2000/18/EC: Commission Decision of 29 September 1999 on state aid which Italy plans to grant to Fiat Auto SpA for its plant in Termoli, Campobasso (notified under document number C(1999) 3274) (Text with EEA relevance) (Only the Italian version is authentic)
Date: 1999-09-29
Institutions: European Commission
Subjects: Italy, State aid, aid to industry, motor vehicle industry, regional aid

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on state aid which Italy plans to grant to Fiat Auto SpA for its plant in Termoli, Campobasso

COMMISSION DECISION

of 29 September 1999

(notified under document number C(1999) 3274)

(Only the Italian version is authentic)

(Text with EEA relevance)

(2000/18/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 invited the parties concerned to submit their comments
in accordance with the abovementioned provisions (1),

Whereas:

(1)

(2)

I. PROCEDURE

Between October and December 1997 the Italian
Government notified the Commission, pursuant
to
Article 88(3) of the Treaty, of six planned measures
under which it proposed to grant state aid to Fiat Auto
SpA (‘Fiat’) (2), one of which concerned the plant in
Termoli, in the province of Campobasso in the region of
Molise (‘Fiat Termoli’); the Commission registered this
measure on 28 October 1997 under N 730/97.
information and a number of
Requests for
reminders were sent to the Italian authorities to elicit the
data required for a Commission decision. On 23 April
1998 a meeting was held with representatives of the
Italian authorities and Fiat to clarify various aspects of
the examination of the case. Finally, in a letter of 20
November 1998, the Italian authorities supplied partial
replies to the questions raised by the Commission.

further

By letter of 9 March 1999 the Commission informed
Italy that it had decided to initiate the procedure laid
down in Article 88(2) of the Treaty in respect of the
proposed aid measures, allowing Italy one month to
supply all the documents, information and data required
to assess the compatibility of the aid with the common
market. In the absence of any reply, the Commission
would reach a decision on the basis of the information
in its possession.

(1) OJ C 113, 24.4.1999, p. 16.
(2) Four of

these measures

related to motor vehicle production:
Cassino-Piedimonte San Germano (C 6/99, ex N 729/97), Mirafiori
Carrozzeria (C 5/99, ex N 728/97), Pomigliano (C 4/99, ex N 727/
97); and Rivalta (C 8/99, ex N 834/97); and two to engine produc-
tion: Termoli
(C 7/99, ex N 730/97) and Mirafiori Meccanica
(C 9/99, ex N 838/97).

(3)

(4)

(5)

(6)

(7)

The decision to initiate the procedure was published in
the Official Journal of the European Communities, (3) and the
interested parties were invited by the Commission to
submit comments.

The Commission has not received any comments from
interested parties.

Representatives of the Commission went to Mirafiori on
24 February 1999 to discuss the Fiat Termoli plan
among other matters. Finally, on 6 July 1999 an on-site
visit was arranged at Termoli.

II. DETAILED DESCRIPTION OF THE AID MEASURE

The aid proposed by the Italian authorities would be
granted to Fiat, which has plants in Italy, Poland, Turkey
and South America. In 1998 Fiat produced 2,7 million
vehicles of the Alfa Romeo, Ferrari, Fiat, Lancia and
Maserati makes. In 1997 it employed around 62 000
people in Italy, 3 300 of them at Termoli, where vehicle
engines and gearboxes are produced. A significant share
of Fiat's sales, roughly one third, are recorded in other
Member States.

The investment notified is at Fiat Termoli, in an area
qualifying for assistance under Article 87(3)(c) of the
Treaty, where at the date of notification the maximum
aid intensity for large firms was 30 % net grant equiva-
lent. The investment started in 1995 and will be
completed in 1999. According to a cost-benefit analysis
of 20 November 1998, it amounts to ITL 487 billion (4)
(current value: ITL 412 billion, or EUR 212 million). It
will enable the production of the new Fire 16v (5) 1 242
cc engine, which was developed from the Fire 1 242 cc
8v MPI engine, but which has no common components.
The installed capacity is approximately 230 000 Fire
16v engines per year.

