2001/798/EC: Commission Decision of 13 December 2000 on the State aid implemented by Germany for SKET Walzwerkstechnik GmbH (aid C 70/97 (ex NN 123/97)) (Text with EEA relevance) (notified under document number C(2000) 4189)
Date: 2000-12-13
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid to undertakings, control of State aid

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COMMISSION

COMMISSION DECISION

of 13 December 2000

on the State aid implemented by Germany for SKET Walzwerkstechnik GmbH (aid C 70/97
(ex NN 123/97))

(notified under document number C(2000) 4189)

(Only the German text is authentic)

(Text with EEA relevance)

(2001/798/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

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

Whereas:

(3)

(4)

call on Germany to submit all the information necessary
to assess the case as it had doubts as to the compatibility
of the aid with the common market.

The decision was communicated to Germany by letter
dated 10 November 1997 (1) and was published in the
the European Communities (2). The
Official
Commission changed the case number accordingly to C
70/97. In addition, interested third parties were invited
to submit comments within a month of publication.

Journal of

On 6 February 1998, 27 May 1998, 19 January 1999,
1 February 1999, 11 March 1999, 24 June 1999, 19
July 1999, 9 September 1999, 20 October 1999, 17
January 2000 and 20 April 2000 Germany sent infor-
mation in response to the initiation of proceedings.
Moreover, two more meetings were held on 26 July
1999 and 21 October 1999 to give the German authori-
ties the opportunity to discuss the case.

1. PROCEDURE

(5)

No third party submitted comments.

(1)

By letter dated 16 November 1996 Germany notified
restructuring aid for SKET Walzwerkstechnik GmbH,
Magdeburg,
to Article
to the Commission pursuant
93(3) (now Article 88(3)) of the EC Treaty. By letter
dated 27 November 1996 the Commission requested
additional information. Germany replied by letters dated
13 January, 30 January and 7 March 1997. A meeting
between the Commission and the German authorities
was held on 1 July 1997 to discuss the case. As part of
the aid had already been paid out, the case was regis-
tered under number NN 123/97.

2. THE FACTS

(6)

SKET Walzwerkstechnik GmbH (SKET WT) is based in
Magdeburg, Saxony-Anhalt, Germany. In 1998, it had a
workforce of […] (*) and a turnover of approximately
[…] *. It designs and then arranges manufacture and
installation of complete, custom-made steel rolling mills
worldwide. It took over the engineering design activities
of the failed conglomerate SKET SMM.

(2)

On the basis of the information submitted by Germany,
the Commission decided to initiate proceedings under
Article 93(2) (now Article 88(2)) of the EC Treaty and to

(1) Commission letter D(97) 9271.
(2) OJ C 118, 17.4.1998, p. 5.
(*) Business secret.

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(7)

(8)

(9)

(10)

In April 1998, SKET WT was privatised to Münchmeyer
Petersen GmbH & Co. KG ( MPC) on the basis of an
open and unconditional tender. The company cannot be
considered to be an SME, as the criterion of indepen-
dence is not met (1). The current measures have to be
seen in the context of the privatisation and are designed
to support the restructuring of SKET WT.

Saxony-Anhalt is a region with a high level of unem-
ployment. The region is eligible for
regional aid
pursuant to Article 87(3)(a) of the EC Treaty.

SKET WT belongs to the family of ‘SKET companies’
which originate from the collapse of the large industrial
conglomerate SKET Schwermaschinenbau Magdeburg
GmbH (SKET SMM). In March 1995, the Commission
began a formal investigation into the restructuring aid
for SKET SMM (2). SKET SMM was never privatised and
filed for bankruptcy in October 1996 after the restruc-
turing plan had failed. In November 1996 and January
it
1997, Germany informed the Commission that
intended to continue certain activities of the bankrupt
SKET SMM through new legal persons which were set
up taking over the assets and activities of the failed
predecessor company. On 26 June 1997 the Commis-
sion adopted the negative final Decision 97/765/EC (3)
with regard to the aid for SKET SMM.

