Commission Decision of 29 November 2000 on the State aid which Italy is planning to grant to five ECSC steel undertakings (Text with EEA relevance) (notified under document number C(2000) 3933)
Date: 2000-11-29
Institutions: European Commission
Subjects: Italy, State aid, iron and steel industry

L 113/8

EN

Official Journal of the European Communities

24.4.2001

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 29 November 2000

on the State aid which Italy is planning to grant to five ECSC steel undertakings

(notified under document number C(2000) 3933)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2001/323/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty establishing the European Coal and
Steel Community, and in particular Article 4(c) thereof,

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

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof read in conjunc-
tion with Protocol 14,

(4)

The Commision received comments from the UK Steel
Association and from the UK Permanent Representation
to the European Union. It forwarded them to Italy for its
reaction, a response being received by letter dated 6
September 2000.

Having regard to Commission Decision No 2496/96/ECSC of
18 December 1996 establishing Community rules for State aid
to the steel industry (hereinafter referred to as the ‘steel aid
code’ (1),

Having called on interested parties to submit their comments
pursuant to the provisions referred to above (2) and having
regard to those comments,

Whereas:

I. Procedure

(1)

(2)

By letter dated 27 September 1999, Italy notified the
Commission of five plans to grant aid to ECSC undertak-
ings in respect of investments in energy conservation
made by the latter in the period 1986 to 1994. By letter
dated 23 November 1999, received by the Commission
on 20 January 2000, Italy submitted further details.

By letter dated 13 March 2000,
the Commission
informed Italy that it had decided to initiate the proce-
dure laid down in Article 6(5) of the steel aid code in
respect of the abovementioned aid.

II. Detailed description of the aid

(5)

The aid relates to investments made by five ECSC
companies between 1986 and 1994. The investments in
the five notified aid projects can be summarised as
follows.

5.1. Acciaierie

e Ferriere Leali SpA: The investments
concern the replacement of an existing oil-fired
reheating and normalising furnace with a new
natural gas-fired furnace featuring a radiant-roof
combustion chamber fitted with highly insulating
refractors and heat recovery from the fumes for
preheating the combustion air. The total cost
amounts to ITL 1,44 billion (EUR 0,745 million)
to ITL 273 million
aid
and
(EUR 0,141 million). The aid intensity is 19 %. The
investments were made in 1986 and the company
applied for aid in 1992.

the proposed

(1) OJ L 338, 28.12.1996, p. 42.
(2) OJ C 148, 27.5.2000, p. 10.

(3) See footnote 2.

24.4.2001

EN

Official Journal of the European Communities

L 113/9

5.2. Acciaierie e Ferriere Beltrame, Vicenza SpA: The invest-
ments relate to the installation of a new continuous
casting line alongside and in parallel with the
existing one, which remained in operation in order
to produce semi-finished products for other plants
belonging to the group. The new line is designed
and built to allow direct charging of the semi-prod-
ucts into the reheating furnaces for the plant's
rolling mills. It is also suitable for producing special
sections for rolling wide-flanged beams with better
yields than before the investment. The total cost
amounts to ITL 10,23 billion (EUR 5,3 million)
and the proposed aid to ITL 1,8 billion (EUR 0,93
million). The aid intensity is 18 %. The investments
were made in 1991 and the company applied for
aid in 1992.

(6)

(7)

5.3. Acciaierie e Ferriere Beltrame, S. Giorgio Nogaro SpA:
The investments concern the replacement of a
pusher-type oil-fired reheating furnace with a new
natural gas-fired furnace with lateral discharging
and heat recovery from the fumes for preheating
the combustion air to 400 to 450 °. They also
include some new auxiliary equipment
for the
roughing mill, such as the fixed and vibrating front
and back roller tables and a feed conveyor. The
total cost amounts to ITL 2,3 billion (EUR 1,2
million) and the proposed aid to ITL 450 million
(EUR 0,23 million). The aid intensity is 20 %. The
investments were made in 1989 and the company
applied for aid in 1992.

