1999/679/EC: Commission Decision of 26 May 1999 on State aid granted by Germany to Dow/Buna SOW Leuna Olefinverbund GmbH (BSL) (notified under document number C(1999) 1469) (Text with EEA relevance) (Only the German text is authentic)
Date: 1999-05-26
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid to industry, chemical industry, privatisation

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Official Journal of the European Communities

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on State aid granted by Germany to Dow/Buna SOW Leuna Olefinverbund GmbH (BSL)

COMMISSION DECISION

of 26 May 1999

(notified under document number C(1999) 1469)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/679/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1), and having regard to
their comments,

Whereas:

(1)

(2)

(3)

(4)

(5)

I. PROCEDURE

By Decision 96/545/EC of 29 May 1996 concerning aid
proposed by Germany to Buna GmbH, Sächsische
Olefinwerke GmbH, Leuna-Werke GmbH, Leuna-Polyo-
lefine GmbH and BSL Polyolefinverbund GmbH (2), the
Commission approved aid totalling DEM 9,5 billion for
the privatisation of Dow/Buna SOW Leuna Olefinver-
bund GmbH (BSL).

By letter dated 8 September 1997, Germany submitted
two new contractual agreements (Third and Fourth
Amendment Agreements) amending the privatisation
agreement.

By letter dated 3 February 1998,
the Commission
informed Germany that it had decided to reopen the
Article 88(2) proceedings in respect of the aid which it
had approved by Decision 96/545/EC. Germany replied
by letter dated 3 March 1998. By letter dated 1 April
1998, the Commission requested additional information,
receiving replies by letters dated 9 and 19 June 1998.

The Commission decision to initiate proceedings was
published in the Official Journal of the European Commun-
ities (3). The Commission called on interested parties to
submit their comments on the aid.

On 17 June 1998, a meeting took place between the
Commission and the German authorities to enable the
concluded
Commission to examine
between BSL and Hoechst.

contracts

the

(1) OJ C 128, 25.4.1998, p. 13.
(2) OJ L 239, 19.9.1996, p. 1.
(3)

See footnote 1.

(6)

(7)

(8)

(9)

The third-party comments were forwarded to Germany
by letter dated 29 June 1998. Germany's comments in
response to these were received by letter dated 4 August
1998.

By letter dated 4 September 1998, the Commission put
further questions, to which it received a reply on 29
September 1998.

On 3 November 1998, a meeting was held with the
German authorities.

On 2 December 1998, the Commission asked further
questions and sent a study by an outside expert
concerning the
to Germany for
energy contracts
comments.

(10)

By letters dated 6 January and 15 March 1999, Germany
sent its reply and also informed the Commission of a
number of amendments.

II. DETAILED DESCRIPTION OF THE AID

(11) On 10 December 1997, the Commission decided to
the
reopen Article 88(2) proceedings in respect of
DEM 9,5 billion in aid for BSL which it had approved in
its final Decision of 29 May 1996. The aid was to be
paid for the privatisation of BSL, which is the successor
to three of the largest chemical industry complexes in
the former German Democratic Republic.

(12)

The authorisation given by the Commission on 29 May
1996 was subject to the fulfilment of a number of
that Germany
conditions,
must notify the Commission, pursuant to Article 93(3)
(now, Article 88(3)) of the EC Treaty, of any deviations
from the privatisation agreement.

including the requirement

(13) At

the beginning of September 1997, Germany
submitted to the Commission two new contractual
agreements (Third and Fourth Amendment Agreements)
between Dow and the ‘Bundesanstalt für vereinigungsbe-
dingte Sonderaufgaben’ (BvS) amending the privatisation
agreement. The amendment agreements
related to
changes in the plants that were to be built or upgraded.
Although the overall amount of aid remained unchanged
at DEM 9,5 billion, both amendments resulted in far-
reaching changes in capacity and aid payments that

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Official Journal of the European Communities

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altered the balance between capacities and amounts of
aid which the Commission had approved in its Decision
of 29 May 1996 for the various investments to be
carried out by BLS.

several aniline manufacturers had repeatedly
more,
indicated their concern to the Commission about the
aniline plant. The compatibility of additional aid for
investment costs amounting to some DEM 50 million
therefore appeared doubtful.

(14)

In addition, the Commission learnt that the new energy
supply agreement concluded between BSL and VKR
(VEBA) in compliance with the condition contained in
the Commission Decision of 29 May 1996 provided for
a much higher price during the restructuring period (in
which the BvS is to offset negative cash flow) than in
subsequent years.

(15)

In its decision of 10 December 1997 to reopen the case,
the Commission was aware that the total aid amount of
DEM 9,5 billion was not affected by the amendment
agreements.

