2001/274/EC: Commission Decision of 11 April 2000 on the measure implemented by EDF for certain firms in the paper industry (Text with EEA relevance) (notified under document number C(2000) 1061)
Date: 2000-04-11
Institutions: European Commission
Subjects: France, aid system, application of EU law, electrical industry, pulp and paper industry, tariff preference

L 95/18

EN

Official Journal of the European Communities

5.4.2001

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 April 2000

on the measure implemented by EDF for certain firms in the paper industry

(notified under document number C(2000) 1061)

(Only the French text is authentic)

(Text with EEA relevance)

(2001/274/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 those provisions (1),

Whereas:

1. PROCEDURE

(1)

(2)

By letter of 13 June 1996, registered on 14 June 1996,
the Commission received a complaint concerning the
preferential terms on which Electricité de France (herein-
after ‘EDF’) apparently supplied electricity to paper mills
which agreed to purchase electrical
infrared drying
equipment. According to the complainant, EDF took
advantage of its absolute control of the French electricity
market by endeavouring to influence paper mills' choice
of infrared technology by offering preferential rates for
electricity, to the detriment of systems operating with
other energy sources,

in particular natural gas.

By letters dated 10 July 1996, 24 July 1996, 4
November 1997, 4 December 1997 and 12 January
1998, the Commission asked the French authorities for
more detailed information. This reached the Commis-
sion on 18 July 1996, 28 August 1996, 25 November
1997 and 22 January 1998. The Commission sent the

(1) OJ C 70, 13.3.1999, p. 10.

complainant a summary of the information by letters
dated 10 July 1996, 29 October 1996, 14 November
1996 and 13 November 1997. The complainant's
replies reached the Commission on 31 October 1996,
21 November 1996, 10 December 1996, 25 February
1997, 22 May 1997 and 12 September 1997.

(3)

(4)

On 20 May 1998 the Commission decided to initiate the
the EC Treaty in
procedure under Article 88(2) of
respect of the measure. This decision was notified to the
French Government by letter No SG(98) D/5741 of 14
July 1998 requesting the French authorities to submit
their comments within one month, i.e. by 14 August
1998.

By letters dated 28 July 1998, 11 September 1998, 7
October 1998, 24 December 1998 and 19 January
1999, the French authorities asked the Commission not
to publish certain information contained in the decision
to initiate the procedure under Article 88(2). The
Commission replied by letters dated 10 August 1998, 6
October 1998, 22 October 1998, 14 December 1998,
12 January 1999 and 19 February 1999. At meetings
held on 21 September and 1 December 1998 the French
authorities withdrew their request not to publish infor-
mation, which in any case had been partly rejected
because of the public nature of the matter at issue.

(5)

By letter of 2 September 1998,
registered on 7
September 1998, EDF asked for access to the file. The
request was rejected by letter of 17 September as all the
documents requested fell within the list of exceptions
under the policy on access to documents.

5.4.2001

EN

Official Journal of the European Communities

L 95/19

On 31 July 1998 the French authorities asked for a
one-month extension of the deadline for their reply.
Their request was accepted by the Commission on 5
August 1998.

By letter of 4 September 1998,
registered on 7
September 1998, the French authorities submitted their
comments.

(13)

(6)

(7)

(8)

The Commission notice to interested parties asking them
to submit their observations on the measure in question
was published on 13 March 1999 in the Official Journal
of the European Communities (2). By 13 April 1999, the
deadline given in the notice, the interested parties had
submitted two observations. By letters dated 4 June and
9 June, these were forwarded to the French authorities,
which had the opportunity to comment on them. In the
same letter, the Commission also asked for additional
information.

(9)

At a meeting held on 28 May 1999 and by letter of 28
June 1999, registered on 29 June, the French authorities
supplied the information requested.

2. DETAILED DESCRIPTION OF THE MEASURE

2.1. Introduction

(10)

(11)

EDF, which is wholly controlled by the French State, is
the dominant electricity producer in France, where it
used to have a vertically integrated monopoly, both in
law (3) and in fact. Electricity prices are fixed by EDF
following approval by the Finance Ministry.

For at least the last 10 years, EDF has announced consid-
erable unutilised capacity. It had initially estimated that
this overcapacity would be absorbed by the market by
1997/1998. Recently, however, it has modified its own
estimates and now believes that the overcapacity will last
until at least 2010, the growth in the French economy
being less buoyant than expected.