the SKET spin-off
that purpose,

In 1998 and 1999 the Commission approved aid for
companies,
four of
‘baby
SKETs’ (4). For
the Commission had
accepted in all these ‘baby SKET’ cases that the successor
companies to SKET SMM were new undertakings clearly
distinct from the failed SKET SMM. Therefore there had
been no question of making them liable for aid to SKET
SMM. This also applies to SKET WT.

the

2.1. The investor

(11) Under the privatisation contract of April 1998 the
shares of SKET WT were transferred by the BvS to MPC.
This company is active in several markets worldwide
including […] *.
It has no manufacturing capacity, a
worldwide workforce of […] * (excluding SKET WT) and
approximately DEM […] * in turnover.

(1) As MPC is a fairly large company and thus not an SME, it does not
qualify as an SME within the meaning of the Community guidelines
on State aid for small and medium-sized enterprises; see Commis-
sion recommendation of 3 April 1996 (OJ C 107, 30.4.1996, p. 4).

(2) OJ C 215, 19.8.1995, p. 8 and OJ C 298, 9.10.1996, p. 2.
(3) OJ L 314, 8.11.1997, p. 20.
(4) SKET Maschinenbau-EDV GmbH (NN 126/97) approved in May
1998; SKET Verseilmaschinenbau GmbH  72/97) approved in
September 1998; Cimbria SKET GmbH (NN 125/97) approved in
May 1999; SKET Maschinen- und Anlagenbau GmbH  69/97)
approved in July 1999.

2.2. The privatisation

(12) At

the time of

the privatisation of SKET WT,

the
investor was chosen following an international call for
tender. The search for an investor was conducted by the
West Merchant Bank, a subsidiary of the Westdeutsche
Landesbank. Over a period of several months, the bank
had contact with about 350 interested parties and
started negotiations with three of them.

(13)

Finally the negotiations with MPC were successful and
SKET WT was privatised to the MPC in April 1998
because the company offered the best know-how and
the most convincing plan as regards guarantees of
investment and employment. Specifically, MPC guaran-
teed employment of 100 persons in SKET WT until 31
December 2002 and promised an investment of
DEM 12,2 million from its own resources, also until 31
December 2002. The employment guarantee is subject
to a penalty of DEM 5 000/person and the investment
obligation to a penalty of 100 % of the non-invested
amount. The privatisation contract also prohibits the
investor from withdrawing from the site before 31
December 2001. If this obligation is not fulfilled, it is
penalised to the tune of DEM 3 000/person. Moreover,
the investor committed itself not to withdraw profits
from SKET WT until 2003. In addition, MPC was the
only
‘old
company which accepted to complete
contracts’
from SKET SMM totalling
DEM 48,4 million. The other interested parties had
asked for a bigger contribution from the BvS.

taken over

(14)

In the context of the privatisation, MPC paid a purchase
price of DEM […] * and provided a loan for an amount
of DEM […] *. Moreover, MPC undertook to make a
cash contribution of DEM […] * to finance the invest-
ments while it also took over a bank guarantee for an
amount of DEM […] *. To that must be added an
amount of DEM […] * to finance the costs of capacity
reduction. As a result of this financial injection the initial
investor contribution will amount to DEM 36,2 million.
It has to be noted that, in addition to this amount, MPC
will gradually take over from the State the responsibility
on a phased basis for the financial guarantees up to
2003 totalling DEM 55 million.

(15)

The BvS undertook to waive a loan of DEM 26,5
million and to provide a grant of DEM 25 million.
Moreover, it granted DEM 8,1 million to the bankruptcy
administrator to enable him to preserve the rolling mill
operation within SKET SMM prior to extraction and
transfer to SKET WT. Additionally,
it provided credit
facilities totalling DEM 35 million. To that must be

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L 301/39

added a bridging loan of DEM 25 million to prefinance
financial measures of the Land on basis of the ‘Rahmen-
richtlinie des Landes Sachsen-Anhalt’ (1). SKET WT is
also receiving DEM 48,4 million to complete ‘old
contracts’ taken over from SKET SMM. In this respect
the BvS had guaranteed the fulfilment of the SKET SMM
contracts to third parties.