5.4. Lucchini, Mura SpA: The investments concern the
replacement of
two existing oil-fired reheating
furnaces with a new natural gas-fired furnace
featuring a combustion chamber with radiant
burners, high automation and control, heat
recovery from the
for preheating the
fumes
combustion air to high temperatures, and refrac-
tory linings with ceramic fibres. The total cost
amounts to ITL 5,5 billion (EUR 2,8 million) and
the proposed aid to ITL 0,93 billion (EUR 0,48
million). The aid is 17 %. The investments were
made in 1990 and the company applied for aid in
1991.

5.5. Lucchini, Lovere SpA: The investments relate to the
conversion to natural gas of the oil-fired furnaces
for reheating slabs for forging; the replacement of
the control systems for the heat treatment furnaces;
heat-insulating hoods for the transfer of hot slabs;
modification of the circuit for tipping and slagging
the electric furnace; automation of the injection of
inert gases into the vacuum ladle; and a system for
continuous slab measurement and control of final
shearing. The total cost amounts to ITL 0,8 billion
(EUR 0,41 million) and the proposed aid to
ITL 0,1 billion (EUR 0,1 million). The aid intensity

is 23 %. The investments were made in 1994 and
the company applied for aid in 1992.

The national legal basis for the aid is Italian Law No
implementing the
10/1991 laying down rules
national energy plan in the field of the national use of
energy.

for

III. Comments from interested parties

In their comments, the UK Steel Association and the UK
Representation to the EU consider that the aid proposed
by the Italian authorities is incompatible with the rules
on environmental aid set out in the steel aid code. They
point out that the investments appear to relate to ‘new
installations’, which would constitute an infringement of
Community legislation, and that the replacements were
made for economic and not environmental reasons. The
UK Steel Association further points out that the contin-
uous casting line was installed by Beltrame alongside the
existing casting line, and this would represent an
increase in production capacity, which also goes against
Community legislation on environmental aid.

IV. Comments from Italy

(8)

In its comments Italy contests the Commission's views
in its decision to initiate the procedure. The Italian
authorities' arguments may be summarised as follows.

8.1. Regarding the legal basis on which the Commission
assesses the aid, the Italian authorities insist that the
Commission should use not only the rules applic-
able, but also the interpretation of criteria, informa-
tion and data in its possession at the time it takes
its decision.

8.2. The investments and their specific characteristics,
together with the reduction in energy consumption,
make it possible to achieve, in comparison with the
pre-existing situation, a significant reduction in
pollutant emissions into the atmosphere (sulphur
oxides, nitrogen oxides, dust) and a significant
reduction in carbon dioxide emissions. The Italian
authorities deny that they have failed to prove that
the investments were not general investments and
that the effect on the environment is not secondary
to the economic objective. According to the Italian
authorities, the primary environmental objective of
the investments was confirmed by the Ministry of
Industry's examination of
the aid applications,
carried out
in conjunction with independent
experts. Further evidence that the investments were
pursuing
not made
economic objectives is the fact that, for each of the
five projects, the ratio between the advantage in
terms of annual production costs and the invest-
ment is lower than the interest rate in force at the
time.

investments

general

as

L 113/10

EN

Official Journal of the European Communities

24.4.2001

things at

8.3. As regards the Commission's assessment that none
of the companies could claim legitimate expecta-
tions of receiving aid, the Italian authorities point
out that the steel aid code in force when they
applied for aid (both the 1989 and the 1991 codes)
allowed aid for environmental protection. The title
of Italian Law No 10/1991 is ‘Rules for imple-
menting the national energy plan in the field of the
rational use of energy’ and Article 1 aims amongst
other
‘improving the environmental
compatibility of energy use’. Because of this, the
Italian authorities concluded that it was reasonable
for the companies concerned to harbour, at the
time,
legitimate expectations of receiving the aid
requested, on the basis of recognition of the envir-
onmental purpose of the investments. The fact that
for each of the five projects, the ratio between the
advantage in terms of annual production costs and
the investment was lower than the interest rate at
environmental
the
purpose of
the investment, would be a clear
demonstration of the ‘necessity for the aid’.