(12)

to dispose of

In order
its surplus, EDF grants its
customers in certain industrial sectors commercial hold-
ings for extra consumption resulting from ‘efficient and
innovatory’ applications of electricity. The electrical
technologies and industrial sectors enjoying these bene-

(2) See footnote 1.
(3) Before Law No 2000-108 of 10 February 2000 on the modernisa-
the public electricity service (Official

tion and development of
Gazette of the French Republic of 11 February 2000, p. 2143).

fits are the following: reversible air conditioning; radiant
panels, membrane technology; CMB, electrolysis, high-
efficiency electric motors and electronic speed variation
(all sectors); electrical tubing (chemicals); ohmic heating
(chemicals,
induction (metal-working
and chemicals), infrared and other radiation techniques
(paper, textiles and food).

food and glass);

In the [...] (*) and [...] industries, these practices resulted
in electricity supply contracts being concluded, in partic-
ular with [...] and [...]; these are also under examination
by the Commission. In the paper industry, the commer-
cial policy conducted by EDF took the form of some 10
‘commercial holding’ projects between 1990 and 1996
aimed, in particular, at encouraging the installation of
infrared drying equipment. EDF granted subsidies in this
way to the Condat, Cascades, Lancey, Gromelle and
Sibille Stenay (‘Sibille’) paper mills.

2.2. Recipients and detailed description of

the

measures

(14) When the paper mills concerned purchase the drying
equipment, EDF gives them an advance corresponding
to the discount on the quantity of electricity which the
dryers, according to the mills' estimates, will use during
the life of the supply contract, which is usually six years.
EDF thus calculates the discount in order to spread the
initial holding over the presumed annual additional
consumption of electricity by the dryers and over the
lifetime of the supply contracts. However, the calcula-
tion does not take account of interest on the advance in
question and on consumption. The discounts given
below are expressed at their present (discounted) 1999
value (4).

electrical

acquired three

(15) Condat: in June 1989, October 1990 and April 1995
the mill
infrared drying
machines with an additional consumption of 9, 21 and
18 GWh a year respectively (5). It received from EDF a
total of FRF 15,8 million (EUR 2,41 million) for addi-
tional electricity consumption over six years, of which
FRF 10,5 million (EUR 1,6 million) was in the form of
an advance and FRF 5,3 million (EUR 0,81 million) in
the form of an operating grant paid annually to the
customer. The actual discount amounts to 6,2 c/kWh
(EUR 0,95/kWh) or 27 % of
the average price of
22,8 c/kWh (EUR 3,48/kWh). The present value of the
discount is FRF 22,6 million (EUR 3,45 million).

(16) Cascades:

in April 1992 EDF granted FRF 250 000
(EUR 38 112) for the development of a new membrane
technology aimed at the recycling of coating effluent,
involving additional annual consumption of 0,75 GWh

(*) Business secret.
(4) The reference rate used by the Commission in order to measure the

aid element of subsidies is 4,76 % as at 1 August 1999.

(5) On the basis of the information provided by the French authorities
the Commission included in its decision to
on 21 Januay 1998,
initiate the procedure a commercial
incentive of FRF 6,6 million
(EUR 1,01 million) for the installation of a fourth drying machine.
In their letter of 28 June 1999 the French authorities provided
proof that the fourth machine had not been installed. The Commis-
sion therefore removed the incentive for that machine from the
calculation of the discount.

L 95/20

EN

Official Journal of the European Communities

5.4.2001

over three years. The real value of the discount amounts
to 11,6 c/kWh (EUR 1,77/kWh) or 59 % of the average
price of 19,6 c/kWh (EUR 2,99/kWh). The present
value of the discount is FRF 346 185 (EUR 52 775).

regard to preferential tariffs granted to certain paper
mills and (b) the commercial logic of the loan granted by
EDF to IRS.

(17)

Lancey:
in March 1996 it acquired two electrical
infrared drying units and an effluent treatment unit. It
incentive from
therefore benefited from a commercial
EDF of FRF 2,25 million (EUR 0,34 million)
for an
annual additional consumption of 15 GWh over six
years. This amounts to a real discount of 2,7 c/kWh
(EUR 0,41/kWh) or 15 % of
the average price of
17,8 c/kWh (EUR 2,71/kWh). The present value of the
discount is FRF 2,87 million (EUR 0,44 million).

(18) Gromelle: in March 1993 EDF granted it a holding of
FRF 130 000 (EUR 19 818) for an electric drying unit
with an annual additional consumption of 0,8 GWh
over six years. The real average discount is 3,0 c/kWh
(EUR 0,46/kWh) or 8 % of
the average price of
37,8 c/kWh (EUR 5,76/kWh). The present value of the
discount is FRF 171 840 (EUR 26 196).

