2000/631/EC: Commission Decision of 16 May 2000 on State aid granted by Spain to Asociación General Agraria Mallorquina SA (AGAMA) (notified under document number C(2000) 1401) (Text with EEA relevance) (Only the Spanish text is authentic)
Date: 2000-05-16
Institutions: European Commission
Subjects: Balearic Islands, State aid, agro-industry, control of State aid, infringement of EU law, milk product

20.10.2000

EN

Official Journal of the European Communities

L 267/53

COMMISSION

COMMISSION DECISION

of 16 May 2000

on State aid granted by Spain to Asociación General Agraria Mallorquina SA
(AGAMA)

(notified under document number C(2000) 1401)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2000/631/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(5)

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

Having regard to Council Regulation (EC) No 1255/1999 of 17
May 1999 on the common organisation of the market in milk
and milk products (1),

After giving notice to the interested parties to submit their
comments,

in accordance with the above Article (2),

Whereas:

I. PROCEDURE

(1)

(2)

(3)

(4)

The Commission was informed via a complaint that
Spain had granted State aid to the Asociación General
Agraria Mallorquina SA (hereafter ‘AGAMA’).

By telex dated 4 December 1995, the Commission asked
the Spanish authorities for information on the aid and
sent a reminder by telex dated 7 January 1997, but
received no reply.

By letter dated 16 May 1997, the Commission informed
the Spanish Government of its decision to open the
procedure provided for in Article 87(2) of the Treaty
with regard to the aid.

By letters dated 14 July 1997, 22 April 1998, 20 May
1998 and 18 March 1999,
the Spanish authorities
submitted their comments.

The Commission decision to open the procedure was
published in the Official Journal of the European Communi-
ties (3). The Commission gave notice to the interested
parties to submit their comments on the aid.

(6)

The Commission has received no comments from the
interested parties.

(7)

(8)

(9)

II. DETAILED DESCRIPTION OF THE AID

The beneficiary of
the aid granted by the Spanish
authorities was the company AGAMA, which processes
and markets milk products in Majorca (Balearic Islands).
AGAMA is the only company involved in the industrial
processing and marketing of milk products in the
Balearic Islands.

In August 1990, AGAMA announced that
it had
suspended payments. The Government of the Balearic
Islands decided to intervene, via the publicly owned
company Semilla, following a feasibility study carried
out by Inmark SA. This study envisaged the application
of a number of measures within AGAMA to ensure its
viability, inter alia, staff reductions, renegotiation of the
company's debt with its creditors and an injection of
capital.

advanced

Semilla
ESP 176 million
AGAMA
(EUR 1 057 781,30), i.e. 20 % of its debt with private
institutions, which it then repaid. The insti-
financial
tutions
ESP 706 million
waived
concerned
(EUR 4 243 145,46), equal to 80 % of the total debt of
ESP 882 million (EUR 5 300 926,76).

(1) OJ L 160, 26.6.1999, p. 48.
(2) OJ C 204, 4.7.1997, p. 6.

(3) See footnote 2.

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(10)

the

Semilla also advanced AGAMA a sum of ESP 272
million (EUR 1 634 752,92), equal to 85 % of its debt
to milk producers, which it then repaid. The milk produ-
cers concerned waived 15 % (approximately ESP 47
million) of
ESP 319 million
total debt of
In exchange for payment of a
(EUR 1 917 228,61).
large part of the debt, the milk producers concerned sold
Semilla 6 681 of their AGAMA shares at the price of
ESP 1 700 (EUR 10,22) per share, when their nominal
value was ESP 10 000 (EUR 60,10). In addition, on 20
for ESP 1 million
May 1991, Semilla took out,
(EUR 6 010,12), an option on 11 674 AGAMA shares
held by Paslac SA (a private company) at a total price of
ESP 71 million (EUR 426 718,59), i.e. ESP 6 081 per
share (EUR 36,55).

(11)

Furthermore, on 7 May 1991, Semilla transferred
working capital of ESP 146 million (EUR 877 477,67)
to AGAMA, which AGAMA was to repay.