2.3. The restructuring plan

(16)

The problems of SKET WT are those of the rolling mill
operation of SKET SMM, from which SKET WT has
derived its workforce, assets and a major part of its
order book. The problems of the rolling mill operation
of SKET SMM were primarily bad management and
overstaffing. Additionally,
the company depended on
unstable and deteriorating geographic markets and
neglected industrial property rights and know-how.

(17)

The restructuring plan dates back to 1997, but was
revised at the time of privatisation in April 1998. It
related to the privatisation and foresees a number of
measures to improve the performance of SKET WT on
the market:

(a) to extract the rolling mill operation from SKET SMM
and to operate it as a purely engineering operation.
Additionally it is planned to provide the company
with capital and financial resources to allow trading
activities;

(b) to finance the development of its industrial property

and know-how;

(e) to make use of the financial power and connections
brought in by MPC, to allow SKET WT to penetrate
new and more stable geographic markets. MPC's
trading activities in related product markets areas
[…] * mean that SKET WT, even where it remains in
unstable markets, can enter into ‘bartering agree-
ments’;

(f) to solve the quality problems the company was

facing;

(g) to reinforce the sales department to improve the

marketing strength of the company;

(h) to reinforce the R & D department and to reorganise

the data-processing department;

(i) to acquire new machinery;

(j) to improve after-sales service.

(18)

The restructuring period covers the time span 1997 to
2003. As a direct result of the implementation of the
restructuring plan, the following synergy effects may be
expected:

(a) better buying conditions because of the integration
of SKET WT into the MPC group and subsequently
better terms and conditions in financing and assur-
ance;

(b) joint after-sales service network with MPC;

(c) joint marketing with MPC;

(d) extension of the product range offered by the group;

(e) improvement of the quality level of the products of

the company.

(c) to reduce material costs by offering products on a

modular basis;

2.4. The financial measures

(d) to cut personnel costs by reducing staff

levels
continuously so that on completion of restructuring
there will be a workforce of 95 employees left;

(19)

The BvS and the Land of Saxony-Anhalt will take the
following financial measures in the context of the priva-
tisation:

Table: Public financial measures to assist SKET WT

Measure

Source

Amount

Total

(DEM million)

Grant — capital

Shareholder loan and waiver

Grant to administrator of SKET SMM

Credit facilities

BvS

BvS

BvS

BvS

Bridging credit ‘Rahmenrichtlinie des Landes Sachsen-Anhalt’

BvS + Land

25,0

26,5

8,1

35,0

25,0

(1) cf. Programme approved by the Commission under N 413/91,
amended in 1994 by Decision E 5/94, which adapted the scheme
to the guidelines for rescue and restructuring.

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Measure

Source

Amount

Total

(DEM million)

Completing of ‘old contracts’ of SKET SMM

Less current purchase price paid by MPC

Lee guarantee taken over by MPC

Lee guarantee taken over by MPC

BvS

MPC

MPC

MPC

48,4

[...] *

[...] *

[...] *

Total

143,5

(20)

The investor committed himself to the following financial measures in the context of the privatisa-
tion:

Table: Private financial measures to assist SKET WT

(DEM million)

Measure

Private loan

Additional

investment — future

Investment for capacity reduction

Purchase price paid by MPC

Guarantee taken over by MPC

Guarantee taken over by MPC

MPC

MPC

MPC

MPC

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

(21)

To that must be added DEM 12,2 million cash flow of SKET WT, which is also to be considered as
part of the restructuring costs. These costs therefore amount to a total of DEM 191,9 million (1).

Total

36,2

Table: The total costs of the restructuring

Restructuring step

Cost in DEM million

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

(1) DEM 143,5 million + DEM 36,2 million investor contribution + DEM 12,2 million cash flow of the company.

Total

191,9

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(22)

(23)

(24)

SKET WT is also to receive DEM 48,4 million from the BvS for completing contracts taken over by
SKET WT from SKET SMM (‘old contracts’) (already included in the above table). SKET SMM entered
into contracts with various third parties to supply them with services and goods. The performance of
these SKET SMM contracts was backed by guarantees given by the BvS to these third parties.