(19)

Sibille: for installing an electric dryer, EDF granted it (i)
in July 1992 the sum of FRF 1,35 million (EUR 0,21
million)
for an annual additional consumption of
7 GWh, (ii) in April 1996 the sum of FRF 283 000
(EUR 43 143) for reconditioning and (iii) again in April
1996 a further commercial incentive of FRF 230 000 (6)
(EUR 35 063)
for further additional consumption of
1,2 GWh over a period of six years. The real average
discount amounts to 4,6 c/kWh (EUR 0,70/kWh) or
19 % of
24,2 c/kWh
(EUR 3,69/kWh) for an annual additional consumption
of 8,2 GWh. The present value of
is
FRF 2,72 million (EUR 0,41 million).

the discount

average

price

the

of

(20)

in order

IRS:
to help finance the development of
infrared drying technology, EDF granted InfraRouge-
System (‘IRS’) a loan of FRF 3 million (EUR 0,46
million) in 1996. The loan was apparently to be repaid
over five years depending on the firm's turnover in
France and abroad. The present value of the loan is
FRF 3,45 million (EUR 0,53 million).

(21)

The present value of
FRF 32,2 million (EUR 4,9 million).

the discounts and the loan is

3. PRINCIPAL REASONS WHICH LED TO THE

DECISION TO INITIATE THE PROCEDURE

(22)

The Commission decision to initiate the procedure
under Article 88(2) was based on (a) suspected aid with

(6) In their letter of 4 September 1998 the French authorities stated
that EDF had demanded reimbursement of the sums for the paper
machine and the infrared equipment generating additional consump-
tion of 1,2 GWh which had been out of use since the end of
1997. Since they acknowledge in their letter of 28 June 1999 that
the incentive has not been paid back, the Commission is including
the sum of FRF 230 000 (EUR 35 063) in the calculation.

3.1. Preferential tariffs for certain paper mills

(23)

The Commission considers that preferential tariffs are
caught by the ban in Artic1e 87(1) of the EC Treaty if
they meet the following three conditions: (a) they are
granted by the State or through State resources; (b) they
favour certain firms or the production of certain goods;
and (c) they distort competition between the favoured
firms and similar
in other
Member States, the products concerned being traded
between Member States.

firms and/or products

(24) As to the second condition, there was doubt whether the
fact that certain paper mills benefited from a preferential
electricity tariff was tantamount to granting them an
advantage.

(25) At first sight, EDF did not appear to cover the marginal
cost and at least a proportion of its fixed costs. Where
long-term electricity supply contracts are concerned, a
generator must take account of a significant proportion
of its fixed costs even if it has surplus capacity.

(26) What is more, it did not appear that EDF had any need
to grant price discounts in order to compete, as there are
no competitors at present on the French electricity
market, or to keep customers it might lose without
offering such discounts (7).

(27)

Lastly, the preferential prices granted to the paper mills
concerned appeared to discriminate against other elec-
tricity consumers in a comparable situation.

3.2. Loan granted by EDF to IRS

(28) Without more detailed information and in view of the
difficult financial position of IRS, there is some doubt as
logic of the loan granted by EDF.
to the commercial

4. OBSERVATIONS BY THE INTERESTED PARTIES

(29)

its decision to initiate the
Following publication of
the EC Treaty in
procedure under Article 88(2) of
respect of the aid in question, the Commission received
observations from two interested parties, namely an aid
recipient (Cascades) and EDF.

(7) Joined Cases 67, 68, and 70/85 Van der Kooy [1988] ECR 219.

(30)

(31)

(32)

(33)

5.4.2001

EN

Official Journal of the European Communities

L 95/21

4.1. Observations by Cascades

it

Cascades states that
is equipped solely with gas
infrared systems by the firm Solaronics and has no
electrical
infrared equipment; EDF therefore did not
influence its choice. However, EDF did grant the sum of
FRF 250 000 for the development of a new membrane
technology aimed at the recycling of coating effluent.
The discount in question was not spread over three
years. Lastly, electricity consumption corresponded to
the motor of the pump feeding the installation, which,
according to Cascades, could not be powered in any
other way, and so this in no way penalised or discrimi-
nated against either another equipment provider or
another energy provider.

4.2. Observations by EDF

EDF considers that neither the discount granted to the
paper mills nor the contract with IRS contains elements
of State aid and that the interpretation of Articles 87
and 88, as proposed by the Commission in this case,
may discriminate against public electricity companies in
favour of private electricity companies by denying the
former the commercial freedom which all companies
may enjoy under the Treaty.

sum of FRF 500 000 to contribute to the development
of commercial communication and the sum of FRF 2,5
million to be repaid over five years on the basis of IRS's
annual turnover.