(12) At

ESP 176 million

that point, Semilla's

contribution to AGAMA
(EUR 1 057 781,30)
comprised:
intended to repay debts to private financial institutions,
ESP 272 million (EUR 1 634 752,92) intended to repay
debts to milk producers and working capital of ESP 146
million (EUR 877 477,67) in the form of loans repay-
able to Semilla.
In addition, Semilla had provided
ESP 11 million (EUR 66 111,33) for the purchase of
shares
a
and ESP 1 million (EUR 6 010,12)
purchase option. The total contribution was ESP 606
million (EUR 3 642 133,35), which with interest gives a
total of ESP 663 million (EUR 3 984 710,25).

for

operation produced an accounting loss of ESP 91
million (EUR 546 921,02) for Semilla.

taken:

(15) After Semilla had recovered AGAMA, Ernest & Young
drew up a restructuring plan, the conclusions of which
stated that AGAMA would be economically viable if
reducing production
certain measures were
capacity, rationalising the range of
finished products
(which involved discontinuing the production of prod-
ucts with a small profit margin and promoting those
products that were highly profitable),
improving the
brand image and reducing production costs. The plan
forecast, at 31 December 1992, that the company would
move into profit from 1997. (In fact, the company was
into profit in 1996, one year earlier than forecast). In
addition,
the AGAMA shares held by Semilla and
AGAMA's debts to Semilla were transferred to the
the Balearic Islands for operational
Government of
reasons.

(16)

In September 1994, the Government of the Balearic
Islands decided to inject capital of ESP 548 million
(ESP 3 293 546,33), made up of ESP 213 million
(EUR 1 280 155,78)
in the form of new capital and
ESP 335 million (EUR 2 013 390,55) from the conver-
sion into equity capital of AGAMA's debt to Semilla,
subsequently transferred to the Government of
the
Balearic Islands.

(17) AGAMA's shareholders other

(milk producers), who held 3 % of
injected capital
EUR 96 161,94).

than the Government
its capital, also
(approximately ESP 16 million or

(13) On 3 April 1992, Semilla sold its shares and its option
on AGAMA shares to Granjas Braut SA and Granjas Son
Seat SAT for a total,
including the repayment of
to Semilla, of ESP 677 million
AGAMA's debts
(EUR 4 068 851,65). Of the four companies interested
in buying AGAMA, which were all equally solvent, the
Government of the Balearic Islands chose the best offer,
in economic terms, received. However, after making an
initial
ESP 184 million
(EUR 1 105 862,27) to Semilla, the buyers (who had
already exercised their option to buy AGAMA's shares)
were hit by financial difficulties and were unable to
make payment to Semilla.

payment

around

of

(14)

Semilla refused to postpone the deadline for payment as
requested by Granjas Braut SA and Granjas Son Seat
SAT, cancelled the contract and imposed the maximum
penalty provided for in the contract, i.e. 30 %. Semilla
was consequently able to recover AGAMA's shares. The

(18) Moreover, in June 1994, AGAMA obtained a loan of
ESP 500 million (EUR 3 005 060,52) from the financial
institution La Caixa d'Estalvis i Pensions de Barcelona
(hereafter ‘La Caixa’), backed by a joint and several guar-
antee from the Government of the Balearic Islands. The
loan was repaid in March 1998. The Spanish authorities
provided a certificate issued by the Government of the
Balearic Islands' General Treasury undertaking to recover
the amount concerned from AGAMA should the guar-
antee be called upon. During that same period, AGAMA
took out loans from other private financial institutions
without a Government guarantee for approximately
ESP 300 million (EUR 1 803 036,31). Those loans were
repaid in June 1999.

(19)

in accordance with paragraph 38 of

The Spanish authorities calculated the aid element of the
guarantee,
the
Commission communication (4). The State aid element
of the guarantee is equal to the difference between the
interest rate AGAMA would have paid for the loan on
the free market (between 12 % and 9,25 %) and the rate
it actually paid (MIBOR plus 0,5 %), i.e. a difference of
approximately 0,95 %.

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

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(20) AGAMA's liabilities consisted of a loan of ESP 500
million (EUR 3 005 060,52) guaranteed by the Govern-
ment and other unsecured loans totalling ESP 300
million (EUR 1 803 036,31). Of this, ESP 580 million
(EUR 3 485 870,21) was used to provide the company
with working capital by paying off the debts incurred by
Granjas Braut and Granjas Son Seat SAT when they
were owners of AGAMA and ESP 205 million
(EUR 1 232 074,81) was used to make redundancy
payments to workers affected by staff cuts This total of
ESP 785 million (EUR 4 717 945,02) is the cost asso-
ciated with the restructuring plan detailed in recital 15.

