2002/467/EC: Commission decision of 31 January 2001 on State aid implemented by Spain for the Fesa-Enfersa group (Fertiberia) (Text with EEA relevance.) (notified under document number C(2001) 324)
Date: 2001-01-31
Institutions: European Commission
Subjects: Spain, State aid, aid for restructuring, common market, fertiliser, fertiliser industry, observation

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 31 January 2001

on State aid implemented by Spain for the Fesa-Enfersa group (Fertiberia)

(notified under document number C(2001) 324)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2002/467/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity, 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 regard to Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the application
of Article 93 of the EC Treaty (1) and in particular Article 7(3)
thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2),

Whereas:

I. PROCEDURE

(1)

In the context of the assessment of State aid granted to
Ercros (3), the Commission became aware of the exist-
ence of possible aid to Fesa-Enfersa (now Fertiberia), a
fertiliser conglomerate in which Ercros had a majority

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 315, 4.11.2000, p. 11.
(3) Decision of 20 July 1999 in Case NN62/99 (OJ C 62, 4.3.2000,
p. 18). See also http://europa.eu.int/comm/secretariat–general/
sgb/state–aids/industrie/nn062-99.pdf.

stake until Grupo Villar Mir (a Spanish industrial group)
took it over in April 1995 (4).

By letter dated 12 May 1999, the Commission requested
information on the aid that was thought to have been
granted to Ercros and to the Fesa-Enfersa group. By letter
dated 26 May 1999, the Spanish authorities asked for a
45-day extension of the deadline in order to compile a
full file going back to 1992.

After a reminder sent on 7 September 1999, the Spanish
authorities submitted the requested information by letter
dated 12 November 1999.

The case was registered as an NN case on 15 November
1999.

The Spanish authorities submitted further information
by letters dated 11 January 2000, 14 January 2000,
3 February 2000 and 7 March 2000.

By letter dated 16 June 2000, the Commission informed
Spain that it had decided to initiate the procedure laid
down in Article 88(2) of the Treaty in respect of the aid.

(2)

(3)

(4)

(5)

(6)

(4) See in particular the ninth paragraph of point 2.2 of the Decision

of 20 July 1999 cited in footnote 3.

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(7)

(8)

The Commission decision to initiate the procedure
was published in the Official
Journal of the European
Communities (5). The Commission invited interested par-
ties to submit their comments on the aid.

By letters dated 26 July 2000, 27 July 2000, 12 Decem-
ber 2000 and 24 January 2001, Spain submitted its
comments.

(15) On 14 June 1993 a composition was concluded with

Fesa-Enfersa’s creditors.

(16) On 20 July 1993, and in accordance with the restructur-
ing plan, Fesa-Enfersa set up a subsidiary, Fertiberia SL,
with its viable assets. Fertiberia SL did not take over any
of Fesa-Enfersa’s debts. The latter remained as a liability-
bearing company.

(9)

The Commission received no comments from interested
parties.

(17)

II. DETAILED DESCRIPTION OF THE AID

II.1. The Fesa-Enfersa group

In 1995 the family-owned Grupo Villar Mir took control,
through its affiliate company Inmobiliaria Espacio SA,
of the Fesa-Enfersa group by acquiring 53,60 % of its
capital for an amount of ESP 720 000. The purchase
included Fesa-Enfersa’s subsidiary Fertiberia SL. Grupo
Villar Mir also took an option to acquire a further 20 %
of Fesa-Enfersa’s capital, which it exercised in 1997 by
paying ESP 261 270 000.

(10)

(11)

(12)

In 1989 Explosivos Rı´o Tinto SA and Sociedad Ano´ nima
Cros merged to form Ercros SA. Before merging, they
put together their fertiliser assets in a newly created
entity called Fesa Fertilizantes Espan˜ oles SA (‘Fesa’).
Ercros was Fesa’s sole shareholder.

(18)

In 1997 Fesa-Enfersa, following its restructuring, merged
with Fertiberia SL and became Fertiberia SA (‘Fertiberia’).
Today, Grupo Villar Mir owns 99,35 % of Fertiberia’s
capital.

In the same year Ercros acquired State-owned Empresa
Nacional de Fertilizantes SA (‘Enfersa’), another fertiliser
manufacturer. Subsequently Fesa became Enfersa’s sole
shareholder. The resulting conglomerate was known
from then on as the Fesa-Enfersa group.

(19) The Fesa-Enfersa group (now ‘Fertiberia’) is the main
fertiliser manufacturer in Spain and is one of the 10
largest players on the European market. Its installed
capacity represents 8,6 % of total installed capacity in
western Europe.