(16) Nevertheless,

it had serious doubts as to whether the
changes in production capacity within BSL's restructuring
contained in the Third and Fourth Amendment Agree-
ments could still be regarded as being covered by the
Commission Decision of 29 May 1996. The possibility
could thus not be excluded that the increases in capacity
could adversely affect competition and trade between
Member States.

(17)

The relevant changes contained in the amendment
agreements concern the following plants:

(18)

(19)

(20)

Regarding the upgrading of the cracker, the capacity for
the production of chemical grade ethylene, which is
needed for the production of ethyl benzene and, further
downstream, of styrene, was to be increased to 60 kt/y.

In this context,
the Commission wanted to know
whether the investment to be carried out in the cracker
was still consistent with the information provided by
Germany before Decision 96/545/EC was adopted. It
was
the
in particular necessary to know whether
increase in chemical grade ethylene production would
affect the total capacity of the cracker or whether the
increase would simply be within such overall capacity.

It had been decided to increase the capacity of
the
to 320 kt/y. The capacity originally
benzene plant
planned was 120 kt/y, but during the Commission's
first Article 88(2) proceedings the planned capacity had
already been increased to 200 kt/y. The Commission
had based its Decision 96/545/EC on this capacity. The
capacity increase provided for in the Fourth Amendment
Agreement
resulted in additional costs of DEM 50
million.

(22) An increase in the capacity of the butadiene plant from
45 kt/y to 120 kt/y was added to the restructuring plan
instead of the DEM 45 million propane storage tank
approved in Decision 96/545/EC, the storage tank being
no longer required in the amended restructuring plan.
The butadiene was to be used in-house in the new
solution process elastomers plant. DEM 90 million were
earmarked for the financing of the butadiene plant.

(23) Here too, the Commission had serious doubts as to
whether any financing by the BvS of
the DEM 90
million cost of the butadiene plant expansion was still in
line with the absolute minimum restructuring aid
requirement authorised in Decision 96/545/EC.

(24)

(25)

The expansion of the ethylbenzene/styrene unit was added
to the restructuring plan in place of the ‘structural defi-
ciency’ payments which the Commission could not
accept. The capacity of
this unit was now to be
expanded from 200 kt/y to 280 kt/y. Both products are
used in-house. The Fourth Amendment Agreement
stipulated that investment costs amounting to DEM 33
million would not be financed by the BvS. The overall
costs would be DEM 75 million more than originally
planned.

The Commission had serious doubts on the aid for this
investment for the following reasons: first, the original
capacity of 200 kt/y seemed to be higher than that
reported to the Commission under the initial Article
88(2) proceedings and,
it was doubtful
whether the DEM 33 million really represented the cost
of the increase in capacity, given that the plant would
cost DEM 75 million more than originally planned.

secondly,

(26)

The capacity of
the LDPE plant at Leuna was now
described as being 160 kt/y instead of 145 kt/y. Here,
the Commission wanted to know the reason for this
change and,
there were also
changes in the investment.

in particular, whether

(21)

In reopening the Article 88(2) proceedings, the Commis-
sion saw no reason why these additional
investment
costs should be financed under the approved aid. Even
though benzene itself is not traded, but is used in BSL's
aniline plant, aniline would certainly be traded. Further-

(27) Under the Third Amendment Agreement, the Mitteldeut-
sche Erdölraffinerie MIDER (previously Leuna 2000) was to
contribute DEM 10,5 million to construction of the pipe-
line to Rostock. The contribution of the BvS would be
reduced by this sum; however, the total aid ceiling was
to remain unchanged.

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(28)

(29)

This DEM 10,5 million contribution by MIDER to the
Rostock pipeline clearly led to an increase in the aid
budget available for other investment. The Commission
felt that the overall amount of aid should be reduced by
DEM 10,5 million, particularly as MIDER itself was
receiving large amounts of aid and its contribution was
therefore equivalent to the granting of aid under other
schemes.

The acrylic acid and acrylic esters plants to be built by
Hoechst for BSL were to have a lower capacity than
originally planned, but were to cost considerably more
than anticipated. The Fourth Amendment Agreement
laid down a ceiling of DEM 390 million for the BvS's
contribution to this investment. The Fourth Amendment
Agreement stipulated that the agreements between BSL
and Hoechst, which were made available to the Commis-
sion only on 10 December 1997, covered the operation
the plants and that
as well as the construction of
Hoechst was to receive an incentive payment.

(30)

The Commission was afraid here that Hoechst could
become a beneficiary of the aid approved for BSL.

(31)

In respect of the EDC plant, there were inconsistencies in
the figures. Annex 7 to the original privatisation agree-
ment provided for a capacity of 276 kt/y, whereas the
Fourth Amendment Agreement showed a capacity of
532 kt/y. In this context, the Commission wanted to
know whether the investment carried out in the cracker
still tallied with the information provided by Germany
before Decision 96/545/EC was adopted.

