in 1995 and GRD 4,5 billion
in 1996).

It should also be noted that, in contrast to what happened with
the State guarantee on the GRD 500 million loan in favour of
PKT, there is no evidence that the Greek State required DF to
take out a mortgage on all the Drapetsona Fertilisers factory's
immovable property.

One might imagine PKT being guarantor for DF, for example
mortgaging part of the abovementioned fixed property assets.
That has been neither maintained nor demonstrated by the
Greek authorities in the course of this procedure. One might in
any case wonder how PKT would have given such a guarantee,
when it was unwilling to offer security to the State in return
for the State guarantee on the GRD 500 million loan referred
to above.

As far as the NBG's notice of a charge on DF Ltd's property
assets, to a value of GRD 5 billion, the documents produced
the Mortgage Registry
by the Greek authorities show that

certified that on 17 July 1995 the NBG had a charge for that
amount against the PKT, which was registered in 1994. The
charge in question in no way relates to the property assets of
DF, which had not yet been set up at that time.

The Greek authorities also explain that the grants of financing
to PKT and, from 1996 onwards, DF by the NBG were made
on the basis of financial and credit criteria of a purely bank-
related kind. The terms (interest rates, security etc.) on the
loans granted as working capital are those the NBG usually
applies in respect of companies with a creditworthiness similar
to that of the undertaking under consideration.

One might legitimately wonder what was the economic ratio-
nale behind these loans. The purpose of a grant of working
capital to an undertaking is, in reality, to enable it to settle its
current debts, not to carry out structural changes in order to
improve its position. Furthermore, given that there were plans
for the fertiliser factory to be closed down,
it is doubtful
whether other banking institutions would have made any long-
term loans to DF.

In their letter of 21 November 1997, the Greek authorities say
‘with the guarantees it had been given for loans of
that:
GRD 1,2 billion and GRD 0,6 billion respectively, the Drapet-
sona factory took loans for those amounts from the NBG to
cover its losses in 1994, 1995 and 1996’.

This assertion calls for detailed commentary. Firstly, it implies
that the loans were given only after the State had consented to
act as guarantor for the company. In fact, according to the
Greek authorities'
letter of 21 November 1997, the loan of
GRD 1,2 billion was made to DF on 16 January 1996, the date
on which the ministerial decision approving the guarantee was
issued. The text of the decision actually uses the future tense to
refer to the granting of the loan, stating that ‘the loan will be
granted and serviced in accordance with the National Bank
(NBG) document of 7 September 1995...’. If DF could have
obtained this capital from the market without a State guar-
antee, it is curious that the NBG waited until 16 January 1996,
i.e. the very date on which the State guarantee was given,
while, according to the instruction quoted above, the terms of
the loan had been known since 7 September 1995. It needs to
be pointed out once again that DF was not yet in existence on
that date, as it was set up on 30 November 1995.

Secondly, the Commission finds it somewhat hard to believe
that the NBG does not take into account the financial and
credit situation of a company to which it proposes to make a
loan or that the bulk of the NBG's clients are in the same
financial and credit situation as DF. Like any other bank, the
National Bank should, normally speaking, take account of the
financial risk attaching to a company in such difficulties and
adjust the possible lending terms to allow for that risk. It is
therefore perfectly understandable that the NBG should have
reserved the same treatment for DF as for other companies,
since it had first received the State guarantee which removed all
risk to the creditor bank.

L 30/50

EN

Official Journal of the European Communities

1.2.2001

It is also somewhat hard to believe the claim that DF had no
problems obtaining a loan on normal market terms, since its
accounts for 1996 show that it did not succeed in paying off a
debt of GRD 3,76 billion which fell due for payment in that
year. The only logical explanation is to be sought in a note to
the 1996 balance sheet by the auditors stating that the whole
of the GRD 3,76 billion was covered by a State guarantee. This
means that, in 1996, 87,6 % of the short-term debts to banks
represented payments due which were guaranteed by the State.

The 1995 balance sheet already shows that DF faced serious
difficulties in repaying its bank loans, as the due date for
repayment of a GRD 1,16 billion debt with a State guarantee
had already arrived. This by itself represented 82 % of
its
short-term bank debt. There is no evidence that the remaining
amount in short-term bank debts was not also covered by a
State guarantee, nor have the Greek authorities put forward any
such claim.