(21) AGAMA considerably reduced staff numbers (from 244
in 1990 to 51 in 1997) and reduced its milk production
capacity by 30 % (from 35 million litres in 1990 to 22
million litres in 1996). In fact:

(a) the management totally ceased the production of
pasteurised milk for which the
company had
bottling capacity of 15,5 million litres per year; the
equipment removed was not replaced;

(b) the bottling of sterilised milk in glass bottles, for
which the company had a capacity of 15 million
litres per year, totally ceased;

(c) two Tetra Pak UHT TBA-300 machines were
replaced by a single machine of better quality but
the two
with a capacity less than the sum of
replaced.

(25)

(26)

(27)

(22)

(EUR 37 334,87)

in 1998 profits

In 1996, AGAMA began to make a profit (very small),
to ESP 173 097 000
rose
but
were
profits
(EUR 1 040 333,92).
Operating
1996,
in
(EUR 563 406,78)
ESP 93 743 000
ESP 6 212 000
and
1997
in
ESP 178 260 000 (EUR 1 071 364,18)
in 1998.
Turnover was ESP 2 093 million (EUR 12 579 183,35)
in 1996, ESP 1 814 million (EUR 10 902 359,57)
in
1997 and ESP 1 903 million (EUR 11 437 260,35) in
1998. At the end of 1996, the company was sold at the
best price obtained in a public tendering procedure in
which four private companies submitted tenders.

(23) AGAMA obtained a postponement of the deadline for
the payment of social security contributions to the
Social Security Fund by Resolutions of 11 May 1992
and 3 June 1994. It paid interest at the statutory rate for
the postponement and repaid the debt in 60 monthly
instalments ending in June 1999.

(24)

In the absence of a reply from the Spanish authorities,
the Commission initiated the procedure provided for in
Article 88(2) of the Treaty and expressed its doubts
about the guarantee given by the Government of the
Balearic Islands on the loan granted to AGAMA by La
Caixa, the injection of Government capital through the
publicly owned company Semilla, the taking-over as a
creditor of AGAMA's debts to financial institutions and

other credit institutions and the postponement of the
deadline for
repaying debts granted by the Social
Security Fund. The Commission took the view that,
unless the Spanish authorities could demonstrate to the
contrary, all
the sums granted to AGAMA by the
Spanish authorities constituted State aid and therefore
asked the Spanish authorities to specify the number of
payments made and the amounts involved.

III. SPAIN'S COMMENTS

The Spanish authorities replied that they had not noti-
fied the Commission of the aid since, in their view, it
was not State aid but rather the action of a private
the
investor.
Balearic Islands' management of AGAMA had given
excellent results.

the Government of

In their opinion,

and

given the

suspended payments

In May 1991, following AGAMA's notification that it
had
social
consequences of the decision (most dairy farms on the
island sold their milk to AGAMA), Semilla, with the
assistance of Inmark SL, a company specialising in busi-
ness management, decided to buy AGAMA shares and
implement the measures proposed in an Inmark SL.
study to guarantee the company's viability.

In April 1992, Semilla sold its shares in AGAMA to
Granjas Braut and Granjas Son Seat SAT at a price
slightly above what it had paid. When the buyers failed
to make payment, Semilla cancelled the sales contract
and imposed the maximum penalty. The operation
produced an accounting loss of ESP 91 million
(EUR 546 921,02) for Semilla. However, the Spanish
authorities took the view that this was the least costly
action a private creditor could take. The payments due
totalled around ESP 500 million (EUR 3 005 060,52)
and the loss to Semilla would have been much greater if
it had not cancelled the contract.

(28) After Semilla had reacquired AGAMA, the Government's
intention was to restructure the company and sell it to
the private sector at the best price, achieving a satisfac-
tory return. It was decided to inject capital. AGAMA's
other shareholders also injected capital. The Spanish
authorities claim that this injection of capital shows that
the Government acted in the same way as a private
investor.