(32) As regards the approved DEM 327 million in aid for
investment
in phthalic acid, solvent and dispersion
plants which were not an integral part of BSL or for
investment in replacement plants, the Fourth Amendment
Agreement specified which units were to be shut down
and which to be maintained. The investment in the
plants to be maintained amounted to only DEM 28
million. For the remaining DEM 299 million, the Agree-
ment provided for the following replacement plants
costing a total of DEM 432 million: a 15 kt/y hydro-
carbon resin plant, a 36 kt/y syndiotactive polystyrene
plant, a 60 kt/y solution process elastomers plant and a
23 kt/y polycyclohexylethelene (PCHE) plant.

(33) Although the Commission approved the aid, it could not
agree to such potential
introduction of replacement
investment of which nothing was known, and it there-
fore approved aid only for the phthalic acid, solvents
and dispersion plants.

(34)

The Commission was less negative in its attitude towards
this replacement investment, since the possibility of such
investment had been expressly provided for in the priva-
tisation agreement and a considerable proportion of the
costs would not be financed by the BvS. However, it
could not rule out the possibility that this replacement

investment might create sectoral difficulties and affect
trade between Member States to an extent contrary to
the common interest. It therefore considered it appro-
priate to include this point in the new Article 88(2)
proceedings and to invite interested parties to comment
on any adverse effect the replacement projects might
have on the market.

that

the energy

the Commission felt

supply
Lastly,
contracts concluded between VKR and BSL after Decision
96/545/EC had been adopted might
contain aid
elements. Decision 96/545/EC had expressly excluded
any aid for energy supply, since the Commission consid-
ered such support to be operating aid, which could in
no way be accepted.
the
Decision of 29 May 1996 stipulated that Germany must
refrain from granting any further aid for the restruc-
turing of BSL beyond what was approved in the
Decision.

In addition, Article 5 of

The new energy supply contracts were concluded for a
period of 19 years (until 31 December 2014). For the
remaining restructuring period (until 31 May 2000),
during which, under the privatisation agreement, losses
would be covered by the BvS,
the supply contracts
provided for prices which far exceeded the average
prices for the supply of electricity and heat. For the
period after restructuring, when Dow itself would have
to finance any losses in BSL, the contracts provided for
energy prices which were initially well below the average
price. These prices would then increase gradually each
year until they reached the level of average prices by the
year 2014.

The Commission's doubts concerned the substantial
differences in the prices which BSL would have to pay
during and after the restructuring period. This price
differential seemed to be artificial, and the possibility
could not be ruled out that the very high energy price
during the restructuring period, when losses would be
covered by the BvS, could subsidise the much lower
energy prices in the period thereafter.

The Commission also doubted that aid for the supply of
energy was really excluded, since, with the takeover of
part of the financing of VKR's powerplant by BSL, for
which the BvS would provide [...] in compensation, the
energy prices could be influenced in such a way that
VKR would be relieved of expenditure which it would
otherwise have to bear itself.

(35)

(36)

(37)

(38)

III. COMMENTS FROM INTERESTED PARTIES

(39)

Three sets of comments were received from interested
parties, namely one from the United Kingdom, another
from a Portuguese aniline producer and the third from
BSL itself. They may be summarised as follows:

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(40)

(41)

(42)

The United Kingdom shared the Commission's doubts as
to the effects which the changes laid down in the
Amendment Agreements could have on trade and
competition in the common market, and it expressed
particular concern regarding the effects on the European
petrochemicals market, which was, in its opinion, in a
position of oversupply.

The Portuguese aniline producer stated that it expressly
shared the Commission's doubts on all points and
trusted that
the Commission would take the right
decision at the end of the Article 88(2) proceedings.

BSL's comments focused on explaining why it believed
that neither the changes in the restructuring programme
nor the energy supply contracts contained any aid
elements. In addition it pointed out that the overall aid
amount had not risen. Lastly, it referred to the negative
impact which the new Article 88(2) proceedings would
have on new investment at BSL's industrial site and
requested the Commission to terminate its investigation
as quickly as possible.

IV. COMMENTS FROM GERMANY

(43)

In response to the Commission's decision to initiate
Article 88(2) proceedings, Germany provided the
following relevant
information on the key points at
issue:

A. The changes in production capacity

(44) As regards the upgrading of the cracker, Germany pointed
out that the production of chemical grade ethylene was
a Dow technology. Chemical grade ethylene could be
used only for the production of ethylene benzene and
not for any other purpose. More specifically, it cannot
be used for the production of polyolefins.

(45) According to Germany, it is current industrial practice to
define the capacity of a cracker in terms of its capacity
to produce ethylene. The production of chemical grade
ethylene in this cracker has no influence on the overall
capacity of the cracker, which remains at 450 kt/y, as
authorised by the Commission in Decision 96/545/EC.

