2001/102/EC: Commission Decision of 19 July 2000 on State aid granted by Austria to Lenzing Lyocell GmbH & Co KG (Text with EEA relevance) (notified under document number C(2000) 2454)
Date: 2000-07-19
Institutions: European Commission
Subjects: Austria, State aid, application of EU law, control of State aid, investment aid, textile fibre

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COMMISSION

COMMISSION DECISION

of 19 July 2000

on State aid granted by Austria to Lenzing Lyocell GmbH & Co KG

(notified under document number C(2000) 2454)

(Only the German text is authentic)

(Text with EEA relevance)

(2001/102/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

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,

Austria intended to provide investment aid of up to
40 % of eligible costs on the basis of the previously
approved regional aid scheme N 589/95. In response to
Austria's written request of 30 August 1995,
the
Commission informed Austria by letter of 5 October
1995 that if grants were provided under this approved
regional scheme, no individual notification would be
required. The Commission also reminded Austria that it
had to inform the Commission in due time before
providing any State guarantees.

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

Whereas:

(3)

1. PROCEDURE AND BACKGROUND

(1)

In several letters and at various meetings in 1994 and
1995, Austria informed the EFTA Surveillance Authority
and the Commission that it intended to grant State aid
to the company Lenzing Lyocell GmbH & Co KG, Heili-
genkreuz (LLG). LLG forms part of the Austrian Lenzing
Group, one of the world's largest producers of viscose
fibres. Beginning in 1995, LLG established a new
production plant at the Business Park Heiligenkreuz-
Szentgotthard (Business Park) to manufacture Lyocell, a
new type of man-made staple fibre, produced from
natural cellulose in wood pulp. Only Lenzing AG and
the British chemicals group Courtaulds plc (2) have
patent rights to produce this fibre. The Business Park is a
cross-border project between Austria and Hungary. LLG
is situated in the Province of Burgenland, Austria's only
Article 87(3)(a) region. Investment costs amounted to
EUR 138 million.

(1) OJ C 9, 13.1.1999, p. 6.
(2) In July 1998 Courtaulds plc became part of Akzo Nobel, an inter-
national pharmaceuticals, coatings, chemicals and fibres company
based in the Netherlands.

(BPH)

By letter dated 21 April 1997, Austria forwarded to the
Commission application forms for ERDF co-financing
on two large-scale investment projects at the Business
Park, carried out by the companies Business Park Heili-
and Wirtschaftspark Heiligenkreuz
genkreuz
In these documents,
Servicegesellschaft mbH (WHS).
Austria stated that
the interest of LLG had had an
important impact on the development activities in the
Business Park by BPH. Furthermore, Austria stated that
WHS would invest in a utility centre to provide basic
process utilities, such as electricity, process steam, fresh
water, cooling water, compressed air, and waste-water
treatment primarily to LLG. Austria also indicated that
the Province of Burgenland would have to provide
grants to WHS to cover expected negative cash flows
resulting from the supply of infrastructure service at
prices guaranteed over a period of 30 years.

(4)

The Commission started to re-investigate the case and
informed Austria by letter dated 23 December 1997 that
it had transferred the case to the NN-register for non-
notified State aid. Further meetings and correspondence
failed to clarify the Commission's concerns. Austria
argued that a number of aid measures would be covered
by approved or existing aid schemes.

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(5)

the Commission decided to
On 14 October 1998,
initiate the formal investigation procedure under Article
88(2) of the EC Treaty on the following measures and
informed Austria by letter of 29 October 1998:

(d) environmental aid of EUR 5,4 million, possibly
the Environ-

granted in incorrect application of
mental Aid Act.

(a) state guarantees

for grants and loans

totalling

EUR 50,3 million;

(9)

(6)

(7)

(8)

(b) low land prices of EUR 4,4 per m2 for 120 hectares

of industrial

land;

(c) price guarantees for basic process utilities (electricity,

gas, water, etc.) over a period of 30 years.

In the same letter, the Commission called on Austria to
provide all necessary information to enable an assess-
ment
to be made of a number of measures which
Austria claimed were covered by existing or approved
schemes.

The Commission's decision was published in the Official
Journal of the European Communities (3). The Commission
received five sets of comments from interested parties
which it passed on to Austria. The comments, all nega-
tive, were submitted by three competitors, one fibre
association and the Permanent Representation of the
United Kingdom to the European Union.