time, besides proving the

8.6.1. As regards the inclusion of the depreciation
costs of the investments in calculating the
advantage in terms of production costs, they
referred again to the standard accountancy
practice for calculating production costs. As
depreciation costs are a normal element of
production costs,
they
must be taken into account.

they consider that

8.6.2. As regards the period during which the cost
advantage is calculated, the Italian authori-
ties stated that they used annual amortisa-
tion, which was calculated in accordance
with the relevant Italian rules. For the five
investment projects in question the coeffi-
cients provided for in the Law yielded the
corresponding periods of time during which
the advantages in terms of production costs
the
are deducted, namely,
projects 100/15 = 6,67 years and for one
project 100/17,5 = 5,71 years.

four of

for

8.4. The companies submitted their applications for aid
in respect of the investments (carried out between
1986 and 1994) in 1991 and 1992, in accordance
with Article 21 of Law No 10/1991, approved by
the Commission on 31 July 1991. Under that
for aid already submitted
Article, applications
under previous laws are eligible provided that they
have not yet been granted or rejected. The aid was
notified only in 1991 as a result of complexities in
the implementing rules and subsequent legislative
developments.

(9)

In reply to the comments made by third parties, the
Italian authorities made the point that the five projects
involved the replacement or installation of components
for the production of bars and sections designed to save
energy (thereby improving the environment) and not
new installations. Such replacements or installations
were necessary to avoid keeping production lines idle for
long periods (which would have increased fixed costs) so
as to modify existing components to save energy. As
regards the comments on extra capacity installed in
Beltrame, Italy contests that there was an increase in the
production capacity of
the company because this
depends on the three rolling mills, which have not been
changed and constitute the system bottleneck.

8.5. As regards the Commission's concern that the aid
could be misused if it were approved and paid, the
Italian authorities claim that the companies planned
the investments concerned at
the time on the
assumption that they would receive the requested
aid within a reasonable time. Since that has not yet
happened, the financial accounts for the individual
in deficit in respect of the
investments are still
amounts in question and the deficits will be extin-
guished only if the aid is paid. Thus the aid will be
used for the purpose for which it is approved.

8.6. Regarding the position taken by the Commission
that, if the aid were to be assessed in the light of
the steel aid code, its compatibility with the rules
would be highly questionable, the Italian authorities
made the following additional comments.

V. Assessment of the aid

Legal basis

(10)

The steel aid code is the legal basis to assess any aid to
steel undertakings notified to the Commission between
January 1997 and December 2001. Article 3 of the code
provides for the possibility of steel companies receiving
aid for environmental investments. The conditions for
such aid to be considered compatible are set out in the
Annex to the steel aid code and in the Community
guidelines on State aid for environmental protection (4)
(hereinafter referred to as the ‘environmental guidelines’).

(4) OJ C 72, 10.3.1994, p. 3.

24.4.2001

EN

Official Journal of the European Communities

L 113/11

(11)

In this context,

Both the steel aid code and the environmental guidelines
stress the fact that aid may be considered compatible
only if it is necessary to attain the objective of increased
environmental protection.
investment
aid to a company must serve as an incentive for that
company to carry out environmental-related invest-
ments. Two types of circumstances are provided for: one
is when a company would not carry out such invest-
ments because it
legally required to do so
(improvement on standards), but in view of the financial
support it may receive it decides to do so. The other is
when such investments become necessary because of
new legal standards, in which case the aid acts as an
incentive for the company to carry out such investments
in the latter circumstance, the
without delay. Indeed,
environmental guidelines specify that ‘the aid may be
granted only for a limited period’ (5).

is not

(12) According to the environmental guidelines, aid osten-
sibly intended for environmental protection measures
but which in fact is aid for general investment is not
covered by the guidelines. The eligible costs must be
strictly confined to the extra investment costs necessary
to meet environmental objectives.