(46)

Turning to the increase in the capacity of the benzene plant
from 200 kt/y to 320 kt/y,
regarding which the
Commission saw no reason why additional investment
costs of DEM 50 million should be financed by the BvS,
Germany stressed in particular that the additional costs

amounted to only DEM 30,5 million. The plant now
planned with a capacity of 320 kt/y cost DEM 180,5
million, whereas a plant with a capacity of 200 kt/y
would have cost DEM 150 million. As evidence of this,
Germany submitted a study by an independent consult-
ant which, on the basis of a comparison of the cost of a
plant with a capacity of 320 kt/y and one with a
capacity of 200 kt/y, confirmed its figures.

(47) As regards the additional aid to be paid by the BvS for
the DEM 30,5 million cost of the capacity increase,
Germany undertook to ensure that
the privatisation
agreement concluded between the BvS and BSL would
be amended to exclude any contribution from the BvS
to the financing of this capacity increase.

(48) As regards the increase in the capacity of the butadiene plant
from 45 kt/y to 120 kt/y, Germany stressed that this
capacity increase was not caused by an extension of the
existing plant, but by the construction of a completely new
butadiene plant to replace the existing one. Germany also
pointed out that the propane storage tank for which the
Commission had authorised aid in Decision 96/545/EC
in order to allow BSL to overcome structural deficiencies
would not be built.

(49) At a later stage in the proceedings, Germany undertook
to ensure that the privatisation agreement would be
amended in such a way as to remove the financing of
the butadiene work completely from the restructuring
programme, i.e. the financing of the construction of this
plant by the BvS would be ruled out.

(50)

This amendment would not detract from the justifica-
tion for the aid authorised by the Commission in
Decision 96/545/EC for overcoming structural deficien-
cies. In this context, Germany described two additional
infrastructure projects which would, on the one hand,
help to overcome the structural weaknesses of the firm's
plants spread over three different industrial sites, e.g.
non-building of the propane storage tank, and, on the
other, would not lead to any increase in production
capacities and would thus not have any impact on the
market.

(51)

The relevant infrastructure projects were as follows:

(52)

The construction of a pipeline between the cracker in
Böhlen and the one in Litvinov in the Czech Republic (1)
for the transport of various products and for the storage
of such products in the salt tunnel at Teutschenthal. The
pipeline would allow greater flexibility in the production
and consumption of hydrocarbon monomers
and
would, in addition, save costs and be environmentally
friendly, since transport of the relevant products by rail
or road could be avoided. Use of the pipeline is available
to producers other than BSL and can, according to the
German authorities, contribute to the development of
the chemical triangle at the Böhlen/Schkopau industrial
site. The overall cost of the pipeline would amount to
DEM 90 million.

(1) This cracker does not belong to Dow, but to Unipetrol, which is

owned by the Czech State and is about to be privatised.

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(53)

The construction of a connection road between the plants in
Schkopau and the A38 motorway,
including parking
areas, which will be carried out on BSL's site, enabling
heavy goods vehicles to have direct access to the
motorway without having to pass through the cities of
Halle and Merseburg. The German authorities state that
use of the road and of the parking areas would be open
to everybody. This measure would relieve local traffic
and could also cut the time required for transporting
products. The cost of this measure would be DEM 8
million.

(54) Germany pointed out that these additional infrastructure
measures would continue to justify the payment for
overcoming structural deficiencies which the Commis-
sion had approved in Decision 96/545/EC (1). At the
same time, the BvS contribution would be limited to the
same amount as had been allocated to replacement of
the propane storage tank and the upgrading of the old
butadiene plant, for which aid had also been authorised
in Decision 96/545/EC. Consequently, the maximum aid
ceilings (DEM 386 million) agreed between the BvS and
BSL for projects intended to overcome structural defi-
ciencies which had been approved by the Commission
and for which BSL had already received advance
payments would be fully complied with.

(55) As regards the Commission's doubts that the original
capacity of the ethylbenzene/styrene unit, at 200 kt/y, was
higher than that notified under the initial Article 88(2)
proceedings, Germany admitted that this capacity had at
the time not been explicitly specified to the Commis-
sion. The building costs of DEM 175 million had,
however, been notified to the Commission. This price
corresponded exactly to the cost of a plant with a
capacity of 200 kt/y. Furthermore, the capacity fitted
into the structure of the overall complex, as approved by
the Commission. Consequently, no additional capacity
was involved.

