1999/605/EC: Commission Decision of 11 May 1999 on State aid which the Italian authorities have implemented in favour of the sugar sector (notified under document number C(1999) 1363) (Only the Italian version is authentic)
Date: 1999-05-11
Institutions: European Commission
Subjects: Italy, State aid, aid for restructuring, sugar industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 May 1999

on State aid which the Italian authorities have implemented in favour of the sugar sector

(notified under document number C(1999) 1363)

(Only the Italian version is authentic)

(1999/605/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(5)

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

The Italian authorities submitted preliminary comments
by letter on 3 April 1997. On 8 June 1998 they
submitted detailed comments regarding the procedure
initiated by the Commission.

Having
to
comments (1) pursuant to the above Article,

interested

parties

called

on

Whereas:

submit

their

(6)

On 17 April 1997, the Commission received comments
from an undertaking operating in the same sector as the
two recipient companies of the aid in question and
transmitted them to the Italian authorities.

(1)

(2)

(3)

(4)

I. PROCEDURE

On 15 February 1995, 27 June 1995 and 27 July 1995
the Commission received a report concerning aid
implemented by the Italian authorities in favour of
companies owning two sugar factories.

By letter dated 22 August 1995 the Permanent Repres-
entation of Italy to the European Union notified the aid
in question.

By letter dated 25 November 1996, the Commission
informed the Italian authorities of its decision to initiate
the procedure laid down in Article 88(2) of the Treaty
in respect of the aid described in Title II. In this letter,
the Commission invited Italy to submit its comments
within one month of the date of notification of its
decision.

The Commission decision to initiate the procedure was
published in the Official
the European
Communities (2). The Commission invited the other
Member States and interested parties to submit their
comments on the aid within one month of the above
publication.

Journal

of

(1) OJ C 88, 19.3.1997, p. 4.
(2) See footnote 1.

(7)

(8)

(9)

II. DESCRIPTION OF THE AID

The aid with regard to which the Commission initiated
the procedure was granted to the proprietors of two
sugar factories located at Celano (point A) and Casti-
glion Fiorentino (point B). It was granted chronologic-
ally after other public intervention approved by the
Commission as investment aid for restructuring the two
factories, described in points A and B below. The dates
in brackets refer to the decisions of the Interministerial
Commission for Economic Planning (hereinafter ‘CIPE’)
which approved the granting of the aid.

All the aid was provided through RIBS SpA (hereinafter
RIBS), a public joint stock company for intervention in
the agri-foodstuffs sector.

According to the information submitted by the Italian
authorities, the legal basis for granting the aid is to be
found in Acts Nos 700/83 and 209/90, which govern
the intervention of RIBS and provide for the adoption
of a national plan for restructuring the sugar sector in
Italy, even if some of the aid provided does not corres-
pond to the types of aid specified by these acts.

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The 1984/85 to 1989/90 national plan for restruc-
turing the sugar sector and its extension

(14)

(10)

By letter dated 15 May 1984, the Commission informed
the Italian authorities of its decision concerning the
national plan for restructuring the sugar sector relating
to the years from 1984/85 to 1989/90 (hereinafter ‘PN
84/90’). As this plan fixed the aims and some of the
procedures for the restructuring in a general manner,
without providing enough details to permit a concrete
assessment of the compatibility of the aid measures to
be implemented, the Commission, when informing the
Italian authorities that it did not intend to raise objec-
to
tions regarding Act 700/83,
examine the specific intervention plans envisaged in the
above law, which would have to be notified to it under
Article 88(3) case by case.

reserved the right

(11)

On the basis of the PN 84/90 the Italian authorities
notified two specific intervention plans, aimed, respect-
ively, at the Castiglion Fiorentino sugar factory and at
the Celano and Strongoli works. The two projects were
approved by the Commission by letters dated 13
December 1984 and 5 August 1985.

(12)

The two plans respectively envisaged the following:

for investments for the restructuring of the Castiglion
Fiorentino sugar factory:

(a) a holding by RIBS in the capital of the company,
Zuccherificio Castiglionese SpA (‘Castiglionese’), for
a sum of ITL 12 billion;

(b) the granting of a loan at a subsidised rate by RIBS
to the above company for a sum of ITL 24 billion;

investments for

for
factories at Celano and Strongoli:

the restructuring of

the sugar

(a) a holding by RIBS in the capital of the company,
Nusam SpA (‘Nusam’), for a sum of ITL 10 billion.

(b) the granting of a loan at a subsidised rate by RIBS
to the above company for a sum of ITL 35 billion.

(13)

The duration of this first national restructuring plan for
the sugar sector was extended to the year 1990/91. By
letter dated 20 June 1991, the Commission approved
this extension and gave its initial approval to the 1984
plan for the period from 1991/92 to 1995/96, again
reserving the right to ‘examine the measures adopted in
implementation of
the updated restructuring plan,
which must be notified later under Article 88(3) of the
Treaty’.

In that same decision the Commission asked the Italian
authorities not to make commitments with regard to
the potential recipients of the aid before it had made
known its decision with regard to the measures
provided for in the restructuring plan. The aid which is
the subject of this Decision falls into this context as it
was granted during the period the national plan for
restructuring the sugar sector was in force and is there-
fore considered by the Italian authorities to comply
with the above-mentioned plan.

A. Aid relating to the Celano works

The aid for restructuring the Celano sugar factory was
initially granted to Nusam and then to the company,
Sadam Abruzzo SpA (hereinafter ‘Sadam Abruzzo’), of
the Sadam group, which bought the factory in liqui-
dation from Nusam on 17 December 1991 after being
its lessee from 11 August 1989. This is the aid referred
to in points 15.1 to 15.6:

the

Interministerial Committee

for
a decision of
Economic Planning (‘CIPE decision') on 12 April 1988
granted aid in the form of a stake in the capital of
Nusam, proprietor of the Celano sugar factory, for a
sum of ITL 5 billion lire. This new stake was taken on
the occasion of an increase in the capital following a
reduction (from ITL 26 to ITL 13 billion lire) to cover
the company's losses. The new stake was later written
off to cover the operating losses;

(15)

(15.1)

(15.2) With a CIPE decision on 12 September 1989 aid was
granted in the form of a surety for ITL 2 billion in
favour of Sadam Abruzzo, lessee and later proprietor of
the same sugar factory; the surety, granted when Sadam
Abruzzo leased the factory from Nusam, guaranteed the
commitments of the latter with respect to third party
creditors;

(15.3) With a CIPE decision on 2 February 1990, aid was
granted in the form of a surety for ITL 11 billion in
favour of Sadam Abruzzo. Tfie amount of the guarantee
corresponded to the costs borne by Sadam Abruzzo for
investments made on behalf of the proprietor (Nusam)
during the period when it was the lessee of the factory;

(15.4) Aid of ITL 2,5 billion was granted in the form of a
stake in the re-capitalisation of Nusam after writing off
the capital to cover the operating losses. The stake was
taken in the form of a waiver to a part of the mortgage
credit from Nusam for the same sum;

(15.5) With a CIPE decision on 26 July 1990, RIBS was
appointed to implement all the measures required to
prevent the bankruptcy of Nusam and permit the sale
of its property, the Celano factory, to Sadam Abruzzo
(1990 specific intervention plan).

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The measures implemented were the following:

with creditors in August 1991). The measures imple-
mented were as follows:

(a) waiver to the mortgage on the Celano factory guar-
anteeing the payment of Nusam's residual(judgment
ITL 17 504 billion owed to RIBS. This
debt of
waiver implied the downgrading of the credit to an
unsecured credit and therefore allowed Nusam to
avoid bankruptcy and to come to an arrangement
with creditors (3);

(b) deferment of the credit, which had become unse-
cured, until after the other unsecured credits. This
credit was lost definitively with the bankruptcy of
Nusam on 29 December 1997;

(c) sale of the Celano factory, the property of Nusam,
to Sadam Abruzzo by means of the acceptance by
the latter of the residual debt to RIBS of ITL 15
billion (on the same conditions);

(d) granting of a new pre-amortisation period of five
years (payment of the subsidised interest only) for
the payment of the above debt of ITL 15 billion.

(15.6) The following aid was granted in the same CIPE

decision of 26 July 1990:

(a) aid in the form of a stake in the capital of Sadam

Abruzzo for the sum of ITL 8 billion;

(b) a loan of 11 billion lire at a subsidised rate granted

by RIBS to Sadam Abruzzo.

B. Aid relating to the Castiglion Fiorentino factory

(16)

All the aid was granted to Castiglionese, whose capital
stock was shared between RIBS and Federconsorzi SpA
(majority shareholder). Following the liquidation of the
latter and the resulting difficulties for the companies it
controlled, the shares belonging to Federconsorzi SpA
were sold to SECI SpA (‘SECI’) and Castiglionese became
part of the Sadam group on 29 July 1992. The aid was
as follows:

(16.1) On 2 August 1991, aid was granted in the form of a
surety in favour of Castiglionese, proprietor of
the
Castiglion Fiorentino sugar factory, for the opening of a
line of credit of 41 billion lire to cover expenditure in
1991.

(16.2)

In a decision dated 16 April 1992, CIPE approved an
intervention plan (‘1992 specific intervention plan’) in
favour of Castiglionese aimed at restoring the financial
situation (the company had applied for an arrangement

(3) Possible only if the debtor is able to cover all its preferential credits

and 40 % of unsecured credits.

(a) extension for an additional period of ten years of
the stake acquired in 1984 for a sum of ITL 12
billion (the aid constituted by this first stake was
approved by the Commission);

(b) conversion into capital of a part (20 billion lire) of
the loan at a subsidised rate granted by RIBS to
Castiglionese in 1984 (the aid consisting of the
granting of the loan was approved by the Commis-
sion);

(c) spreading the reimbursement of the residual part of

the loan of ITL 24 billion over 15 years;

(d) a new RIBS stake in the capital of Castiglionese for

a sum of ITL 10 billion;

(e) granting by RIBS of a loan of ITL 20 billion at a

subsidised rate to Castiglionese;

(f) redemption by Sadam Abruzzo of the RIBS shares
referred to in points (a), (b) and (d) at their face
value.

III. MOTIVATION FOR INITIATING PROCEDURE

(17)

(18)

(19)

(20)

The reasons for the Commission's decision to initiate
the procedure under Article 88(2) can be summed up as
follows.

The aid granted by RIBS in implementation of
the
various CIPE decisions already mentioned does not
come under the restructuring plans for the sugar sector
approved by the Commission in 1984 and in 1991.

It was not envisaged in the specific intervention plans,
as requested by the aforesaid restructuring plans. More-
over, the specific intervention plans were to be notified
to the Commission under Article 88(3) of the Treaty,
as, in giving its outline approval to the restructuring
plans, it specifically reserved the right to decide on the
compatibility of the measures envisaged therein.

Italy's argument that it would have been possible to
demonstrate a posteriori the existence of a causality link
between the aid granted by RIBS and the making of
investments by the recipient companies is unacceptable.
The Commission could not find any link between the
aid and the investments made.

(21)

(22)

(23)

(24)

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It cannot be accepted that the aid was granted under
Article 46 of Council Regulation (EEC) Nos 1785/81 of
30 June 1981 on the common organisation of the
markets in the sugar sector (4), as last amended by
Commission Regulation (EC) No 1148/98 (5), under
which (like the similar provision in Council Regulation
(EEC) No 1254/89 (6), as amended by Commission
Regulation (EC) No 260/96 (7), valid for the years 1989/
90 and 1990/91), aid for restructuring the beet and
sugar sector in Italy must meet the following condi-
tions:

(26)

This company shared both the Commission's factual
and juridical analyses, i.e. that all the intervention exam-
ined by the Commission in favour of the Celano and
Castiglion Fiorentino sugar factories, currently the prop-
erty of Sadam, was implemented through aid which in
the end was to the benefit of Sadam. The latter became
the proprietor of
the one in Celano
two factories,
belonging to Nusam and the one in Castiglion Fioren-
tino formerly belonging to Castiglionese, on favourable
conditions which are not acceptable in a market
economy.