By letters of 15 March and 16 and 28 April 1999,
Austria replied to the Commission's letter of 29 October
1998. From these replies it became clear that several of
the aid measures were not covered by any approved or
existing scheme. The Commission thus had to assess
these measures as new aid directly under the provisions
of Article 87 of the EC Treaty. Furthermore, environ-
mental aid seemed not
to have been granted under
correct application of Austria's Environmental Aid
Act (4). As the preliminary examination also led to
serious doubts about
these aid
measures with the common market, the Commission
decided on 23 June 1999 to extend the formal invest-
igation procedure to the following measures:

the compatibility of

(a) ad-hoc investment aid of EUR 0,4 million for the

land purchase;

(b) ad-hoc equity participation of EUR 21,8 million

over 30 years and a 1 % p.a. return;

(c) company-specific

infrastructure

connections

involving an unknown aid amount;

The decision to extend the formal investigation proce-
dure was published in the Official Journal of the European
Communities (5) and interested parties were invited to
comment. The Commission received three sets of
comments from interested parties, namely from two
industrial associations which commented favourably on
the aid measures, and from the United Kingdom Perma-
nent Representation, which took a negative view.

(10) Austria replied by letter of 4 October 1999 and, after
another meeting with Commission staff on 8 December
1999, provided further information by letters of 25
February and 27 April 2000.

(11)

In addition to the aid for the measures referred to in
points 5, 6 and 8, for which the Commission initiated
investigation procedure, LLG had been
the formal
financial measures. These concerned
granted further
EUR 24,7 million in grants by the Province of Burgen-
land, of which EUR 14 million were granted according
to the regional aid scheme ‘Burgenland investment
allowance programme’ approved under number N 589/
95. Moreover, EUR 12,6 million were granted under the
Federal Labour Act to train new personnel. Finally, a
grant of EUR 0,8 million for training is considered a
general measure, not constituting aid. In its decisions to
initiate and to extend the formal investigation procedure,
the Commission noted that the total amount of all the
aid measures appeared to exceed the regional aid ceiling
of 40 % net grant equivalent.

2. DESCRIPTION OF THE FINANCIAL MEASURES

(12) Measure 1: State guarantees

for grants and loans of

EUR 50,3 million

In its decision to initiate the procedure, the Commission
doubted that LG had paid commercial rates for several
guarantees and that they were provided under approved
or existing schemes. By letters of 15 March 1999 and 24
February and 27 April 2000, Austria reported the
following facts on committed state guarantees for grants
and loans:

(3) See footnote 1.
(4) Bundesgesetzblatt No 185/1993.

(5) OJ C 253, 4.9.1999, p. 4.

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(a) on 2 July 1996 the Stte-owned Wirtschaftsservice
Burgenland AG (hereinafter WiBAG) granted LLG on
the basis of an approved scheme (6) a guarantee for
an European Recovery Programme (ERP)
loan of
EUR 14,5 million. This guarantee runs until the end
of 2004, covering two linearly degressive amounts
of outstanding credit;

(14)

By letter dated 19 September 1995, Austria stated that
LLG on 29 May 1995 bought 120 hectares of land
directly from several private landowners for EUR 4,4
per m2.
In documents submitted on 21 April 1997,
Austria stated that, at the Business Park, BPH planned to
sell land with railway access for EUR 32,5 per m2 and
land without railway access for EUR 25,3 per m2. The
Commission therefore had serious doubts whether the
land price of EUR 4,4 per m2 could be considered a
market price.

(b) on 28 June 1996 a consortium of commercial and
public banks including Erste Bank and Hypo-Bank
Burgenland AG provided a guarantee for an ERP
loan of EUR 21,8 million which, like the guarantee
referred to in (a), runs until the end of 2004;

(15)

(c) on 18 October 1996 WiBAG provided a guarantee
for a EUR 1,4 million loan that had been granted
from the ERP Fund to LLG as an interest subsidy.
The guarantee applies only in the event that LLG
does not fulfil its contractual obligations in connec-
tion with the subsidy;

(d) on 17 December 1996 WiBAG provided a guarantee
to the Federal Ministry of Labour and Social Affairs
for EUR 10,35 million that the latter ministry had
granted to LLG;

(e) on 23 December 1996 and 8 July 1997 WiBAG
provided another guarantee to the Federal Ministry
of Labour and Social Affairs for EUR 2,25 million
that the ministry had disbursed in connection with
EU co-financing for regional aid.

(13) Measure 2: Low prices of EUR 4,4 per m2 for 120 hectares

of land

The Province of Burgenland made commitments in a
contract (Burgenland Vertrag), signed on 21 March 1995
by the Province of Burgenland and 14 June 1995 by
LLG. One of several aid measures in the contract
concerns the commitment to offer to LLG at least 100
hectares of land appropriate for the intended industrial
use of LLG and not costing more thap EUR 44 per m2.
In a side-letter, the Province of Burgenland undertook to
provide more land under the same conditions.

By letter of 15 March 2000, Austria clarified that at the
beginning of the contract negotiations between LLG and
the private owners all land was designated as agricultural
land in the land destination plan (Flächenwidmungs-
plan). However, at the date of signature,
i.e. 29 May
1995, the designation had been changed to industrial
use. LLG bought the Land completely undeveloped and
had to arrange all the necessary onsite infrastructures
itself.