(35) Under the contract, IRS must each year repay 4 % of its
turnover generated by the sale of electrical
infrared
equipment. However, following a downturn in its busi-
ness, it did not keep to this commitment. At the request
of EDF, the Paris commercial court issued an interim
order against IRS on 11 February 1999. IRS has three
months in which to pay off its debt by making an
interim payment of FRF 870 769,39. If it fails to do so,
the entire debt will be immediately payable.

(36)

Finally, EDF points out that the Commission interprets
Articles 87 and 88 of the Treaty in a way which restricts
the commercial freedom of public electricity companies
in favour of private companies. If EDF were a private
company, the market behaviour which is being chal-
lenged would be perfectly permissible.

5. COMMENTS BY FRANCE

(37)

The French authorities
replied to the Commission
decision to initiate the Article 88(2) procedure by two
letters, dated 4 September 1998 and 29 June 1999,
which are summarised below.

Firstly, EDF maintains that the discount covers all vari-
able costs and a very substantial proportion of
the
company's fixed costs. According to a study carried out
by the consultant Hagler-Bailly, the prices offered by
EDF for additional consumption by paper mills linked to
new equipment cover all variable costs and, on average,
57 % of fixed costs.

(38)

Furthermore, in order to gauge the real impact of the
discount on competition and intra-Community trade,
EDF considers that it should be calculated in relation to
the average price paid by a paper mill for the total
energy consumption of its site. According to EDF, the
discount for Condat, Lancey and Sibille, expressed as a
percentage of
consumption (in 1996),
amounted to 0,8 %, 3,4 % and 1,3 % respectively. Given
that the effect of the cost of electricity on the cost of
paper ranges from 5 % to 10 % depending on the quality
of the paper, the ‘advantage’ which the discount repre-
sents in terms of electricity costs is, according to EDF,
between 0,04 % and 0,08 % for Condat, between 0,17 %
and 0,34 % for Lancey and between 0,065 % and 0,13 %
for Sibille.

total

site

(34)

Furthermore, EDF states that the agreement concluded in
1996 with IRS does not constitute a simple loan but a
particular kind of partnership. Under the terms of the
agreement, IRS undertook to develop electrical infrared
applications. In exchange, EDF made available to IRS the

5.1. Letter of 4 September 1998

the procedure,

In their reply of 4 September 1998 concerning the
the French authorities
initiation of
firms
observed that
concerned in the paper industry did not constitute State
aid within the meaning of Article 87(1) of the Treaty, for
the following reasons:

the discount granted to the

(39) According to them, the commercial strategy at issue
stemmed from a decision taken by the company itself
and was not dictated by any measure, decision or incen-
tive originating from them. The fact that EDF is wholly
owned by the French State does not ipso facto make the
State responsible for commercial measures of limited
scope such as the one in question.

(40)

The French authorities state that,
like any other elec-
tricity company, public or private, EDF has a legitimate
commercial interest in encouraging the development of
technologies and equipment
likely to stimulate the
demand for electricity and create new outlets for the
company's product. The
additional
consumption could not be called a preferential tariff.
According to the French authorities, it constituted estab-
lished, legitimate commercial practice based on objec-
tive, non-discriminatory criteria.

discount

for

L 95/22

EN

Official Journal of the European Communities

5.4.2001

(41)

Furthermore, the French authorities point out that the
prices charged for overall consumption of the industrial
sites concerned are calculated so as to cover, and to
cover effectively, all the costs of the contracts in ques-
tion. The Commission simply calculates the effect of the
discount on additional consumption alone. According to
the French authorities, this approach does not appear to
be in line with the principle of the market economy
operator. They consider that the Commission cannot
establish that an operator in a market economy, put in
EDF's position, would make sure of the profitability of
each of the elements of a given commercial relationship
with an industrial consumer. In any case, since the prices
at issue relate to additional consumption, the French
authorities maintain that the discount was calculated so
as to arrive at a price which covers not only all the
variable costs but also around 50 % of fixed costs.

(42)

consider

Furthermore,
that,
the French authorities
although the commercial practice set in place normally
lasts for six years, the beneficial effects it has on elec-
tricity consumption last well beyond the incentive
period, in fact throughout the life of the equipment, i. e.
between 12 and 15 years. This means that the extra
electricity consumption and the revenue it generates
may be calculated over a much longer period than the
period for which the discount is granted.

(43) With regard to its overcapacity, the French authorities
confirm that EDF has a surplus of energy from nuclear
sources. They claim that the NERA study shows that
EDF did not knowingly arrange this overcapacity and
that its commercial policy towards customers allowing it
to absorb the surplus is carried on under pricing condi-
tions which cover all variable costs and a large propor-
tion of fixed costs.