— it must be motivated by exceptional needs asso-
ciated with the current plans for restructuring the
sugar sector in Italy;

(27)

However:

— it must comply with the said restructuring plans.

Outside the juridical context of Article 46 of Regulation
(EEC) No 1785/81, the aid under examination cannot
be considered either as aid to investment or, taking
account of the situation which the recipients were in at
the time of the various payments, aid to undertakings in
difficulty.

In the light of the rules governing aid to investment in
the agricultural product processing and marketing
sector, this aid falls under the prohibition of granting
aid to investment in the sugar sector.

As far as the rules governing aid for rescuing and
restructuring firms in difficulty are concerned,
the
Commission considered that neither the criteria applic-
able to the agricultural sector at the time the procedure
was initiated, nor those laid down in the Community
guidelines on State aid for rescuing and restructuring
firms in difficulty (8) seem to have been respected. These
guidelines were modified in 1997 to take account of
the specific criteria applicable to the agricultural
sector (9).

(28)

(29)

— this company did not agree with the Commission's
conclusion regarding the CIPE decision on 6 August
1987 which authorised RIBS to raise the loan at a
subsidised rate in favour of the Celano sugar factory
to ITL 35 billion. In its view, failure to implement
the CIPE decision, and consequent failure to pay the
sums provided for therein, is not sufficient to rule
out the conclusion that the nature of the measure in
question was one of
since by merely
announcing that
these resources were available
would have allowed Nusam to obtain loans from
the banking system which it would not otherwise
have obtained;

aid,

— it claimed that

the Commission did not

take
account of the distortive effects provoked by the
measures, envisaged but not implemented,
in the
CIPE decision of 12 April 1988, as the fact that they
were simply envisaged would have allowed Nusam
to obtain other loans from the banks.

The argument of the company in question seem to be
based on the view that the announcement of the avail-
ability of new resources in favour of
the recipient
company would have given rise to the same effects as
the granting of a State guarantee.

that

in the absence of

None of the information available leads to the conclu-
the above-
sion, however,
mentioned announcement, the undertaking in question
would have been unable to obtain loans from the
banking system or that the loans which it was able to
obtain were granted at an interest rate which was lower
than that normally applied by financial
institutes for
similar loans to other undertakings.

IV. COMMENTS FROM INTERESTED PARTIES

(25)

By letter dated 17 April 1997, a private company noti-
fied comments to the Commission in the framework of
the procedure
initiated under Article 88(2). The
company is one which produces and markets beet sugar
and which is therefore a direct competitor of the Sadam
group.

(4) OJ L 177, 1.7.1981, p. 4.
(5) OJ L 159, 3.6.1998, p. 38.
(6) OJ L 126, 9.5.1989, p. 1.
(7) OJ L 34, 13.2.1996, p. 16.
(8) OJ C 368, 23.12.1994.
(9) OJ C 283, 19.9.1997, p. 2.

V. COMMENTS FROM ITALY

(30)

The Italian authorities made preliminary comments by
letter dated 3 April 1997. On 8 June 1998 it made
detailed comments regarding the procedure initiated by
the Commission and which we will now summarise.

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(31)

(32)

(33)

(34)

(35)

According to the Italian authorities, the aid described in
Part II granted in implementation of the CIPE decision
comes under the national plan for restructuring the
sugar
sector approved by the Commission in its
decision of 15 May 1984 (PN 84/90) and subsequently
extended and updated for the period from 1991/92 to
1995/96 (the extension and updating of the PN 91/96
plan were approved by the Commission in its decision
of 20 June 1990). In particular, the above aid was a
coherent continuation of the measures provided for in
the two specific intervention plans approved by the
Commission in its decisions of 13 December 1984 for
the Castiglion Fiorentino sugar factory and of 5 August
1985 for the Celano factory. The two specific interven-
tion plans were approved by the Commission which
deemed them in compliance with the notified and
approved restructuring plan for the sugar sector.

(36)

88(1) of the Treaty, and paragraph 3 of that Article
would not therefore be applicable to it.

the

recipient undertakings

The aid measures disputed by the Commission should
be deemed to be restructuring aid as they restored the
profitability of
in the
medium-to-long term while respecting the prohibition
against exceeding the production quotas laid down in
the decisions approving the plans
the sector.
According to the Italian authorities, the principle of
proportionality between the aid paid and the costs and
benefits of restructuring has also been respected. The
same authorities provided figures intending to prove
that the two factories effectively reached economic and
financial efficiency.

for

The Italian authorities maintain that the plans for the
sector approved by the Commission represent the refer-
the measures
ence parameter for the legitimacy of
adopted in the aforesaid CIPE decisions, in accordance
with the case law of the European Court of Justice in its
judgment of 5 October 1994 in Case C 47/91 — Italy v
Commission (italgrani) (10).

According to this case law, when the Commission has
before it a specific grant of an aid alleged to be made in
pursuance of a previously authorised scheme, it cannot
the outset examine it directly in relation to the
at
Treaty.
it must first examine whether the aid is
covered by the general scheme and satisfies the condi-
tions laid down in the decision approving it (11).

(...)

In the same judgment, the Court also states ‘if following
the examination thus circumscribed the Commission
finds that the individual aid is in conformity with its
decision approving the scheme it must be regarded as
authorised aid, and thus as existing aid’ (12).

According to the Italian authorities, the fact that the
Commission made approval of the two plans for the
sector conditional on prior notification of the individual
intervention plans constitutes a procedural aspect only.
The finding of failure to fulfil the prior notice obligation
would therefore have no effect on the assessment of the
compatibility of the aid with the plans for the sector. In
particular, this failure would not, in any way, prevent
the aid in question from being considered to be
approved and therefore from existing under Article

(37) Moreover, the Italian authorities pointed out that the
relationship between the aid granted and the invest-
ments made in the two sugar factories during the same
period was respected.

(38)

(39)

by

In particular, in the Celano sugar factory for which the
plan envisaged investments of ITL 93,8 billion (62,8 of
which was provided for in the specific plan of 1985 (13)
approved
of
the Commission),
ITL 105,9 billion were actually made, with intervention
by RIBS totalling ITL 84 billion (50 billion of which
was provided for in the specific plan for 1985). The
grant-equivalent of
this aid would be 42,34 % if
compared with the investments envisaged in the plan,
and 35,81 % if compared with the investments actually
made.

investments

In the Castiglion Fiorentino sugar factory, for which the
plan envisaged investments of ITL 109,5 billion (62
billion of which (14) was provided for in the specific
plan of 1984 approved by the Commission),
invest-
ments of ITL 126,5 billion were actually made, with
intervention by RIBS totalling ITL 66 billion (36 billion
of which was provided for in the specific plan for
1984). The grant-equivalent of
this aid would be
44,51 % if compared with the investments envisaged in
the plan, and 36,06 % if compared with the investments
actually made.

(40)

According to the Italian authorities, the investments
made not only concerned the technological modernisa-
tion of the machinery but also the improvement of
production capacity (expressed as processing potential
in tonnes of beet per year). The Italian authorities
provided figures to support this statement.

(10) ECR [1994] I-4635.
(11) ECR [1994] I-4635, point 24 of the judgment.
(12) ECR [1994] I-4635, point 25 of the judgment.

(13) These figures refer to intervention in the two sugar factories which

were the property of Nusam at the time (Celano and Strongoli).

(14) See footnote 13.

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(41)

It is therefore Italy's view that the restructuring of the
two sugar factories did not
involve changes in the
competitive equilibrium which existed before the imple-
mentation of the measures in question, nor an increase
in the sugar production quotas in Italy. This is because
the aid was not for the benefit of a given company but
was for restructuring two sugar factories, whoever they
belonged to, in the framework of the objectives estab-
lished in the plans for the sector.

(45)

(42)

In particular, PN 84/90 laid down the following:

(a) the intervention by RIBS would constitute a specific
instrument for restructuring the sugar sector;

(b) RIBS would act

in accordance with the specific
intervention plans drawn up for each of the compa-
nies to be restructured;

(c) RIBS would use the instruments laid down in Act
No 700/83, that is, the stakes, the participatory
loans and the loans at a subsidised rate;

(d) the RIBS intervention would upvalue the sharehold-
ings of beet growers in the processing undertakings
to a achieve a better agri-industrial balance;

(e) efficiency and the definition of economic manage-
ment criteria, both for the agricultural component
and for the industrial one, were to be considered
among the fundamental objectives of the plan;

(f) in central Italy, production was to be concentrated
in the Castiglion Fiorentino sugar factory with the
closure of the Cecina works;

sugar sector in accordance with the national plans for
the sector and with Article 46(4) of Regulation (EEC)
No 1785/81.

In particular, again according to the Italian authorities,
the industrial restructuring objective was achieved, inter
alia, by concentrating the processing activities in the
two sugar factories in question, with the closure of the
other three works at Cecina, Avezzano and Latina,
while the technical, economic and financial concentra-
tion of the processing activities in one plant gave rise to
benefits in terms of economies of scale and the jobs
were maintained without having to make use of State
welfare mechanisms. The objective of the participation
the beet growers in the industrial activities was
of
achieved by the participation of
the beet growers'
national finance company, Finbieticola, in the capital of
the company which owns the Castiglion Fiorentino
plant. The companies which benefited from the RIBS
intervention regained lasting profitability and were able
to satisfy the conditions for the reimbursement of the
RIBS loans and stakes. The objective of maintaining the
agricultural supply basins (and therefore the income of
the operators in the beet sector) was achieved without
increasing the production capacity of
the aforesaid
basins. According to the Italian authorities, the latter
would have been dispersed without the intervention,
because the other processing plants are located at a
distance of over 250 km compared with Celano and
Castiglion Fiorentino and because, under Community
provisions which fix the intervention price of sugar, the
compensation of transport costs is such as to cover a
distance of 50 km only.

(g) In southern Italy, Celano was to remain among the
sugar factories in production with the closure of the
Capua and Avezzano plants;

(46)

(h) RIBS intervention was to be availed of to reconfi-
gure the proprietary framework of the plants in
new forms for the purposes of achieving higher
efficiency in the whole sector.

From a more general point of view, the Italian authori-
ties underlined that the Commission looks favourably
on the privatisation of public companies. According to
the Italian authorities, both in the case of Celano (the
property of Nusam, a company in which regional
public bodies had holdings) and in the case of Casti-
glion Fiorentino (belonging to Castiglionese, a company
controlled by Federconsorzi) the intervention led to real
and effective privatisation.

(43)

In updating PN 84/90 (PN 91/96), note was taken that
the RIBS intervention implementing the 1984 sector
plan involved stakes amounting to an overall sum of
ITL 84 billion and loans amounting to a total of
ITL 327 billion. It was also found that it was necessary
to limit the intervention to existing plants, the need to
continue with the creation of an industrial processing
pole in Central Italy was confirmed, and the use of new
resources for intervention by RIBS was envisaged on the
basis of the specific intervention plans.

(44)

According to the Italian authorities, the specific inter-
vention plans for the investments in Celano and Casti-
glion Fiorentino, approved by CIPE, clearly show that
the objective pursued by public intervention was the
agricultural and industrial restructuring of the beet and

(47)

The Italian authorities maintain that no aid was
provided for the purchase of the two sugar factories.

(48)

In both cases in fact, the property transfer operations
took place in the framework of the liquidation proced-
ures under the control of the competent bankruptcy
court. Any other operator interested would have been
able to reply to the sales offers on the same conditions
and the RIBS intervention in favour of the purchasers
occurred after the transfer of the property.

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Respect for the Community guidelines on State aid
in favour of companies in difficulty

financial charges connected with the company's short-
term debts were also found.

(49) With regard to respect for the conditions laid down in
the Community guidelines on State aid for rescuing and
restructuring firms in difficulty, the Italian authorities
made the following comments.