(16) Measure 3: Fixed prices over 30 years for basic process media

In point 6 of the side-letter to the Burgenland Vertrag,
the Province of Burgenland undertook to provide LLG
with basic process media, i.e. electricity, process-steam,
process-water, cooling, pressurised air, water treatment
and waste disposal. The Province of Burgenland guaran-
teed fixed prices for all these services for a period of 30
years, the prices being geared to the average electricity
price in the EU.

(17) Austria explained that such price guarantees were neces-
sary at the time when the Business Park was only just
being developed, but that in any case the prices repre-
sented market prices. In particular, Austria took the view
that the basic process utilities would be delivered by
private undertakings and should therefore be considered
market prices.

(18)

In its decision of 14 October 1998 initiating the formal
the Commission requested
investigation procedure,
evidence that the prices were market prices, in particular
because it had the following indications to the contrary:

(6) Notified under N 542/95: Richtlinie betreffend die Ubernahme von
Burgschaften fair Kredite and Darlehen gemäß dem Gesetz vom 24.
März 1994, Landesgesetzblatt No 33/1994, über Maßnahmen zur
Gewährleistung der wirtschaftlichen Entwicklung im Burgenland,
Landes-Wirtschaftsförderungsgesetz 1994-WiföG.

(a) a private utility would not have entered into a
contract to provide basic process utilities at fixed
prices over 30 years, when at the same time LLG
had the option to terminate the contract already
after five years;

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(b) in its ERDF cofinancing application, Austria had
indicated that
the Province of Burgenland would
have to provide grants to the utility operator WHS
to cover expected negative cash flows from the
provision of basic process utilities to LLG.

(24)

In its letter of 15 March 1999, Austria stated that this
participation was not granted under any existing or
approved aid scheme. As explained in its decision of 23
June 1999, the Commission therefore examined the aid
as ad hoc aid under the provisions of Article 87 of the
EC Treaty. It is not clear from the equity participation
contract that the capital provided had an investment
the Commission noted that no
purpose. Moreover,
investment costs or
investment-timetables had been
fixed as a precondition for the capital injection. Finally,
the Commission considered the regional justification of
the aid to be insufficient.

(25) Measure 6: Company-specific infrastructure connections of an

unknown aid amount

In Article 4 of the ‘Burgenland Vertrag’, the Province of
Burgenland undertook to build the infrastructure for
supplying LLG with electricity, process-water, telecom-
munications, water treatment and waste disposal and to
provide access to the site with appropriate road and
railway facilities. The Province of Burgenland was to pay
for this infrastructure development. BPH developed and
paid for the infrastructure at
It
provided access to LLG's site with roads, railway, water
supply, sewage treatment, electricity, natural gas and
telecommunications. Companies in Austria are usually
required to pay a fee for State-provided infrastructure
developments.

the Business Park.

(26) Austria consistently argued that

this

infrastructure
investment did not constitute state aid to LLG as any
company at the Business Park could take advantage of
the infrastructure. The Commission held that, as evident
from Austria's letter dated 21 April 1997, the develop-
ment of the Business Park took into account specific
requirements of LLG and that, for example, the railway
access to LLG's site could be used only by LLG. The
Commission therefore held that LLG benefited from
company-specific
connections. Austria
also argued that BPH was a private investor. The
Commission requested evidence of this.

infrastructure

(19)

The Commission asked Austria to provide proof that
LLG was paying commercial prices to WHS, including
depreciation for fixed capital costs of the utility centre.
Similar evidence was requested for the waste-water treat-
ment plant operated by the Abwasserverband Bezirk
Jennersdorf.

(20)

By letter of 25 February 2000, Austria submitted a
declaration by LLG that it was waiving all price guaran-
tees for all basic process media.

(21) Measure 4: Ad-hoc investment aid of EUR 0,4 million for

the land purchase

As specified in Article 2 point 2.2 of the Burgenland
Vertrag, the Province of Burgenland granted EUR 0,4
million in aid for the acquisition of land. The sum was
transferred to LLG on 16 October 1995.

(22)

By letter of 15 March 1999, Austria stated that it had
granted the aid as ad-hoc aid, and not under any
approved or existing aid scheme. Austria also declared
that the aid was investment aid and was justified by its
regional objective as described in the Burgenland
Vertrag. In its decision of 23 June 1999 to extend the
formal
the Commission
requested further justification of the regional significance
of the investment aid which LLG had received for the
acquisition of land.

investigation

procedure,

(23) Measure 5: Ad-hoc equity participation of EUR 21,8 million

over 30 years and a 1 % annual return

On 28 June 1995 and 13 July 1995, WiBAG and LLG
signed a contract on a dormant equity participation
(echte stifle Beteiligung), whereby WiBAG provided
capital of EUR 21,8 million. The participation procures
WiBAG a 1 % annual return on its invested capital. As
specified in the most recent side-contract, WiBAG will
ask for a market-oriented return after expiry of the 30
years. The dormant partnership capital thus resembles a
soft loan with a 30-year maturity. Austria stated that,
due to the abnormally low return on investment, it was
clear that WiBAG did not act as a market-economy
investor.