(48)

(49)

for

They go on to stress that the discount is not applied in a
discriminatory manner. They point out that the tariff
[...] and [...] have a fundamentally
conditions
different background from the case in question, linked
mainly to the electricity-intensive nature of the industrial
activities concerned, which exceeds 50 %. Given that
energy costs account for only 5 % to 10 % of the total
cost of paper manufacture, the paper industry is not an
electricity-intensive sector.

(44)

(45)

(46)

end their

the introduction of

the French authorities

letter by
Lastly,
explaining that, at the time of the negotiations for the
EDF/IRS contract in 1996, EDF could, on the contrary,
expect an increase in electricity consumption as a result
of
infrared technology in many
industrial sectors in which IRS is active. Sales of elec-
trical
infrared equipment by IRS in 1996 and 1997
realised FRF 18 million. According to the French
authorities, such prospects should lead to additional
income.

(47) According to the French authorities, EDF estimates that
infrared equipment with a total power of 300 MW was
installed in industry in France in 1996. According to
EDF, annual electricity consumption generated by such
is over 720 GWh, representing estimated
equipment
annual
In the paper
industry alone, infrared technology generates consump-
tion of 120 GWh. In view of the number of machines
not yet equipped with this technology, EDF estimates
that
is
125 GWh,
representing estimated potential annual
income of FRF 30 million.

income of FRF 200 million.

consumption still

the pool of

accessible

5.2. Letter of 29 June 1999

By letter of 4 June 1999, the Commission asked the
French authorities to reply to the questions in its
decision to initiate the procedure which still remained
unanswered and to a number of other questions arising
from the observations made by third parties.

In response to this request,
the French authorities
supplied calculation sheets concerning the rate of
fixed costs for additional consumption
coverage of
infrared
resulting from the installation of electrical
drying equipment. According to them, these calculations
were made and endorsed by the independent consultant
Hagler-Bailly.
additional
indicate
consumption generated by the infrared installations, the
terms cover all variable costs and, on
commercial
average, 57 % of fixed costs.

They

that,

for

(50)

They point out in this connection that the commercial
incentives introduced for new consumption do not lead
to lower tariffs but, through increased sales, make it
possible to cover more of
the fixed costs of EDF's
generation system, thereby directly benefiting all of its
customers.

The French authorities believe that
the Commission
overestimates the importance of the discount for the
competitive position of EDF's industrial customers. In
their view, the effect of the discount on the average price
charged by the paper firms is minimal. In the same way,
they emphasise that it would be wrong to maintain that
EDF's practice of giving commercial
incentives has
‘diverted’ the market from its natural course of using gas,
since electrical equipment is a more attractive option.

(51) As regards the comparison between the tariff terms in
the case in question and those of [...] and [...], the French
authorities state that the two situations are not in fact
comparable. For [...] and [...] electricity accounts for over
50 % of the cost of manufacturing the final product,
while in the paper industry it accounts for less than 5 %.
According to a statistical study by VDEW based on data
supplied by the German Statistisches Bundesamt, DIW

5.4.2001

EN

Official Journal of the European Communities

L 95/23

and Unipede, electricity accounts for 2,4 % of the cost of
paper production. Similarly, a study of the 1997 report
by SESSI (statistics department of the French Economics
Ministry) gives a figure of 4,3 %. The real percentages of
electricity intensity for paper manufacture are ten times
lower than the figures put forward by the complainant
in this case.

(52) As regards real additional consumption linked to the
operation of drying machinery, the authorities explain
that this was not measured specifically. The discount
was therefore calculated and granted on the basis of the
additional consumption generated by this equipment
and provided for in the relevant agreements.

(53)

In their letter, the French authorities also confirm that
the additional commercial incentive of FRF 230 000 for
Sibille has not been repaid.

(54) With regard to the loan to IRS, the French authorities
maintain that the agreement concluded between EDF
and IRS on 29 March 1996 is in fact a contract for the
services and not a loan agreement.
provision of
According to them, at the time the contract was signed,
IRS was
indeed the only manufacturer capable of
offering innovatory electrical infrared drying equipment.
On the basis of EDF's marketing platform,
IRS was
therefore chosen since it could provide the services
which EDF wanted in the market segment of electrical
infrared drying.

(55) With regard to Condat, one of the recipients of the aid,
the French authorities confirm that only three electrical
infrared machines were installed by the company and
that the fourth, planned at one time, had not been
installed since in the end the firm chose a gas-powered
infrared machine.