In its negative Decision 97/765/EC concerning SKET SMM, the Commission found that the company
had been awarded incompatible aid, and it also found that a number of the SKET SMM contracts
were distortive of competition. After SKET SMM went bankrupt, the third parties were left with the
unfulfilled SKET SMM contracts and the BvS was left with its liabilities under the guarantee contracts.

The potential exposure of the BvS under the guarantee contracts was DEM 135,5 million. With the
agreement of the third parties and administrator in bankruptcy, all of whom had an interest in
minimising their losses after the collapse of SKET SMM, the BvS, in order to escape paying the full
amount under the guarantee contracts, agreed to pay SKET WT DEM 48,4 million to finish the
outstanding work under the SKET SMM contracts.

(25) According to the arguments put forward by the German authorities, this was cheaper than getting
other third parties to complete the SKET SMM contracts. They argued that the fulfilment of the
guarantee contracts given by the BvS on behalf of SKET SMM to the third parties, whose purpose
was to ensure that the third parties were covered by any failure by SKET SMM to perform the
contracts, would result in higher expenditure than paying SKET WT to complete these contracts. The
BvS payment to SKET WT for completing the remaining contracts was the cheapest option available.
In January 2000, Germany submitted an expert's report to support this assertion that this sum
covered SKET WT's costs of completing the old contracts. Therefore, according to the German
authorities, the BvS behaved as a private investor would have and the payments to SKET WT should
not be considered aid.

3. COMMISSION DECISION TO INITIATE PROCEEDINGS UNDER ARTICLE 88(2) OF THE EC TREATY

(26)

(27)

In its decision to initiate proceedings under Article 93(2) (now Article 88(2)) of the EC Treaty, the
Commission expressed doubts as to the compatibility with the common market of the aid which was
not notified and unlawfully disbursed before it had taken a decision. It enjoined Germany to submit
all the information necessary to enable the Commission to assess the case.

The main reason for the initiation of the proceedings was the lack of information and the insufficient
contribution of the private investor. Additionally, the Commission had doubts concerning the
long-term viability of the company. Germany also submitted imprecise information about the aid
measures, which made it impossible for the Commission to assess whether the aid was proportional
to the costs and benefits of the restructuring and to what extent the aid for SKET WT would lead to
a distortion of competition. Moreover, Germany was requested to clarify the taking over of the
fulfilment of the old contracts of SKET SMM by SKET WT.

4. COMMENTS FROM INTERESTED PARTIES

(28)

The Commission received no comments from interested parties on the initiation of proceedings.

5. COMMENTS FROM GERMANY

(29)

In a number of answers in response to the proceedings of 21 October 1997, the German authorities
provided information on the long-term viability of SKET WT, on the possible distortion of
competition and clarified the investor contribution. Moreover, they commented on the fulfilment of
the old contracts.

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6. ASSESSMENT

(30)

SKET WT designs and arranges the production by third parties of steel rolling mills. SKET WT is
mainly active on the European and world market, […] *. The most important markets for SKET WT
are […] *. On these markets there is a trend towards greater investment in new or updated machines.
There seems to be no overcapacity. SKET WT's direct competitors are four large groups and 12 to 15
small companies specialising in niche products. However, in initiating the proceedings, the Commis-
sion did not find that there was any excess capacity on the market. There is no reason to believe that
this situation has changed (1).

(31)

It can thereby be stated that intra-Community trade in the sector in question is considerable and that
trade between Member States is likely to be affected by aid measures.

(32)

Consequently, the individual measures have to be examined under Article 87(1) of the EC Treaty,
because the funds are derived from State resources and therefore threaten to distort competition,
affect trade between Member States and confer an advantage on the investors who will not have to
cover expenses they otherwise would have to bear themselves.

(33)

SKET WT is to receive in total DEM 143,5 million from State sources. The following financial
measures are covered by programmes.