(56) As regards the Commission's doubts on the question of
whether the cost of increasing the capacity of this unit
from 200 kt/y to 280 kt/y, as provided for in the
Fourth Amendment Agreement, would really amount to
only DEM 33 million, given that the plant as a whole
appeared to cost DEM 75 million more than originally
planned, Germany submitted a study carried out by an
independent consultant. The study confirmed that the
additional
limited to DEM 33 million.
Germany also emphasised that the BvS would not parti-
cipate in the financing of this additional investment cost.

cost was

(1) See Section IV, point 9.

(57) As regards the capacity of the LDPE plant at Leuna,
which was described as being 160 kt/y instead of
145 kt/y, Germany explained that
there were no
changes to this project. The capacity increase, which was
less than 10 %, was due solely to more efficient use of
the plant.

(58) As far as the DEM 10,5 million contribution by MIDER is
it would only
concerned, Germany emphasised that
cover the costs of additional
investment which was
necessary in order to enable MIDER to make use of the
pipeline and to transport oil. The additional investment
costs related to cleaning-, measuring- and analysis-
stations, adaptation of the pipeline to crude oil and the
valve and pump stations. This additional
investment
would be financed exclusively by MIDER.

(59)

It was not necessary to reduce the BvS's contribution to
the overall restructuring programme, since the scope of
the original pipeline project had not changed in any
way.

(60)

Regarding the acrylic acid and acrylic esters plants which
were to be built by Hoechst on behalf of BSL and on
which the Commission, due to insufficient information
on the agreements concluded between BSL and Hoechst,
had serious doubts that Hoechst might become a benefi-
ciary of the aid approved by the Commission for BSL,
Germany made the agreements available for detailed
examination.

(61) As regards the EDC plant, where there were inconsisten-
cies in the figures, Germany indicated that no additional
capacity would be created. The overall capacity which
would be created during both phases was specified in
Annex 13.1 of
the original privatisation contract
approved by the Commission, where, in point 3.3.1, an
overall capacity of 531 kt/y was indicated. The new
Annex 7 to the Fourth Amendment Agreement, which
indicated a capacity of 532 kt/y, merely provided clari-
fication.

replacement

(62) With regard to the approved aid for replacement invest-
ment amounting to DEM 327 million in plants which
were not an integral part of BSL (e.g. phthalic acid,
solvents, dispersion plants), Germany emphasised that
this
investment would not cause any
sectoral problems. This was confirmed by the fact that
no particular comments were received from third parties
on this issue. Furthermore, Germany pointed out that
the overall
these projects had been
for
increased to DEM 460 million, whereas the BvS's contri-
bution remained the same at DEM 276,3 million, thus
increasing significantly BSL's own share in the financing
of these projects.

investment

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B. The energy supply contracts

prices were not out of line with expected prices for very
large industrial customers in eastern Germany over that
period.

(63)

the power plant

(‘Baukostenzuschuss’),

Regarding the [... ] grant paid by BSL for the construc-
the
tion of
German authorities stressed that,
it was
common practice for a large client like BSL to contribute
to the costs of a plant which was ultimately being built
largely for it. Such a contribution was indeed required
under the German Energy Act.

in Germany,

(64) On the question of whether, in view of the enormous
difference between prices in the period up to the year
2000 and the period agreed thereafter, the new energy
supply contracts contained aid elements, the German
authorities stated that the prices were realistic and not
artificially inflated. In support of this statement, they
submitted a study drawn up by a consultant confirming
their view.

(65) Germany nevertheless agreed that

the Commission
would have a study drawn up by an independent
consultant in order to examine the energy contracts and
associated questions in greater detail.

(66)

The study arrived at the following conclusions:

(67)

Regarding the [... ] grant, the study established that it
was being treated as part of the negative cashflow for
which BSL will receive compensation during the restruc-
turing period and that it was not included in the calcula-
tion of energy prices during that period. The study
concluded that it was legitimate to regard this payment
as restructuring costs, as such costs arose from the
reduction in BSL's steam demand, which had changed
from the original estimate since the construction of the
powerplant in 1993, requiring modifications to be made
to the steam and electricity facilities at the VKR and BSL
site. It was customary in Germany for large electricity
consumers to make a financial contribution of their
own, and this was indeed provided for in Section 6 of
the German Energy Act and therefore normal practice in
Germany in the case of new energy consumers.

(68) As far as the energy supply prices were concerned, the
study concluded for the period from l April 1996 to 31
May 2000, during which BSL has to pay a relatively high
price per kWh, that the prices were higher than the
maximum total costs (fuel costs + operating and mainte-
nance costs + investment costs) for a coal-fired plant,
that
liberalisation effects were not, however, as yet
there were
detectable on the electricity market,
neither alternative suppliers nor was BSL in a position to
operate its own plant, and VKR could use its position as
monopoly supplier
to BSL during the restructuring
period to recover substantially more of its sunk costs
during than after the restructuring period and that these

i.e.