(56)

Lastly, the French authorities explain that the difference
between the Commission's and EDF's calculations is due
to the fact that the NERA study greatly overestimates the
variable cost of a nuclear unit
in EDF's generation
system. For French nuclear power stations, as in almost
all other countries, operating and maintenance costs are
fixed costs. This means that the variable cost of nuclear
power is basically the cost of the fuel, evaluated for
France in the OECD report at USD 0,0083 and
0,0092/kWh as at 1 July 1991, i. e. around FRF 0,05 to
0,06 per kWh in the mid-1990s.

generation system, that the short-term marginal cost of
supply is [...].

6. ASSESSMENT OF THE MEASURE

6.1. Preferential tariffs for certain paper mills

(58)

(59)

(60)

(61)

6.1.1. De minimis rule

The French authorities initially argued that the discounts
granted to the Cascades and Gromelle paper mills in
1992 and 1993 respectively were covered by the de
minimis rule.

It should be pointed out here that the ceiling applicable
in this case is given in the Community guidelines on
State aid for small and medium-sized enterprises of
1992 (8) (hereinafter ‘the guidelines’), i. e. ECU 50 000,
this being the only rule which France could rely on in
1992 and 1993.

The guidelines state that the de minimis rule applies to
‘aid up to a certain absolute amount, below which
Article 92(1) can be said not to apply’ and that one-off
payments of aid of up to ECU 50 000, in respect of a
given type of expenditure ard schemes under which the
amount of aid a given firm may receive in respect of a
given type of expenditure over a three year period is
limited to that figure, will no longer be considered noti-
fiable under Article 93(3), provided that it is an express
condition of the award or scheme that any further aid
the same firm may receive in respect of the same type of
expenditure from other sources or under other schemes
does not take the total aid the firm receives above the
ECU 50 000 limit.

The value of the discount granted to Cascades in April
1992 was, at the time, FRF 250 000 (ECU 36 000),
while that of the discount granted to Gromelle in March
1993 was FRF 130 000 (ECU 18 700). The French
authorities have confirmed that Cascades and Gromelle
did not receive, under the de minimis rule, any other aid
and that the ceiling was not therefore exceeded. Conse-
leaving aside the question of whether or not
quently,
they qualify as aid, the discounts do not exceed the de
minimis
therefore
threshold. Article 87(1) does not
apply.

6.1.2. State aid within the meaning of Article 87(1) of the

EC Treaty

(57) According to the French authorities,

this difference
between the variable cost calculated by the NERA study
[...] and the real variable cost of French nuclear power
stations as evaluated in the OECD's 1992 report [...]
suffices to demonstrate, given the structure of the French

(62)

The question is whether
the discounts granted to
Condat, Lancey and Sibille constitute preferential tariffs
caught by the ban in Article 87(1) of the EC Treaty.

(8) OJ C 213, 19.8.1992, p. 2.

L 95/24

EN

Official Journal of the European Communities

5.4.2001

(63) Under that Article, any aid granted by a Member State or
through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods
is, in so far as it affects trade between Member States,
incompatible with the common market.

(64)

Thus, preferential tariffs are caught by the ban in Article
87(1) of the EC Treaty if they meet the following three
conditions:

1. they are granted by the State or

through State

resources;

2. they favour certain firms or the production of certain

goods;

3. they distort competition between the favoured firms
and similar firms and/or products in other Member
States, the products concerned being traded between
Member States.

6.1.2.1. G r a n t e d b y t h e S t a t e o r t h r o u g h S t a t e

r e s o u r c e s

(65) As regards the first point, i. e. aid granted through State
resources, the French State wholly owns EDF. Electricity
prices are fixed by EDF after approval by the Finance
Ministry. Although the company has some freedom as
it must nevertheless be
regards its discount policy,
concluded that the State, through EDF, has the final say
as
to the advantages enjoyed by the paper mills
concerned.

(66)

The French authorities' claim that the commercial meas-
ures are ‘limited in scope’ (9) must be refuted. They in
fact themselves confirm that such measures are part of ‘a
commercial policy which aims to encourage industrial
consumers
to develop and use technologies which
ensure innovatory, effective and rational use of electri-
city’ (10). Being part of a ‘commercial policy’,
these
commercial measures can hardly be said to be ‘limited in
scope’.

(67)

Therefore, since they are granted by EDF and thus indir-
ectly by the French State, the preferential tariffs for
certain paper mills constitute a State measure, with the
result that the first condition under Article 87(1) is met.

(9) Letter of 4 September 1998, p. 3.
(10) See footnote 9.