In 1992 Fesa-Enfersa filed for insolvency in the context
of extremely adverse market conditions in the European
fertiliser sector. It was suffering from serious liquidity
problems. The company was declared insolvent on
4 December 1992 by Madrid Court of First Instance
No 64, with liabilities amounting to ESP 117 000 million
and losses of ESP 20 000 million.

II.2. Restructuring of the group and creation of Ferti-
beria

(13) A first restructuring plan was submitted in December
1992 in the context of the insolvency proceeding.
It provided for a drastic reduction in capacity and
workforce.

(14) The plan was subsequently developed and finalised in

the period 1993 to 1994.

(20)

In 1997 Fertiberia employed 1 900 workers and gener-
ated turnover of ESP 73 900 million, with profits of
ESP 1 727 million. In 1998 sales amounted to ESP
70 200 million and the company made a loss of ESP
127 million. According to the information provided by
the Spanish authorities, Fertiberia suffered a loss of ESP
6 000 million in 1999, but again recorded profits of ESP
350 million in 2000.

(21)

Fertiberia is not a small or medium-sized enterprise
(‘SME’) within the meaning of the Community guidelines
on State aid for small and medium-sized enterprises (6).

(22)

Fertiberia has plants at Lleida, Sagunto, Cartagena,
Puertollano, Seville, Huelva, Palos, Avilés and Luchana
Barakaldo. With the exception of the one at Lleida, all
the plants are located in assisted areas.

(5) See footnote 2.

(6) OJ C 213, 19.8.1992, p. 2.

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II.3. Evolution of the fertiliser sector and restructuring
of the European industry (7)

II.3.1.

Fertiliser consumption

(23)

Fertiliser consumption in Europe showed strong sus-
tained growth from the 1950s until the mid 1980s in
intensive and increasing agricultural
the context of

output. The energy crisis caused only temporary dips in
production that did not affect the upward trend. In the
early 1990s there was a sharp fall in demand following
the 1992 reform of the common agricultural policy and
the introduction of a more liberal import regime.

(24) The following figure shows that, after a sharp fall in
demand in the early 1990s, the fertiliser market reco-
vered during the period in which the restructuring took
place:

(Source: EFMA)

II.3.2. The crisis in the early 1990s

(25) Between 1985 and 1995,

the restructuring of

the
Community fertiliser industry resulted in the number of
major fertiliser producers falling from approximately 30
to 10 and the workforce from 100 000 to 40 000.
Capacity was also cut back considerably. During this
drastic restructuring process, the Community fertiliser
industry reduced nitrogen fertiliser capacities by 25 %
and phosphate fertiliser capacities by 33 %. Some
66 plants were permanently closed and the workforce
was halved. In this context of lower prices and reduced
volumes, the whole industry suffered heavy losses.

(26) The total cost of the restructuring is estimated to have
been some EUR 1,5 to 2 billion. The plants which
remained in operation were modernised, and logistics
and sales units were streamlined in order to improve
competitiveness and adapt to changes in supply and
demand.

II.3.3. Recovery in the mid 1990s

(7) This section is based on research undertaken by the European
Fertiliser Manufacturers Association (EFMA). See in particular the
studies Forecast of Food, Farming and Fertiliser Use in the
European Union 1999 to 2009 and The Fertiliser Industry of the
European Union, which may be consulted on the EFMA’s website
www.efma.org/publications/.

(27) The reduction in fertiliser capacity and the partial
recovery in fertiliser demand in the Community resulted
in a more balanced supply and demand situation in the
period following the restructuring, which led to an
improvement in capacity utilisation and a reduction in
unit costs. Having experienced heavy losses in 1992 and
1993 and a break-even situation in 1994, the industry
was finally able to report profits in 1995 (a 10 % gross
return before tax).

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II.3.4.

Further fall in consumption

(28) However, the industry’s current forecasts indicate a
decline in nitrogen consumption in the Community to a
level of 9,17 million tonnes by the 2005/2006 market-
ing year. This represents a reduction of 5,2 % when
compared with the consumption level of 1995/1996.
According to the EFMA, the main factor influencing this
forecast is the new reform of the common agricultural
policy. The Agenda 2000 proposals include the follow-
ing key measures:

— 10 % compulsory set-aside to 2006,

— intervention price for cereals cut by 15 %,

— dairy reform postponed to 2006,

— rural development policy decentralised.