(27)

Finally, Austria claimed that LLG was simply benefiting
from its geographic proximity to the place where the
infrastructure was in any case being developed for the
Business Park.
In its decision of 23 June 1999, the
from the
Commission had already pointed out that,
descriptions provided on the connections and taking
account of the current information on the establishment
of other companies, there was no basis to conclude that
the measures were general measures for the Business
Park.

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(28) Measure 7: Environmental aid of EUR 5,4 million

By letter dated 11 January 1996, the State-owned Öster-
reichische Kommunalkredit AG (ÖKK) stated that it was
providing on behalf of the Federal State an environment-
related investment grant of EUR 5,4 million on environ-
mentally related investments of EUR 11,1 million. The
aid was provided under Article 12(5) of the Environ-
mental Aid Act (Umweltförderungsgesetz) and the corre-
sponding scheme of 1993 (Förderungsrichtlinien). The
Act and the scheme were notified to the EFTA Surveil-
lance Authority as existing aid, registered under N 93/
148, and were in force at the time the granted was
provided in 1996.

(29)

The aid was provided in two instalments. The first instal-
ment amounted to EUR 1,9 million and included 50 %
cofinancing by the ERDF for research and development
activities. The second instalment amounted to 36
million. Austria had provided a list of eligible cost items
for investments in machinery and process units. The aid
In its
intensity amounts to 50 % for pilot projects.
decision of 23 June 1999, the Commission endorsed
this classification as pilot project.

(30)

In its decision of 23 June 1999,
the Commission
expressed the following doubts as to the correct applica-
tion of the existing aid scheme:

(a) the environmental scheme stipulates that eligible
projects must relate to production methods for the
reduction of pollution. The Commission asked
Austria to provide evidence for such pollution reduc-
tion potential of the particular investment, i.e. the
environmental benefit that can be attributed to it;

(b) in providing evidence of the environmental benefit
of the LLG production process as compared with
traditional viscose production processes, Austria
would have to demonstrate why specific items were
considered eligible for environmental aid and what
were their eligible costs.

3. ASSESSMENT OF THE AID MEASURES

(31) Measure 1: State guarantees

for grants and loans of

EUR 50,3 million

Austria has stated that the EUR 14,5 million guarantee
that WiBAG granted to LLG was granted on the basis of
an approved guarantee scheme (7). The main condition

(7) See footnote 6.

of this scheme is the required innovative character of the
new investment. As Austria has demonstrated that the
investment concerns an innovative product and an inno-
vative production process, the Commission considers
this condition and other conditions of
the scheme
fulfilled. The measure is therefore existing aid.

(32)

In order to determine whether the regional aid ceiling
has been complied with, the Commission calculates the
aid equivalent of the guarantee. The Commission bases
its calculation on the price the creditor would have to
pay under normal market conditions for a similar guar-
antee. By means of declarations from the private bank
Oberbank, Austria has provided evidence that a 0,625 %
annual fee would have been a market price for such a
guarantee for LLG. In view of this, and in view of the
decreasing amounts to be covered,
the Commission
calculates the aid equivalent to amount to EUR 0,47
million.

(33)

Regarding the guarantee on a loan of EUR 21,8 million
granted by a consortium of commercial and public
banks, Austria has made it clear that LLG pays commer-
cial rates, i.e. 0625 % annually, as stated in paragraph
32. The Commission therefore considers no State aid to
be involved.

(34)

(35)

The guarantee that WiBAG granted to the ERP covers a
grant of EUR 1,4 million.
In its letter of 15 March
this guarantee merely
1999, Austria explained that
concerns cession of right between ERP and WiBAG in
case LLG does not fulfil important contractual obliga-
tions. Austria has made it clear that this is a standard
clause in grant contracts. Austria also explained that the
guarantee provided by WiBAG had not been a pre-
condition for the ERP grant. The Commission therefore
takes the view that what
is involved is simply the
cession of rights to reclaim the subsidy between two
state institutions. As this guarantee does not commit
State resources or confer a benefit on LLG, the Commis-
sion considers this guarantee not to constitute State aid
within the meaning of Article 87(1) of the EC Treaty.

and

Labour

The two guarantees WiBAG provided to the Federal
Ministry of
covering
EUR 10,35 million and EUR 2,25 million also concern
cessions of rights between two State institutions. For the
same reasons as those set out for the measure above, the
Commission does not consider them State aid.

Social Affairs

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(36) Measure 2: Low prices of EUR 4,4 per m2 for 120 hectares

of land

the considerably higher price that BPH planned to
charge for other developed plots of land.

Presenting the contracts and statements of the main
sellers, Austria provided conclusive evidence that the
company acquired the land directly from private individ-
uals for a price that was at least twice the level for
comparable farmland. The individuals had not received
any other benefits from state resources or LLG. Some
other owners had refused to sell.