In view of the above, the Commission finds that the Greek
authorities have failed to show that DF could have obtained
loans to cover its operating losses in 1994, 1995 and 1996
without a guarantee from the Greek State.

As a result, the guarantees in question affect trade between the
Member States and distort competition. They made it possible
for the fertiliser factory to cope with the operating difficulties it
was facing, while the cut in production capacity which the
State imposed on it made it impossible for it to achieve suffi-
cient sales to reach break-even point.

The guarantees under consideration consequently impede the
natural restructuring of the industry in Greece, a process which
has already taken place in most of the other Member States,
since they temporarily and artificially keep alive a company
which is incapable of showing a profit and is irrevocably
required to go out of business in 2000. In addition, artificially
keeping PKT and DF running makes it impossible for other
national or Community producers to assume their share of the
market. The guarantees under consideration therefore consti-
tute aid within the meaning of Article 92(1) of the Treaty.

The Greek authorities have been unable to show in the course
of this procedure that DF would have been able to obtain loans
for the purpose of covering its operating losses in 1994, 1995
and 1996 without the State guarantee, primarily because of the
extremely difficult
the beneficiary
company. No evidence has emerged during the examination
procedure to overturn the view stated when the procedure was
launched, that the guarantees coincide with the amount guar-
anteed minus 1 % commission on the amount of the loan, paid
in order to secure the guarantee.

financial position of

No private individual would have continued to engage in a
loss-making activity without a State guarantee, when, what is
more, the activity was for a limited period of time and would

entail further losses owing to an inability to achieve sufficient
sales to reach break-even point. It is understandable that in the
circumstances the shareholder bank, NBG, preferred to advance
loans to DF with a State guarantee rather than restructure the
company's capital, since in the first case the bank ran no risk of
losing its investment.

Having regard to the company's balance sheets and the deci-
sions relating to the granting of the guarantees, the Commis-
sion cannot rule out the possibility that all or a substantial part
of the State guarantees for the loans obtained by DF have been
activated. The orders granting the guarantees provide that the
State undertakes to pay the NBG every instalment of the loan
which is not repaid within two months following the due date
for payment. In addition, according to the 1996 balance sheet,
DF had overdue debts of GRD 3,76 billion (including interest)
consisting of loans with State guarantees.

(c) The increase in NFI's capital and the debt

to the National

Electricity Board

(i)

company's'

In February 1995, the ABG, NFI's principal shareholder,
increased the
equity by GRD 1 billion
(GRD 1 000 000 041 according to the 1995 balance
sheet), so that the company could carry out a programme
of
investment in modernising its plant with a view to
manufacturing new products.

operation.

investment

The Greek authorities represent this operation as a normal
commercial
programme
The
involved installing mechanical equipment to automate the
filling-bagging line and the building of a warehouse to store
raw and ancillary materials. The company hoped in this
way to improve its financial situation through an increase
in production. The Greek authorities admit, however, that
the programme failed and that the operation in question
was a mistaken choice by the ABG.

the capital

If we are to conclude that
injection under
discussion was not State aid, it would have to be shown
that the ABG behaved like a private investor in normal
market conditions. The principles applied to determine
whether a State-owned undertaking behaves like a private
investor in market conditions are contained in the Commis-
sion communication to the Member States on the applica-
tion of Articles 92 and 93 of the EEC Treaty and of Article
5 of Commission Directive 80/723/EEC (on the transpar-
ency of
financial relations between Member States and
public undertakings) to public undertakings in the manu-
facturing sector (7).

Examination of NFI's accounts reveals that the company in
question began to show losses at least as early as 1992 and
went on doing so until 1996, the year of the last balance
sheet of which the Commission has a copy. There is,
however, no evidence to suggest that the ABG, as investor,
could have expected a satisfactory yield on its investment,
since it had for many years let the company's position
deteriorate without acting in any way.

(7) OJ C 307, 13.11.1993, p. 3.