(34) A bridging loan of DEM 25 million under the guarantee programme of the Land of Saxony-
Anhalt (2). The aid measures comply with the conditions of these schemes and are therefore covered.
Although the measures are not reassessed by the Commission, their amounts will be taken into
account in assessing the proportionality of the aid measures (see recitals 51 to 57).

(35)

The following financial measures were not covered by programmes.

(36) DEM 48,4 million relates to the old contracts awarded to the former SKET SMM. This sum is to be
treated in its entirety as aid as SKET WT received it from the BvS to finance the completion of
several contracts of SKET SMM. The argument put forward by Germany that the BvS behaved as
private investor because the payment to SKET WT for completing the remaining contracts was the
cheapest option available cannot be accepted. All of these contracts were concluded at unrealistic
prices. SKET SMM was a company in difficulties and had received large amounts of State funds to
finance these contracts. These contracts would never have existed without aid to SKET SMM, whose
existence was entirely due to State aid. For this reason all the SKET SMM contracts distorted
competition. These contracts remain distortive because other operators on this market, competitors
of SKET WT, would have demanded higher prices for completing these orders. Therefore the
payment of DEM 48,4 million to SKET WT should be considered to be aid and included in the
assessment, even if the option to award the completion of the contracts to SKET WT was the
cheapest for the BvS. However, the aid for these contracts can be accepted as part of the restruc-
turing plan.

(37)

This amount and the balance of DEM 70,1 million fall to be assessed as ad hoc restructuring aid.

(38)

Consequently, the recipient benefits from aid measures in the context of the privatisation totalling
DEM 143,5 million (3) awarded by the BvS and the Land of Saxony-Anhalt, of which DEM 118,5
million (4) are the subject of the Commission's present assessment.

It has to be examined whether the aid measures fall under the derogation provided for in Article
87(3) of the EC Treaty.

(1) See Panorama for European Industry 1999, which predicts moderate growth for the years ahead.
(2) cf. Programme approved by the Commission under N 413/91,
amended in 1994 by Decision E 5/94, which adapted the scheme
to the guidelines for rescue and restructuring.

(3) DEM 48,4 million + DEM 70,1 million + DEM 25 million.
(4) DEM 48,4 million + DEM 70,1 million.

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(39)

The aid measures provided by the BvS and the Land of Saxony-Anhalt were notified as restructuring
aid given in order to restore the viability of an undertaking in difficulty. The Commission therefore
gives particular attention to the derogation provided for in Article 87(3)(c) of the EC Treaty, ‘aid to
facilitate the development of certain economic activities, where such aid does not affect trading
conditions to an extent contrary to the common interest’, since the predominant objective of the aid
is the restructuring of a firm in difficulty. Such aid may be considered compatible with the common
market if the criteria in the guidelines on State aid for rescuing and restructuring firms in diffi-
culty (1) (guidelines) are met. The Commission also takes account of the fact that the new Länder in
Germany belong to the assisted areas under Article 87(3)(a) of the EC Treaty, where the standard of
living is abnormally low and where there is a high unemployment rate (2).

(40)

Restructuring aid demands first of all the implementation of a sound restructuring plan. The
restructuring must restore the long-term viability of the companies in question and avoid undue
distortions of competition. The restructuring programme should contribute to the overall improve-
ment of the market situation and act as sufficient counterweight to the distortive effect of the aid
awarded. The amount and intensity of the aid must be limited to a strict minimum during the
restructuring phase and the costs to which the aid relates must not exceed the expected benefit.

6.1. Restructuring plan

(41)

(42)

The sine qua non of all restructuring plans is that they must restore the long-term viability and
health of the firm within a reasonable timescale and on the basis of realistic assumptions as to its
future operating conditions. In principle, no repetitive aid may be given (3).

The investor's restructuring plan anticipates offsetting the market collapse […] * through access to
new markets (Central and South America) in order to guarantee the long-term viability of SKET WT.
The information on projected financial performance for the restructured SKET WT envisages a
restoration of long-term profitability without State support in 2003.