(37)

The Commission noted the change in the land destina-
tion plan from agricultural use to industrial use. Austria
declared that
the change of designation took place
before LLG and the private sellers signed the purchase
contracts. Austria also pointed out that the LLG plot,
although legally speaking not part of the Business Park,
was part of the same overall Business Park concept and
BPH had at the same time paid the same price for all the
land in the Business Park.

(38)

From the above elements the Commission concludes
that LLG did not benefit from any company-specific,
State measure or
received any transfers of State
resources. There is therefore no State aid element hidden
in the land price of EUR 4,4 per m2 paid by LLG.

(39)

In drawing this conclusion the Commission also had
regard to its assessment of the fact that future compa-
nies in the Business Park could acquire developed land at
a price at least six times as high as that paid by LLG.
Austria
responded by emphasising that LLG had
acquired its land undeveloped and had paid all the devel-
opment costs itself. Austria also presented calculations,
the investment plan and balance sheets of
the park
developer BPH. These calculations showed that the price
difference can be almost fully explained by the develop-
ment costs BPH incurred for the plots. The remaining
price difference can be explained by costs for infrastruc-
ture connections of the individual plots in the Business
Park. As future purchasers of land would have to pay for
these connections while LLG did not have to pay for any
connections to infrastructure, the Commission had also
queried this point (see measure 6, recitals 58 to 60).
However, Austria agreed to make LLG pay a major share
of the infrastructure connection costs for the Business
Park. Consequently, there remain no unexplained cost
differences between the land purchase price of LLG and

(40) Measure 3: Fixed prices over 30 years for basic process media

In its decision of 14 october 1998, the Commission
requested evidence that
the prices for services were
market prices. Such prices would in particular have to
cover the costs for depreciation of investments in fixed
capital incurred by WHS in setting up the utility centre
and by Abwasserverband Bezirk Jennersdorf (ABJ) for
constructing the waste-water treatment plant.

(41) Austria has provided the following evidence:

(a) a detailed model calculation carried out by a
renowned energy provider, showing that the prices
for basic process media agreed with WHS are higher
than if LLG had, with the help of
this energy
provider, built the utility centre itself. According to
this calculation, WHS charges LLG prices that are
about 5 % higher than would have been the costs of
self provision;

(b) WHS

an

operates

up-to-date

energy-efficient
combined heat and power plant whose costs in
general compare rather favourably with other energy
and process media providers. As in such a plant
different media are simultaneously generated,
it is
not easily possible to compare prices for individual
media with those of other providers. Prices can,
however, be compared with a comparable media
centre at Lenzing AG, the parent company of LLG.
Internal calculations show that
the same mix of
media would be available at considerably lower costs
at the main location at Lenzing, outside Burgenland;

(c) comparisons with other waste-water

treatment
plants showed that the waste-water treatment price
of EUR 0,5 per m3 represents a normal market
price. Austria also demonstrated that full costs of the
treatment plant,
including full depreciation for
investments, would be less than EUR 0,4 per m3.
The price structure can be regarded as normal in the
cost-
waste-water
covering prices and so as to remove any remaining
doubts on possible state aid, Austria confirmed in
writing that LLG was now prepared to pay a further
EUR 0,3 million in connection costs for surface
water drainage;

In addition to these

sector.

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(d) on 25 February 2000 LLG declared in writing that it
was waiving all price guarantees for all basic process
media. This removed any aid element that might be
inherent in the 30 year price guarantee as stipulated
in the ‘Burgenland Vertrag’. LLG paid the market
prices referred to above already before the date of
this waiver.

(42) As Austria demonstrated that LLG has paid and will pay
prices for basic process media that are higher than
would have been the cost of self provision, that these
prices are higher than those at other company locations
and that the prices cover the full costs of provision,
including depreciation on investments, the Commission
accepts Austria's argument that price guarantees were
necessary only because at the time LLG decided on its
investment, there was no infrastructure at all in place.
Since furthermore these price guarantees have been
waived, the Commission considers that the contracts
between WHS and LLG, and between the ABJ and LLG,
contain no element of State aid. Finally, in view of the
evidence provided, the Commission sees no need to
further
the media
providers are private companies and act as such.

assess Austria's

argument

that

(43) Measure 4: Ad-hoc investment aid of EUR 0,4 million for

the land purchase

In its letter of 15 March 1999, Austria states that the aid
was granted as ad hoc regional investment aid. New aid
is notifiable pursuant to Article 88(3) of the EC Treaty.
Austria thus failed to fulfil
its Treaty obligation by
granting the aid without prior approval of the Commis-
sion.

maceuticals, coatings, chemicals and fibres company
based in the Netherlands is LLG's main competitor. In
addition, LLG might also be in competition to a number
of other fibre producers situated in several Member
States. The overall
fibre market suffers from over-
capacity. The stated measures, therefore, may be liable to
affect the economic position of competitors from other
Member States. Consequently, the measures constitute-
tate aid within the meaning of Article 87(1) of the EC
Treaty and Article 61(1) of the EEA Agreement, as they
may distort or threaten to distort competition and affect
trade between Member States.