1.2.2001

EN

Official Journal of the European Communities

L 30/51

Neither the Greek authorities nor the ABG have sent the
Commission any detailed rationalisation plan such as
should have been drawn up by the bank in order to restore
NFI to long-term viability and which would have shown
that the ABG's investment would produce a return. Further-
more, the Greek authorities have sent a copy of a study
drawn up by the Ministry of Industry in 1994 on the
productivity of the four fertiliser factories in Greece. The
study lists NFI's problems and suggests a number of solu-
tions.

the fact

The difficulties enumerated include the fact that part of the
production units were shut down and stopped operating in
1991,
following the upturn in fertiliser
production in 1992, sales were too low to reach break-even
point and, most of all, the GRD 4,5 billion debt which the
National Electricity Board has been calling in.

that

As far as the solutions are concerned, the study recom-
mends maintaining the plant (estimated cost GRD 350
million) and modernising it
(estimated cost GRD 3,6
million),
solving the ammonia procurement problems,
improving sales figures on the domestic market, particu-
larly in areas accessible at low transport cost, reaching an
agreement with Synel to ensure a certain volume of sales
and, lastly, endeavouring to work out an agreement with
the National Electricity Board, as requiring the company to
pay off the debt would entail an increase in the price of
fertilisers which would inevitably cause the company to go
out of business.

Because of these difficulties, at the end of 1993 the compa-
ny's equity position continued to be just barely positive, i.e.
GRD 1,6 million as against capital of GRD 3,37 billion. At
it was negative by approximately
the end of 1994,
-GRD 800 million, and at the end of 1995, despite the
increase in capital referred to above, it remained negative
by roughly GRD 500 million. At the end of 1996 the
equity came to -GRD 1,4 billion. The reason for this trend
was the accumulation of losses in the various financial
years. The company's position apparently deteriorated until
it was placed in the hands of the receiver in 1997 (8).

According to the balance sheets of which the Commission
has copies, Article 47 of Law No 2190/1920 has been
applied to NFI at least since 1992. This article provides that
the board of directors must convene a general meeting
within six months of the end of the trading year if the total
equity of a company is less than half its nominal capital.
The general meeting must then decide whether to wind up
the company or take other steps. So, since the middle of
1993, the ABG should have wound NFI up or taken steps
in
to restructure it. Not until two years later, however,

November 1995, did the bank decide to restructure the
capital of its subsidiary, NFI.

This capital injection does not seem sufficient to make any
major change in the company's financial position, since it is
equivalent to at least one quarter of the accumulated losses,
it does not make for any improvement in the equity posi-
tion such as to obviate the application of Article 47 to the
company, since the equity position remains highly negative,
and, lastly, it only just covers the difference between the
company's current assets and liabilities. Furthermore, the
contribution is not enough to cover the cost of moder-
nising the plant as estimated by the Greek authorities in the
study referred to above. What is more, it should be noted
that the ABG's investment programme, as described by the
Greek authorities, entails nothing more than increasing
fertiliser sales, without, apparently, any account having
been taken of the remaining points in the study in ques-
tion.

the purpose of

It should also be noted that, according to the information
in the Commission's possession (9),
the
capital injection was to finance the purchase of raw mate-
rials, not to modernise the plant. At least partial confirma-
tion of this is to be found in the balance sheet for 1995,
where there is a note saying that production costs rose by
GRD 800 million as compared with 1994, while reserves
rose by GRD 200 million. During the same period, equip-
ment and machinery went up by GRD 34 million and
buildings and construction by roughly GRD 100 million. If
interpreted correctly, this would be a further argument for
the view that the purpose of the capital injection was not
to alter the company's structure by rationalising its expen-
diture but to attempt to keep the factory operating and
increase production.

In either case, the capital injection into NFI from the ABG
was not enough to make the company viable again, while
the Commission was not notified of any other rationalisa-
tion measure of the kind which the shareholders should
have adopted under Greek law and according to the guide-
lines in the report from the Ministry of Industry. This
failure to take additional measures may very well be the
reason why the company went bankrupt.

Since the State bank ABG allowed NFI's financial position
to deteriorate without taking any action for at least two
years and, even when a decision was taken to act, the
action was not sufficient to restore the company to viabi-
lity, it has to be concluded that the bank did not behave
like a private investor in normal market conditions. Conse-
quently, the GRD 1 billion increase in NFI's capital has to
be regarded as State aid within the meaning of Article 92(1)
of the Treaty.

(8) According to Fertiliser Week of 23 March 1998, NFI was put up for

sale by the receiver at the beginning of 1998.

(9) Fertiliser Week of 12 June 1995.

L 30/52

EN

Official Journal of the European Communities

1.2.2001

(ii) As regards the measures taken by the National Electricity
Board to secure payment of the money owed by NFI, which
it puts at GRD 4,5 billion (including interest), the Greek
authorities stated that the creditor has availed itself of all
legal recourses provided for in law.