— Restoration of profitability: the aid granted by RIBS
came within a specific technical and financial
restructuring plan aimed at restoring the long-term
profitability of the firm. This objective was achieved
in the case in question: the companies which bene-
fited from the intervention regained industrial,
economic and financial efficiency.

— Absence of distortive effects on competition produced by
the restructuring aid: this condition was respected as
the production capacity resulting from the RIBS
intervention did not exceed the national quota
assigned to Italy, nor the quota relating to the beet
production basins covered by the plans. Further-
more, as the restructuring of the two sugar factories
was accompanied by the closure of
the nearby
plants, the RIBS aid did not affect the production of
sugar beet in the basins in question.

— The RIBS aid which preceded the specific 1990 and
1992 intervention plans must be deemed to be
rescue aid as defined in the relevant Community
guidelines as it referred to temporary measures,
supporting the recipient undertakings
aimed at
awaiting restructuring.

(53)

(54)

(55)

(56)

Intervention for
factory

restructuring the Celano sugar

According to the Italian authorities, the RIBS interven-
tion in favour of the Celano sugar factory should be
assessed in the light of the following considerations.

(57)

(50)

(51)

The company's situation described in a report to the
Agriculture Ministry after the approval of the 1988
balance sheet highlighted the need for short-term loans
of ITL 39 billion lire (over and above the debt to RIBS
for reimbursement of the ITL 35 billion loan granted in
implementation of the 1984 specific intervention plan).

Given the situation, the Ministry of Agriculture made a
decision in principle to separate the destinies of the two
sugar factories so as to prevent the probable bankruptcy
of Nusam from leading to the closure of the Celano
pant, and to hand over its management to Sadam, the
company which had leased it.

To implement the provisions, with decisions dated 12
September 1989 and 2 February 1990 (see points 15.2
and 15.3), CIPE authorised RIBS to provide a surety of
ITL 2 billion in favour of Sadam, on one hand, to
guarantee Nusam's tax obligations and, on the other
hand, to provide a surety to guarantee Nusam's debts to
Sadam for the investments made by the latter during
the lease period (ITL 11 billion).

for

losses

the leasing of

On 2 March 1990,
the
to permit
Strongoli sugar factory, which would not have been
possible if the company had been declared bankrupt, it
was decided at a Nusam shareholders' meeting to cover
the
(amounting to
the 1998/89 year
ITL 31 037 million in ways which included writing off
the capital stock (ITL 26 billion) and converting a part
of the RIBS credit (ITL 1 542 million) At the same time,
the meeting decided to reconstitute Nusam's capital
stock by converting another part of the RIBS credit (ITL
954 million) and using payments from other share-
holders (ITL 1 530 million) (see point 15.4.).

On 18 October 1990, Nusam made an application to
the Court of Rome for an arrangement with creditors
with the transfer of assets. The application was accom-
panied by an offer from Sadam, its lessee, to purchase
the Celano sugar factory.

the

situation of Nusam,
financial
During 1988,
proprietor of the two sugar factories at Celano and
Strongoli, made it impossible to achieve the objectives
set when adopting the 1984 specific intervention plan,
In fact, the
approved by the Commission in 1985.
losses
1988 financial year concluded with overall
amounting to almost ITL 16 billion, of which ITL 6
billion was for operating losses at the Strongoli plant.

(52)

The analysis of the financial figures showed that it was
possible to keep the Celano sugar factory in operation
(its balance sheet for the same year showed a surplus of
about ITL 2,8 billion), while the impossibility of main-
taining the Strongoli plant was also evident. Excessive

(58)

The purchase offer envisaged the following:

(a) a purchase price of ITL 26 billion, 15 billion of
which consisting of
the
the
purchaser of a part of Nusam's residual debt to
RIBS (15), and ITL 11 billion represented by waiving
the credit against Nusam for a sum con-esponding
to the costs borne by Sadam for the investments
made when it was the lessee of the plant;

assumption by

(15) The remainder of

this credit
lowing the declaration of bankruptcy by Nusam.

(ITL 17 504 million) was lost

fol-

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Official Journal of the European Communities

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(b) an increase in the crystallising capacity from 480 to
800 tonnes per day, which allowed reduction in the
storage costs of liquid products;

(c) a reduction in energy consumption from 402 to

320 kg of fuel oil per tonne of sugar;

(d) the creation of a plant for drying the pulp.

(67) With regard to the aid in the CIPE decisions of 12 April
1988 and of 28 June 1990 (see points 15.1 and 15.4),
i.e. the participation of RIBS in the re-capitalisation of
Nusam in two stages, the first of ITL 5 billion in 1988
and the second of ITL 25 billion in 1990, the Italian
authorities maintain that they are justified by the fact
that the intervention plan for 1985 in favour of the
Celano plant (approved by the Commission) was modi-
fied in 1987 to increase the volume of the investments
provided for (supplementary investments of
ITL 13
billion). Moreover, the scope of this aid was to safe-
guard the interests of RIBS as a Nusam shareholder and
not to compromise the implementation of the new
guidelines in the revised plan for the sector (in partic-
ular the creation of the sugar pole in central Italy).

(68)

The aid referred to in points 15.2 and 15.3 (CIPE
decisions of 12 September 1989 and of 2 February
1990) took the form of guarantees provided by RIBS in
favour of Sadam, lessee of the sugar factory, to cover
Nusam's obligations of a tax nature relating to the
activities of Nusam itself during the period prior to
leasing the plant, and to cover Nusam's debt to Sadam
for investments made by the latter during the period of
the lease (the sureties amounted respectively to ITL 2
billion and to ITL 11 billion. In this regard, the Italian
the sureties provided by
authorities underlined that
RIBS did not
financial
resources, as they were not invoked and that, moreover,
they were not provided to cover loans but to cover
contractual obligations. The two guarantees were ‘retur-
ned’ (sic) by Sadam to RIBS when the Celano sugar
factory was purchased.

involve actual allocations of

(b) the restitution to RIBS of the sureties provided to

Sadam;

(c) the employment of the workforce of the Celano

sugar factory by the new proprietor.

In a judgment of 18 July 1991, the bankruptcy court
approved the arrangement and authorised the conclu-
sion of the contract for the sale of the Nusam-owned
plant to Sadam Abruzzo SpA of the Sadam group.

According to the Italian authorities, the entire sales
procedure took place under the control of the court,
which could have taken account of any other purchase
offers from any other interested parties.

The Strongoli sugar factory was closed by Nusam at the
end of the 1992 financial year.

goodwill,

It is in this context that the aid in the CIPE decision on
26 July 1990 (see points 15.5 and 15.6) must be
assessed, as it regarded measures aimed at preventing
the bankruptcy of Nusam and, as a consequence, the
dispersion of the Celano business (positive profitability
basin,
or
employees). The abovementioned CIPE decision and the
specific relevant intervention plan effectively assured
that the aims of the plan for the sector were achieved,
i.e., the concentration of the processing activities, the
the beet growing basins and the
maintenance of
completion of the technical restructuring of the plants.

production

quotas,

supply

The Commission believes that the price paid by Sadam
for the sugar factory is lower than the real value of the
property but according to the Italian authorities the
calculated value of ITL 31 800 million was effectively
an estimate of the value of the property which did not
take account of the negative profitability (bad will) of
Nusam at the time of the contract.

The new specific plan established by the above-
mentioned decision also obliged Sadam to make invest-
ments amounting to several tens of billions of lire.

Bearing in mind the above, the measures implementing
the CIPE decision of 26 July 1990 should be considered
to constitute a restructuring plan aimed at modernising
the plant, reducing the production costs and restoring
medium-to-long term profitability.

(59)

(60)

(61)

(62)

(63)

(64)

(65)

(66)

The restructuring of the machinery in the Celano sugar
factory irivolved modernising all the production stages.
The investments made produced the following results:

(69)

(a) an increase in processing capacity from 3 700 to
7 500 tonnes of beet per year, thereby assuring the
acceptance of all the beet production in the inter-
ested basin after the closure o the Avezzano and
Latina plants;

Intervention for restructuring the Castiglion Fioren-
tino sugar factory

In the opinion of the Italian authorities, the aid in the
form of a guarantee provided for in the CIPE decision of
2 August 1991 (see point 16.1) was justified by the
crisis in Federconsorzi, the controlling shareholder of
Castiglionese, with the consequent suppression of the
bank credits in favour of the controlled companies. In
particular, at the beginning of the 1991/92 financial
year, Castiglionese had to apply for judicial settlement
without, therefore, being able to guarantee payment for
the beet to the beet growers.

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(70)

(71)

(72)

(73)

(74)

(75)

The ITL 41 billion surety provided by RIBS to Casti-
glionese was to guarantee any loans granted by the
banks to Castiglionese to pay the beet growers. More-
over,
it was not used to guarantee effective lines of
credit from the banks, but had in fact the function of
providing an external guarantee to the beet growers, as
the banks had granted Castiglionese advances guaran-
teed exclusively by pledging the sugar subsequently
produced.

the shares RIBS
took to redeem a further 35 % of
bought with its first stake in the Castiglionese capital,
after fifteen years from the transfer of the above shares.

(76)

The plant restructuring in the Castiglion Fiorentino
sugar factory consisted of modernising some of the
machines and replacing others. The investments made
gave the following results:

According to the Italian authorities, the RIBS interven-
tion provided for in the CIPE decision of 16 April 1992
(see point 16.2) should be considered as intervention
implementing PN 1984/1990 and PN 1991/1996. Its
scope was to ensure the continuity of the processing
activities in the only sugar factory in the beet producing
basin in Tuscany and Umbria without compromising
the intervention already made by RIBS in favour of the
Castiglion Fiorentino plant (among other things, the
recovery of the loans at subsidised rates was endangered
by the Federconsorzi crisis).

In particular, the Italian authorities do not agree with
the Commission's analysis according to which the inter-
vention implemented on the basis of the same decision
can be deemed to be aid for the purchase of the Casti-
glion Fiorentino sugar factory in favour of Sadam, for
the following reasons.

The sale of the Federconsorzi shares in Zuccherificio
Castiglionese SpA was carried out under the control of
the bankruptcy court of Rome in the framework of the
arrangement with the Federconsorzi creditors. There-
fore, as the sale took place in compliance with the rules
adopted by the court and after all the interested opera-
is evident,
tors had been invited to take part,
according to the Italian authorities,
that any other
successful bidder would have been able to benefit from
the RIBS intervention on the same terms as Sadam. The
abovementioned sales rules and the call for bids from
Sadam, and from the other company which had shown
interest in taking part, were sent to the Commission.

it

The intervention approved by the CIPE decision of 16
April 1992 did not therefore refer to a precise recipient
but
in
response to the sales offer who could meet the condi-
tions fixed in the decision.

concerned any possible

successful bidder

The extension of
the RIBS stake in Castiglionese's
capital (under current rules, this possibility is subject to
the condition that the beet growers can take sharehold-
ings in the recipient company) was granted following
the transfer by Sadam to Finbieticola SpA of 35 % of
the Castiglionese shares at the same sales price. Finbieti-
cola S.p.A. also purchased 35 % of the shares corre-
sponding to the increase in capital made by RIBS
(payment over fifteen years without interest) and under-

(a) an increase in the processing capacity from 3 500
to 8 500 tonnes of beet per day, permitting the
factory to purchase all the production in the basin
after the closure of the Cecina processing plant;

(b) an increase in the crystallising capacity from 400 to
850 tonnes per day, leading to a reduction in the
storage costs for liquid products;

(c) the reduction of energy consumption from 368 to

302 kg of fuel oil per tonne of sugar;

(d) restructuring and increasing the power of
machinery for pressing and drying the pulp;

the

(e) upgrading of the machinery to meet current envir-

onmental regulations.

