Commission Decision of 21 December 2000 on the State aid which Italy is planning to implement in favour of the steel companies Lucchini SpA and Siderpotenza SpA (Text with EEA relevance) (notified under document number C(2000) 4368)
Date: 2000-12-21
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, environmental standard, investment aid, iron and steel industry

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Official Journal of the European Communities

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COMMISSION

COMMISSION DECISION

of 21 December 2000

on the State aid which Italy is planning to implement in favour of the steel companies Lucchini
SpA and Siderpotenza SpA

(notified under document number C(2000) 4368)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2001/466/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

dure laid down in Article 6(5) of the Steel Aid Code in
respect of the aforementioned aid.

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

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,

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 cited above (2) and having regard to
those comments,

Whereas:

I. PROCEDURE

(1)

By letter dated 16 March 1999,
Italy notified the
Commission of aid, under Article 3 of the steel aid code,
in favour of Lucchini SpA, for investments at its Piom-
bino plant. By letter dated 29 November 1999, Italy
notified further investment aid under Article 3 in favour
of Lucchini SpA, Piombino, and also in favour of
Siderpotenza SpA, a steel company owned by the
Lucchini family.

(2)

By letter dated 26 April 2000,
the Commission
informed Italy that it had decided to initiate the proce-

(3)

(4)

(5)

(6)

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.

The Commission received comments from the UK Steel
Association and from the UK Permanent Representation
to the European Union.
forwarded them to Italy,
It
which was given the opportunity to react and sent its
reply thereto by letter dated 13 October 2000.

II. DESCRIPTION OF THE AID

The notified investments and the expected effect on the
environment have been described in detail
in the
decision to initiate the procedure. That description
remains valid for the purposes of the present Decision.

the blast

the steel works,

The investments carried out by Lucchini SpA and noti-
fied as eligible for environmental aid concern the coking
plant,
the fumes
extraction system and the water and sewage system. The
total notified investment costs, considered eligible by the
ITL 190,9 billion
Italian authorities,
(EUR 98,58 million). The proposed aid amounts to
ITL 13,5 billion (EUR 6,98 million), representing an aid
intensity of 7 %.

furnace,

amount

to

(1) OJ L 338, 28.12.1996, p. 42.
(2) OJ C 184, 1.7.2000, p. 2.

(3) See footnote 2.

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(7)

(8)

(9)

The investments carried out by Siderpotenza SpA and
notified as eligible for environmental aid concern the
fume suction plant of the steel works, the after-burning
system and a new loading system for the rolling mill.
The total cost considered eligible by the Italian authori-
ties amounts to ITL 5,9 billion (EUR 3,4 million) and
the proposed aid to ITL 1,3 billion (EUR 0,68 million),
representing an aid intensity of 22,3 %.

extraction system attached to the furnace was renewed
in order to obtain a significant environmental improve-
ment on existing standards. A new water spray tower (a
Baumco tower to replace the old Venturi system) was
installed and the dust bag modified, in order to ensure
that the level of emissions is lower than before.

III. COMMENTS FROM INTERESTED PARTIES

The UK Steel Association and the UK Representation to
the European Union sent their comments and take the
view that the aid proposed by the Italian authorities is
incompatible with the rules set out in the Steel Aid Code
for environmental aid because the investment was made
primarily on economic and not environmental grounds.

IV. COMMENTS FROM ITALY

(11) As regards the steelworks installations, the main produc-
tion investments carried out involved the replacement of
suited to the
existing converters with ones better
production requirements. The existing wet systems for
extracting and abating dust from the converter fumes
could have continued to operate with the new conver-
ters. They would have complied with the rules on emis-
sions (fume output before the intervention was greater
than after the new converters were installed, despite the
(limited) increase in the capacity of the new converters).
However, new systems were installed in order
to
produce a significant environmental
improvement on
the rules in force. The new systems, with dry electro-
static filters, produce far lower emissions than previous
levels.

Lucchini SpA

(12)

the

state

investments

In its comments Italy rejects the Commission's doubts
expressed as to the eligibility of the investments carried
out by Lucchini SpA at Piombino.
In particular, the
Italian authorities contest the Commission's belief that
the reasons for the notified investments were primarily
concerned with production and not environmental
protection. They
for
that
upgrading and reorganising production were made in
parallel with an environmental improvement plan. The
technical characteristics of the environmental equipment
relating to the blast furnace and the steelworks were
such that the old environmental equipment could have
continued to operate with the new production plant and
comply with the rules in force on emission levels. Its
replacement was completely unrelated to the renovation
of the means of production (blast furnace and steelworks
converters), the sole purpose being to reduce emissions
more significantly than the statutory minimum with
which the previous plant had already complied.