(69)

(70)

(71)

(72)

For the period after restructuring, i.e. from 1 June 2000
to 31 December 2014, in which BSL will have to pay a
much lower price for energy supplies,
the study
concludes that, on the basis both of the notion of a
liberalised energy market in which the price of electricity
is determined by the market and not by VKR, and of
BSL's option of setting up its own facility for the genera-
tion of electricity and steam, the price payable by BSL is
in line with the prices which it would have to pay if it
pursued the other two options.

the question of
The study concludes by looking at
whether a contract such as that entered into between
VKR and BSL was based on a normal commercial
arrangement
that did not depend on the potential
impact of State aid on one of the companies concerned.

Its first conclusion was that VKR could have no interest
in spreading the recovery of its stranded costs over a
longer period than it did. To do so would have exposed
VKR to two risks:
in the first place, BSL might not
survive as a business for the entire period of the contract
and, secondly, BSL might decide, probably with the
support of the German regulatory authority, to renege
on the contract when the market became more compe-
titive. Both risks gave VKR a powerful incentive to shift
additional cost charges into a period in which it still
enjoyed a de facto monopoly.

the above assumptions,

Taking account of
it was,
according to the study, not necessary to hypothesise that
BSL would endeavour to exploit State aid provisions in
order
the
to explain the dual-period structure of
contract. Furthermore, the date of the changeover was
consistent with both interpretations of how far the
parties could at the time have anticipated when VKR
would lose its monopoly position, both in relation to
forecasts of the advent of market liberalisation and as
regards the time when a new plant would be built.
Lastly, BSL would not have been in a position to attack
VKR's monopoly position with the German regulatory
authority, since it would not have been able to demon-
strate discrimination by reference to comparable prices
to other industrial consumers and with the prospect of
market liberalisation.

(73)

Thus, the study arrives at the conclusion that the energy
supply contracts do not contain any aid elements.

(74) As regards the comments of other interested parties,

Germany stated the following:

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(75)

In reply to the United Kingdom's comments, Germany
rejected the view that
there was oversupply on the
petrochemicals market. It argued that the United King-
dom's opinion might be influenced by the fact that BP
had shut down some of
its plants in the United
Kingdom. The decision to shut down these plants had
been taken a long time ago and was not influenced by
the market situation. This view was confirmed by the
fact that BP itself had not submitted any third-party
comments as part of the proceedings.

(76) As regards the comments made by the Portuguese
aniline producer, Germany believed that there was no
need for a specific reply, since the comments did not
contain any points that went beyond the Commission's
comments.

(77) No specific remark was made on BSL's comments.

V. ASSESSMENT OF THE AID

(78)

In assessing the points at issue in this case, it should be
borne in mind that the Commission decided to reopen
the Article 88(2) proceedings in respect of aid paid in
connection with BSL's privatisation because it doubted
whether the changes in the Third and Fourth Amend-
ment Agreements were still in line with the Commis-
sion's findings in Decision 96/545/EC. Thus, the point
of the Commission's examination is not to establish
whether the changes constitute aid within the meaning
of Article 87(1) of the EC Treaty that might be exempted
under Article 87(2) and (3) of the EC Treaty. Rather, the
Commission must base itself on Decision 96/545/EC,
especially since the overall aid amount of DEM 9,5
billion approved by the Commission has not in any way
altered.

(79) Moreover, it must be borne in mind that the Commis-
sion's concern in examining the capacity increases is that
the BvS should not pay any aid for capacity increases
beyond the amounts which the Commission approved
in Decision 96/545/EC, and not whether the capacity
increases as such are compatible with the aid rules. The
aid authorised for the restructuring of BSL was intended
solely to assist in the creation of a minimum industrial
basis which was to help attract further investment and,
consequently,
is
increases
confirmed both in Decision 96/545/EC and in the
decision of 10 December 1997. In point 13.4 of Section
IV of Decision 96/545/EC, the Commission specifically
makes the point that ‘Dow and BSL contemplate making
investments of DM 1 250 million in addition to the
investments under the reconstruction programme until

in capacity. This

further

the year 2010, in order to secure the long-term compe-
titiveness, growth and economic viability of the petro-
chemical complex’. In point 9.1 of the decision of 10
December 1997, the Commission expressly stated that
‘any new changes which increase production capacities...
should... be financed by the company itself’. The
Commission thus expressly accepted further investment
and increases in capacity, provided that such investment
was financed by BSL itself. Consequently,
it was the
Commission's task in this investigation to make sure
that BSL's capacity increases are not financed by the BvS.

(80)

In the two areas that had to be examined (changes in
production capacities and energy supply contracts), the
Article 88(2) proceedings demonstrated the following:

A. Changes in production capacities

(81) As regards the upgrading of the cracker, the proceedings
showed that the production of chemical grade ethylene
in the BSL cracker does not affect the overall capacity of
the cracker, which is defined by its capacity to produce
ethylene and which remains at 450 kt/y, as approved by
the Commission in its Decision 96/545/EC (1). There is
therefore no infringement of the Decision in this respect.