(77)

According to the Italian authorities, the aid granted
over the years by RIBS in favour of Nusam, Casti-
glionese and Sadam Abruzzo for restructuring the two
sugar factories at Celano and Castiglion Fiorentino
allowed the following objectives to be achieved:

(a) the completion of the investment plans, whose real-
isation would not otherwise have been possible to
the considerable detriment of
the investments
already made by RIBS in the recipient companies;

(b) the concentration of the technical, economic, finan-
cial and commercial management in a single under-
taking, making economies of scale possible;

(c) the establishment of a sugar production pole in
Central Italy, an objective laid down in the national
plan for the sector, with the reduction of
the
average supply distance and the modification of the
raw material harvesting conditions to better adapt
them to the needs of the producers;

(d) the participation of the growers in the management
of the processing undertaking (for the Castiglion
Fiorentino sugar factory only);

(e) maintenance of employment;

(f) restoration of the profitability of the undertakings;

(g) the restructuring of production capacity (with an
overall drop in the processing capacity of beet per
day in the supply basins involved following the
closure of the three plants at Cecina, Avezzano and
Latina).

(78)

(79)

(80)

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The RIBS intervention in the undertakings mentioned in
point 76 was, on the one hand, exclusively destined for
investment and modernisation plans (excluding any
operating aid) and, on the other hand, entirely in
accordance with the objective, laid down in the plans
for the sector, to maintain activity in the two sugar
factories at Celano and Castiglion Fiorentino so as to
ensure the survival of the beet basins involved in the
closure of the other processing plants.

(81)

Under Article 46 of Regulation (EEC) No 1785/81,
national aid can be granted in Italy by way of deroga-
tion from the rules for state aid in the sugar sector, if
motivated by exceptional needs associated with the
implementation of current restructuring plans for the
sector in the country.

VI. ASSESSMENT OF THE AID

Relevance of the ‘Italgrani' case law

(82)

(83)

Application of Article 87(1) of the Treaty

Pursuant to Article 44 of Regulation (EEC) No 1785/81,
Articles 87, 88 and 89 of the Treaty are applicable to
the sugar production and marketing sector.

to their

It is the view of the Commission that the various bene-
fits granted by RIBS to Nusam, Sadam Abruzzo and
Castiglionese constitute State aid subject to the provi-
sions of Article 87(1 ) of the Treaty. It was funded with
national resources (the capital of RIBS is 100 % publicly
owned) and distorts competition by favouring some
competitors.
undertakings with respect
According to the information provided by the Italian
authorities, the aid granted was aimed at concentrating
sugar production in the affected regions in the two
aforesaid factories through the closure of other factories
in the same regions. Aid of this kind can also affect
trade between Member States to the extent
it
favours national agricultural production, by facilitating
exports of the product from the Member State involved
and obstructing imports of the same product from the
other Member States.

that

Economic data for the sugar sector in
Italy (1)

Quantities
(million
tonnes)

Value
(ECU million)

(84)

Imports from the Community
(sugar)
Imports from the Community
(isoglucose)

281,2

209,3

25,0

11,1

Export to the Community (sugar)
Export to the Community (isoglu-
cose)

57,8
7,4

44,5
2,3

Sugar beet production
Italy
Community 15

Value of production
Italy
Community 15

(1) Source: Eurostat 1997.

13,3
120,7

5 613
713

In the Commission's view, the Italian authorities' obser-
vations regarding the criteria to use for assessing the aid
cannot be taken into consideration. It can be deduced
from the ‘Italgrani’ case law to which the Italian author-
ities refer (confirmed by the judgment of the Court of
First Instance on 6 July 1995 (Joined Cases 447-449/93
AITEC et al./Commission) (16) that the aid under exam-
ination must be assessed in the light of the competition
rules in the Treaty.

already been approved,

In the abovementioned ‘Italgrani’ judgment, the Court
of
Justice considered that the Commission, when it
examines an individual aid measure which, it is main-
tained, has been granted on the basis of a scheme which
has
immediately
to the Treaty but, before
examine it with respect
initiating any procedure, must only establish if the aid
falls within the general scheme and meets the condi-
tions fixed by the decision to approve the same (see
below 32 and 33).

cannot

However, the Court also specified that this obligation
only exists where the Commission, when approving the
general scheme, does not express reservations with
respect to the examination of the individual cases of
application of the scheme.

(85)

(86)

In the above-mentioned judgment of 6 July 1995, the
Court of First Instance declared (17) that the obligation
of specific notification of each aid measure imple-
menting the scheme approved by the Commission
constituted a reservation on approval of the same type
as that defined in the ‘Italgrani’

judgment.

It is quite evident that the approval of the national
restructuring plans in the sugar sector in Italy (.PN
84/90 and PN 91/96), subject to the explicit condition
of prior notification of the specific cases of application
of the scheme cannot be deemed to be approval of all
the aid provided on the basis of these plans.

(16) ECR [1995] II-1971.
(17) ECR [1995] II-1971, point 129 of the judgment.

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7. 9. 1999

(87)

(88)

(89)

It can be seen from the above that, while the Commis-
sion must verify that the aid has been provided in
accordance with the indications contained in the plans
PN 84/90 and PN 91/96, this verification cannot, under
any circumstances, exempt it from the obligation to
examine the aid's compatibility with the competition
rules relating to the various types of aid granted.

The conformity of the measures with the national plans
for the sector must be assessed from two points of
view: first of all it is necessary to check that the aid
granted falls within the type of intervention envisaged
in the plans and, secondly, that its objectives and effects
correspond with those envisaged in the plans. The
result of these two checks must be positive in both
cases so as to be able to establish that the aid complies
with the national plans for the sector.

Type of aid

The type of intervention envisaged, described in detail
in the plans for the sector and in the rules governing
RIBS intervention in the sugar sector, involves taking
stakes in capital, participatory loans and loans at a
subsidised rate. There is no provision for aid involving
the granting of public guarantees or waiving credits or
guaranteeing credits. Neither is there provision for RIBS
to permit the capital of the companies in which it has
holdings to be written off to cover the losses, thereby
waiving the restitution of the invested capital, or for
RINS to intervene in the liquidation procedure aimed at
permitting the sale of certain assets in favourable condi-
tions.

(90)

Therefore, the following aid agreed by RIBS does not
fall within the type of intervention provided for in the
national plans for the sector:

1.

2.

the aid referred to in points 15.2, 15.3 and 16.1:
surety in favour of Sadam Abruzzo granted during
the period in which this company was the lessee of
the Celano factory and the surety in favour of Casti-
glionese for the loan of the sums required to start
the activities in the sugar factory in the 1991 finan-
cial year;

the aid referred to in point 15.5: the RIBS interven-
tion in the procedure for the arrangement with cred-
itors of Nusam (waiver of
the credit guarantees,
deferment of the credit, assent to the transfer of
Nusam's residual debt to Sadam in exchange for the
Celano factory).

(91)

As a consequence, this aid cannot be considered to
comply with the national plans for the sector from
1984 to 1990 and from 1991 to 1996, simply because
its forms do not correspond with the forms laid down

(92)

(93)

(94)

(95)

(96)

(97)

in the relevant national provisions; it must therefore be
assessed exclusively in light of the general criteria.

Aid not envisaged in a specific intervention plan

Some of the aid granted is not even envisaged in the
specific intervention plans, as required by the national
plans for the sector: it was in fact decided to grant it
following the discovery of immediate and contingent
problems, without the intervention being justified by
more wide-ranging planning.

the Treaty,

After the beginning of the procedure referred to in
Article 88(2) of
the Italian authorities
forwarded the two CIPE decisions of 26 July 1990 and
16 April 1992 to the Commission; they related respec-
tively to the approval of the new intervention plan in
favour of Nusam for the Celano factory and to the new
intervention plan in favour of Castiglionese for the
Castiglion Fiorentino factory.

The aid measures implemented by RIBS not provided
for in the above-mentioned decisions therefore also lie
outside the planning framework envisaged in the
national plans for the sector. Once again they involve
the provision of sureties (see points 15.2, 15.3 and
16.1) and shareholdings in favour of Nusam taken
before the CIPE decision of 26 July 1990 (see points
15.1 and 15.4).

In light of the above, it is the view of the Commission
that the measures consisting in the provision of sureties
by RIBS (referred to in points 15.2, 15.3 and 16.1 ), in
taking stakes in the capital of Nusam (referred to in
points 15.1 and 15.4) and in the intervention of RIBS
in the procedure for the arrangement with creditors of
the same company (point 15.5) do not comply with the
national plans for the sector.

Rescue aid

According to the Italian authorities, the measures which
do not fall under the type of aid envisaged in the
national plans for the sector or which are not envisaged
in a specific intervention plan (as required by the
national plans) should be considered as rescue aid under
the relevant Community guidelines.

This argument cannot be accepted. According to the
Community guidelines, State aid for
rescuing and
restructuring undertakings in difficulty must meet the
following requirements:

(a) it must consist of liquidity help in the form of loan
guarantees and reimbursable loans provided at an
interest rate equivalent to that of the market;

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(b) its amount must be limited to that required to
maintain the undertaking in business (for example,
to cover wage costs, current supplies);

(c) it must only be paid for the period necessary (gener-
ally not more than six months) for devising the
necessary and feasible recovery plan;

(d) it must be motivated by acute social difficulties and
must have no unjustifiable negative effects on the
industrial situation in other Member States.

in the case of Sadam Abruzzo.
glionese, but not
Furthermore, on the basis of the indications in the
national plans, the specific intervention projects in the
factories located in the South of
Italy should have
contained procedures for implementing activities for
supplementing or replacing sugar production. For this
purpose, RIBS should have carried out a preliminary
feasibility and economic/financial
fact
remains, however, that none of the specific intervention
plans notified by the Italian authorities makes reference
to the execution of such a study, nor to its results, or to
assessments made by RIBS in this regard.

study. The

(98)

The information available does not make it possible to
state that the above conditions have been respected in
the case of any of the disputed aid measures.

(101)

None of the RIBS loans, stakes or sureties have been
granted at an interest rate or premium equivalent to the
market rate. As the shareholdings were redeemed at
face value at the end of the agreed period, the applic-
able interest rate was 0 % (18). For example, the loan of
ITL 11 billion was granted to Sadam Abruzzo for a
period of 15 years (at a rate of 2.025 % for the first five
years and 8,1 % for
the remaining 10 years). No
premium seems to have been paid for the provision of
the guarantees.

The aid was not destined exclusively to cover the wage
costs or the expenses required to run the undertakings
for the brief period required for devising the restruc-
turing plan. Furthermore, the duration of all the aid was
greater than the six-month period laid down in the
guidelines referred to in point 96.

Aid under the national plans for the sector

(99)

The other RIBS measures for restructuring the Celano
and Castiglion Fiorentino factories (see points 15.6 and
16.2) involved stakes in capital and loans at a subsid-
ised rate, as provided for in the plans for the sector.

(100) With regard to their conformity with the aims of the
national plans for the sector, the Commission could
accept the arguments made by the Italian authorities to
demonstrate that the scope and effect of the aid in
question was to achieve the programme objectives
described in a general manner in the national plans for
the sector, in particular the creation of a sugar produc-
tion pole in the regions of Central Italy. Other objec-
tives have only been partly achieved: for example, the
participation of the growers in the management of the
sugar factories was only achieved in the case of Casti-

(18) The reference rate in Italy was 14,66 % in 1990 and 14,4 % in

1992.

the aid with the common market

In any case, for the reasons given above, the conformity
of these measures with the national plans for the sector
could not, as such, be sufficient to permit the compat-
to be
ibility of
declared. Besides, this is why the Commission, when it
examined the national plans in question, was only able
to give initial approval to the pursuit of the objectives
in them (restructuring the sugar sector) and asked the
Italian authorities to present the specific intervention
plans for the purposes of prior approval, under Articles
87 and 88 of the Treaty.

(102)

For all the aid referred to in this Decision, the Commis-
sion must therefore decide if it is possible to apply the
derogation provisions laid down in Article 87(2) and (3)
of the Treaty and if it is possible to apply Article 46 of
Regulation (EEC) No 1785/81, under which the aid
must be motivated by exceptional needs associated with
the current restructuring plans for the sugar sector in
Italy.