To back up their claim that the environmental installa-
tions were not replaced for economic reasons, the Italian
authorities also refer to the independent expert's report
that
report
they sent with the notification. The
concluded that from the standpoint of age, the environ-
mental protection plant still had a useful life of at least
25 % before it need be replaced or modified. The invest-
ments were carried out only because the old equipment
would not have produced the significant environmental
improvement in relation to existing levels necessary, in
view of the plant's location in a densely populated area,
even before the work on the new production facilities.
Although the existing environmental plant complied
with the statutory emission requirements and could
function with the renovated production plant, it could
not produce a significant environmental improvement.
Therefore, with regard to that objective, the existing
plant was technically outdated. This is why it was
replaced with new, modernised or modified equipment.

(10)

the Italian authorities state that, as
In this context,
regards the pig-iron production installations, the main
investments carried out for production consisted in the
replacement of the blast furnace with a new one, better
suited to new production requirements. The corre-
sponding system for reducing dust and extracting gas
from the old blast
furnace could have remained in
operation with the new blast furnace as it complied with
the emission requirements (the output of gas is the same
with the new blast furnace despite the (limited) increase
in its capacity). However, the dust reduction and gas

(13) As regards the necessity for the investor to demonstrate
that a clear decision was taken to opt for higher stan-
dards, which necessitated additional
the
Italian authorities consider that all the investments noti-
fied must be regarded as additional. This would be
because the company decided to opt for significantly
higher environmental
the
standards
investments
in production which would not have
required any investment in the environmental equip-
ment in order to comply with emission levels.

irrespective of

investment,

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(14) As regards the low level of emission reductions obtained
with the investments in the coking plant, the Italian
authorities point out that although the investments were
notified on two different dates, they were carried out
consecutively as part of a single programme. Therefore,
the results to be compared in order to assess the
improvement on emissions are the results after the last
investment. That way, they concluded, the reductions in
dust emissions from the coking furnaces are of the order
of 25 %, which is significant.

(15) As regards the doubts raised by the Commission on the
possible use for production of the equipment declared
for environmental purposes, the Italian authorities state
that the total cost to the company of the environmental
measures was
(206,2 + 41,4).
However, at the appraisal stage, the Italian authorities,
on the basis of the independent expert's report, decided
to reduce the eligible basis
to ITL 190,9 billion
(ITL 152,5 billion in the first notification and ITL 38,4
in the second),
in view of the fact that some of the
measures, either in full or in part, were not eligible
under the more restrictive terms of the Steel Aid Code.

ITL 247,6

billion

(16) As regards the position taken by the Commission on the
inclusion of the depreciation costs of the investments in
the calculation of the cost advantage to production, the
Italian authorities refer again to standard accountancy
practice with respect to calculation of production costs.
The depreciation costs being a normal element of
production costs, they consider that they must be taken
into consideration without question.

Italian authorities take the view that the 30 % reduction
in dust emissions and the 10 % cut in the CO in the
fumes are highly significant,
in particular because the
investments ensure the stability of the lower level of
emissions obtained. The investment should therefore be
assessed not only from the standpoint of the absolute
improvement in the level of emissions but also from
that of
the guaranteed continuity and hence the
enhanced reliability of the system as a whole.

(19) As regards the investment in the plant for the loading of
continuously cast hot billets and its possible effects on
productivity, the Italian authorities insist that there is no
change in the productivity of the plant. In the case of
plants like this, made up of a series of in-line machines,
the productivity of the plant is regulated by the produc-
tivity of the ‘slowest’ machines (bottleneck). The invest-
ment in the hot loader does not help to remove any of
the plant's bottlenecks, i.e. the carrier plate (sliders) and
the machinery used to make the finished product
(beams).

(20) As regards the Commission's observation that the invest-
ments were made to improve the health and safety
conditions of workers, the Italian authorities say that
this does not fit the facts. The investment modifies the
procedure for reheating billets for rolling, with a conse-
quent reduction in CO2 emissions into the air. The
reheating process is carried out by a pusher
type
reheating furnace,
i.e. to a static machine, completely
automated, its cycles being regulated by a PLC. Only one
operator per shift is needed to control the furnace, from
a control cabin which is located in another area and
from which the sensors are monitored that control the
progress of the cycle. Thus the safety of the workforce
was taken care of before the investments in question.