(82) As regards the increase in capacity of the benzene plant from
200 kt/y to 320 kt/y, where the Commission saw no
reason why additional investment of DEM 50 million
should be financed under the approved aid, but felt that
such additional costs should be borne by the investor
such costs
itself, Germany provided evidence that
amounted to only DEM 30,5 million.
In addition,
Germany undertook to ensure that
the privatisation
agreement between the BvS and BSL would be amended
by a further Amendment Agreement specifying that the
BvS would not contribute to the additional costs of the
capacity increase.

(83)

Consequently, BSL will not receive more aid for this
project than authorised in Decision 96/545/EC.

(84) As regards the increase in the capacity of the butadiene plant
from 45 kt/y to 120 kt/y as a result of the construction
of a completely new butadiene plant to replace the old
one, no aid will be paid by the BvS. This is ensured by
Germany's undertaking that the privatisation agreement
will be supplemented by a clause removing any BvS
contribution to the financing of this project. Conse-
quently, there is no infringement of Decision 96/545/EC
in this respect.

that

(85) With regard to the ethylbenzene/styrene unit, Germany
provided evidence in both cases
the original
capacity notified to the Commission under the initial
Article 88(2) proceedings amounted to 200 kt/y and
that the cost of increasing the capacity of this unit from
200 kt/y to 280 kt/y was limited to only DEM 33
million. Since it is stipulated in the Fourth Amendment
Agreement that the BvS will not contribute to these
additional costs, the capacity increase will be financed
only by BSL. Consequently, only the aid authorised in
Decision 96/545/EC will be paid for this project.

(1) See Section III point 3 of Decision 96/545/EC.

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Official Journal of the European Communities

L 269/43

(86) As regards the capacity of the LDPE plant at Leuna,
which is now given as 160 kt/y instead of 145 kt/y, the
information provided demonstrates that
there is no
change to this project and that the capacity increase of
less than 10 % is the result of more efficient use of the
plant. Consequently, there is no ‘real’ increase in capacity
and, hence, no divergence from Decision 96/545/EC.

(87)

The DEM 10,5 million contribution by MIDER to the pipe-
line to Rostock will cover only the costs of the additional
investment needed to enable MIDER to make use of the
pipeline and to transport oil. The additional investment
relates to cleaning-, measuring- and analysis-stations, the
adaptation of the pipeline to crude oil and the valve and
pump stations. The additional
investment will be
financed by MIDER alone. There will therefore not be
any change in the scope of the original pipeline project.
Consequently, the project remains in line with Decision
96/545/EC (1).

(88) As regards the agreements concluded between BSL and
Hoechst for the construction of acrylic acid and acrylic
esters plants, it is clear that there is an increase in the
overall investment costs of DEM 365 million provided
for in the original contract approved by the Commis-
sion. It should be borne in mind, however, that the
Commission's purpose in initiating proceedings was to
clarify whether Hoechst might become a beneficiary of
the aid to be paid for this project. This should be ruled
out. An incentive system agreed between BSL and
Hoechst should ensure that the price Hoechst obtains
corresponds to its expenses. Since Hoechst will be
rewarded if it keeps below a specified ceiling, it is in its
interests to keep the costs low. This arrangement should
also result in only minor changes in the overall invest-
ment cost. It should also be borne in mind that the
overall capacity will be lower than in the original plans,
that it is always difficult to predict with 100 % accuracy
the real costs of a new project and that the overall
contribution of the BvS to the investment will differ
only marginally. Similar variations are also evident in
other BSL investment projects. In addition, the agree-
ments between BSL and Hoechst
contain clauses
providing for an audit to be carried out at the request of
the BvS. Consequently,
the change can be accepted
within the framework of Decision 96/545/EC.

(89) As regards the EDC plant, Germany made it clear that no
additional capacity will be created. The overall capacity
which will be created during both phases of the restruc-
turing programme is indicated in Annex 13.1 to the
the
original privatisation agreement
Commission. Point 3.3.1 of that Annex gives the overall
capacity as 531 kt/y. The new Annex 7 to the Fourth
Amendment Agreement, which indicates a capacity of

approved by

(1) See Section IV point 6.9 of Decision 96/545/EC.

532 kt/y, merely clarifies the situation. There is there-
fore no infringement of Decision 96/545/EC.

(90) As regards the approved aid for replacement investment
amounting to DEM 327 million (2),
the Article 88(2)
proceedings showed, as the Commission had already
assumed when the proceedings were initiated, that this
investment is unlikely to cause any sectoral problems.
No comments on this investment were received from
third parties, for whose sake alone the Commission had
included the investment in its investigation. It should
also be borne in mind that the overall investment for
these projects has risen to DEM 460 million, while the
BvS's contribution remains the same at DEM 276,3
million. Dow's own share in the financing of these new
investment projects will therefore increase.