(103) The Italian authorities' arguments are based essentially
on two points:
the aid complies with Community
guidelines and, secondly, it respects the intensity limits
normally taken into consideration for the purposes of
assessing aid in favour of investments in the agricultural
products processing and marketing sector.

(104) The Italian authorities maintain that all the aid under
examination can be considered to be compatible with
the Community guidelines on State aid for rescuing and
restructuring firms in difficulty.

(105)

It would seem appropriate to proceed with a separate
examination of the aid granted to Nusam and Sadam
Abruzzo for restructuring the Celano factory on one
hand, and to Castiglionese (before and after it joined the
Sadam group) for restructuring the factory at Castiglion
Fiorentino, on the other hand.

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(106) Above all, the aim of the assessment in both cases is to
check that a real restructuring plan exists and then, if
the plan exists, that it complies with Community guide-
lines.

(114)

It remains to be seen if this aid can be considered as a
restructuring plan under the Community guidelines as
the Italian authorities maintain.

Aid to Nusam and Sadam Abruzzo for the Celano
factory

Aid to Nusam

Recipient of the aid

(107)

In the case of the Celano factory, there is a supple-
mentary problem to be faced first: to identify the reci-
pient of the aid granted by RIBS.

(108) On the basis of the Italian authorities' arguments, the
public intervention was made, leaving the proprietor of
the factory out of consideration and therefore in favour
of the economic entity itself (sugar production in the
Celano plant), originally managed by Nusam and then
by the new company, Sadam Abruzzo.

(109) This argument must be rejected.

(110) The theory of continuity clashes with the immediate
observation that the aid was agreed during the first
phase, that is, before the CIPE decision of 26 July 1990,
in favour of Nusam as proprietor of the two factories at
Celano and Strongoli and, subsequently, pursuant to the
aforesaid decision in favour of Sadam Abruzzo.

(111) The Commission could accept this argument regarding
the continuity of the ‘Celano undertaking’ on only the
assumption that
the property had
the transfer of
concerned not only the factory (which in fact was the
case) but also any other constituent elements of the
commercial undertaking, including any liabilities asso-
ciated with its economic business. In other words, only
a succession in the proper sense could justify the posi-
tion suggested by the Italian authorities. On the basis of
the information provided by the Italian authorities,
however, Sadam, with the composition procedure, did
not take over all of the rights and obligations of Nusam
relating to the production activity of the Celano factory.

(112) Moreover, Nusam continued its own business after the
sale of the Celano factory to Sadam in its Strongoli
factory (the company was declared bankrupt on 29
December 1997).

(113) Contrary to what the Italian authorities affirm, it is the
Commission's view therefore that the aid granted by
RIBS for the Celano factory must be assessed by distin-
guishing between aid in favour of Nusam and aid in
favour of Sadam Abruzzo.

(115) With regard to the aid in favour of Nusam, not covered
by the national plans for the sector for the reasons
given in points 88, 89 and 90 (the aid referred to in
point 15.1, ITL 5 billion stake, and the aid referred to
in point 15.4, ITL 2,5 billion stake), there can be no
doubt that it is aid in favour of an undertaking in
difficulty. In reality, these stakes constitute increases in
the capital following reductions in the capital aimed at
covering the undertaking's operating losses. They do
not respect the principle of the private investor because,
as they were intended to cover operating losses, the
possibility of obtaining an acceptable income was
minimal. They do however constitute intervention by
RIBS in the capital of Nusam, decided case by case
following the ascertainment of the existence of financial
difficulties in the undertaking, and not on the basis of a
document which could be defined as a restructuring
plan.

(116) The measures referred to in point 15.5,

(a) and (b)
(waiver of the mortgage, and deferment of the credit
which became unsecured) were formally taken in favour
of Nusam. However, as they were part of a more
complex operation included among the intervention
measures in the CIPE decision of 26 July 1990 (relating
the Celano factory by Sadam
to the purchase of
Abruzzo) their effects will be analysed in the framework
of the assessment of the measures implemented by RIBS
in applying the decision.

(117) These measures do not meet the requirements enabling
them to be considered rescue aid under the relevant
Community guidelines (points 96 to 98).

(118) These Community guidelines

require that aid for
restructuring be granted under a restructuring plan
which permits the restoration of the undertaking's long-
term economic-financial efficiency within a reasonable
time span, on the basis of realistic hypotheses regarding
the future operating conditions. The aid must be linked
to a restructuring plan to be submitted to the Commis-
sion, complete with all the relevant particulars.

(119) The information available clearly shows that the aid
granted to Nusam was not part of any restructuring
plan aimed at restoring the economic-financial effi-
ciency of the undertaking. The aim of the aid, and the
effect achieved, was to guarantee the survival of the
undertaking which was in serious financial difficulty, so
as to be able to adopt suitable reorganisation measures
in Nusam to eliminate the causes.

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(120) The aid under examination cannot therefore be consid-
ered as aid for restructuring as envisaged in the relevant
Community guidelines.

(121) The Italian authorities' second argument was the af-
firmation that the aid made it possible to make invest-
ments in the Celano factory.

(122) However, the Commission did not receive any piece of
information which made it possible to verify the exist-
ence of an investment plan and the indispensable link
between the granting of the aid and the realisation of
investments by Nusam. The Italian authorities did not
demonstrate that the aid was granted to Nusam to
allow it to make investments or, in other words, that
these investments (which were not identified, moreover)
could not have been made without the aid under exam-
ination.

(123) Therefore, the aid consisting of stakes in the capital of
Nusam for a sum of ITL 5 billion and one of ITL 2,5
billion took the form of operating aid in favour of the
recipient undertaking.

(124) Taking the above, and the financial situation of Nusam
in particular, into account, the value of the aid to take
into consideration is that of a non-recoverable grant for
an amount corresponding to the two consecutive stakes
mentioned above (ITL 2,5 billion and ITL 5 billion),
which were never repaid to RIBS. On the other hand, it
is necessary to note that the RIBS stakes in the Nusam
capital were lost definitively following the bankruptcy
of the latter on 29 December 1997. This aid must be
considered operating aid which is contrary to the
constant general practice of the Commission as regards
the implementation of Articles 87, 88 and 89 of the
Treaty (judgment of the Court of First Instance, 8 June
1995, Case T-459/93- Siemens/Commission (19).

(125)

In light of the above, the aid in question cannot benefit
from any of the derogations provided for in Article
87(2) and (3) of the Treaty.

Aid to Sadam Abruzzo as lessee of the Celano factory

The sureties

(126) Two sureties were provided for Sadam Abruzzo during
the period in which this company was lessee of the
Celano factory (aid referred to in points 15.2 and 15.3).

(127)

For the reasons given in point 95 this aid was not
covered by the national plans for the sector.

(19) ECR [1995] II-1675.

(128) As the Commission stated when initiating the proce-
dure, this aid must be assessed in light of the criteria
applicable to State guarantees (20).
In reply to the
Commission's objection, the Italian authorities provided
no elements to demonstrate that these criteria were
respected in the case in question.

(129) The statement by the Italian authorities that the two
sureties were never made use of is not relevant either, as
the advantage is created by the public guarantee at the
moment when it is provided and not exclusively when
it is effectively availed of. In accordance with point 38
of
the Commission communication concerning the
application of Articles 87 and 88 of the Treaty and of
Article 5 of Commission Directive 80/273/EEC to
public undertakings in the manufacturing sector (21),
which, in the case of guarantees, are applicable indiffer-
ently to public and private undertakings, the conformity
of measures of this type must therefore be examined at
the moment in which they are granted. The assessment
of the element of aid contained in the guarantees also
depends on the financial situation of
the recipient
undertakings.

(130) As the sureties in this case were granted to an under-
taking which was not in financial difficulty, their value
does not correspond to the guaranteed sums ITL 2
billion + ITL 11 billion), but to the market price which
Sadam would have had to pay for guarantees provided
by financial

institutes in similar conditions of risk.

(131) The Commission therefore confirms

the time the procedure was

the reasoning
made at
It
initiated.
confirms that the aid granted by RIBS to Sadam in the
form of sureties cannot benefit from any of the deroga-
tions provided for in Article 87(2) and (3) of the Treaty,
as its form was that of operating aid, which does not
meet the requirements laid down in the Community
rules applicable to aid granted in guarantee form or the
criteria laid down in the Community guidelines for
State aid in favour of undertakings in difficulty.

Aid associated with the transfer of the Celano factory
from Nusam to Sadam

(132) The CIPE decision of 26 July 1990 envisaged a series of
intervention and aid measures aimed at preventing the
bankruptcy of Nusam and to permit the sale of the
factory at Celano by Nusam to Sadam Abruzzo (1990
specific intervention plan).

The measures implemented involved:

(a) waiving the mortgage on the Celano factory as a
guarantee for Nusam's residual debt of ITL 17,504
billion to RIBS;

(20) Commission letter to the Member States dated 5 April 1989 and

12 October 1989.

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

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7. 9. 1999

(b) deferring the credit, which in this way became unse-
cured, until after
the other unsecured credits.
Following the bankruptcy of Nusam on 29
December 1997, this credit was definitively lost;

the liquidation of the company itself, and this could
have led to the closure of the factory (see the Italian
authorities' comments, point 54).

(c) selling the Celano factory by Nusam to Sadam
Abruzzo, which shouldered the responsibility for
the reimbursement of the residual debt of ITL 15
billion to RIBS (on the same reimbursement condi-
tions);

(135)

Such operations could have been considered to be inter-
vention measures which did not involve State aid under
Article 87(1 ) of the Treaty if their aim was to permit
the sale of the factory in conditions compatible with the
principle of the private investor in a market economy.
In reality, things do not seem to have gone like that.
The only benefit which RIBS could obtain from the set
of operations provided for in the CIPE decision of 26
July 1990 was that Sadam shouldered a further debt
ITL 15 billion from Nusam.
(subsidised loan) of
However, a new pre-amortisation period of 5 years was
granted for the reimbursement of the subsidised loan. It
should also be remembered that as the assets of Nusam,
including the Celano factory (which had a value of 31,8
billion on the basis of an evaluation by independent
consultants)
of
ITL 17,504 billion. RIBS should have benefited from
the partial reimbursement of the second debt of ITL 15
billion.

the mortgage

exceeded

value

(136) Now, as it has not been shown that the other private
creditors of Nusam would have behaved in the same
way by waiving their credits, the Commission feels that
such behaviour cannot be considered comparable to
that of the private investor in a market economy. The
CIPE decision of 26 July 1990, which envisaged the
waiver of the RIBS credits and their deferment, was
accompanied by a decision to sell the factory to Sadam
Abruzzo and by other State aid measures in favour of
the company itself. Furthermore, the waiver of the RIBS
credits was not accompanied by the waiver of their
credits by the other Nusam creditors. By analogy with
the Commission communication on the participation of
the public authorities in the capital of undertaking (22),
the waiver of credits by the public authorities must be
proportional to the waiver of credits by the private
creditors if the operation is not to be seen as State aid.

(137) This operation must therefore be considered as State
aid, as a private investor in the normal conditions of a
market economy could not be expected to behave in
this way.

(138) Given the above, the true recipient of the aid must be
identified. Formally, the recipient was Nusam. It is the
Commission's view, however, that this company did not
In this
gain any financial advantage from the aid.
regard, it should be remembered that at the time of the
deferment of
the debt, Nusam was in a precarious
financial position and subsequently went bankrupt. On
the other hand, the deferment of the credit did not
indebtedness. The economic
reduce Nusam's overall
effects of this operation were to modify the structure of
the order of precedence of the company's creditors. In
waiving the mortgage, RIBS waived the precedence

(22) Bulletin 9-1984.