(46) Article 87 of the EC Treaty allows exemptions from the
principle of
incompatibility of State aid with the
common market. Under Article 87(2) of the EC Treaty,
certain types of aid are compatible with the common
market. However, the aid in question neither (a) has a
social character, granted to individual consumers, nor (b)
does it make good the damage caused by natural disas-
ters or exceptional occurrences, nor (c) is the aid granted
to the economy of certain areas of the Federal Republic
of Germany. Nor does the exemption provided for in
Article 87(3)(b) EC Treaty for projects of common Euro-
pean interest apply.

favours

aid that

the development of

(47) Article 87(3)(c) of the EC Treaty contains an exemption
for
certain
economic activities, where such aid does not adversely
affect trading conditions to an extent contrary to the
common interest. Such aid is governed by specific
Community
the Commission
considers that none of the Community guidelines, such
as those for rescue and restructuring, for research and
small and
the environment,
development,
medium-sized enterprises and for employment and
training, could apply.

guidelines. However,

for

for

(44) Where new individual aid is granted, the Commission
has to assess its compatibility with the common market
directly in the light of Article 87 of the EC Treaty.
Article 87(1) stipulates that, save as otherwise provided
in the EC Treaty, any aid granted by a Member State or
through State resources which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods shall,
in so far as it
affects trade between Member States, be incompatible
with the common market.

(45)

The ad hoc grant of investment aid provides a benefit to
LLG helping it to significantly reduce its investment
costs. The aid thus has a significant and sustained posi-
tive impact on LLG's financial position. In the area of
Lyocell production, Akzo Nobel, an international phar-

(48) Austria stated in its letter of 15 March 1999 that the aid
has a regional objective for the Province of Burgenland.
The EC Treaty establishes an exemption for regional aid
under Article 87(3)(a), stating that aid may be consid-
ered compatible with the common market if it promotes
the economic development of areas where the standard
of living is abnormally low or where there is serious
underemployment. For initial investment aid, point 4.4
the relevant Community guidelines on national
of
regional aid sets out
the conditions for a possible
exemption (8). As the Court of Justice established in the
Hytasa case, the Commission has to assess such aid as to
its fulfilment of the requirements of regional aid under
Article 87(3)(a) and prohibit the aid if it considers it
incompatible with the common market.

(8) OJ C 74, 10.3.1998, p. 9.

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(49)

By letter of 4 October 1999, Austria provided further
evidence on the regional significance of the aid and
made it clear that the aid was granted as part of the
overall package of the ‘Burgenland Vertrag’. As such,
there is a clear link between the purpose of this regional
investment aid and the eligible costs and the envisaged
investment
timetable that were provided earlier. The
‘Burgenland Vertrag’ also describes the regional signifi-
cance of the aid. By letter of 4 October 1999, Austria
provided further information on the regional signifi-
cance of the aid and on the proportionality of the aid
package to any anticipated distortion of European
competition. In particular Austria emphasised the diffi-
cult economic situation in the Province of Burgenland
(Süd-Burgenland) where the project will lead to the crea-
tion of 150 new permanent and highly skilled jobs. The
investment is also expected to generate catalytic effects
for the region by attracting other companies to settle in
the region and by the indirect employment created in
the region, mainly with suppliers and customers.

(50) Austria believes the competition impact will be very
limited. In its view, no unnecessary production capacity
will be created by LLG, because the product Lyocell is
sold as a new product for which the market outlook is
favourable. For this reason,
there are also no over-
capacities in Europe on the market for Lyocell fibres.

(51) As regards the regional significance of

the
Commission has now sufficient information to assess
the regional importance of LLG's project for the Prov-
ince of Burgenland,
in particular as the link between
investment costs and the regional objective has been
clarified by Austria.

the aid,

(52)

Regarding the competition impact, the Commission has
to consider in this particular case whether Lyocell and
viscose fibres belong to two distinct product markets or
the same product market. As the development trend and
market products for Lyocell are quite different from the
general downward trend of the overall viscose fibres
market, and since they must therefore be regarded as
separate markets, the Commission concluded that the
competition impact of LLG's investment will be rela-
tively small. The Commission noted already in its
Decision of 23 June 1999 that Austria considered the
product market for Lyocell fibres to be distinct from the

appraisal was
fibres market. This
general viscose
confirmed by the comments received from interested
parties. In addition, the Commission also referred in the
abovementioned Decision to its similar conclusions in
its Decision of 30 June 1998 in the merger case IV/
M.1182 Akzo Nobel/Courtaulds (9). Taking into account
the fact that the product qualities of Lyocell are viewed
as different by customers and considering also the signif-
icantly higher prices (about twice as high) for Lyocell
(and Tencel) fibres as compared to normal viscose fibres,
the Commission considers, for the purpose of this case,
the two product markets to be sufficiently distinct to
regard the competition impact as relatively limited.