II.3.5. New wave of restructuring in the fertiliser industry

(29) Total fertiliser deliveries to the most important markets
in western Europe increased by approximately 3 % in
1999/2000 compared with the 1998/1999 season. The
increase occurred in a period of very low prices (20 %
lower on average than in the previous season). As a
result of the lower price levels, most major European
fertiliser producers decided to carry out restructuring
measures. In the words of the industry itself,
‘1999/
2000 was probably the most difficult and challenging
year in the history of the fertiliser industry. Dramatic
losses were incurred in 1999; only 1993 had seen worse
results. [...] The losses [EUR 500 million] were not due
to operating costs alone; a major part could be attributed
to the industry’s restructuring efforts’ (8).

(30)

In this context, two leading companies in the sector,
Norsk Hydro and Kemira (respectively 34,1 % and
11,1 % of installed capacity in Europe) unveiled plans to
restructure their fertiliser activities (9).

II.3.6. Norsk Hydro

(31) On 7 March 2000 Norsk Hydro presented its plans to
downsize its European fertiliser business and close
1 million tonnes of nitrate fertiliser production capacity.

(8) EFMA Annual Review 1999-2000, p. 9.
(9) See these companies’ websites: http://www.hydro.com and http://

www.kemira.com.

This represents about 20 % of Hydro’s total nitrate
production capacity and plays an important part in the
its
company’s efforts to restore the profitability of
fertiliser business. The cuts, which are to be made in the
first half of 2001, will affect between 500 and 600 jobs.
Norsk Hydro’s fertiliser business incurred an operating
loss of 318 million in 1999; the corresponding loss in
1998 was EUR 72 million.

II.3.7. Kemira Agro

(32)

In 1999 Kemira Agro’s operating income fell signifi-
cantly, with the company recording a loss of EUR
39 million. Prices of plant nutrients fell further, by 5 to
15 %, particularly within nitrogen fertilisers in western
Europe, and ended at an all-time low. Kemira Agro
announced its decision to focus on speciality fertilisers
and to withdraw partly or completely from the nitrogen
fertiliser business. As a result, NPK fertiliser production
was wound up at Pernis in the Netherlands.

II.3.8.

Fertiberia

(33) According to the information provided by the Spanish
authorities, Fertiberia has undertaken restructuring
measures which involve stopping nitrate production at
Cartagena (260 000 tonnes), closing a urea plant at
Huelva (75 000 tonnes) and closing three plants produc-
ing sulphuric acid also at Huelva. As a result, 160 jobs
have been cut. The cost of the restructuring amounts to
EUR 78 million, which, according to the information
provided by the Spanish authorities, has been exclusively
financed by the company without any support from the
State.

(34) As a result of the restructuring measures taken by
Fertiberia, Spain has informed the Commission that the
company will record profits of ESP 350 million in 2000
(based on the 3/4-year results).

II.4.

Fesa-Enfersa’s restructuring plan and aid measures

granted in this context (period 1992-1997)

(35) As indicated in point 13 above, a first restructuring plan
was presented in December 1992 in the context of the
insolvency proceeding. It provided for a drastic reduction
in capacity and workforce. The plan was subsequently
developed and finalised in the period 1993-1994 and
implemented over the period 1992-1997.

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(36) The restructuring plan was aimed at returning the
company to profitability by the end of the period
1992–97. It comprised the following measures:

(40) The group’s results evolved as follows over the restruc-

turing period (1993-1997):

YEAR

Profits/(Losses)

(ESP 000 million)

Restructuring cost

Investments

Composition with creditors and redundancy
payments

Pension rights

(ESP 000 million)

9,9

4,073

9,927

Reconstruction of working capital

20,058

Total

43,958

The funds labelled ‘Reconstruction of working capital’
were intended both to provide such capital and to
cover the liquidity requirements during the restructuring
period.

1993

1994

1995

1996

1997

1998

1999

2000

( 24 654)

(7 431)

(615)

4 325

1 727

(127)

(6 000)

350

(37) The

set

shareholder’s

contribution was

at ESP
4 000 million. An American industrial investor with
whom talks were being held for a takeover of Fesa-
Enfersa, but who was unwilling to assume the group’s
liabilities, was to provide an additional amount of
between ESP 5 000 million and ESP 7 000 million.
Those talks were broken off in early 1995 when a new
private investor, Grupo Villar Mir, made an offer to take
over Fesa-Enfersa. Grupo Villar Mir decided to make
investments amounting to ESP 19 500 million over the
period 1995-1999.

(38) The restructuring plan involved 1 487 redundancies and
an average reduction of 49,3 % in existing capacity.

(39) The private investor (Grupo Villar Mir) that acquired
Fesa-Enfersa in 1995 agreed to pay a total of ESP
262 million for the group. According to the Spanish
authorities, Grupo Villar Mir also agreed not to demand
dividends amounting to ESP 6 000 million over the
period 1995-1998. However, when the Commission
decided to initiate the procedure, Spain had not submit-
the aid recipient had
ted conclusive evidence that
contributed significantly to the restructuring plan from
its own resources.