(d) the concession of new pre-amortisation period of
five years (exemption from the payment of interest)
for the reimbursement of
the aforesaid debt of
ITL 15 billion;

(e) aid in the form of a stake in the capital of Sadam

Abruzzo for a sum of ITL 8 billion;

(f) loan at a subsidised rate for a sum of ITL 11 billion

granted by RIBS to Sadam Abruzzo.

(133) This aid comes within a specific intervention plan under
the national plans for the sector. It is the Commission's
view, however, that not all the aid conforms with the
plans for the sector because, as has already been said,
in
some of
applying the aforesaid CIPE decision, do not respect the
type of instrument (stake in capital, participatory loan,
subsidised loan) made available to RIBS to facilitate the
restructuring of the sugar sector in Italy.

implemented by RIBS,

the measures

(134) The initial intervention of RIBS under the CIPE decision
of 26 July 1990 (referred to in point 15.5, (a) and (b))
was aimed at preventing the bankruptcy of Nusam and
allowed it to sell the Celano factory to Sadam Abruzzo,
which was its lessee. To achieve this objective, RIBS
waived the mortgage on the credit of
ITL 17,504
billion with respect to Nusam, and this allowed it to
apply for a judicial arrangement with creditors. It is
important to note that, without the deferment of the
the conditions laid down in
RIBS mortgage credit,
Italian law for an undertaking in difficulty to avail of
the arrangement with creditors procedure would not
have been met. In order to avail of this procedure,
debtors must in fact be able to pay all the preferential
credits (such as the RIBS mortgage credit) and 40 % of
the unsecured credits. In this case, the initiation of the
bankruptcy procedure would have impeded the conclu-
sion of the contract for the sale of the factory to Sadam,
as all the assets of Nusam would have been put under
judicial control in the framework of the procedure for

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L 236/29

accorded to its credit and passed to the last place after
all the other Nusam creditors. The operation did not
create any advantage for Nusam which was obliged to
reimburse all its creditors in any case, within the limits
of its resources.

(139) The deferment and waiver of this credit come within
the framework of a set of financial intervention meas-
ures, decided on the same date, the only aim of which
was to permit the transfer of the Celano factory from
Nusam to Sadam. In normal market conditions, in the
absence of intervention by RIBS, such a transfer would
have been made at market prices so as to optimise the
reimbursement of Nusam's creditors. For the reasons
given above, it is the Commission's view that the price
paid by Sadam for the transfer of the Celano factory
was below the market price (see points from 141 to
148). Thus, it is the Commission's view that the sole
the
objective of
Celano sugar factory from Nusam to Sadam in favour-
able conditions. This is confirmed by the Italian author-
ities' observations (point 54) in which it is stated that
the Ministry of Agriculture had taken the decision to
prevent the probable bankruptcy of Nusam leading to
the closure of the Celano factory and to hand over its
management
to Sadam. The Ministry decision was
taken before the CIPE decision. The Commission has
therefore come to the conclusion that a part of the aid
formally granted to Nusam in reality constitutes aid to
Sadam for the purchase of the Celano factory. The value
of the aid corresponds to the difference between the
market price of the factory and the price really paid by
Sadam.

the operation was the transfer of

(140) This conclusion however does not allow it to be said
that the sole economic effect of the deferment of the
mortgage debt of ITL 17,504 billion into an unsecured
credit was to Sadam's advantage. Bearing in mind the
information provided by the Italian authorities,
the
Commission felt that this measure also constituted aid
in favour of Nusam's other creditors. For these reasons,
the main effect of the deferment of the credit was to
modify the order of precedence of the creditors in the
framework of the procedure for the arrangement with
creditors. As undertakings must be able to settle all the
preferential credits and 40 % of the unsecured credits in
the Commission
order
this procedure,
deemed that
the credit allowed
Nusam's creditors to recover a greater part of their
credits than would have been possible without
this
operation. Following the waiver by RIBS of its 17,504
billion credit, all the creditors would in fact have been
able to recover at least 40 % of their credits. If Nusam
had been wound up, on the other hand, it would not
have been possible to guarantee the liquidation of all
the preferential credits and 40 % of the unsecured ones.

the deferment of

to avail of

(141) As far as the price paid by Sadam for the purchase of
the factory is concerned, in initiating the procedure, the
Commission maintained that it did not correspond to
the effective value of the Celano factory, as resulted
from the evaluation made by an expert appointed by
RIBS in agreement with Nusam. The estimate of the
value of the property to be transferred was in fact
ITL 31,8 billion.

(142) The Italian authorities did not dispute either the ex-
istence of the evaluation or the estimated sum. They
argued that it was merely an estimate of the worth of
the property which did not take into account the neg-
ative profitability (bad will) in Nusam's balance sheet.

(143) The Commission does not understand, and the Italian
authorities have not explained, how Nusam's 'bad will'
the Celano
could have influenced the evaluation of
factory because, with the purchase of the works, Sadam
did not take over the obligations connected with the
economic activities of the previous proprietor. In other
words, the Italian authorities do not explain how the
reduced from
price estimated by the expert was
ITL 31,8 billion to the price offered by Sadam.

(144) Only a sale by public auction would have made it
possible to learn the market value of the transferred
factory. In the absence of such a sales procedure, the
Commission can only conclude that the market price of
the Celano factory was higher than the price paid by
Sadam.

(145) Compared with the expert's estimate of

ITL 31,8
billion, Sadam's offer as the price of the Celano factory
was:

(a) the waiver of

its credit with Nusam for a sum
corresponding to the investments made in the
the lease
Celano factory during the period of
(ITL 11 billion) and

(b) shouldering Nusam's debt (loan at a subsidised rate)
of ITL 15 billion to RIBS. RIBS granted Sadam a
new pre-amortisation period of five years for the
reimbursement of this debt.

(146) The nominal value of

is
already lower than the value indicated in the aforesaid
estimate (–ITL 5,8 billion).

the offer (ITL 26 billion)

(147)

It is also necessary to consider that:

(a) the economic value of the waiver by Sadam of the
debt owed to it by Nusam does not correspond to
the amount of the debt itself. On the basis of the
available information that the credit was unsecured,
the prospects of its reimbursement at the time of
the waiver appeared reduced,
in the most pess-
imistic hypothesis, to 40 % of the amount of the
debt (i.e., ITL 4,4 billion);

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7. 9. 1999

(b) the value of shouldering the subsidised loan which
was accorded to Nusam by RIBS must therefore be
adjusted in consideration of
the reimbursement
facilities for this loan (the reduced interest and the
pre-amortisation period for the reimbursement of
the capital).

(148)

In light of the above, it is the Commission's view that
the sale of the Celano factory to Sadam Abruzzo was
not made at market conditions and that the difference
between the price fixed in the CIPE decision of 26 July
1990 and the price established by the expert (ITL 31,8
state aid in favour of Sadam
billion) constitutes
Abruzzo.

Assessment of the aid in favour of Sadam Abruzzo

Restructuring aid

(149)

First of all
it is appropriate to see if, as the Italian
authorities maintain, this aid can be considered aid for
restructuring an undertaking in difficulty in accordance
with the Community guidelines
rescuing and
restructuring firms in difficulty and, above all, if Sadam
Abruzzo could benefit from aid of this type.

for

(150)

In the relevant Community guidelines, a firm permitted
to benefit from rescue and restructuring aid is defined
as being 'unable to recover through its own resources
or by raising the funds it needs from shareholders or
borrowing'.

Elsewhere it is noted that the 'financial weakness of
firms that are rescued by their governments is generally
due
and dim future
prospects'.

to poor past performance

is evident

increasing size of losses,

The guidelines describe the typical symptoms of firms
which can benefit from the aid (deteriorating profit-
increasing debt and
ability,
rising interest charges), and it
these
symptoms cannot be characteristic of a newly created
firm. This also applies to new firms created to take over
the activities of a firm in difficulty during a procedure
for an arrangement with creditors (in the present case,
Nusam was on the verge of bankruptcy which could
have been delayed, but not avoided, thanks to the aid
granted by RIBS). Point 2.3 of the Community guide-
lines specifies in fact that the assessment of aid is not

that

influenced by changes in the ownership structure of the
recipient business.

(151) The guidelines on national regional aid (23) state that aid
for taking over a factory which has closed or would
close if not purchased can give rise to an advantage for
the undertaking in difficulty and that
this must be
examined in the light of the Community guidelines. In
the case in question, the Commission considers that the
aid to Nusam does not satisfy the conditions envisaged
by the Community guidelines (see points 116, 117 and
118).

(152)

Sadam Abruzzo is legally and financially independent
of Nusam. The aid granted by RIBS is not therefore for
liquidating past debts or improving a situation caused
by previous poor management. It was not therefore
aimed in reality at restructuring an undertaking in diffi-
culty. On the other hand, the Italian authorities have
not provided any elements for concluding that Sadam
Abruzzo was an undertaking in difficulty.

(153)

It must therefore be concluded that the aid under exam-
ination cannot be assessed in light of the Community
guidelines.

(154) With respect to the second argument made by the
i.e., that the aid permitted invest-
Italian authorities,
ments to be made in the factories concerned,
it is
therefore necessary to assess this aid in light of the
criteria applicable to investments in the agricultural
products processing and marketing sector.

Conformity with the plan for the sector

(155) A preliminary observation must be made: the constant
general practice
followed by the Commission in
assessing aid that States propose to grant is to apply the
sectoral restrictions decided for the examination of
the
admissibility to Community co-funding under
successive Community regulations on the
various
improvement of
the conditions for processing and
marketing agricultural products (Regulations (EEC) No
355/75 (24),
and (EC) No
95/97 (26). This procedure was ‘codified’ with the adop-
tion of the guidelines for State aid in connection with
investments in the processing and marketing of agricul-
tural products (27).

(EEC) No 866/90 (25)

(156) Among the abovementioned sectoral restrictions is the
prohibition on granting aid to the sugar sector.

(157) However, on the basis of Article 46 of Regulation (EEC)
No 1785/81 and on the occasion of approving the
national plans for restructuring the sugar sector in Italy,
the Commission allowed a derogation from this restric-
tion for aid associated with the exceptional needs in
these plans (as was the case with the aid for investments
in the Celano, Strongoli and Castiglion Fiorentino
factories envisaged in the first specific intervention
plans in favour of Nusam and Castiglionese, approved
by the Commission in 1984 and 1985). These waivers
were assessed case by case by the Commission
following notification of each of the specific plans.

(23) OJ C 74, 10.3.1998, p. 9.
(24) OJ L 51, 23.2.1977, p. 1.
(25) OJ L 91, 6.4.1990, p. 1.
(26) OJ L 142, 2.6.1997, p. 22.
(27) OJ C 29, 2.2.1996, p. 4.

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(158)

It is the Commission's view for the reasons given above
that this aid is not in accordance with the national
plans for the sector as it is not among the instruments
provided therein to restructure the sugar sector in Italy.
The aid cannot therefore benefit from the derogation
provision in Article 46 of Regulation (EEC) No 1785/81
for aid motivated by exceptional needs linked with the
current plans for restructuring the sugar sector in Italy.

(159)

It emerges from this analysis, based on the general
criteria regarding State aid, that the type of aid under
examination is similar to aid in favour of the purchase
of an existing factory, and that this, according to the
Italian authorities' claims, should be considered an
investment aid.

Investment Aid

(160) The specific intervention plan approved in the CIPE
decision of 26 July 1990 provided for a series of aid
measures in favour of Sadam Abruzzo as compensation
for the following 'investments':

(a) ITL 15 billion used for purchasing the Celano

factory;

(b) ITL 11 billion for investments made by Sadam
Abruzzo during the period in which it leased this
same factory (which explains the existence of a
credit of corresponding value of Sadam Abruzzo
with respect to Nusam);

(c) ITL 20 billion of new investments (described in
in the specific intervention plan).

detail

(161)

It is the Commission's view that all three of these cost
categories cannot be considered as admissible invest-
ments under Community rules regarding State aid.