(29) AGAMA obtained

a

of

ESP 500 million
loan
(EUR 3 005 060,52) backed by a joint and several guar-
antee from the Government of the Balearic Islands. The
loan was repaid in March 1998. During the same period,
it took out unsecured loans from private financial insti-
tutions
ESP 300 million
approximately
(EUR 1 803 036,31), which were repaid in June 1999.
According to the Spanish authorities, this was necessary
in order to restructure the company.

totalling

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(30) However, although the Commission considers these
measures to be State aid, the Spanish authorities believe
that they meet the criteria laid down by the Commission
for restructuring aid, since:

(a) as regards restoring viability, Ernest & Young drew
up a restructuring plan, containing all the necessary
details, which was applied in full. Within a very
short period AGAMA was again viable. Proof of this
was the sale of AGAMA to the private sector at the
end of 1996 by a public tendering procedure to the
highest of four tenderers;

(b) as regards the prevention of distortions of trade,
production capacity was definitively reduced by
30 % and staff numbers were cut.
In addition,
AGAMA never sold its products below cost price;

restructuring,

(c) as regards the need for the aid to be proportional to
the costs and benefits of
the aid
constituted a ‘de minimis’ plan, which consequently
did not result in surplus liquidity, as can be seen
from the company's accounts. The aid was not used
to reduce the company's financial charges, since its
show liabilities of ESP 800 million
accounts
In addition, private financial
(EUR 4 808 096,84).
institutions granted AGAMA loans of
around
ESP 300 million (EUR 1 803 036,31) without a
Government guarantee;

(d) the restructuring plan was implemented in full,
although it was not notified to the Commission
since the Spanish authorities did not think it consti-
tuted State aid.

(31) As regards the complainant's charge that the State aid
allowed AGAMA to sell its products at below cost price,
the Spanish authorities have submitted AGAMA sales
invoices proving that this was never the case. Neverthe-
less, it is possible that, from time to time, a few retailers
did sell below cost price. However, this is part of the
the retailers concerned and
commercial strategy of
cannot be blamed on AGAMA. A study made of the
average price AGAMA charges for its milk has shown
that the company does not sell below cost price.

(32) Government intervention in AGAMA also benefited milk
producers, by enabling them to continue processing and
marketing their milk despite the fact that being on an
island prevents them supplying milk to neighbouring
regions at a competitive price.

by Royal Decree 1937/1995. Article 40 of that Regula-
tion provides for the postponement of repayment or the
payment in instalments of debts owed to the Social
Security Fund, both during the statutory repayment
period and during enforced payment, on request by the
debtors where their financial situation prevents payment
of the debt concerned. Postponement is granted when-
ever a request is made in advance and the conditions
laid down in the rules are met. The Social Security Fund
concludes such agreements, which work to its advan-
tage, in order to ensure that debts are paid. Interest at
the statutory rate is paid for
the period of post-
ponement.

IV. ASSESSMENT OF THE AID

Article 87(1) of the Treaty

(34) Article 37 of Regulation (EC) No 1255/1999 lays down
that Articles 87 and 88 of the Treaty apply to the
production and marketing of products listed in Article 1
of that Regulation.

(35) Under Article 87(1) of the Treaty, aid granted by a
Member State or through State resources in any form
whatsoever which distorts or
to distort
competition by favouring certain undertakings or the
production of certain goods, in so far as it affects trade
between Member States,
incompatible with the
is
common market.

threatens

(36)

There is a considerable amount of trade in milk between
Spain and the rest of the Community and the measures
in question may therefore affect trade in milk between
Member States and distort or
threaten to distort
competition by giving AGAMA preferential treatment.

Aid granted to AGAMA

First period

(37) During the first period (August 1990 to April 1992), the
Spanish Government intervened in favour of AGAMA
through the publicly owned company Semilla, which
paid off ESP 176 million (EUR 1 057 781,30) of
AGAMA's debts to financial institutions. Those institu-
tions waived ESP 706 million (EUR 4 243 145,46),
equal
to 80 % of AGAMA's total debt of ESP 882
million (EUR 5 300 926,76).

(33)

The postponement of the deadline for the payment of
social security contributions was granted by Decisions of
11 May 1992 and 3 June 1994, in accordance with the
General Regulation on the collection of contributions
and the resources of the social security system, approved

(38)

Semilla
also advanced AGAMA ESP 272 million
(EUR 1 634 752,92), equal to 85 % of the debt it owed
to milk producers, who waived 15 % of the total of
ESP 319 million (EUR 1 917 228,91) they were owed.

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Semilla also bought 6 681 AGAMA shares from milk
producers at the very advantageous price of ESP 1 700
or EUR 10,22 per share against a nominal value of
ESP 10 000 or EUR 60,10 per share, i.e. for a total of
approximately ESP 11 million (EUR 66 111,33), and
paid ESP 1 million (EUR 6 010,12) for an option on
11 674 shares at a total price of ESP 71 million
(EUR 426 718,59).