(41) According to the Spanish authorities, the losses incurred
by Fertiberia in 1998 and 1999 correspond to a change
in business conditions due mainly to the impact of the
Agenda 2000 reforms on the common agricultural
policy coupled with the acute crisis in south-east Asia,
traditionally a net fertiliser importer. The Spanish auth-
orities claim that these events could not be anticipated
at the time most of the restructuring plans were drafted
in the early 1990s. The situation triggered a new wave of
restructuring among the major European manufacturers.
Fertiberia itself is currently implementing a restructuring
plan involving the closure of more plants as well as
further job cuts. As a result, the company returned to
profit (to the tune of ESP 350 million) in 2000. The
Spanish authorities have confirmed that they do not
intend to grant any more State aid and that the current
restructuring will be implemented by the company using
exclusively its own resources.

II.5. State measures in the context of Fesa-Enfersa’s
restructuring (period 1992-1997)

(42) The state measures were as follows.

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(43) Three short-term loans were granted by the State-owned
Instituto de Crédito Oficial (‘ICO’) to Fertiberia SL, as
follows:

The Treasury’s claims were not covered by the State’s
‘abstention right’ (12); the Social Security administration
did not use its abstention right.

Date

Amount (Esp
000 Million)

Interest Rate

25 October 1993

6 400

16,25 %

14 June 1994

4 175

11,50 %

29 July 1994

2 538

11,50 %

(44) These loans were to cover working capital requirements
during the initial phase of the group’s restructuring. In
December 1994 they were converted into non-interest-
bearing equity loans, with their repayment being linked
to a percentage of the company’s cash flow (10). In the
event of the company becoming insolvent, these loans
were to be repaid after all other creditors had been
satisfied but before shareholders received any payment.
In January 1996 the terms of the loans were amended
so that their repayment was no longer linked to the cash
flow but to profits (11). As from December 1997, the
loans were required to be repaid in fixed annual
instalments until 2030 irrespective of the level of profits.

(45) Two further non-interest-bearing equity loans totalling
ESP 10 500 million were granted to Fertiberia SL by the
ICO in November and December 1994 to cover working
capital requirements (ESP 5 000 million) and Fesa-
Enfersa’s debts (ESP 5 500 million). As from December
1997, these loans were required to be repaid in fixed
annual instalments until 2030 irrespective of the level
of working capital.

(46) An equity loan of ESP 1 500 million was granted by the
ICO to Grupo Villar Mir in 1995. As from 1997,
that loan was required to be repaid in fixed annual
instalments.

(47)

Lastly, under the composition with creditors, the latter
waived a proportion of their claims. Out of a total of
ESP 71 000 million, the private creditors, including Fesa-
Enfersa’s parent company, banks and suppliers, waived
ESP 47 000 million, representing 66 % of their claims.
The public creditors (Treasury, Social Security and the
State-owned ICO) waived ESP 32 400 million out of a
total of ESP 46 300 million, i.e. 69 % of their claims.

(10) This was 25 % of the annual cash flow exceeding ESP 3 000

million, with a maximum limit of 5 % of the annual cash flow.

(11) 15,55 % of profits before taxes.

III. GROUNDS FOR INITIATING THE ARTICLE 88(2) PRO-
CEDURE

(48)

In its decision to initiate the formal investigation pro-
cedure laid down in Article 88(2) of the Treaty, the
Commission, after its preliminary assessment, took the
view that the only Community guidelines applicable in
this case, in relation to the loans granted by the ICO,
were the Community guidelines on State aid for rescuing
and restructuring firms in difficulty (13) (the ‘restructur-
ing aid guidelines’).

(49) The Commission also voiced its concerns that

the
behaviour of
the Treasury and the Social Security
administration in the context of the Fesa-Enfersa group’s
insolvency could involve an element of State aid. The
Spanish authorities explained that they did not exercise
their abstention right because, in the absence of any
assets that were free of charge, it was more advantageous
for the State to take part in the composition with
creditors. However, Spain had not produced any con-
crete evidence that this was the case or that the State
recovered a higher proportion of its claims than it would
have obtained otherwise.

(50) The restructuring aid guidelines set out certain con-
ditions for the authorisation of aid by the Commission.