(8)

According to the Italian authorities, the aid, worth a
nominal ITL 55,2 billion (EUR 28 million) would be
granted under the scheme provided for by Law No 488
of 19 December 1992 (6) for the refinancing of Law No
64/86 (‘Law No 488/92’), approved by Commission

(3) See footnote 1.
(4) The notification referred to ITL 487 billion.
(5) ‘Fire’ stands for ‘Fully integrated robotised engine’ and ‘16 v’ means

‘16 valve’.

(6) GURI No 299, 21.12.1992.

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Decision of 24 March 1995. The discounted aid inten-
sity would thus be 13,03 % of the gross grant equiva-
lent, according to the cost-benefit analysis of 20
November 1998. The initial notification referred to
15,27 % gross grant equivalent, or 12,44 % net grant
equivalent.

(9)

The Commission decided to initiate the formal invest-
the proposed aid
igation procedure in respect of
measure and, informed the Italian Government accord-
ingly, for the following reasons in particular:

(a) it had doubts about the need for the aid, and in
particular the alleged mobility of the investment,

(b) it had doubts about the level of aid that could be
authorised, given that according to the cost-benefit
analysis provided by the Italian authorities the disad-
vantage of Termoli compared with Desio, cited as
the reference site, would be 21,15 %.

the specific case of Fiat Termoli and include all of the six
Fiat cases referred to.

(14) As far as Fiat Termoli itself is concerned, Italy noted that
the Commission continued to doubt the mobility of
investment. Yet Fiat had considered various alternative
locations for this project, particularly in Brazil and
Turkey, both of which in 1994 offered lower operating
costs, comparable levels of technology and productivity,
and a well-trained workforce. Another indication of
mobility was that by the year 2000 a production line for
Fire 16v engines was to have been set up in Brazil. An
economy of scale could have been achieved by grouping
the production of all these Fire engines in Brazil.

The expected regional aid would not be sufficient to
offset the additional costs entailed by the decision to
carry out this investment in Italy, but it was undoubtedly
a factor in the final decision.

The Italian Government therefore believed that the Fiat
Termoli project satisfied the mobility requirement.

(10)

The Commission asked Italy to supply all of the infor-
mation required to assess the compatibility of the aid
measure in question within one month, failing which it
would take a decision on the basis of the information
already in its possession.

(15)

Third, Law No 488/92 did not allow aid to be granted
to a horizontal aid programme, requiring instead that
grant applications be separated. Because six sites were
involved in the first two calls for applications used to
select projects eligible for aid, Fiat submitted six separate
applications. The six cases were therefore notified to the
Commission separately. The handling of these cases was
further complicated by the fact that the projects were
notified at two different times,
in October 1997 and
December 1997. This led the Commission to apply the
two different versions of the Community framework for
state aid to the motor vehicle industry in force on the
dates of notification (1). Under the first of these, the
reference site in the cost-benefit analysis had to be
located in a non-assisted region of
the Community,
whereas the second allows the use of a reference site
situated in Europe or the countries of central and eastern
Europe.
this dual and artificial
dichotomy fails to take account of the economic reality
of investment.

is alleged that

It

(16) Nevertheless, to comply with the Community frame-
work, which prohibited reference to an alternative site in
an assisted area of the Community,
Italy prepared a
cost-benefit analysis comparing the plants in Termoli
and Desio for production of the Fire 16v engines. The
letter of 16 April 1999 stated that Desio would poten-
tially be a suitable production site, particularly given the
space available. Various other details were provided to
explain the differences in investment, the structure of
the references to the Mirafiori and
transport costs,
Verrone plants, suppliers and other costs.

III. COMMENTS BY ITALY

(11) On 9 April 1999 the Italian authorities requested an
extension of the deadline for their reply, and on 16
April they sent a letter to the Commission containing
the information deemed necessary to conclude the
examination of the six cases notified between October
and December 1997 for which the Commission had
decided to initiate the formal investigation procedure on
3 February 1999.