(17) As regards the period during which the cost advantage is
calculated, the Italian authorities state that they used the
annual amortisation, which was calculated in accordance
with Italian rules. For the five investment projects in
question, the coefficients provided for by law yielded the
corresponding periods of time during which the advan-
tages in terms of production costs are deducted, namely
100/15 = 6,66 years.

Third parties' comments

(21) As regards the comments made by the UK Steel Associa-
tion and the UK Representation to the European Union,
the Italian authorities stated that they took note of them
but reiterated their position as set out in their reply to
the Commission's decision.

V. ASSESSMENT OF THE AID

Siderpotenza SpA

Legal basis

(18)

The Italian authorities justify the aid intensity (22,3 %)
for the investments made by the undertaking in the
fume suction plant and the afterburners, on the grounds
that the maximum aid intensity in the present case is
50 %. Regarding the level of improvement achieved, the

(22) Article 3 of the Steel Aid Code allows steel companies to
receive aid for environmental investments. The condi-
tions for such aid to be considered compatible are set in
the Annex to the Steel Aid Code and in the Community
guidelines to State aid for environmental protection (1) (here-
inafter referred to as the ‘environmental guidelines’).

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

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(23) 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 (1). Also according to
the guidelines (point 3.2.3B, first paragraph), aid for
investment
that allows significantly higher levels of
environmental protection may be authorised, up to
30 %, in proportion to the improvement of the environ-
ment that is achieved and to the investment necessary
for achieving the improvement.

(24) According to the Annex to the Steel Aid Code, the
Commission will, as appropriate,
impose strict condi-
tions and safeguards so as to avoid general investment
aid for new plant or equipment being granted under
cover of environmental protection.

24.1. In the case of aid to encourage firms to contribute
to significantly improved environmental protec-
tion,
investors will have to demonstrate that a
clear decision was taken to opt for higher stan-
dards, which necessitated additional
investment,
that is, that a lower-cost solution existed which
would meet the legal standards. The higher aid
level will only apply to the additional environ-
mental protection achieved. Any advantage in
regard to lower production cost will be deducted.

24.2. The Commission will also analyse the economic
and environmental background of a decision to
opt for the replacing of existing plant or equip-
ment. In principle a decision to undertake new
investment which would have been necessary in
any event on economic grounds or due to the age
of the existing plant or equipment (useful life left
less than 25 %) will not be eligible for aid.

Assessment of the aid in the light of the comments
from the Italian authorities

Lucchini SpA, Piombino

(25)

The main point made by the Italian authorities is that
although the company carried out an investment
programme for the modernisation and rationalisation of
the production equipment, the investments carried out
in the environmental installations were not a result of
such production investment programme. The environ-
mental installations were not obsolete either. They could
have continued to be used in conjunction with the new
production equipment and environmental
standards
would have been met. The reason for their replacement

(1) See point 3.2.1 of the guidelines.

was a voluntary decision to improve on environmental
protection.

(26) However, no proof was provided that such have been
the reasons for the decisions or that the old equipment
could indeed have been compatible with the new
production equipment. As stated by the UK Steel Asso-
ciation, which intervened as a third party, when a
company carries out a major modernisation of
its
production facilities, as Lucchini did,
the associated
expenditure on environmental equipment is no more
than what would normally be necessary as part of a
modern production plant.

(27)

(28)

(29)

It is even more difficult to accept that the company
would have kept
the old ‘environmental’ equipment
together with the new production equipment when
account is taken of the age of equipment, which dated
from 1971 and 1978. And, as stated in the expert's
report by the Italian authorities on the age of the instal-
lations, the lifetime of the environmental equipment is
the same as that of the whole plant because such equip-
ment is just a component of that plant. This is so for the
the steel
three areas involved,
works and the blast furnace. It is therefore difficult to
believe that once the main production equipment was
replaced because it was technologically obsolete,
the
environmental protection equipment that went with it
might have stayed in place.

the coking plant,

i.e.