(53)

In view of the above assessment and since land is eligible
under the guidelines on national regional aid (point 4.8),
the Commission can approve this ad hoc regional invest-
level of aid stays
ment aid provided that the overall
below the regional aid ceiling for
the Province of
Burgenland, 40 % net grant equivalent (see assessment in
recitals 54 to 66).

(54) Measure 5: Provision of equity capital of EUR 21,8 million

By letter of 15 March 1999, Austria confirmed that the
capital participation had not been granted under any
approved aid scheme. In its decision of 23 June 1999,
the Commission determined the aid character of the
measure, which was to be regarded as a soft
loan.
Following Austria's written declarations that market
rates will have to be charged after the 30 year time
period, this soft loan has a 30-year maturity and confers
a 1 % return on capital to WiBAG.

(55) With regard to measure 5, Austria provided by letter of
4 October 1999 further evidence on the regional impor-
tance of the aid and made it clear that the aid was
granted as part of the overall package of the Burgenland
Vertrag. As such, the purpose of this regional investment
aid is clearly linked to the eligible costs and the envis-
aged investment timetable that were provided earlier.
With regard to measure 5 the Commission therefore
endorses the regional justification of this equity capital
provision.

(56)

The Commission has satisfied itself that the measure is
permissible as eligible costs under the guidelines on
national regional aid. As specified in the Burgenland
Vertrag, the capital was used for investment in plant and
machinery. The Commission therefore
the
regional nature of the aid as justified.

regards

(57) Austria claims that

the equity
the aid equivalent of
is EUR 12,3 million, calculated by applying
capital
market
the Commission has
interest rates. However,
published reference interest rates it uses when calcu-
lating ex-ante the grant equivalent of such an interest

(9) OJ C 265, 22.8.1998, p. 28.

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subsidy scheme for loans (10). The reference rates are
supposed to reflect the average level of interest rates
charged, in the various Member States, on medium and
long-term loans (five to 10 years) backed by normal
security. The equity measure, however, covers a 30-year
period. The Commission considers it reasonable and
appropriate, on the basis of its experience, to use current
interest rates for the remaining 25 years in order to
make the relevant period as short as possible, and to use
for the past years the reference rate in force at the date
the aid was granted. Accordingly, the grant equivalent of
the aid is EUR 15,38 million.

Park. In this assessment the Commission has considered
Austria's argument that LLG was the site's first and lead
investor. Therefore granting favourable conditions to the
company would be in the commercial interest of both
BPH and WHS. These claims were substantiated by
financial data and the original argumentation documents
at the time of setting up the park.

(60)

The Commission concludes that there is no element of
State aid involved in the provision of infrastructure by
WHS and BPH to LLG.

(58) Measure 6: Company-specific infrastructure connections of an

unknown aid amount

(61) Measure 7: Assessment
EUR 5,37 million

of

the

environmental

aid

of

By letter of 27 April 2000, Austria presented new agree-
ments between LLG and BPH, as well as between LLG
and WHS, under which LLG will participate in the infra-
structure costs that were incurred in providing connec-
tions. Under these agreements, LLG will pay a total of
EUR 0,7 million for roads, waste-water treatment facili-
ties, electricity, gas and other pipes from the utility
centre, water provision and fire protection facilities.
This, according to Austria, represents 24 % of the overall
costs for these infrastructure facilities in the Business
Park. In addition to these costs, LLG will in future itself
bear further costs of EUR 2,4 million to develop the
infrastructure connections on its own plot. Finally, LLG
will pay for the railway link a fee of EUR 0,3 million
over 15 years.

In order to consider the approved Environmental Aid
Act correctly applied, the Commission had to check that
the investment to be aided was clearly for ‘production
methods for the reduction of pollution’ (Herstellungs-
maßnahmen zur Verringerung von Umweltbelastung), as
stipulated in Article 23(1)(1), in conjunction with Article
1(1) of the corresponding aid guidelines. Austria reit-
erated in its reply of 4 October 1999 that the environ-
mental benefit of
the specified equipment could be
demonstrated only in comparison with the old Viscose
production process.

(59)

From its assessment of these contracts and the complete
information, provided partly in the form of an indepen-
dent report, on the finances of the developers WHS and
BPH, the Commission concludes that, since it is now
paying for the connections, LLG does not benefit from
any specific infrastructure development at the Business

(10) See Commission notice on the method for setting the reference

and discount rates (OJ C 273, 9.9.1997, p. 3).