First, the Italian Government reiterated that the purpose
of the investment at Termoli was to develop and expand
the plant by installing new assembly lines in separate
workshops from those producing the 8v engine. New
jobs would also be created.

(12)

(13)

Second, the Italian Government deplored what it saw as
the failure of the study carried out by the Commission
to reflect the economic reality of the decision on plant
location,
in particular as regards the interconnected
themes of mobility and the design of the cost-benefit
analysis. The comments made in this context go beyond

(17)

The cost-benefit analysis carried out by the Italian
Government concluded that the comparative disadvan-
tage of Termoli would be 21,15 %, which was sufficient
to justify the aid notified.

(1) OJ C 123, 18.5.1989, p. 3, and OJ C 279, 15.9.1997, p. 1, respec-

tively.

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(18)

(19)

IV. ASSESSMENT OF THE AID

The measure notified by the Italian authorities for Fiat
Termoli constitutes state aid within the meaning of
Article 87(1) of the Treaty. It would be financed by the
state or through state resources; moreover, given that it
represents a significant proportion of
the project
funding,
it is likely to distort competition within the
Community, giving an advantage to Fiat over other
for
companies not receiving aid. Finally,
like the motor vehicle market
motor vehicle engines,
itself,
trade between
is
Member States.

characterised by extensive

the market

The state aid in question, granted under the approved
scheme provided for in Law No 488/92, is intended for
a firm operating in the motor vehicle production and
assembly sector. The proposal should therefore be exam-
ined in the light of the relevant Community framework.
Given that the Italian Government notified the project
on 28 October 1997, which is also the date on which
the notification was registered at the Commission, the
that dating from 1989, as
relevant
amended and extended. This is confirmed by the subse-
quent
from 1 January
1998 (1).

framework, which applies

framework is

(23)

(24)

the new framework specifies that

Point 2.6. of
‘the
preceding framework, which entered into force on 1
January 1996 for two years, will serve as a basis for the
assessment of aid proposals which were notified before
1 November 1997 but which have not yet been declared
compatible by the Commission or are the subject of
proceedings under Article 93 (3) of the Treaty initiated
before that date.’

Italy has not contested that understanding of the matter
in the course of the present proceedings.

(20)

the aid would be
The Commission also notes that
granted under an approved scheme, and that the cost of
the project exceeds EUR 17 million. The Italian authori-
ties have therefore complied with the notification
requirement.

(21) However,

the Commission deplores

the long delay
between the signature of the ministerial order awarding
the aid in question, on 20 November 1996, and the
official notification at the end of October 1997.

(22) Article 87(2) of the Treaty identifies a number of types
of aid which it declares to be compatible with the
Treaty. Given the nature and purpose of the aid and the
geographic location of the investment, the project does
not fall within any of the categories listed in points (a),
(b) and (c) of this paragraph. Paragraph 3 of the same
Article defines types of aid that may be considered to be
compatible with the common market. Their compati-
bility has to be assessed in the overall context of the
Community and not in a purely national context. To

(1) OJ C 284, 28.10.1995, p. 3.

safeguard the smooth running of the common market
and comply with the principle laid down in Article 3g of
the Treaty, exceptions such as those in Article 87(3)
must be interpreted strictly. Looking first at Article
87(3)(b) and (d),
the aid in question is clearly not
intended for a project of common European interest, nor
for a project likely to remedy a serious disturbance in
the Italian economy. Nor is it
intended to promote
culture and heritage conservation. Turning to the
exemptions provided for in Article 87(3)(a) and (c), only
is located in an area
point (c) is relevant, as Termoli
which qualifies for assistance under this provision.

To determine whether the proposed regional aid meas-
ures are compatible with the common market, under the
exemption provided for in Article 87(3)(c) of the Treaty,
the Commission must therefore check compliance with
the conditions specified in the relevant Community
framework.