Semilla
of
(EUR 877 477,67) in AGAMA.

injected

capital

ESP 146 million

(46)

Finally, in April 1992 Semilla sold its shares in AGAMA
to Granjas Braut and Granjas Son Seat SAT for ESP 677
million (EUR 4 068 851,65), more than the Govern-
ment investment in the company.

(39)

(40)

ures required to make AGAMA viable). The sale of the
company at a price apparently higher than the cost of
the intervention does not mean that the operation was
not aid, particularly as the sale, which was subsequently
cancelled, resulted in significant losses for the Govern-
ment.

Consequently, the Commission is of the opinion that the
Government intervention in favour of AGAMA during
this first period (from August 1990 to April 1992)
cannot be considered to be the action of a private
investor but as State aid within the meaning of Article
87(1) of the Treaty. The Commission also considers that
the value of the aid was 100 % of the loans granted to
AGAMA by Semilla, amounting to ESP 176 million and
ESP 272 million, and 100 % of
the injection of
ESP 146 million and that the total aid was ESP 594
million (EUR 3 570 011,90).

(41) Government intervention in favour of AGAMA during
this period involved no financial cost to the State. On
the
ESP 71 million
(EUR 426 718,59) was made over a period of 20
months on an investment of
ESP 606 million
(EUR 3 642 133,35).

contrary,

profit

of

a

(42)

(43)

The Spanish authorities take the view that Government
intervention in favour of AGAMA can be compared to
the action of a private investor. That intervention was
preceded by a viability study carried out by an outside
consultant and resulted in a profit for the Government.

the

capital

(see Bulletin of

In accordance with the Commission communication to
Member States on public authorities' holdings
in
company
European
Communities 9-1984), State aid exists where the public
authorities contribute fresh capital
to a company in
circumstances that would not be acceptable to a private
investor operating under normal market conditions. This
is the case where the financial position of the company,
and particularly the structure and volume of its debt, is
such that a normal return (in dividends or capital gains)
cannot be expected within a reasonable time from the
capital

invested.

(44) Given AGAMA's financial position, it is highly unlikely
that
the company would have been able to obtain
capital on the capital market. No private company,
basing its decision on the company's expected profits,
would have provided capital.

Second period

(approximately

(47) During the second period, the purchasers of AGAMA,
after making an initial payment (approximately ESP 184
million or EUR 4 068 851,65) encountered financial
their financial
difficulties and were unable to meet
commitments
ESP 486 million or
EUR 2 920 918,83) to Semilla arising from the sale.
Under the circumstances, Semilla decided to cancel the
contract and recover its shares in AGAMA, resulting in a
loss of ESP 91 million (EUR 546 921,02). The loss
would have been much greater had the contract not
intended to reduce the
been cancelled. This action,
Government's losses to a minimum, was that of a
private investor who,
faced with external difficulties,
chooses the least costly solution.

(48) After

the
the Government had recovered AGAMA,
the
company faced financial difficulties because of
unsuccessful sale and a restructuring plan was therefore
drawn up and implemented. This involved restructuring
management and restructuring production with the aim
of reducing and modernising it.

(45)

The Commission is of the opinion that, at that point, the
Spanish Government could not be certain that the inter-
vention would produce a profit since it had no detailed
forecasts (the viability study did not contain a financial
perspective with figures but simply specified the meas-

(49)

The

Government
(EUR 1 280 155,78)

It was decided to inject capital of ESP 548 million
provided
(EUR 3 293 546,33).
ESP 213 million
the
and
remaining sum of ESP 335 million (EUR 2 013 390,55)
was obtaining by converting AGAMA's debt to Semilla
into equity capital
(to clear debts of approximately
ESP 272 million (EUR 1 634 752,92) to milk producers

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and around ESP 176 million (EUR 1 057 781,30) to
financial institutions, after creditors waived a part of the
debts concerned). However, since the Commission takes
the view that 100 % of the loans granted to AGAMA in
1990 was aid, this conversion into equity capital cannot
be regarded as new aid.

(50) AGAMA's other shareholders (holding approximately
in the same
its capital) also injected capital
3 % of
proportion as the Government, in accordance with their
shareholding
or
EUR 96 161,94). This capital injection was intended to
restructure the company in order to sell it to the private
sector and achieve a satisfactory return.