Table: The financial situation of SKET WT will

improve according to the following plan (1):

Turnover

1997
actual

[...] *

1998
actual

[...] *

1999
provisional

[...] *

2000
plan

[...] *

2001
plan

[...] *

2002
plan

[...] *

2003
plan

[...] *

(DEM million)

Material costs

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

Personnel costs

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

Operating result

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

Annual result

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

(1) This chart contains only a selection of key data and the columns are not arithmetically complete.

The trend of these figures is consistent with the expected completion of the old contracts. […] *.

(1) OJ C 368, 23.12.1994, p. 12.
(2) N 464/93,
(3) Point 3.2 of the 1994 guidelines. These guidelines remain applicable by virtue of point 101 of the 1999 guidelines

letter of 22 April 1994 SG(94) D/5633; N 613/96,

letter of 23 January 1997 SG(97) D/488.

on State aid for rescuing and restructuring of firms in difficulty (OJ C 288, 9.10.1999, p. 2).

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(43)

The restructuring plan envisages a number of internal measures. Firstly the extraction of the rolling
mill operation from SKET SMM and organising it as a pure engineering operation is likely to free
SKET WT from the burden of the past. As the company will now be able to choose freely amongst
different suppliers and will not be forced to use SKET SMM as provider, as in the past, it will be
much more flexible on the market.

(44) Additionally, the provision of the company with capital and financial resources will enable trading
in by MPC. These

activities by making use of
connections will also allow SKET WT to penetrate new and more stable geographic markets.

the financial power and connections brought

(45)

The reinforcement of the R & D department will be supported by the development of SKET WT's
industrial property and know-how.

(46)

SKET WT has also taken effective measures to improve its product quality. The plan also entails the
reinforcement of
the
complete reorganisation of the company,
including the reduction of material costs as well as
personnel costs, will improve its competitiveness. All these measures included in the restructuring
plan will enhance the company's presence on the market.

the sales department and the acquisition of new machinery. Moreover,

6.2. Adverse effects on competitors

(47) A further condition of aid for restructuring is that measures are taken to offset as far as possible
adverse effects on competitors. Otherwise aid would be contrary to the common interest and not
eligible for exemption pursuant to Article 87(3)(c) of the EC Treaty.

(48)

SKET WT has a small share of some […] * of the European and of the worldwide market. The
guidelines require that a company which is operating in a sector with overcapacity has to cut its
capacity in the relevant sector. As established in the market analysis, no structural overcapacity
seems to exist in the sector. However, SKET WT as an engineering design operation is reducing its
capacity up to the year 2003 in the framework of the restructuring by roughly […] * in man-hours.
Consequently, undue distortion of competition through the aid can be considered as being offset.

(49)

Finally, it should be noted that SKET WT remains a relatively small player in the market. Addition-
ally, the company does not plan to increase its turnover substantially in the course of the restruc-
turing.

(50)

The condition in the guidelines relating to possible adverse effects on competitors therefore seems to
be met.

6.3. Limitation of the aid to the strict minimum

(51)

The amount and intensity of the aid must be limited to the strict minimum needed to enable
restructuring to be undertaken and must be related to the benefits anticipated from the Community's
point of view. Therefore, aid beneficiaries will normally be expected to make a significant contribu-
tion to the restructuring plan from their own resources.

(52) As shown in the tables, SKET WT is receiving DEM 118,5 million in aid in the context of the
privatisation (excluding aid from approved programmes). It is also necessary to include the DEM 25
million aid based on the guarantee programme of the Land of Saxony-Anhalt (1). All
in all,
DEM 143,5 million (2) in aid has to be taken into account for the proportionality analysis.

(1) cf. Programme approved by the Commission under N 413/91, amended in 1994 by Decision E 5/94, which adapted

the scheme to the guidelines for rescue and restructuring.

(2) DEM 25 million + DEM 118,5 million.