It

The Commission accepts that new investment in disad-
vantaged regions can contribute to regional develop-
ment.
thus takes a generally favourable attitude
towards aid to investment granted to redress the struc-
tural disadvantages suffered by the depressed regions of
the Community. However, when assessing regional aid
proposals the Commission must compare the benefits in
terms of regional development (e.g. contribution to the
long-term development of the region by creating or
safeguarding steady jobs, and linkages into the local and
Community economy) with any adverse effects on the
sector as a whole (such as the creation or maintenance
of substantial excess capacity). The purpose of such an
assessment
to deny the essential contribution
made by regional aid to Community cohesion, but to
ensure that other factors affecting the Community, such
as the development of the sector at Community level,
are taken into account. It is thus standard Commission
practice to proceed as follows when examining regional
aid measures for the motor vehicle industry, in the light
of the relevant Community framework.

is not

1. The Commission establishes first and foremost that
regional aid may be granted. To this end it considers,
in particular, whether
the region in question is
eligible for aid under Community law, and whether
the investor could have chosen an alternative site for
its project, so as to demonstrate the need for the aid,
with particular
the
project.

reference to the mobility of

2. The Commission checks the eligibility of the costs

relating to the mobile aspects of the project.

3. It then checks that the planned aid is in proportion
to the regional problems it is intended to help solve.
To this end it checks that the project promotes the
long-term development of the region, and usually
carries out a cost-benefit analysis.

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4. Finally, it considers the question of a ‘top-up’, which
is an increase in the allowable aid intensity as a
further incentive to the investor to invest
in the
region in question. Such top-ups are authorised on
condition that the investment does not increase the
capacity problems facing the motor vehicle industry.

The sum of the figures established in the last two stages
of the calculation represents the total amount of aid that
the Commission may authorise within the regional
ceiling.

The procedure is familiar to the Italian Government, and
to Fiat, from the many previous instances of aid to the
motor vehicle
industry. The Commission supplied
proper replies to the methodological questions raised at
the meetings between it and the Italian authorities, who
were accompanied by representatives of Fiat.

(30)

(25)

(26)

(27)

(28)

The plant in question is located in a region qualifying
for assistance under Article 87(3)(c) of the Treaty, for
which regional aid could normally be authorised up to a
net grant equivalent of 30 % for large firms at the time
of notification (1).

In order to prove the need for regional aid, the Italian
authorities must, among other things show that
the
project is mobile, that is to say that there exists an
economically viable alternative location for the project
or parts of the project. If there were no other new or
existing industrial site within the group capable of
receiving the proposed investment, the firm would be
compelled to carry out its project in the sole plant
available, even in the absence of aid.

The Commission consulted independent experts on this
subject (IMO-Leuven), who accompanied it on a visit to
Fiat Termoli to complete the examination of the case.
the Commission
the on-site visit,
On the basis of
concluded that the production, assembly and test lines
for the Fire 16v engines were separate from the other
production lines at Termoli and that the new motors did
not have components in common with the old Fire 8v
motors. It is thus clear that Fiat did consider the altern-
ative of producing the Fire 16v engines in Brazil or
Turkey, or in other Italian plants, particularly Pomi-
gliano, rather than Termoli.

After an in-depth study the Commission concludes that
the project does satisfy the mobility requirement.

(29)

The fact that the investment in Fiat Termoli began more
than a year before the request for aid was made would
normally mean, as the Commission stated when it gave
notice of its decision to initiate the procedure, that the
aid was not necessary to the implementation of the

project. However, in keeping with the Commission Deci-
sions of 18 November 1997 (2), 30 September 1998 (3)
and 7 April 1998 (4), there are very specific aspects of
the implementation of Law No 488/92 which may,
exceptionally, justify a time lag between the start of a
project and the request for aid. It has also been ascer-
tained that when the investment began,
in February
1993, Fiat was firmly expecting regional aid to be
granted. Obviously it had no way of knowing exactly
how much aid might be available.

The Commission therefore concludes that the regional
aid was necessary for the implementation of the invest-
ment project for Fiat Termoli.