ESP 16 million

(approximately

(51)

(52)

(53)

the same conditions as

The fact that all the company's private shareholders also
the
injected capital under
Government could support the claim that the Govern-
ment acted in the same way as a private investor.
However, in view of the small number of shares held by
private shareholders,
the injection of capital by the
Government could be regarded as State aid and should
be assessed as such.

The Government of the Balearic Islands gave a guarantee
on a loan of ESP 500 million (EUR 3 005 060,52)
granted to AGAMA by the La CAIXA financial institu-
tion (5) in June 1994. The loan was repaid in March
1998. The guarantee constitutes State aid within the
meaning of Article 87(1) of the Treaty. In a letter sent to
the Member States (SG(89) D/4328 of 5 April 1989 (6)),
the Commission stated that Article 87(1) of the Treaty
applied to all guarantees given by Governments.

including

In that letter, the Commission also specified that guaran-
tees would be considered acceptable only if their mobili-
sation were made subject to specific conditions fixed by
compulsory
contract,
declaration of bankruptcy by the beneficiary enterprise
or an analogous procedure. Given that the Government
of the Balearic Islands agreed to recover from AGAMA
the sums covered by its guarantee should it be called
upon, this requirement can be regarded as being fulfilled.

the possibility of

Postponement of the deadline for the payment of contributions
granted by the Social Security Fund

(55)

(56)

The General Social Security Act provides for the post-
ponement of repayment and the payment in instalments
of arrears in social security contributions or surcharges
on contributions. A surcharge for delayed payment is
levied on debts.

The Social Security Fund may allow the payment in
instalments of arrears in social security contributions.
The Fund acts as a public creditor which, in the same
way as a private creditor, seeks to recover amounts
owed to it and, in order to facilitate repayment, reaches
agreements with debtors permitting repayment in instal-
ments. The interest usually applicable to this type of
debt is to offset the loss to the creditor caused by the
debtor's delay in repaying the debt,
interest on
arrears (see judgment of the Court of Justice of the
European Communities of 29 April 1999 in Case C-
342/96, Spain v Commission (7)).

i.e.

(57) According to the information supplied by the Spanish
authorities, the Social Security Fund allows payment in
instalments where debtors submit a request in advance,
their economic circumstances prevent them repaying the
debt and the conditions laid down in the rules are
fulfilled. Any company with cash-flow problems receives
the same terms. The Social Security Fund accepts such
solutions, which work to its advantage,
in order to
ensure that it recovers its debts.

(58)

The facilities for the payment of social security contribu-
tions granted to a company on a discretional basis by a
body responsible for their collection constitutes State aid
within the meaning of Article 87(1) of the Treaty where,
given the size of the economic advantage conceded, the
company could not have obtained comparable facilities
from a private creditor in the same situation with regard
to the company (see judgment of the Court of Justice of
29 June 1999 in Case C-256/97, Démenagements-Manu-
tention Transport (8)).

(59)

The Commission has verified that the action of the
Social Security Fund enabled it to recover the total loan,
in instalments, plus statutory interest, the debt being
paid off in full

in June 1999.

(54) AGAMA also obtained a postponement of the deadline
for the payment of its social security contributions. It
paid interest at the statutory rate for the postponement
and repaid the debt in 60 monthly instalments ending in
June 1999.

(5) Without prejudice to the nature of the loan from La Caixa.
(6) Letter to the Member States No SG (89) D/4327 dated 5 April
1989 was replaced by Commission Notice on the application of
Articles 87 and 88 of the EC Treaty to State aid in the form of
guarantees (OJ C 71, 11.3.2000, p. 14).

(60)

The Social Security Fund therefore acted in the same
way as a private creditor acting to recover a debt. The
Commission consequently concludes that the postpone-
ment of payment of AGAMA's debt
to the Social
Security Fund and application of the statutory interest
rate to that debt do not constitute State aid within the
meaning of Article 87(1) of the Treaty.

(7) [1999] ECR I-2459.
(8) [1999] ECR I-3913.

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L 267/59

Possible derogations from Article 87 of the Treaty

(61)

There are derogations from the principal of non-compa-
tibility laid down in Article 87(1) of the Treaty.

(62) Article 87(3)(c) lays down that aid to facilitate the devel-
opment of certain economic activities or of certain
economic areas that does not adversely affect trade to an
extent contrary to the common interest can be consid-
ered to be compatible with the common market.