B. Energy supply contracts

(91)

to the conclusion that

The study which the Commission asked an independent
consultant to carry out and which examined in detail the
justification for the price differences in energy supplies
comes
the energy supply
contracts between VKR and BSL will not necessarily
have any spillover effect and do not provide any
grounds for assuming that State aid granted for other
purposes has been misused. Furthermore,
the study
notes that BSL's contribution to the construction of the
power plant is common practice in Germany and is
indeed provided for in the German Energy Act.

(92)

Consequently, no aid is involved in the energy supply
contracts.

(93)

C. The two additional infrastructure projects

In the light of the above, the Commission concludes
that, assuming the changes announced by Germany to
the Third and Fourth Amendment Agreements are
enshrined in a Fifth Amendment Agreement, none of the
points at issue in respect of which the Article 88(2)
proceedings were reopened involves an infringement of
Decision 96/545/EC. There is, however, one point which
is not explicitly dealt with in Decision 96/545/EC and
where the Commission must therefore examine whether
it is nevertheless covered by that Decision. This is the
the two infrastructure projects in
BvS's financing of
place of its contributions to the butadiene plant and the
cancelled construction of
the propane storage tank,
which were authorised by the Commission in its
Decision 96/545/EC as part of a number of different
projects intended to enable BSL to overcome structural
deficiencies.
therefore be examined whether
these two projects are consistent with the reasons
accepted as justifying such various projects, for which
the Commission authorised aid totalling DEM 384
million and for which advance payments have been
made by the BvS to BSL.

It must

(2) See point 9.1 of the decision of 10 December 1997. This invest-
the privatisation agreement

is specified in point 8.1.2 of

ment
approved by the Commission.

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Official Journal of the European Communities

19. 10. 1999

(94)

that

The main beneficiary of both infrastructure projects will
certainly be BSL. On the other hand, there will also be
significant benefit to other firms. BSL is not the only
producer within the new chemical triangle at Schkopau.
A pipeline which is also available to other producers in
this region may contribute to the development of the
industrial site as a whole. The same is true of a direct
motorway access link. Both projects may therefore help
to overcome structural difficulties which undoubtedly
exist at the relevant sites. Account must also be taken of
the two infrastructure projects replace
the fact
another infrastructure project, i.e. the propane storage
tank which was not built, but which was approved by
the Commission in Decision 96/545/EC. The two infra-
structure projects will certainly not have any more
adverse impact on the market than the tank approved by
the Commission. The BvS contribution of DEM 384
million approved by the Commission for this part of the
restructuring programme will not increase, but remain
the same. Consequently, the Commission would not be
authorising any new, additional public funding, but
merely a change in the use made of
funds already
approved and made available to BSL in the form of
advance payments
after Commission
immediately
Decision 96/545/EC.

VI. CONCLUSION

(95)

The Article 88(2) proceedings have demonstrated that
no additional aid for BSL is involved and that the aid to
be paid corresponds to the amount and is limited to the
capacities which were authorised by the Commission on
29 May 1996. In addition, no aid element was found in
the energy supply contracts. The Commission therefore
concludes that the minor divergences from the original
privatisation agreement are compatible with the prin-
ciples laid down in Decision 96/545/EC,

ben’ (BvS) comply with Decision 96/545/EC approving aid for
the privatisation of BSL, subject to the conditions and obliga-
tions set out in Article 2.

Article 2

Germany shall submit an Amendment Agreement stipu-

1.
lating that:

(a) the BvS will not contribute to the financing of

the
DEM 30,5 million costs of increasing the capacity of the
benzene plant, and that

(b) the financing of the butadiene plant will be completely
removed from the restructuring programme, i.e. the BvS
will no longer finance the construction of this plant.

2.
A copy of the Fifth Amendment Agreement shall be
submitted to the Commission within one month of its conclu-
sion.

Article 3

The provisions and conditions laid down in Decision 96/
545/EC shall remain applicable. This applies in particular to the
requirement that Germany submit to the Commission half
yearly reports on the progress of restructuring and the amount
of aid paid by the BvS.

Article 4

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

This Decision is addressed to the Federal Republic of Germany.

Article 5

HAS ADOPTED THIS DECISION:

Done at Brussels, 26 May 1999.

Article 1

The Third and Fourth Amending Agreements concluded
between Dow/Buna SOW Leuna Olefinverbund GmbH (BSL)
and the ‘Bundesanstalt fur vereinigungsbedingte Sonderaufga-

For the Commission

Karel VAN MIERT

Member of the Commission