(13) According to the Annex to the steel aid code, in the case
of aid to encourage firms to contribute to significantly
improved environmental protection, the investors will
have to demonstrate that a clear decision was taken to
opt for higher standards, which necessitated additional
investment, that is, that a lower-cost solution existed
which would meet the legal standards. Any advantage
with regard to lower production costs will be deducted.

Assessment of the comments from the Italian authorities

(14) As shown above, for aid to fall under Article 3 of the
steel aid code, on one hand, it has to act as an incentive
for the investments to be made and, on the other hand,
the investments must have been made for environmental
purposes.

(15)

In the present case, the investments were made and aid
applied for under the 1985, 1989 and 1991 steel aid
codes (6), which stated that only investments made in
order to comply with new mandatory environmental
standards were compatible. Italy never claimed that this
was why the companies carried out the investments.

(5) Community guidelines on State aid for environmental protection,

point 3.2.3.A, first paragraph.

(6) OJ L 340, 18.12.1985, p. 1; OJ L 38, 10.2.1989, p. 8; OJ L 362,

31.12.1991, p. 57.

(16)

(17)

(18)

Although the firms were aware that they did not qualify
for aid under the law that applied to them, they still
carried out the said investments. The eventual possibility
of receiving the aid was therefore not a decisive factor in
their decisions.

Italy considered, however, that the companies were justi-
fied in having legitimate expectations of receiving the aid
requested because the steel aid code at the time allowed
for environmental aid and so did Italian Law No 10/
1991. However, expectations cannot be legitimately
founded on the general principle of a law that allows for
environmental aid, when the specific rules applicable
clearly state the only conditions under which aid may be
granted and make no provision for the investments in
question.

The Italian authorities then endeavoured to justify the
legitimate expectation of aid on the part of the compa-
nies on the grounds of both the delay with which they
applied for the aid and the delay with which the authori-
ties notified the aid to the Commission. It is difficult to
understand how such delays could justify expectations
that could not exist if the delays had not taken place.
The companies cannot claim that they decided to carry
out investments in the period 1986 to 1994 because
they legitimately expected to receive aid not under the
existing rules but under rules that would come into
force 5 to 13 years later. The only reason for verifying
the justification for such delays would be if the old rules
could be applied to the current notifications. However,
as also agreed by the Italian authorities, the aid notified
in 1999 can be assessed only under the current State aid
code.

Italy also stated that the five companies opened financial
accounts for the individual investments, which are still
in deficit in respect of the amounts in question and will
be closed only when a decision on the aid is made.
According to the Italian authorities, that proves that if
the aid were paid now, it would be used for the purpose
for which it was approved. The purpose of environ-
mental aid is to give an incentive to steel companies to
improve on environmental standards or to apply new
standards more rapidly. The fact that the companies
have accounts left open since the period 1986 to 1994,
in relation to the aid they requested, is not evidence of
such an incentive effect, but is merely an accountancy
operation.

L 113/12

EN

Official Journal of the European Communities

24.4.2001

(19) As demonstrated above, the aid was not necessary for
the companies to carry out the investments and does
not have an incentive effect. Accordingly, the aid is not
covered by the steel aid code. Another requirement for
the aid to be covered by the steel aid code is that the
investments must be aimed at significantly improving on
environmental standards. Italy did not demonstrate that
a clear decision was taken by the investors to opt for
environmental standards higher than the legal ones then
in force. No information is given on the statutory level
of pollution that the investments would have reduced
and how far those standards were exceeded as a result of
the investment. The only declared aim of the invest-
ments is a reduction in energy consumption, which
incidentally resulted in lower levels of pollution.