The Italian authorities also state that the improvement in
terms of environmental protection was necessary already
before the production investment plan because the
undertaking is located in a very densely populated area.
This supplements the information given in the noti-
fication (letter of 15 February 2000) where it was stated
that ‘As a result of environmental measures, the steel-
works and hence the employment it provides, will be
able to continue to operate alongside the existing social
fabric, a particularly important factor given that the
Piombino plant is located in a densely populated area’.
information the Commission can only
From this
conclude that
investments were
necessary for the company to be allowed to continue to
do business and hence that the decisive reason for the
investments was of an economic nature.

the environmental

furnace,

In conclusion, as regards the primary reasons for the
investments by Lucchini, Piombino, in the coking plant,
the steel works and blast
the Commission
considers that the Italian authorities have not demon-
strated, as required by the Annex to the Steel Aid Code,
that a clear decision was taken to invest for environ-
mental reasons. On the contrary, all facts tend to prove
that
investments were made as a
condition or as a consequence of necessary production
investments.

the environmental

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the

could

because

undertaking

(30) As regards the obligation to limit the eligible costs to the
additional
investments necessary to go beyond the
mandatory standards, the Italian authorities simply say
that all the investments notified must be regarded as
additional,
have
continued to use the old environmental equipment. The
Commission does not agree with this position. The
investments made consist mainly in the replacement of
existing equipment, as explained by the Italian authori-
ties, when they say that the undertaking might have kept
the old systems but opted to replace them with newer,
more environmentally efficient ones. Given that
the
undertaking must,
in any case, operate with environ-
mental equipment that ensures compliance with manda-
tory standards, the hypothetical cost of such equipment,
if it exists, must be deducted from the cost of the one it
opted for and that provided for a higher standard. The
cost of the old equipment cannot be taken into account
because its remaining life, even according to the Italian
authorities, was already reduced to 25 %, which would
mean in any case that 75 % of the equipment's life
would be illegally subsidised. The Commission therefore
concludes that
the
installations, do not relate solely to the extra costs neces-
sary to ensure the additional environmental protection,
as required by the Annex to the Steel Aid Code.

the notified costs, concerning all

(31) As regards the possibility that the notified costs also
relate to production equipment that is not eligible for
environmental aid, Italy contests such a possibility only
by stating that the notified costs has already been greatly
reduced compared to the initial request submitted by the
company. The Commission can only conclude that, as
stated in its decision to initiate the procedure, most of
the notified equipment has a direct use in production
and, since no information was sent as to how to sepa-
rate this equipment from the rest, it cannot accept that
all the notified costs are eligible for environmental aid.

(32)

(33)

The Commission accordingly concludes that the invest-
ment costs notified by the Italian authorities do not
represent only costs related exclusively to environmental
protection. The cost of equipment that can be used for
production has not been deducted accordingly and in
the single case where some deduction is made for the
economic gains obtained from energy savings,
the
method used does not ensure that all the economic
advantages have been excluded.

Indeed, in calculating the cost advantages that the under-
taking gets from the new fume extraction plant in the
steel works, the Italian authorities insist on using the
period of 6,66 years to deduct the cost savings obtained.
The Commission cannot accept that the tax depreciation
period used by the Italian authorities in the present case
will ensure that all
the economic advantages are
excluded. Italy gives no justification on that score but
only justifies the length of its depreciation period as
being in accordance with the law. The Steel Aid Code

this can only be ensured if

requires that all advantages be deducted. The Commis-
sion considers that
the
economic life of the equipment is used. When, according
to the expert's report sent by the Italian authorities, the
economic life of the equipment it replaced was 36 years,
the tax depreciation period of 6,66 years can certainly
not be used as a substitute for the life period of the
equipment in question.

(34) As regards the inclusion of the depreciation costs ques-
tioned by the Commission, the Italian authorities reit-
erate that the calculation of the cost advantage obtained
from the investment
is made according to standard
accountancy rules on production cost elements. The
Commission does not however question what are the
standard elements of production costs of an under-
taking. What it cannot accept is that in the calculation of
the financial advantage that an undertaking gets from
entering into a given investment expenditure, the depre-
ciation costs of the investment itself should be consid-
ered. As indicated in the decision to initiate the proce-
dure, this in practice means counting the same invest-
ment cost twice and would ensure that such investment
would always be eligible for aid. The objective is, on the
contrary, to ensure that the company will not use for its
own advantage investments
subsidised for environ-
mental protection. The Commission therefore concludes
that, in calculating the cost advantage that the company
gets from a given investment, the Italian authorities do
not exclude all the advantages that the company gets
from such investment.