The debt relates to consumption of electricity from 1989 to
1991. In 1990, the National Electricity Board instituted an
action against NFI before the single-member Athens Court
of First Instance. In the context of the present proceedings,
the Greek authorities have stated that that case was heard
in December 1995 but
that no ruling has yet been
given (10).

the National Electricity Board went

In addition,
to the
Greek courts and lodged an application for interim protec-
tion measures against NFI. In 1993 it registered notice of a
charge on NFI property to the value of GRD 4 billion.

NFI has actually settled part of its debt, for the period from
April to December 1991, involving a sum of approximately
GRD 800 million.

In view of the above acts, it is concluded that the National
Electricity Board has taken the requisite steps to secure
collection of the money owed to it by NFI. The Commis-
sion is therefore able to close the procedure in relation to
that matter.

(d) The action taken by Synel

Before the procedure was initiated, the complainant reported
that Synel was under the control of the State bank ABG. In the
information which it continued to pass on to the Commission
after the procedure had been initiated, the complainant made it
clear that the control was partial. In a previous decision, in
1992 (11), relating to aid to Synel, the Commission found that
it was 30 % controlled by the ABG and 70 % by agricultural
cooperative associations. In the context of this procedure, the
Greek authorities have stated that Synel is still a private under-
taking and its actions do not, therefore, fall within the scope of
Article 92(1) of the EC Treaty.

VI

In so far as it has been shown that the State aid for DF and the
capital contribution to NFI constitute State aid within the
meaning of Article 92(1) of the EC Treaty, it has now to be
considered whether they were lawful and compatible with the
common market.

All the above aid was granted to the two undertakings without
the Commission being notified in advance,
in violation of
Article 93(3) of the Treaty. The aid is therefore found to be
unlawful.

Compatibility of the aid in favour of DF

There were two aid measures, in the form of two State guaran-
tees for loans of GRD 1.2 billion and GRD 600 million
respectively.

(a) Community rules on State aid for environmental protection

The Greek authorities consider that the aid measures in ques-
tion are compatible with these rules (12), particularly section
3.4. This section provides that the Commission may make an
exception to the general rule that it does not approve operating
aid which relieves firms of costs resulting from the pollution or
nuisance they cause. Such an exception can be made for
example in fields such as waste management and relief from
environmental taxes. In such cases, the aid must only compen-
sate for extra production costs by comparison with traditional
costs, and should be temporary and in principle degressive, so
as to provide an incentive for reducing pollution or introducing
more efficient uses of resources more quickly.

In their observations on the initiation of this procedure, the
Greek authorities stated (in a letter dated 7 January 1997) that,
since the factory is operating only temporarily, the object of
the State contribution was to meet certain fixed operating
costs,
for environmental reasons, since the State itself has
ordered a permanent reduction in production.

The fact that Synel allows its suppliers different payment terms
depending on the amounts of fertiliser purchased, and on the
physical location of the suppliers, does not conflict with the
rationale of the market. The distortion of competition to which
the complainant refers clearly lies in the fact
that certain
suppliers, particularly PKT, sell their products at a loss.

The Greek authorities consider that these fixed costs come to
GRD 1,5 billion per annum and relate to the operating of
environmental protection plant (filters, waste water processing
unit, solid waste disposal: GRD 300 million), purchase of
essential materials and spare parts for short-term maintenance
(GRD 300 million) and staff costs (GRD 900 million). These
costs hardly reduce at all with the cut in production.

This is confirmed by one of the interested third parties who
submitted comments in the course of the procedure and who
maintains that Synel's selling prices on the national market are
directly linked to the prices charged by the suppliers.

The Commission reserves the right to investigate this point
under any other provisions of the Treaty.

Again according to the Greek authorities, the company also
reduced its staff: the 820 employees working for it in 1995
were reduced to 520 at the end of 1996 and 450 in 1997. In
other words, the purpose of the aid was not to keep an
unproductive company in a state of artificial viability but to
restructure it as part of moves to reduce production for envir-
onmental reasons, until
it finally shut down altogether. The
shutdown is scheduled to take place in three to five years' time.

(10) Letter from the Greek authorities dated 21 November 1997.
(11) OJ C 266, 15.10.1992, p. 5.

(12) See footnote 3.