(63)

The aid scheme under examination must be assessed in
the light of that subparagraph.

Assessment of the State aid granted

Rules applicable to the assessment of State aid

(64) Government intervention in favour of AGAMA during
the first period, in the form of an injection of capital,
taking-over of AGAMA's debt and the purchase of
shares, and during the second period, in the form of an
injection of capital and the provision of a guarantee,
constitute State aid. The Commission therefore exam-
ined whether it fulfilled its criteria for that type of aid.

(65)

(66)

Paragraph 101 of the Community Guidelines on State
aid for rescuing and restructuring firms in difficulty (9),
in force since 9 October 1999, states that the Commis-
sion will examine the compatibility with the common
market of any rescue or restructuring aid granted in
breach of Article 88(3) of the Treaty on the basis of the
guidelines in force at the time the aid is granted.

Prior to the introduction of the above guidelines, the
rules applicable were laid down in the Community
guidelines on State aid for rescuing and restructuring
firms in difficulty (10), in force from their publication in
the Official Journal of the European Communities, on 23
December 1994. The Commission referred to those
guidelines in its letter dated 16 May 1997, since they
were the ones in force at the time and, in the absence of
a reply from the Spanish authorities, the Commission
did not have details of either the amounts of aid granted
to AGAMA or the dates on which they were granted.

(67) However, all

the aid AGAMA received was granted
before the letter was sent. At the time the aids were
granted, the Commission was applying in the agricul-
tural sector, by analogy (11), the principles set out in
paragraph 228 of
the eighth report on competition
policy (12), which are that the aid must be strictly condi-

(9) OJ C 288, 9.10.1999, p. 2.
(10) OJ C 368, 23.12.1994, p. 12.
(11) Precedents: Commission Decisions 93/133/EEC (OJ L 55, 6.3.1993,
p. 54), confirmed by judgment of
Justice of 14
September 1994 in Case C-42/93 Spain v Commission ([1994]
ECR I-4175), and 94/343/EC (OJ L 154, 21.6.1994 p. 37).

the Court of

(12) Competition law in the European Communities, volume II: Rules
applicable to State aids (situation at 31 December 1989), p. 153.

tional on the implementation of a restructuring or
conversion plan that,
in the long term, effectively
restores the competitiveness of the product concerned
and that the aid must be limited to the strict minimum
needed to keep the company in balance during the
inevitable transitional period before such a programme
takes effect, which is a clearly defined period.

(68)

The principle of ‘one-off’ aid (‘one time, last time’) did
not yet exist. The Commission can therefore assess the
two Government interventions in favour of AGAMA
separately. It should also be pointed out that the finan-
cial difficulties experienced by Granjas Braut SA and
Granjas Son Seat SAT and their inability to complete the
purchase of AGAMA were not the fault of AGAMA and
neither could the latter have easily foreseen those
problems.

Assessment of the aid

a

implemented:

(69) With regard to the first Government intervention in
favour of AGAMA, an external consultant carried out a
viability study which set out the measures that needed to
be
reduction in staff
substantial
numbers, renegotiation of the company's debt with its
creditors, which resulted in the waiving of a substantial
proportion of its debt, and injection of capital by the
Government. The measures were implemented and the
company regained viability and could be sold within 20
months for a sum greater than the cost of the Govern-
ment intervention. A restructuring process could there-
fore be said to have begun.

(70)

The Government intervention involved no financial cost
to the Government but, on the contrary, produced a
profit of ESP 71 million (EUR 426 718,59). In actual
fact, the Government intervention in AGAMA, which
was later sold for ESP 677 million (EUR 4 068 851,65),
cost a total of ESP 663 million (EUR 3 984 710,25), i.e.
ESP 606 million (EUR 3 642 133,35) plus
interest,
which breaks down as follows: loans of ESP 176 million
(EUR 1 057 781,30) for the payment of debts to private
million
financial
(EUR 1 634 752,92) for the payment of debts to milk
producers and an injection of working capital of
ESP 146 million
addition,
ESP 11 million (EUR 66 111,33) was paid to buy
a
and ESP 1 million (EUR 6 010,12)
shares
purchase option. Even if 100 % of each of the loans is
regarded as aid, together with the injection of capital
(given the company's difficult situation when the loans
were granted), this gives total aid of ESP 594 million
(EUR 3 570 011,90).