(20)

The Italian authorities also reaffirmed that the invest-
ments were made for environmental reasons and that
the aid was necessary because the ratio between the
advantage in terms of annual production costs and the
investment cost was lower than the interest rate at the
time. Regardless of the accuracy of the calculation of the
ratio, which the Commission challenges, the question of
whether or not an investment pays for itself during the
tax depreciation period is not a valid criterion for deter-
mining the reasons for the investment or for deter-
mining whether the aid was to provide an incentive
effect.

(21)

Italy also challenges the Commission's view, set out in
the opening of procedure, that the aid does not satisfy
the requirements of the steel aid code for approval of
environmental aid. However, the arguments put forward
by the Italian authorities cannot be accepted; even if the
investments had been made for environmental purposes
and the aid was proven to be necessary, the measures
would still not be compatible under the Community
rules.

the investment was always eligible for aid because
it forms part of the costs. The objective is, on the
contrary, to ensure that the company will not use
for its own advantage subsidised investments in
environmental protection.

21.2. Italy also insists on the period used to deduct the
cost
savings obtained by the company. The
Commission does not, however, agree that the tax
depreciation period used by the Italian authorities
in the present case ensures that all the economic
advantages are excluded.
Italy makes no such
claims but only justifies the length of its deprecia-
tion period as being in accordance with the law.
The steel aid code requires that all advantages be
deducted. The Commission considers that this can
be ensured only if the economic life of the equip-
ment is taken into account and,
in the present
case, the tax depreciation period certainly cannot
be used as a substitute for the life of the equip-
ment. If that were the case, most of the equipment
would by now be obsolete.

(22) As regards the response of the Italian authorities to the
comments of other interested parties and, in particular,
to the comments
from the UK Steel Association
regarding the increase in capacity, the Commission notes
that Italy does not deny that the new installation brings
about an increase in production capacity. It considers,
however, that only the overall production capacity of
the undertaking counts, the latter being restricted by the
rolling mills capacity, which remains unchanged. The
environmental guidelines and the steel aid code do not,
however, refer to the overall production capacity of the
undertaking, but to the plant to be replaced or adapted.
The investment cost eligible for aid should relate only to
the equipment's initial capacity where the new equip-
ment has a higher production capacity.

Compatibility of the notified aid

21.1. The Italian authorities reiterate that the calculation
of the cost advantage obtained from the invest-
ment is made according to the standard account-
ancy rules on production cost elements. The
Commission, however,
is not challenging the
calculation of the standard elements of production
costs of an undertaking. What it cannot accept is
that the depreciation costs of an investment are
included in the calculation of
the advantage
enjoyed by an undertaking from that investment.
As indicated in the decision opening the proce-
dure, this corresponds in practice to counting the
same investment cost twice and would ensure that

(23) As stated above, Italy did not provide any new informa-
tion in the course of the procedure that would allow the
Commission to change its assessment of the notified aid
as set out in its decision opening the procedure. The aid
is not covered by the provisions of the steel aid code.

(24) As regards the possibility of assessing the aid under the
steel aid code, if hypothetically the investments were to
be considered eligible, Italy has also failed to demon-
strate that the requirements of the code, in particular
those of the Annex, have been fulfilled, as stated above.

24.4.2001

EN

Official Journal of the European Communities

L 113/13

(25)

The notified aid which Italy plans to grant to the five
steel companies is accordingly incompatible whith the
common market,

HAS ADOPTED THIS DECISION:

The aid may accordingly not be implemented.

Article 2

Italy shall
inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
herewith.

Article 1

This Decision is addressed to the Republic of Italy.

Article 3

The State aid totalling ITL 3,6 billion (EUR 1,9 million) that
Italy plans to grant to the steel companies Acciaierie e Ferriere
Leali SpA, Acciaierie e Ferriere Beltrame Vicenza SpA, Acciai-
erie e Ferriere Beltrame S. Giorgio Nogaro SpA, Lucchini Mura
SpA and Lucchini Lovere SpA in respect of investments they
made between 1989 and 1994 for energy savings is incompat-
ible with the common market.

Done at Brussels, 29 November 2000.

For the Commission

Mario MONTI

Member of the Commission