1.2.2001

EN

Official Journal of the European Communities

L 30/53

In their letter of 21 November 1997, the Greek authorities said
that the final shutdown on 31 July 2000 had been ordered by
decision of
the Prefecture of Piraeus on 18 June 1997.
According to this letter, the purpose of the aid was to cover
losses arising from the 50 % production cut ordered by the
authorities and to enable the staff to be made redundant gradu-
ally. The text of the decisions granting the State aid says that
the object of the loans and the guarantees is to cover losses
over successive financial years.

The exception invoked by the Greek authorities is inapplicable
in this particular case. The fact is that since it was the authori-
ties themselves who required the closure of
the polluting
production units,
there are no extra production costs by
comparison with traditional costs, as the Community rules
require.

Nor can it be maintained that the aid granted is degressive, so
as to provide an incentive for reducing pollution or introducing
more efficient uses of resources more quickly. These costs will
not reduce in the future in such a way as to bring about a less
polluting method of production, since there is no plan to
introduce such a method. In any case, the purpose of the aid is
to cover the company's fixed operating costs, not the additional
costs arising from more polluting types of activity with a view
to reducing them gradually. What is more, there is no evidence
that the aid is degressive if the purpose of it is to cover the
company's fixed costs.

In this case, the factory's difficulties arise from the fact that the
production cut ordered by the State on grounds of pollution
has not been accompanied by any reorganisation of
the
company's activity to take account of the new operating condi-
tions. Any such reorganisation would certainly have been
pointless, as the plan since the time the PKT was set up in
1993 had obviously been that the factory should cease oper-
ating completely within the next few years.

(b) Community guidelines on State aid for rescuing and restructuring

firms in difficulty (13)

Although the Greek authorities do not invoke the above guide-
lines, they mention many failed attempts at restructuring and
the difficulties faced by the Drapetsona factory. So the poss-
ibility that they are referring at least indirectly to this set of
guidelines cannot be ruled out.

DF, the PKT subsidiary set up in November 1995, took over
PKT's fertiliser production business while PKT occupied itself
with developing real estate. PKT is still the owner of the plant,
which it rents to DF. Although it was set up in November
1995, DF published accounts covering the period from 31
January to 31 December 1995. Its turnover is more or less the
same as that achieved by PKT between 9 March 1993 and 31
December 1994. Furthermore,
it appears that DF took over
part of PKT's liabilities, but not of its assets. In these circum-
stances, the Commission doubts whether DF, which assumed
only an undefined portion of PKT's liabilities, can be regarded
as a company in difficulty within the meaning of the guidelines
referred to above. And even if it were regarded as being in
difficulty, the Commission considers, only in the alternative,

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

that the conditions for assessing the aid as compatible are not
met.

DF inherited an unspecified part of PKT's financial burdens and
continued to show losses since its operating expenditure did
not cover actual turnover. To add to this already difficult
situation, DF's debts increased. Thus,
in the financial year
1995, DF made losses of GRD 1,3 billion, followed by approx-
imately GRD 2,5 billion in 1996. For the whole duration of its
existence the company came under Article 47 of the above-
mentioned Law No 2190/1920, since it never showed a posi-
tive net position. The company was finally wound up in
August 1997.

The aid in the form of State guarantees under consideration
here cannot be regarded as rescue aid compatible with the
guidelines, since it is not confined to whatever is essential to
the running of the undertaking but covers part of the fixed
costs and/or the operating losses, even if its purpose is to keep
the recipient company viable.

In any case the aid greatly exceeds the time limit (generally
speaking, six months) for the drafting of rationalisation meas-
ures under the guidelines in question. In this particular case,
the guarantees covered loans for a period of two and a half
years in the first instance and one and a half in the second,
during which times no rationalisation measures whatever were
drawn up or, at any rate, the Commission was not notified of
anything to that effect.

Lastly, rescue aid must be an exceptional operation. In this
case, however, the operation was repeated at least once, so as
to cover losses over successive financial years.

As regards the compatibility of the aid as restructuring aid, it
should be pointed out that the Commission was not notified of
any restructuring plan which would have enabled the factory to
be restored to long-term viability.

it appears that

letter of 7 January 1997,

Furthermore, according to the information given in the Greek
authorities'
the
decision to close the factory's operations down for good had
already been taken before the Prefecture of Piraeus issued its
decision to that effect on 18 June 1997. Even before that
decision was issued the letter referred to above states it as a
given fact that the factory was merely operating on a tempo-
rary basis until the expected shutdown of operations in three
or five years' time.