The Commission then checked that
the costs were
eligible under the relevant aid scheme. It takes the view
that the project notified qualifies as an initial investment
the guidelines on national
within the meaning of
regional aid (5),
in particular because it entails an
increase in the production capacity of the plant. It also
notes that under Ministerial Order No 527/95 invest-
ment expenditure may be allowed retroactively, going
back as much as two years prior to the initial applica-
tion for regional aid. This is an exceptional procedure
introduced as a transitional measure to fill the legal
vacuum caused by the expiry of the previous Law No
64/86 and the delay in enacting Law No 488/92. In the
case of the project under consideration, the investment
started in January 1995 and Fiat submitted the applica-
tion for aid to the Italian authorities in May 1996.

The Commission concludes
the investment of
ITL 487 billion is eligible for regional aid under Law No
488/92.

that

(31) However, the Commission can allow only mobile invest-
ment, which is accordingly assessed below. Even if the
project is mobile, there may be certain specific elements
of the investment that are not mobile.

(32)

(33)

The direct consequences of the project (nominal invest-
ment of ITL 487 billion and creation of a large number
of jobs at Fiat) as well as the secondary effects represent
significant benefits for the local economy. The Commis-
sion concludes that the proposed aid will contribute to
the long-term development of the Termoli region.

The relevant Community framework requires the project
notified to be compared with an analogous project
carried out in a non-assisted region of the Community,
to identify the additional costs arising from the struc-
tural shortcomings of the assisted region chosen for the
not
investment.

Italian Government

does

The

(1) The regional maximum for large firms in the area in question has
evolved as follows: prior to July 1995 40 % nge: from then until
December 1996 35 % nge; from then until December 1998 30 %
nge; and from then until December 1999 25 % nge.

(2) OJ C 70, 6.3.1998, p. 7.
(3) OJ C 409, 30.12.1998, p. 7 and OJ C 384, 12.12.1998, p. 20.
(4) OJ C 240, 31.7.1998, p. 3.
(5) OJ C 74, 10.3.1998, p. 9.

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contest this principle, but claims that its application
does not reflect the economic choice Fiat faced. In its
view the Commission should carry out an assessment
that
the
projects: in other words, the Commission should use the
reference sites that the investor actually considered, in
this case Brazil and Turkey.

the integrated nature of

takes account of

(34)

If, in the case of Fiat Termoli, the Commission were to
authorise the use of reference sites not situated in non-
assisted regions of the Community, it would violate the
principle of equal treatment. It would be using a method
of assessment completely different from that applied in
other cases legally subject to the same procedure, that is
to say in all the cases examined in the light of the
relevant Community framework in force prior to 1998,
for which the reference site had to be in a non-assisted
area.

(35) Moreover, at the time when Fiat carried out its study of
possible sites, which was also when it took into account
the possibility of obtaining state aid, between 1993 and
1994, the Commission's practice required the use of a
reference site situated in an area not eligible for regional
aid. The Italian authorities and Fiat were familiar with
this methodology at the time, for example from the case
of Fiat Mezzogiorno (1), a typical example of the applica-
tion of the cost-benefit analysis. The only aid Fiat could
have taken into consideration in the financial analysis
relating to the location decision would have been that
based on a comparison between the plant which might
potentially benefit from regional aid and an alternative
site in a non-assisted region of the Community. Refer-
ence to an alternative plant outside the Community, or
in an assisted region, as called for by Italy, became
possible only after the entry into force of the relevant
Community framework in January 1998, some five
years after the investment decision was taken.

(36)

(37)

(38)

In conclusion, the Commission cannot accept the Italian
Government's argument that the analysis should focus
on Fiat's integrated investment programme, comparing
Italian options with sites outside Europe.

It is clear from the information supplied by the Italian
authorities that the plant at Desio,
located in a non-
assisted region of the Community, where Fiat briefly
considered siting the Fire 16v project, can serve as a
reference site for the cost-benefit analysis needed in
order to assess the aid intensity that can be authorised
by the Commission.