investments in the coking plant,

(35) As regards the pollution levels obtained with the second
the
notification of
Italian authorities seem to agree with the Commission
that they cannot be considered significant enough to be
eligible for aid. They consider however that they should
be seen in conjunction with the investments in the first
notification and that only the final results should be
considered for comparison. However, the Italian authori-
ties did not notify the second part of the investments as
an addendum to the first notification, one notification
having been made in March and the other in November
1999. And to justify the environmental improvement to
be attained with the investments notified in November
the Italian authorities considered as departing pollution
levels the ones that had been obtained as a result of the
investments notified in March. This means that such
levels were already reached. Any investment to improve
on the environment has to be considered in relation to
the existing levels of pollution and not in relation to
earlier ones. The Commission therefore concludes that
the investments notified in September for the coking
plant at Lucchini, Piombino, do not bring about a signif-
icant
as
required by the Steel Aid Code, and that for that reason
they are not eligible for environmental aid from the
outset.

in environment protection,

improvement

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Siderpotenza SpA

(36) As regards the investments made in the fume suction
plant and the afterburners system,
the Commission
accepts that the applicable ceiling is not the usual 30 %,
but the regional aid ceiling of 50 %. Indeed, the environ-
mental guidelines provide for the possibility of invest-
ments made by undertakings located in assisted areas to
improve significantly on mandatory standards up to the
prevailing rate of
regional aid authorised by the
Commission for the area (point 3.2.3B second para-
graph) and this bonus is not prohibited by the Annex to
the Steel Aid Code.

(37)

the aid represents only half of

Considering that the investments are not production
the
related and that
authorised ceiling, the Commission considers that its
initial doubts regarding the aid to these investments
have been lifted. It accepts that the aid notified for these
two projects fulfils the requirements set out in the Steel
Aid Code for environmental aid.

(38) As regards the investment

it did not

for the rolling mill,

the
serve the
Commission takes note that
purposes of
improving health and safety conditions.
However, the Italian authorities have not demonstrated
that
such investment was not primarily made for
economic reasons. The fact that the overall productivity
of the plant is not improved because the gains obtained
at a certain point of the production chain are limited
because of the existence of bottlenecks at other points,
does not prove that the investments are not made for
economic/production reasons. On the other hand, no
information is given on the improved levels of pollution
that the investment is supposed to have achieved. Any
improvement appears to be an indirect result of the
investment and not the decisive reason for it to have
been carried out. The Commission therefore concludes
that the investments are not eligible for environmental
aid because the conditions set out in the Annex to the
Steel Aid Code are not fulfilled.

Conclusion

(39)

The aid notified by Italy for Lucchini SpA in the coking
plant, the steel works and the blast furnace, of ITL 13,5
billion is not eligible for environmental aid because the
Italian authorities failed to demonstrate that the invest-
ments were not made for economic reasons. In any case,
when assessed in the light of the detailed criteria, the
notified aid does not meet the various requirements, for
several reasons as already assessed in detail. The notified
costs do not refer only to the extra costs necessary for
the additional
improvement in environmental protec-
tion, not all cost advantages have been deducted and, in

(40)

(41)

some cases, the reduction in pollution levels does not
allow such improvement to be considered ‘significant’.
The aid is accordingly incompatible with the common
market and may not be implemented.

The aid notified by Italy for Siderpotenza SpA of
ITL 203,2 million, in so far as it concerns investment in
the rolling mill totalling ITL 910 million, is not eligible
for environmental aid because the Italian authorities did
not demonstrate that the investment was for environ-
mental purposes. The aid is accordingly incompatible
with the common market and may not be implemented.

The aid notified for Siderpotenza SpA of ITL 1 112
million, in so far as it concerns investment in the fume
suction plant and in the afterburners system totalling
ITL 4 980 million is compatible with the common
market,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Italy is planning to implement for Lucchini
SpA, amounting to ITL 13,5 billion (EUR 6,98 million) and
for Siderpotenza SpA amounting to ITL 203,2 million
(EUR 104 944) is incompatible with the common market.

The aid may accordingly not be implemented.

Article 2

The State aid which Italy notified for Siderpotenza SpA
amounting to ITL 1 112 million (EUR 574 300) is compatible
with the common market.

The aid may accordingly be implemented.

Article 3

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

This Decision is addressed to the Republic of Italy.

Article 4

Done at Brussels, 21 December 2000.

For the Commission

Mario MONTI

Member of the Commission