Both the Greek authorities and the complainant agree on at
least one point, which is that the object of PKT was to develop
land with a view to building. The purchase of the land on
which the factory stands should logically be seen in conjunc-
tion with the business objectives of PKT, which wanted to use
the land on which the factory had been built. It therefore
makes no sense to refer to the long-term viability of
the
undertaking managing the factory (DF), since the undertaking
itself was already in an extremely parlous condition and there
were already plans to shut down operations and wind the
company up. The fact that DF was placed in the hands of the
receiver in 1997 seems the natural consequence of the condi-
tion the undertaking was in.

L 30/54

EN

Official Journal of the European Communities

1.2.2001

Since the condition that a restructuring plan to make the
company viable again should be submitted to the Commission
was not complied with, there is no need to examine the other
conditions laid down by the guidelines. The aid measures in the
form of guarantees cannot, therefore, be approved as restruc-
turing aid.

Furthermore, the aid under consideration cannot be allowed
the exemption laid down in Article 92(3)(c), since it does not
meet the conditions for approval as aid for the rescuing or
restructuring of companies in difficulty. Lastly, it is not eligible
for exemption under Article 92(3)(d), since its purpose is not to
promote culture and heritage conservation.

(c) Operating aid

The aid under consideration cannot be regarded as regional
investment aid either, since the purpose of it was not to carry
out productive investment. It must therefore be regarded as
operating aid.

Operating aid may be granted only in the areas stated in Article
92(3)(a) of the Treaty. This article covers the whole territory of
Greece. In its communication on the method for the applica-
tion of Article 92(3)(a) and (c) to regional aid (14), the Commis-
sion accepts that operating aid may be given on certain condi-
tions, as follows:

(i) that the aid is limited in time and designed to overcome
the structural handicaps of undertakings located in Article
92(3)(a) areas;

(ii) that

the aid is granted to promote the durable and
balanced development of economic activity and does not
lead to surplus production capacity in particular sectors at
the Community level, such that the resulting Community
sectoral problem is more serious than the original regional
problem;

(iii) that aid is not granted in violation of the specific rules on

aid granted to companies in difficulty;

(iv) that an annual report on how the aid is applied is sent to
the Commission, showing total expenditure by type of aid
and the sectors to which the aid relates;

(v) that aid designed to promote exports to other Member

States is excluded.

Having regard to what has been said above as regards the
possibility of applying the Community guidelines on State aid
for the rescuing and restructuring of companies in difficulty,
the third condition has clearly not been met. It is also doubtful
whether the aid can possibly promote the durable and balanced
development of economic activity when it is borne in mind
that, because there was no restructuring, there would obviously
be a deterioration in the position of
the company, even
without considering the announcement that the factory was to
shut down.

Since the aid measures in the form of guarantees to DF
covering loans of GRD 1,2 billion and 600 million respectively
cannot be approved as operating aid, they cannot be covered
by the exemption laid down by Article 92(3)(a) of the Treaty.
Nor can they be exempted under Article 92(3)(b), since their
purpose is not to promote the execution of an important
project of common European interest.

(14) OJ C 212, 12.8.1988, p. 2.

Nor can the exemptions laid down by Article 92(2) of the
Treaty be allowed, since the aid was not granted to individual
consumers or to make good the damage caused by natural
disasters or exceptional occurrences.

The aid in question is therefore not compatible with the
common market.

Compatibility of the aid in favour of NFI

As stated above, at the end of financial year 1993, the compa-
ny's equity position was still positive, by GRD 1,6 million as
compared with nominal capital of GRD 3,37 billion. At the
the position was negative by approximately
end of 1994,
-GRD 800 million, and at
the end of 1995, despite the
increase in capital referred to above, it remained negative by
some -GRD 500 million. At the end of 1996, the net position
was negative by -GRD 1,4 billion. Consequently, the under-
taking in question must be regarded as being in difficulty
within the meaning of the Community guidelines on State aid
for rescuing and restructuring companies in difficulty and the
injection of GRD 1 billion has to be regarded as
capital
restructuring aid.

The aid was intended for modernising the plant with a view to
manufacturing new products (artificial fertilisers). More specifi-
cally, the investment programme comprised installing mechan-
ical equipment to automate the loading-bagging line and the
construction of a warehouse for raw and ancillary materials.