The Commission experts have accordingly studied the
information supplied by Italy to calculate the additional
costs of carrying out the project at Fiat Termoli instead
of Desio. Because the project involved an expansion, the
operational advantages and handicaps are assessed over
three years, beginning with the start of commercial
the Fire 16v
production. Commercial production of

(1) OJ C 37, 11.2.1993, p. 15.

engines began in 1997; the three-year reference period
for the cost-benefit analysis thus began in 1997. These
principles have not been contested by Italy.

(39)

In general, as revealed by the cost-benefit analysis
prepared by the Italian authorities, the disadvantages of
Termoli arise from the extra costs of transport, parts and
investment. However, the Commission takes issue with
the cost-benefit analysis supplied by Italy on a number
of points.

1. First and foremost, the reference rate used by the
Commission, in particular for calculating discounted
values, is 11,90 %, the reference rate applying in Italy
at
the time the project studies were carried out
(around 1994). Italy, on the other hand, has applied
the 1995 reference rate (11,35 %), i.e. the rate at the
time of the start of the investment.

2. Secondly, in order to free space in the Termoli plant
to install the Fire 16v engine production lines in the
best possible way, Fiat had to contract out
the
production of certain components of the 8v and 16v
engines. The purchase price of the components in
question is generally higher than the cost of manu-
facture by Fiat, and so has to be considered a disad-
vantage of Termoli, in that this situation would not
have arisen at Desio, which had space available. The
Commission has verified these additional costs, and
can accept this argument as it relates to the produc-
tion of the 16v engines, the direct object of the
investment, but must exclude from the cost-benefit
analysis the disadvantages resulting from the addi-
tional costs for the 8v engine.

3. Thirdly, the Commission has carefully examined the
investment that would be made at Termoli and at
Desio. The costs arising from the transfer of activities
to plants in Northern Italy are not eligible and must
therefore be excluded. Similarly, there is investment
worth ITL 47,3 billion (discounted amount) which
was carried out as part of the notified project but
which relates to equipment that would have been
installed at Termoli even if the production of the Fire
16v engine had been sited at Desio. This is true
especially of couplings between the engine and the
gearbox, which is produced at Termoli.

The corrections introduced by the Commission produce
different cost-benefit results from those of the Italian
authorities. On the basis of the investment of ITL 362,3
billion regarded as eligible by the Commission,
the
disadvantage of Termoli compared with Desio is 18,7 %.

The nominal aid of ITL 91,7 billion is equivalent to
discounted aid of ITL 54 billion (base year 1995). The
proposed aid intensity is thus 14,9 % gross grant equiva-
lent, while the regional maximum is 30 % net grant
equivalent.

(40)

(41)

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(42)

In view of the sensitivity of the motor industry, the
Commission usually examines the effects on competition
of every investment project,
looking in particular at
variations in production capacity on the relevant market
in the group concerned. Under the terms of the relevant
Community framework, the allowable intensity can then
be increased by an adjustment factor (top-up) of 0 to 3
percentage points.

HAS ADOPTED THIS DECISION:

Article 1

The state aid that Italy plans to grant to Fiat Auto SpA for its
plaint in Termoli, Campobasso, up to a maximum of ITL 54
billion, discounted at the rate of 11,90 % (base year 1995), is
compatible with the common market under Article 87(3)(c) of
the Treaty.

In this particular case the results of the cost-benefit
analysis obviate the need for such an examination.

The aid is accordingly authorised.

V. CONCLUSIONS

(43)

The aid intensity notified by Italy is less than both the
disadvantage identified by the cost-benefit analysis and
the regional maximum. The regional aid that the Italian
is therefore
Government plans to grant Fiat Termoli
compatible with the common market under Article
87(3)(c) of the Treaty,

This Decision is addressed to the Italian Republic.

Article 2

Done at Brussels, 29 September 1999.

For the Commission

Mario MONTI

Member of the Commission