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(53)

The contribution of the investor amounts to DEM 36,2 million of its own funds for restructuring of
SKET WT, which constitutes approximately 19 % of the total restructuring costs of DEM 191,9
million (1). The investor is therefore covering a substantial part of investment expenses involved in
the restructuring. This shows clearly its commitment and the fact that it is willing not only to take
part but also to assume the risk of the restructuring. This commitment is also underlined by the
employment and investment guarantees given by the investor. The analysis of the aid measures
shows that they are proportional to the costs and advantages of restructuring. Given the quite
specific purpose of the amount and the limitation of aid for the practical needs of the company, the
aid will not be of such a nature that it gives the company a surplus of liquidities, allowing it to
pursue an aggressive price policy on the market. The total amount of aid is restricted to the
minimum necessary in order to ensure the restructuring and the return to long-term viability of the
company.

(54) As stated by the German authorities, the financing of the completion of the ‘old contracts’ will be
monitored by an independent auditor to see that only the costs related to these are covered. This also
will make sure that all payments of the BvS in this respect are only used for that purpose.

(55)

It should also be noted that the investor contribution will increase gradually. On completion of the
restructuring in 2003, MPC will have taken over additional financial measures (guarantees) totalling
DEM 55 million from the BvS.

(56) However, in view of the above, the Commission can conclude that the condition as regards limiting

the aid to the strict minimum appears to be fulfilled.

(57) According to Germany the expected cash flow of DEM 12,2 million for the period […] * should also
be considered part of the investor contribution. However, as this cash flow is to be realised mainly
on the basis of aid measures in the past and is not yet generated, it is still conditional. Although the
expected cash flow will reduce the need for financing the restructuring of the company, the
Commission cannot take ‘cash flow’

into account as an element of the investor contribution.

7. CONCLUSION

(58)

(59)

It must be noted that Germany did not comply with Article 88(3) of the EC Treaty in granting aid C
70/97 prior to the Commission's approval. However, the Commission takes account of the fact that
the measures for SKET WT should restore the beneficiary's viability and do not unduly distort
competition. The condition regarding a sufficient investor contribution can also be considered as
being fulfilled. Moreover, the enterprise is situated in an area eligible for aid under Article 87(3)(a) of
the EC Treaty.

In view of the information provided by Germany, the Commission is now able to conclude that the
main questions on account of which the proceedings were initiated seem to be answered. As regards
the viability of the company, the implementation of the measures included in the restructuring plan
is likely to guarantee the return of the company to long-term viability. In addition, the distortion of
competition is limited considering that the relevant market (rolling mills) seems not to suffer from
overcapacity and that the beneficiary is reducing capacity. Moreover, the Commission has noted that
the investor raised its contribution substantially, thereby showing its commitment to the restruc-
turing of the company and reflecting its willingness to expose itself to entrepreneurial risk. The
Commission can also accept the argument put forward by the German authorities that the fulfilment
of the old contracts of SKET SMM by SKET WT has been the most economical solution for the State,
but considers the measures to complete the contracts still to be aid.

(1) See table in recital 21.

L 301/46

EN

Official Journal of the European Communities

17.11.2001

(60)

Consequently, the problems on account of which the proceedings under Article 88(2) of the EC
Treaty were initiated can be deemed to be solved. The Commission can therefore conclude that the
aid measures to assist SKET WT now comply with the guidelines, provided that the restructuring
plan is fully implemented. The execution of the plan will be monitored via annual reports communi-
cated by Germany to the Commission.

(61)

The aid can therefore be exempted under Article 87(3)(c) of the EC Treaty and Article 61(3)(c) of the
EEA Agreement,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany has implemented for SKET Walzwerkstechnik GmbH, Magdeburg, amounting
to EUR 70 million (DEM 143,5 million) is compatible with the common market within the meaning of
Article 87(1) of the Treaty, subject to the conditions set out in Article 2.

Article 2

The restructuring plan must fully be implemented. All possible measures shall be taken to ensure that

1.
the plan is put into effect.

Germany shall submit an annual report to the Commission on the implementation of the restruc-

2.
turing plan.

3.

If the conditions set out in paragraphs 1 and 2 are not fulfilled, the exemption can be withdrawn.

This Decision is addressed to the Federal Republic of Germany.

Article 3

Done at Brussels, 13 December 2000.

For the Commission

Mario MONTI

Member of the Commission