Furthermore, apart from the simple reference to the fact that
the purpose of the investment was to improve the company's
financial position by means of an increase in production, no
forecast yield was notified to the Commission. The only indica-
tion of the favourable results which the ABG expected for its
subsidiary NFI which the Greek authorities communicated to
the Commission was a copy of the company's annual produc-
tion record which was clearly put together after the company
ceased operating on 18 July 1997.

The Commission was not sent any restructuring plan regarding
the restoration of the company to a state of long-term viability
within a reasonable period of time, on the basis of realistic
assumptions as to future operating conditions. Where DF is
concerned, since the condition that a restructuring plan for the
restoration of viability should be submitted to the Commission
was not met, it is not necessary to examine the other condi-
tions laid down by the Community guidelines on State aid for
the rescuing and restructuring of companies in difficulty. As
this sine qua non under the guidelines was not complied with,
the aid cannot be allowed the exemption laid down by the
rules,

i.e. that provided for in Article 92(3)(c).

1.2.2001

EN

Official Journal of the European Communities

L 30/55

On exactly the same grounds as those invoked with respect to
DF, the aid cannot be approved as operating aid. Again, on the
same grounds, the exemptions provided for in Article 92(3)(b)
and (d) cannot be allowed. The same argument applies to the
exemptions provided for in Article 92(2). Consequently, this
aid is not compatible with the common market either.

1995) also constitutes State aid within the meaning of Article
92(1) of the Treaty.

The aid measures in question are hereby found to be unlawful
in that they were put into effect without prior notification to
the Commission, in violation of Article 93(3) of the Treaty.

VII

Article 2

The Commission finds that Greece unlawfully applied the aid
for DF and NFI in violation of Article 92(3) of the Treaty.

Where aid is incompatible with the common market under
Article 93(2) of the EC Treaty, as confirmed by the judgments
of the Court of the Justice of the European Communities on 12
July 1973 in Case 70/72 Commission v Germany (15), on 24
February 1987 in Case 310/85 Deufil v Commission (16) and on
20 September 1990 in Case C-5/98 Commission v Germany (17),
the Commission is required to ask the Member State to recover
from the recipient all aid unduly granted. The aid measures in
question must therefore be repealed and, if the aid has already
been paid,

it must be recovered by the Greek authorities.

As regards the State guarantees in favour of DF, for the reasons
stated above, they are guarantees of which the aid element
coincides with the amount of the guaranteed loan, as stated
when the procedure was initiated.

The Greek authorities must recover the corresponding amounts
from DF, after the commission of 1 % of the amount of the
loans paid by the company to secure the State guarantee has
been deducted.

As regards the capital injection of GRD 1 billion to NFI, the
Greek State must recover the amount in question from the
company,

HAS ADOPTED THE FOLLOWING DECISION:

The aid measures in question are, furthermore, incompatible
with the common market, in that they do not qualify for any
of the exemptions provided for in Article 92(2) and (3) of the
Treaty.

Article 3

Greece shall take the measures necessary to recover the aid
referred to in Article 1. Recovery from Lipasmata Drapetsonas
shall be effected after deduction of the commission, equivalent
to 1 % of the sums guaranteed, which the company in question
was required to pay in order to secure the State guarantees.

Article 4

Recovery shall be effected in accordance with the substantive
and procedural requirements of Greek law. The sums to be
recovered shall bear interest from the date on which the aid
was disbursed until its actual recovery. The interest shall be
calculated on the basis of the reference rate used to determine
grant equivalent under the regional aid system in Greece.

Article 5

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

Article 1

Article 6

The State guarantees in favour of Lipasmata Drapetsonas
(Drapetsona Fertilisers) AE to cover two loans of GRD 1,2
billion and GRD 600 million respectively, granted pursuant to
ministerial decisions of 16 January 1996 and 23 June 1996,
constitute State aid within the meaning of Article 92(1) of the
Treaty.

The capital injection of GRD 1 billion by the Agrotiki Trapeza
Ellados (Agricultural Bank of Greece) into its subsidiary Viomi-
hania Azotouhon Lipasmaton (Nitrogen Fertiliser Industry in

This Decision is addressed to the Hellenic Republic.

Done at Brussels, 21 April 1999.

For the Commission

Karel VAN MIERT

Member of the Commission

(15) [1972/1973] ECR 609.
(16) [1987] ECR 901.
(17) [1990] ECR I-3437.