(EUR 877 477,67).

institutions

ESP 272

and

for

In

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Official Journal of the European Communities

20.10.2000

(71)

The aid granted to AGAMA in the first Government
intervention therefore fulfilled the Commission's criteria
for this type of aid at the time it was granted.

(72) With regard to the second Government intervention, the
restructuring plan implemented permitted the company
to achieve long-term viability within a reasonable time
span. This is demonstrated by the fact that by 1996 the
company was making a small profit, which increased to
ESP 173 097 000 (EUR 1 040 333,92)
in 1998, and
that a number of private investors showed interest in
buying the company, which was finally sold to the
highest private bidder at the end of 1996. AGAMA was
sold through a publicised and unconditional public
tendering procedure and the sale did not
therefore
involve State aid.

(73) Moreover, the amount of aid was the strict minimum
needed to keep the company in balance, as can be seen
from the company's accounts, and the aid was propor-
tional to the costs and benefits of restructuring. In addi-
tion, it was not used to finance new investment uncon-
nected with restructuring or to reduce by an excessive
amount the company's financial charges.

(74)

(75)

a

of

capital

guaranteeing

The Government contributed to the restructuring plan
by
ESP 500 million
loan
(EUR 3 005 060,52) obtained by the company and
injecting
million
of
(EUR 1 280 155,78) as a shareholder of the company.
A part of that capital injection was made by converting
a debt of ESP 335 million (EUR 2 013 390,55)
into
equity capital. However, since the Commission takes the
view that 100 % of the loans granted to AGAMA in
1990 was aid, this conversion into equity capital cannot
be regarded as new aid.

ESP 213

For its part, in addition to the capital injected by private
investors (ESP 16 million), AGAMA itself contributed to
implementing the restructuring plan by means of two
loans obtained from financial institutions. One of these,
for ESP 500 million (EUR 3 005 060,52), was guaran-
teed by the Government, the other, for ESP 300 million
(EUR 1 803 036,31), was not guaranteed. The company
paid off the loans in March 1998 and June 1999 respec-
tively.

(76)

The costs of restructuring AGAMA were principally
redundancy payments to workers totalling ESP 205
million (EUR 1 232 074,81) and the provision of
working capital by paying off debts incurred by the
former owners (Granjas Braut SA and Granjas Son Seat

SAT) before the Government took over the company.
Those
ESP 580 million
(EUR 3 485 870,21).

amounted

debts

to

(77)

(78)

(79)

(80)

(81)

The Commission therefore considers that the total value
of the State aid granted to AGAMA was proportional to
the cost of restructuring and that the company contrib-
uted to an adequate extent to that restructuring.

Consequently, the aid granted to AGAMA in the second
Government intervention also fulfilled the Commission's
criteria for this type of aid at the time it was granted.

In addition, it should be pointed out that, the fact that
the territory is an island prevents milk being transported
to neighbouring regions at a competitive price, Govern-
intervention in AGAMA also benefited milk
ment
producers by allowing them to continue processing and
marketing their production. Furthermore, because the
territory is an island, AGAMA always has a market for
its products, despite the sector having surplus capacity.

Finally, it must be stressed that, although at the time the
aid was granted the Commission's criteria did not oblige
AGAMA to take measures to mitigate as far as possible
the
any adverse effects of
company did in fact do so by making a considerable cut
in its production capacity (30 %) and its staff numbers
(cut from 244 to 51).
In addition, according to the
documentation submitted by the Spanish authorities,
AGAMA did not sell its products at below cost price.

the aid on competitors,

V. CONCLUSION

The Commission concludes that Spain granted the aid in
question illegally, in infringement of Article 88(3) of the
Treaty. Nevertheless, the Commission takes the view that
the aid for restructuring AGAMA fulfilled the Commis-
sion's criteria for this type of aid at the time it was
granted and that it is therefore eligible for the derogation
provided for in Article 87(3)(c) of the Treaty, being aid
to facilitate the development of the sector concerned
without adversely affecting trading conditions to an
extent contrary to the common interest,

HAS ADOPTED THIS DECISION:

Article 1

The State aid granted by Spain to Asociación General Agraria
Mallorquina SA is compatible with the common market.

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Official Journal of the European Communities

L 267/61

This Decision is addressed to the Kingdom of Spain.

Article 2

Done at Brussels, 16 May 2000.

For the Commission

Franz FISCHLER

Member of the Commission