(162) With regard to the sum of ITL 15 billion (price ‘paid’
by Sadam Abruzzo for purchasing the Celano factory)
and without prejudice to what has been set out above
with regard to the type and assessment of
the aid
granted for purchasing this factory, the Commission
reiterates its position regarding aid granted to facilitate
the simple change of ownership of an existing asset. As
it does not imply a sectoral advantage, but constitutes

an advantage exclusively for the interested party or
parties, such an operation cannot be considered to be
aimed at making an initial investment in the Commun-
ity's sense of the term. According to the guidelines on
national regional aid (28) in which the constant general
practice relating to the specific sector of regional aid is
set out, 'initial investment means an investment in fixed
capital relating to the setting-up of a new establishment,
the extension of an existing establishment, or
the
starting-up of an activity involving a fundamental
change in the product or production process of an
existing establishment (through rationalisation, diversifi-
cation or modernisation)'. These conditions do not exist
in the case under examination.

(163)

In any case, this sum regards expenses already borne at
the moment in which the aid was provided.

Therefore, with regard to the investments made by
Sadam Abruzzo before granting the aid referred to in
the CIPE decision of 26 July 1990 (for a sum of ITL 11
billion) it cannot be admitted as aid to investment, by
virtue of the fundamental principle governing State aid
according to which aid granted to an undertaking must
be necessary to achieve the desired result. This principle
therefore excludes the admissibility of aid which, given
its retroactivity with respect to the effect hoped for (the
realisation of investments in this case),
is no longer
capable of producing the necessary incentive effect
(judgment of the Court of
Justice of 17 September
1980-Case 730/79-Philip Morris/Commission (29)).

(164) Therefore,

the expenses

investments effectively
for
provided for in the specific intervention plan of 1990
for the Celano factory are exclusively those relating to
new investments planned, that is, the investments not
yet made on the date the CIPE decision in question was
made.

(165) These expenses, which amount to ITL 20 billion, are
the only ones which meet the requirements for bene-
fiting from State aid under Article 46 of Regulation
(EEC) Nos 1785/81 and the Commission decisions
approving the national plans for the sector:
this is
because they are expenses envisaged in the framework
of a specific intervention plan and motivated by excep-
abovementioned
tional needs
national plans (in fact the specific intervention plan
considers them necessary for implementing the restruc-
turing of the undertaking). Any aid granted to pay these
expenses could therefore have been assessed favourably
in the framework of Articles 87 and 88 of the Treaty,
taking account of the derogation provided for in Article
46 of Regulation (EEC) No 1785/81.

connected with the

(28) See footnote 24.
(29) ECR [1980] 2671.

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(166) As the Celano factory is located in what was an Objec-
tive 1 area at the time the aid was granted, the overall
amount of the aid that Sadam could have benefited
from for making the new investments contemplated in
the specific intervention plan should have been limited
to 75 % of the admissible expenses (intensity applicable
to investments in the processing and marketing sectors
for agricultural products in Objective 1 areas). The
value of
the corresponding aid amounts to ITL 15
billion in gross grant-equivalent.

(167) The aid received by Sadam Abruzzo under the CIPE
decision of 26 July 1990 can be assessed as follows.

(168.1) Reduction of the purchase price of the Celano factory.

This aid is equivalent to the difference between the
ascertained value of the factory (ITL 31,8 billion) and
the price actually paid by Sadam. The effective sum of
this price is given by the sum of the real value of
shouldering theITL 15 billion loan transferred to
Sadam (that is, the face value of the loan less the aid
represented by the reduction in the interest rate applied
to the loan with respect to the market interest rate, and
the concession of a pre-amortisation period for the
reimbursement of the loan), plus the waiver of a credit
which, for the reasons we have set out, must be calcu-
lated as ITL 4,4 billion. This aid is completely incom-
patible with the common market.

(168.2) New RIBS stake in the capital of Sadam Abruzzo for a

sum of ITL 8 billion.

As this is a stake in the capital to be redeemed at face
value, the value of the stake must be calculated consid-
ering this sum as a loan with an interest rate of 0 %,
with a duration equal to that of the stake itself, and
with a period of exemption for the reimbursement of
the capital with the same duration as the loan. The
interest rate which must be used as a basis for calcu-
lating the gross grant-equivalent of
this aid is the
Community reference rate applicable to Italy on the
date of the operation (14,66 %).

(168.3) Loan at a subsidised rate for the sum of ITL 11 billion.

The gross grant-equivalent of this aid (which takes into
account the reduction of the interest rate and the agreed
is calculated using the
reimbursement exemption)
Community interest rate applicable to Italy on the date
the loan was given (14.66 %) as the reference rate.

Assessment of the aid in favour of the other Nusam
creditors

(170) The deferment and waiver by RIBS of the mortgage
credit of ITL 17,504 billion, converted into an unse-
cured credit, not only constitutes State aid in favour of
Sadam Abruzzo, but also aid in favour of the other
Nusam creditors (see point 139).

(171)

In light of the Community guidelines, this is not aid in
favour of investments nor aid for restructuring under-
takings in difficulty. In the absence of other juridical
bases, suggested by the Italian authorities or found by
the Commission, the aid under examination must be
considered operating aid which is contrary to the
Commission's constant practice with regard to the
application of Articles 87, 88 and 89 of the Treaty (see
therefore be considered
point 124). This aid must
incompatible with the common market.

Aid to Castiglionese relating to the Castiglion Fioren-
tino factory

Guarantee

(172) The opening of a line of credit of 41 billion lire in
favour of Castiglionese for the expenses connected with
the 1991 financial year (see the aid referred to in point
16.1) was backed by a State guarantee.

(173) The arguments made in points 126 to 131 are valid for
this aid in guarantee form inasmuch as they are
compatible. This is operating aid which does not
comply with Community rules governing aid in the
form of guarantees, not aid in favour of undertakings in
difficulty.

Specific intervention plan (decision of 16 April 1992)

(174) With regard to the aid granted to Castiglionese in
application of the specific intervention plan approved in
the CIPE decision of 16 April 1992, the Italian authori-
ties also put forward two arguments for its conformity
with the guidelines on aid to firms in difficulty, that it is
restructuring aid and that it is compatible as it is invest-
ment aid.

(169) The aid referred to in points 168.2 and 168.3 is incom-
patible with the common market as its value expressed
as gross grant-equivalent exceeds the sum of ITL 15
billion (20 billion x 75 %), which Sadam Abruzzo could
lawfully have received as investment aid.

Conformity with the Community guidelines on State
aid for restructuring firms in difficulty

(175)

It is the Commission's view that the aid in favour of
Castiglionese does not comply with the Community
guidelines on aid for restructuring firms in difficulty.

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1. It does not

concern a restructuring plan within the

meaning of the Community guidelines

(176) To overcome the difficulties of Castiglionese, the 1992
specific intervention plan envisaged granting a series of
aid measures for reducing the financial costs of indebt-
edness to RIBS (extension of the stake taken by RIBS in
1984, conversion of a part of the credit into capital —
ITL 20 billion out of a total of ITL 24 billion due to
RIBS, spreading the residual debt over 15 years) on one
hand, and, on the other hand, provided the company
with fresh resources (a new stake for a given period for
ITL 10 billion and a new subsidised loan of ITL 20
billion).

(177) On the basis of the Community guidelines, a restruc-
turing plan for firms in difficulty must allow the long-
term ‘economic-financial efficiency of 'the undertaking
to be restored within a reasonable time span, on the
basis of realistic hypotheses regarding the future oper-
ating
intervention plan
approved by the CIPE decision of 26 April 1992 cannot
be considered to be in accordance with this definition
of a restructuring plan.

conditions. The

specific

(178) Aid for restructuring must

in fact be linked to a
programme for the reorganisation of the undertaking,
presented to the Commission with all the necessary
details. Furthermore,
the underta-
king's profitability must be obtained principally by
means of internal measures envisaged in the restruc-
turing plan.

the restoration of

(179) The 1992 specific intervention plan, on the other hand,
limits itself to listing the financial needs of Castiglionese
without seeking and analysing the causes of its difficul-
ties which dated back to the firm's previous manage-
ment: it refers exclusively to factors outside the under-
taking itself,
to the
the
Community rules in the sugar sector and the negative
impact on the sector of the GATT negotiations,
in
particular in terms of the reduction of Community aid.

changes made

such as

(180) As a consequence, no measure for the internal reorgani-
sation of the undertaking is envisaged. The only obliga-
tions for the recipient of the aid in the 1992 specific
intervention plan are, in fact, the obligation to guar-
antee the continuity of the beet supply basin and to
complete the restructuring of the plant. These measures
cannot be considered reorganisation measures within
the meaning of the Community rules.

(182) The Commission therefore considers that

the 1992
specific intervention plan does not constitute a restruc-
turing plan under the relevant Community guidelines,
as it contains no precise indications to permit the verifi-
cation, on one hand, of reasons for the undertaking's
difficulties and the existence of internal reorganisation
measures and, on the other hand, the effectiveness of
the solutions proposed and adopted.

2. Prevention of undue distortion of competition

(183)

In any restructuring plan it is necessary to adopt meas-
ures to attenuate the unfavourable repercussions of the
aid on competitors as much as possible.

(184) When, as in the case under examination, there is over-
capacity in the market in which the recipient operates,
the restructuring plan must contribute, in proportion to
the aid received, to the restructuring of the sector which
serves this market in the Community through an irre-
versible reduction of the production capacity or closure
of plants.

(185) There has been structural over-capacity in the sugar
sector for years. This is why a system of national
production quotas was established in the framework of
Regulation (EEC) No 1785/81, forbidding the granting
of any new aid for investments in the sector. The latter
prohibition expresses the constant preoccupation with
the prevention of increases in production capacity in a
particularly sensitive sector.

(186) The 1992 specific intervention plan does not envisage
any reduction in the production capacity of the reci-
pient undertaking.

(187) The rule,

laid down in the Community guidelines,
according to which the recipient of aid for restructuring
must proceed with an irreversible reduction in produc-
tion capacity and the closure of plants can be tempered
if it is shown that a reduction in capacity would risk
creating a clear deterioration in the structure of the
market, giving rise,
to monopoly or
oligopoly situations in the strict sense. This was not
demonstrated in the case in question.

for example,

(188)

In this regard, the Italian authorities state that they
respected the condition imposed by the Commission,
when approving the national plans for the sector, and
that in no case must the aid for restructuring lead to the
national sugar quota assigned to Italy being exceeded.

(181) The plan transmitted to the Commission after the
procedure was initiated does not even make reference
to the future management conditions of the under-
taking, except in such vague terms that it is impossible
to trace the presence in them of realistic hypotheses
regarding the future conditions of
long-term profit-
ability.

(189) This last condition, however, is different from the one
laid down in point 3.2.2.(ii) of the Community guide-
lines which aims at safeguarding the free play of
competition in a given market, whether or not it is
subject to quantity limits fixed globally at the level of
each Member State.

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(190) The Italian authorities also state that the increase in
production capacity in the Castiglion Fiorentino factory
(from 3 700 to 7 500 tonnes of beet processed per day)
would have permitted the collection and processing of
all
the beet produced in the beet basin which the
factory previously shared with another sugar factory
located at Cecina, after the closure of the latter. The
conditions for this closure and any link between it and
the restructuring plan for Castiglionese were not speci-
fied.

(191) The existence of factual elements which would permit
exemption from the rule according to which, in cases of
this kind, the restructuring must be accompanied by a
reduction in production capacity must be considered
not to have been demonstrated.

3. Proportionality of the aid to the costs and benefits of the

restructuring

(192) According to this third criterion, restructuring aid must
be limited to the minimum strictly necessary to permit
restructuring. This criterion is respected when several
conditions are present. On one hand, the recipient of
the aid must contribute in a significant manner to the
restructuring programme, both using funds of its own
and with recourse to borrowing at market conditions.
On the other hand, the aid must not unduly reduce the
undertaking's financial costs, allowing the recipients to
avail of supplementary liquidity which could be used
for aggressive and perturbing initiatives on the market,
without any relationship to the restructuring process. In
any case, the aid must not be used to finance new
investments which are not necessary for the restruc-
turing operation.