(62) Austria argues that the new Lyocell process is a product
there is no other measure for
innovation. As such,
comparison than the
closest possible predecessor
process, which is the regular viscose production process.
Austria further holds that the assessment according to
the Environmental Aid Act does not have to be based on
a comparison of the final products and their relevant
markets, but allows focusing on the production process
for the closest possible alternatives. In support of this
argumentation, Austria has provided further evidence on
the application of this scheme. By letter of 25 February

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(63)

(64)

(65)

2000, Austria provided as further support all the docu-
ments underpinning the decision of the ÖKK.

The Commission also requested further information on
the eligible costs, their clear attribution to certain equip-
ment parts, the environmental potential of this equip-
ment, and the avoidance of any double counting with
other eligible costs, including the questions on simulta-
neous research and development financing. By letter of 4
October 1999, Austria clarified the exact costs of the
eligible items and ruled out the possibility of any double
counting in relation to research and development aid
provided by EU cofinancing. The attribution of eligible
cost items is now, after finalisation of the investment,
clearly demonstrable.

Regarding the environmental potential of the invest-
ment, Austria provided further clarification by letter of 4
October 1999. This included statements that, with these
eligible
equipment parts, LLG was going beyond
minimum specifications in pursuit of additional environ-
mental benefits. Furthermore, by letter of 25 February
2000, Austria provided an expert opinion detailing the
environmental potential of
the relevant equipment
items, also in quantitative terms. The Commission
regards this expert opinion as further evidence of the
high additional
the
investment.

contribution of

environmental

The Commission concludes that Austria has established
that,
in this instance, the viscose production process
constitutes the next best alternative for environmental
benefit comparison purposes. Considering the new
information on eligible costs and the environmental
potential of these cost items, the Commission concludes
that Austria has correctly applied the approved environ-
mental aid scheme N 93-148. The Commission can
thus calculate the aid intensity to be 50 % of eligible
costs for a pilot project, and considers this aid existing
aid.

(66)

Calculation of the overall aid intensity

The Commission had to verify that the overall amounts
of regional investment aid granted to LLG would not
exceed the maximum allowable aid ceiling for regional
aid in the Province of Burgenland. This ceiling at the
time the aid was granted was 40 % net grant equivalent.
For the purposes of this assessment, the Commission
also took account of the other measures to assist the
company detailed in paragraph 11. Discounted in time,
the Commission determines investment aid of EUR 54,9
million gross, which, after taxes, represents a net grant
equivalent of EUR 39,7 million. Relative to eligible costs
of EUR 108,7 million, this aid represents an aid inten-
sity of 37 %, i.e. below the regional aid ceiling of 40 %.

(67)

the environmental aid of EUR 5,37
In the case of
million on eligible costs of EUR 10,74 million,
the
maximum aid intensity of 50 % admissible for pilot
projects under the environmental aid scheme N 93-148
is complied with.

4. CONCLUSION

(68) Measures 1(b) to (e), 2, 3 and 6 are not considered to be
State aid within the meaning of Article 87(1) of the EC
Treaty. Measures 4, 5 and 7 are ad hoc regional invest-
ment aid. Measures 1(a) and 7 are existing aid as they
represent
aid
application
programmes. The Commission considers the proposed
investment aid of EUR 54,9 million (EUR 39,7 million
net) on eligible costs of EUR 108,7 million and the
environmental aid of EUR 5,37 million to be compat-
ible with the EC Treaty,

approved

correct

of

HAS ADOPTED THIS DECISION:

Article 1

The aid which Austria has granted to Lenzing Lyocell GmbH &
Co KG (LLG), Heiligenkreuz, through the provision of guaran-
tees amounting to EUR 35,80 million (a guarantee by a
consortium of commercial and public-sector banks amounting
to EUR 21,8 million and three guarantees by the Wirtschaft-
spark Heiligenkreuz Servicegesellschaft mbH (WHS) amounting
to EUR 1,4 million, EUR 10,35 million and EUR 2,25
million) and through a land price of EUR 4,4 per m2 for the
acquisition of 120 hectares of industrial land, through fixed-
price guarantees by the Province of Burgenland for the provi-
sion of process utilities and through the provision of aid of an
unknown amount in the form of the creation of company-
specific infrastructure does not constitute aid within the
meaning of Article 87(1) of the EC Treaty.

Article 2

The aid which Austria has granted to LLG through the provi-
sion of a guarantee amounting to EUR 14,5 million by WiBAG
complies with the guarantee guidelines approved by the
Commission under number N 542/95.

The environmental aid amounting to EUR 5,37 million
complies with the environmental aid guidelines approved by
the Commission under number N 93/148.

Article 3

The individual aid which Austria has granted in the form of aid
amounting to EUR 0,4 million for land acquisition and in the
form of equity capital amounting to EUR 21,8 million is
compatible with the common market.

This Decision is addressed to the Republic of Austria.

Article 4

Done at Brussels, 19 July 2000.

For the Commission

Philippe BUSQUIN

Member of the Commission