6.1.2.2. A d v a n t a g e t o c e r t a i n p a p e r m i l l s

(68) As regards the second point, i.e. the favouring of certain
firms or goods, the fact that certain paper mills benefit
from a preferential electricity tariff
is tantamount to
granting them an advantage. In the present case, the
advantage consists in the following real average prices
for electricity and discounts: Condat: 16,6 c/kWh
(EUR 2,5/kWh)
(EUR 3,45
million); Lancey: 15,1 c/kWh (EUR 2,3/kWh) or
FRF 2,87 million (EUR 0,44 million); and Sibille:
19,6 c/kWh (EUR 3,0/kWh) or
FRF 2,72 million
(EUR 0,41 million). The total value of advantages in the
form of discounts
is FRF 28,2 million (EUR 4,3
million).

FRF 22,6 million

or

(69)

(70)

In principle, a private or public enterprise can charge
different prices according to the use made of the prod-
ucts it sells; however, such differences must be justified
the
on commercial grounds,
marginal cost and at least a proportion of the fixed
costs.

they must cover

i.e.

Experts given the task by the Commission of analysing
EDF's surplus capacity and its pricing system (11) esti-
mate the marginal cost to EDF of producing an addi-
tional unit of nuclear-generated electricity would be
about [...], whereas that produced from fossil fuels (coal
and oil) would range from [...]. Where long-term elec-
tricity supply contracts are concerned, a generator must
take account of a significant proportion of
its fixed
costs, even if it has a surplus. This would bring the price
charged to major industrial consumers to an average of
some [...], which would appear to correspond to that
invoiced by EDF to its largest customers on the basis of
the tariff in force.

(71)

By referring to the OECD's 1992 report, which assesses
the variable cost of nuclear energy for EDF at 5 to
6 c/kWh (EUR 1/kWh),
the French authorities have
shown that the NERA study overestimated the variable
cost of a unit of nuclear-generated electricity by EDF's
generation system. On the basis of this information, they
confirm that the short-term marginal cost of supply is
[...].

(72) On the basis of a short-term marginal cost of [...], the
French authorities have established that the price offered
by EDF for this additional consumption covered its vari-
able cost and at least 35 % and, on average, 57 % of its
fixed costs. The average rate of cover of fixed costs is
50 % for Condat, 66 % for Lancey and 62 % for Sibille.

(11) Study IV/96/1178/ETD/01 ‘Tariffs and cost consequences of

the
EDF monopoly’, carried out by National Economic Research Asso-
ciates (NERA), February 1997.

5.4.2001

EN

Official Journal of the European Communities

L 95/25

(73)

(74)

that

The French authorities confirm that EDF has a surplus of
energy from nuclear sources (12). It should be pointed
out
this overcapacity was created in a lawful
monopoly situation, well before the current ongoing
liberalisation of the electricity market. The Commission's
analysis therefore focuses on the particular circum-
stances of the present case. Consequently, this decision
in no way prejudges the conclusions which, against the
background of
the
the opening up of
Commission could reach when it examines the problems
posed by the creation of such overcapacity by EDF in
the past.

the market,

Commercial logic dictates that, where there is overca-
pacity, an operator in a market economy would natu-
rally have been led by the need to maximise profits to
sell an additional quantity of his product without
covering all the costs for that additional quantity. If he
the corresponding quantities which were
did not,
produced and could not be stored would remain unsold.
Furthermore, there is nothing in the case file to show
that EDF would have been able to obtain a better price
elsewhere. However, the alternative would have been for
the paper mills to install gas-powered drying equipment.
In this context, obtaining for the additional consump-
tion resulting from the choice of an additional electrical
drying machine a price which covers variable costs and
at least 35 % and, on average, 57 % of fixed costs must
be regarded as a commercially acceptable practice.

(75)

Therefore, in view of the particular circumstances in this
case, the preferential electricity tariffs granted by EDF to
Condat, Lancey and Sibille must be regarded as being
justified on commercial grounds.

6.1.2.3. D i s t o r t i n g c o m p e t i t i o n a n d a f f e c t i n g
t r a d e b e t w e e n M e m b e r S t a t e s

(76) Given that a measure cannot be regarded as aid within
the meaning of Article 87(1) of the EC Treaty unless all
three conditions are met, and given that the second
condition (aid favouring certain firms or the production
of certain goods) is not met, there is no need to examine
the third condition.

(77)

In conclusion, the preferential electricity tariffs granted
by EDF to the Condat, Lancey and Sibille paper mills do
not constitute State aid within the meaning of Article
87(1) of the EC Treaty.

certain undertakings or the production of certain goods
constitutes aid within the meaning of the Article in so
far as it affects trade.

(79) As demonstrated in recitals 58 to 77 regarding preferen-
tial tariffs, the loan granted by EDF to IRS is caught by
the ban in Article 87(1) of the EC Treaty only if it
favours certain undertakings and if
the advantage it
confers is not justified on commercial grounds, provided
that the other conditions are met.