(193) These conditions have not been respected in the case of

the aid in question.

(194) The information available-shows,

that

in fact,

the
restructuring was financed with resources provided
exclusively by RIBS. In the CIPE decision of 26 April
1992 and in the specific intervention plan approved as
a result of it, no reference is made to costs of the
restructuring process to be borne by the recipient. The
only obligation the Castiglionese sugar factory had to
respect in order to benefit from a financial shareholding
(not quantified, moreover) was to complete the restruc-
turing of the plant. This is a case of the recipient
participating in the investment costs (most of which
were not indispensable for restoring profitability within
a reasonable time) and not of its participation ('in a
significant manner' as requested by the guidelines) in
the global costs of restructuring the undertaking.

(195) On the other hand, it is necessary to note that, on the
basis of the information available, the aid paid to Casti-
glionese in implementing the 1992 specific intervention
plan not only allowed a part of the company's overall
debt
to be
to RIBS, amounting to ITL 32 billion,
converted into share capital, with the obligation of
redemption of the shares at face value - after ten or
fifteen years, depending on the case - and the spreading
of the residual debt in favourable conditions, but also
allowed investments for an overall sum of ITL 47,5
billion (envisaged in the specific intervention plan) to be
made.

(196) These investments, however, were not all necessary for
the purposes of restructuring. On the basis of what was
envisaged in the 1992 specific intervention plan, overall
investments of 10 billion lire were considered to be
required immediately to permit the continuance of the
activities in the Castiglion Fiorentino factory. However,
the 1992 specific intervention plan envisaged invest-
ments amounting to ITL 2,5 billion for the 15 years of
RIBS intervention (amounting to ITL 37,5 billion
overall) for the 'normal technological upgrading' of the
machinery: such investments cannot be considered
necessary under the guidelines for restructuring aid.

(197)

In light of the above, the Commission considers that
the aid under examination excessively alleviated the
financial burden of the Castiglionese sugar factory and
this allowed the company, among other things, to fund
an investment plan which was not strictly limited to
what was required for restructuring purposes.

(198)

It must therefore be concluded that this aid does not
comply with the relevant Community guidelines.

(199)

Similarly to what was said regarding the aid granted to
Nusam and to Sadam Abruzzo, the Italian authorities'
second argument, according to which the aid granted to
Castiglionese could be approved as it is investment aid,
remains to be verified. To be considered compatible
with the common market, it must first be seen to be
necessary for restructuring the sugar sector in Italy and,
secondly, it must respect the maximum intensity applic-
able to aid of this kind in the region involved at the
moment the aid was granted.

(200) With regard to the first of these two conditions, it is
only necessary to recall the terms used in the 1992
specific intervention plan according to which a part
the investments envisaged was
ITL 37,5 billion of
destined for the normal technological upgrading of the
machinery. Given this, the Commission has no grounds
for concluding that these investments were necessary
for restructuring the company or for restructuring the
sugar sector in Italy.

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(201) The situation is different, on the other hand, for the
investments the specific intervention plan considers
indispensable if the activity of the sugar factory is to
continue. This expenditure, which amounts to ITL 10
billion is the only item which meets the requirements
for benefiting from State aid under Article 46 of Regu-
lation (EEC) No 1785/81 and the Commission decisions
which approved the national plans for the sector:
it
does, in fact, come within a specific intervention plan
and is motivated by exceptional needs linked with the
plans for the sector (in fact the specific intervention
plan considers
implementing the
restructuring). Any aid granted to make these invest-
ments could therefore have been favourably assessed
under Articles 87 and 88 of the Treaty, taking account
of the derogation provided for in Article 46 of Regula-
tion (EEC) No 1785/81.

it necessary for

(202) As the Castiglion Fiorentino factory is located in a
region which is not in an Objective 1 area (nor was it in
one when the aid was provided), the overall amount of
the aid which Castiglionese could have received to cant'
out
the new investments envisaged in the specific
investment plan should have been limited to 55 % of
the permitted expenses (intensity applicable to aid for
investments in the agricultural products processing and
than Objective 1
in areas other
marketing sector
regions).

(203) The value of the corresponding aid therefore amounts
to ITL 5,5 billion in gross grant-equivalent (10 billion x
55 %).

(204) To calculate the value of

the aid,

the Commission
believes that even if Castiglionese could have been
considered a firm in difficulty, this value cannot corre-
spond to the total of the sums of the loans and RIBS
stakes. The Commission does not
in fact have any
elements which allow it to conclude that, at the time
the loans and stakes were provided, Castiglionese would
not have been able to reimburse them. Furthermore,
according to the Italian authorities, the dates for the
reimbursement were rigorously respected. The value of
the aid Castiglionese received in implementation of the
CIPE decision of 16 April 1992 must be calculated as
set out in points 204.1, 204.2 and 204.3:

(204.2) The value of the conversion into capital of a ITL 20
billion debt and of the stakes in the capital of the
company for ITL 10 billion.

This is calculated taking into account the fact that each
stake is the equivalent of a loan at zero interest for a
period equal to that during which the stake is held, with
a pre-amortisation period equal to the life of the loan.
The interest rate to take into consideration for calcu-
lating grant-equivalent of this aid is the Community
reference rate on the date the aid was provided
(14,4 %). Any other financial advantage which accom-
panied the conversion of the ITL 20 billion debt into
capital must also be included in the calculation (for
example, writing off the interest due on the date of
conversion of the debt).

(204.3) Spreading of the residual debt of 4 billion lire and the
subsidised loan of ITL 20 billion over fifteen years.

The gross grant-equivalent of this aid (which takes into
account the reduction in the interest rate and the pre-
amortisation period accorded)
is calculated using the
Community reference rate on the date the aid was
provided (14,4 %).

(205) Therefore, the part of the aid referred to in point 204
which exceeds the sum of
ITL 5,5 billion in gross
grant-equivalent which Castiglionese could lawfully
receive as investment aid is not compatible with the
common market.

Aid for purchasing Castiglionese

(206) The intervention approved in the CIPE decision of

16 April 1992 cannot be considered as aid for
purchasing the controlling share package of Casti-
glionese.

(207) This is because this intervention did not have a precise
recipient but was directed towards the potential awar-
dees of the public sales procedure, provided that they
met the requirements laid down in the decision. A
public sales procedure was carried out under
the
control of the Bankruptcy Court of Rome in the frame-
work of the arrangement with the Federconsorzi cred-
itors, and all the operators were invited to participate in
the auction.

(204.1) Extension for an additional period of ten years of the

12 billion lire stake taken in 1984.

The value of this stake corresponds to that of a loan at
a rate of 0 % for a period of 10 years, with the exemp-
tion of the reimbursement of the capital for a period of
the same length (10 years). The interest rate to take into
consideration for calculating the grant-equivalent of this
aid is the Community reference rate on the date the aid
was provided (14,4 %);

VII. CONCLUSIONS

(208) As it was not notified to the Commission under Article
88(3) of the Treaty, the aid which is the subject of this
Decision was paid unlawfully, that is, without waiting
for the Commission to decide on its compatibility with
the common market.

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7. 9. 1999

(209)

(210)

for the reasons already set out,

is
Furthermore,
incompatible with the common market as it comes
under the prohibition referred to in Article 87(1) of the
Treaty and cannot benefit from any of the derogations
specified in paragraphs 2 and 3 of the same.

it

in

Case

310/85-Deufil/Commission (31)
in

In the event of incompatibility of aid with the common
market, the Commission must exercise its power recog-
nised by the judgment of the Court of Justice of 12 July
70/72-Commission/Germany (30)
1973
confirmed by the judgments of 24 February 1987 in
Case
20
September
C-5/89-Commission/
Germany (32), and order the Member State to recover
any unlawfully paid aid from the recipients. Recovery is
necessary to restore the previously existing situation,
and to eliminate the financial advantages the recipients
of the unlawfully paid aid were able to enjoy unduly
from the date on which the aid itself was paid.

1990

Case

and

of

(211) The aid must be repaid in accordance with the proced-
ures of Italian law. It must be quantified by the Italian
authorities in accordance with the criteria set out in this
Decision. The sum obtained from the application of
these criteria shall bear interest from the date on which
the aid was granted to the moment of its effective
recovery.
the
market rate, with reference to the rate used for calcu-
lating the grant-equivalent in the framework of regional
aid.

It shall be calculated on the basis of

(212) This decision is without prejudice to the measures
which the Commission may decide to implement for
the funding of the common agricultural policy in the
framework of the European Agricultural Guidance and
Guarantee Fund (EAGGF),

(c) aid provided for in the CIPE decision of 26 July 1990:
downgrading and deferment of a credit of
ITL 17,504
billion, to the advantage of Sadam Abruzzo S.p.A. and of
the other creditors of Nusam S.p.A., as well as the reduc-
tion of the purchase price of the Celano factory, along with
the advantages associated with shouldering ITL 15 billion
in favour of Sadam Abruzzo SpA;

(d) aid to Zuccherificio Castiglionese S.p.A. in the form of a
public surety for a guaranteed sum of ITL 41 billion (2
August 1991).

2.
The following aid granted by the Italian authorities
through the public company RIBS SpA, on 26 July 1990, to
Sadam Abruzzo SpA is incompatible with the common market
to the extent to which its value, expressed in gross grant-
equivalent, exceeds the sum of ITL 15 billion:

(a) aid in the form of a stake in the capital for a sum of ITL 8

billion tile and

(b) aid in the form of a loan at a subsidised rate for a sum of

ITL 11 billion lire.

3.
The following aid granted by the Italian authorities
through the public company, RIBS SpA on 16 April 1992 to
incompatible with the
Zuccherificio Castiglionese SpA is
common market to the extent to which its value, expressed in
gross grant-equivalent, exceeds the sum of ITL 5,5 billion:

(a) aid in the form of an extension of the redemption term for
a stake of ITL 12 billion for an additional period of ten
years;

(b) aid in the form of the conversion of a credit of ITL 20

billion lire into capital stock;

(c) aid in the form of the renegotiation of a debt of ITL 4

billion;

HAS ADOPTED THIS DECISION:

(d) aid in the form of a stake in capital for a sum of ITL 10

billion;

Article 1

(e) aid in the form of a loan at a subsidised rate for a sum of

ITL 20 billion.

The following aid which the Italian authorities granted
1.
through the public company, RIBS SpA, is incompatible with
the common market:

Article 2

(a) aid to Nusam SpA in the form of stakes in its capital of
ITL 5 billlion (12 April 1988) and ITL 2,5 billion (2
February 1990);

(b) aid to Sadam Abruzzo SpA in the form of public sureties
for guaranteed sums of ITL 2 billion (12 September 1989)
and ITL 11 billion (2 February 1990);

(30) ECR [1973] 813.
(31) ECR [1987] 901.
(32) ECR [1990] I-3437.

1.
The Italian authorities shall take all the measures neces-
sary to recover from the recipients the aid referred to in Article
1 and unlawfully made available to them, within two months
of notification of this Decision.

Recovery shall be effected in accordance with the proced-
2.
ures of Italian law. The sums to be recovered shall bear interest
from the date on which they were made available to the
recipients until their actual recovery. Interest shall be calculated
on the basis of the reference rate used for calculating the
grant-equivalent of regional aids.

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Article 3

Article 4

The Italian authorities shall

1.
inform the Commission,
within two months following notification of this Decision, of
the procedures used to calculate the grant-equivalent of aid to
be recovered.

The Italian authorities shall

2.
inform the Commission,
within two months following notification of this Decision, of
the measures taken to comply with it.

This Decision is addressed to the Italian Republic.

Done at Brussels, 11 May 1999.

For the Commission

Franz FISCHLER

Member of the Commission