(80)

The Commission would point out that, according to the
principle of
the private investor acting in a market
economy, as set out in the Commission communication
to the Member States on application of Articles 92 and
93 (now Articles 87 and 88) of the EC Treaty and of
Article 5 of Commission Directive 80/723/EEC to public
undertakings in the manufacturing sector (13) (hereinafter
‘the communication’), ‘only projects where the Commis-
sion considers that there were no objective or bona fide
grounds to reasonably expect an adequate return in a
comparable private undertaking at
the
investment/financing decision is made can be treated as
State aid’ (point 28).

the moment

(81)

In the case in point, with regard to the decision taken by
EDF in 1996 to invest in IRS, the rate of return can be
calculated in two ways.

(82)

Firstly, there is the repayment of the investment at a rate
of 4 % per year of IRS's turnover generated by the sale
of electrical infrared equipment. According to EDF, IRS's
turnover was FRF 18 million in 1996. Given that IRS
was experiencing financial difficulties at the time the
investment decision was taken, only a high rate of return
would have attracted a private investor. In line with its
standard practice, the Commission applies an interest
rate of 12 % for high-risk projects. The present value of
4 % of FRF 18 million over five years — the turnover
having been adjusted for the inflation rate in France in
1996,

i. e. 2 % — is FRF 3 012 024.

(83)

the development of
Furthermore, EDF estimates that
infrared technology and its application in
electrical
industry could,
in the paper industry alone, generate
consumption of 125 GWh, i. e. an estimated potential
annual

income of FRF 30 million.

6.2. Loan granted by EDF to IRS

(78)

The Commission examined the loan granted by EDF to
IRS in the light of Article 87(1) of the EC Treaty. Under
that Article, any aid granted by a Member State or
through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring

(84) Given that, when EDF decided to invest in IRS, it reck-
oned not only to recover the sum invested, with 12 %
interest, but also to establish infrared technology in the
paper industry, representing potential annual income of
FRF 30 million, it may be supposed that it reasoned in
the same way as a private investor and that the loan is
therefore not to be regarded as State aid.

(12) See recital 43.

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

L 95/26

EN

Official Journal of the European Communities

5.4.2001

(85)

return actually
Finally, with regard to the rate of
obtained, the communication states that,
‘there is no
question of the Commission using the benefit of hind-
sight to state that the provision of public funds consti-
tuted State aid on the sole basis that the out-turn rate of
return was not adequate’ (point 28).

(86) Accordingly, the fact that IRS sufered a downturn in
business and did not fulfil its commitment does not alter
the nature of the investment at the time of the decision
in 1996. In fact, it transpires from information available
that in 1996, at the time EDF granted the loan, there
was nothing which would have enabled an ‘informed’
analyst to predict that IRS was likely to suffer a business
downturn such that the prospects would be any other
than those expected.

(87)

Furthermore, like a private investor concerned to protect
his investment, EDF took legal action against IRS, with
the result that on 11 February 1999 the Paris commer-
cial court issued an interim order against IRS. The latter
has three months in which to pay off its debt by making
an interim payment of FRF 870 769,39. If it fails to do
so, the entire debt will be immediately payable.

(88)

In conclusion, the loan granted by EDF to IRS does not
constitute aid within the meaning of Article 87(1) of the
EC Treaty.

(89)

In the light of the above and given that:

7. CONCLUSIONS

1. the preferential electricity tariffs granted to the
Cascades and Gromelle paper mills fall within the
scope of the de minimis rule,

2.

in view of the surplus of energy from nuclear sources
at EDF and since for additional consumption EDF is
covering its variable costs and, on average, 57 % of
the preferential electricity tariffs
its

fixed costs,

granted to the Condat, Lancey and Sibille are justified
on commercial grounds, and

3. at the time EDF took the investment decision, the
loan granted by EDF to IRS was justified on commer-
cial grounds,

the Commission finds that neither the preferential elec-
tricity tariffs granted to the Cascades, Gromelle, Condat,
Lancey and Sibille paper mills nor the loan to IRS
constitute aid within the meaning of Article 87(1) of the
EC Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The preferential electricity tariffs granted by EDF, and thus
indirectly by France, to the Condat, Cascades, Lancey, Gromelle
and Sibille paper mills and the loan granted by EDF to IRS,
with a present value of FRF 32,2 million (EUR 4,9 million), do
not constitute aid within the meaning of Article 87(1) of the
EC Treaty.

Article 2

This Decision is addressed to the French Republic.

Done at Brussels, 11 April 2000.

For the Commission

Mario MONTI

Member of the Commission