(12) Under Spanish bankruptcy law, the ‘abstention right’

is the
privilege enjoyed by the State to opt not to be bound by the
composition with creditors with regard to some of its claims.
(13) OJ C 288, 9.10.1999, p. 2. Under point 101 of these new
guidelines, the Commission will examine the compatibility with
the common market of any rescue or restructuring aid granted
without its authorisation on the basis of the new guidelines if
some or all of the aid is granted after their publication in the
Official Journal of the European Communities and on the basis of the
guidelines in force at the time the aid is granted in all other cases.
Since all the aid under examination in this case was granted
before such publication, the applicable version is the Community
guidelines on State aid for rescuing and restructuring firms in
difficulty published in OJ C 368, 23.12.1994, p. 12. As some of
the aid measures were granted before the latter guidelines were
published, those measures must be assessed on the basis of the
Commission’s policy on State aid for rescuing and restructuring
firms in difficulty as published in 1979 in the Eighth Report on
Competition Policy.

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(51) The preliminary assessment of the above measures in
the light of the conditions laid down in the restructuring
aid guidelines showed that:

questions arising concerning the type of significant
contribution made by the aid beneficiary to the restruc-
turing plan from its own resources, the aid measures in
question did not appear to fulfil the minimum conditions
laid down in the restructuring aid guidelines.

(a) Restoration of the company’s viability

(52) The Commission has, for all individual aid measures,
to endorse the corresponding restructuring plan after
assessing its potential to restore the company’s long-
term viability.

(53) The Commission noted when initiating the Article 88(2)
procedure that Spain had not submitted the projected
profit and loss accounts for the restructuring periods
with estimated returns on capital and a sensitivity study
based on several scenarios. The Spanish authorities only
provided in their notification ex post profit and loss
accounts for the same period.

(54) The Commission also noted that Fesa-Enfersa returned
to profit
in the restructuring
plan. However, Fesa-Enfersa had again been incurring
increasing losses since 1998.

in 1997, as forecast

(55) The Commission concluded that,

in the absence of
detailed financial planning documents, an analysis of the
different scenarios and a risk analysis,
it could not
endorse the plan drawn up in December 1992, sub-
sequently developed and finalised in the period 1993 to
1994 and implemented over the period 1993 to 1997.

(b)

Proportionality of the aid

(56) 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 antici-
pated from the Community’s point of view. Therefore,
aid beneficiaries will normally be expected to make a
significant contribution to the restructuring plan from
their own resources or from external commercial finan-
cing. However, Spain had not submitted conclusive
evidence that the aid beneficiary contributed significantly
to the restructuring plan from its own resources.

(57) With regard to the above two conditions, the main
conclusions were as follows: given the uncertainty as to
restoration of the company’s viability and in view of the

(58)

In the light of the foregoing, the Commission took the
view that:

— the measures in question involved State aid,

— they had been granted in breach of the notification
obligation laid down in Article 88(3) of the Treaty,
and

— there were doubts as to their compatibility with the

common market.

IV. COMMENTS FROM SPAIN

(59) The observations submitted by Spain can be summarised

as follows.

IV.1. Behaviour of the Spanish State in the context of
the insolvency proceeding

(60)

First, the proportion of claims waived by private credi-
tors (66 %) was, globally speaking, slightly lower than
the proportion waived by the public creditors (70 %).

(61) However, Spain claims that all creditors, private and
public, waived their rights on the basis of the same
percentages (ranging from 10 % to 99 %) which were
applied to the same tranches of debt (i.e. for the tranche
ESP 1-100 000, a 10 % waiver; for the tranche ESP
10 000-10 million, a 40 % waiver; for the tranche ESP
10 million-50 million, an 80 % waiver; for the tranche
above ESP 50 million, a 99 % waiver or, alternatively, its
conversion into capital). Some private creditors (such as
Ercros or Grupo Torras) waived even higher percentages
of claims than the Treasury or the Social Security
administration.

(62) As regards the decision by the Spanish State not to use
its abstention right, Spain stated that if it had done so it
would not have received any payment given that the net
value of Fesa-Enfersa’s only asset at
the time the
composition with creditors was signed was insufficient
to meet any claim. The Spanish State therefore did not
waive any collateral representing economic value.

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IV.2. Restoration of viability

IV.3. Contribution by the private investor

(63)

Spain forwarded a copy of
the restructuring plan
together with an analysis thereof. The analysis examines
the methodology and commercial assumptions of the
restructuring plan and makes observations on the finan-
cial projections over the period 1995-2000. It also
includes a sensitivity study based on several scenarios.
The analysis reaches the conclusion that the restructur-
ing plan could ensure the company’s viability.

(64) The analysis was based on two main scenarios:

(a) Reduction of the cash flow: this reduction can
result from variations in the structure and situation
of the fertiliser market as well as from variations in
the structure of Fesa-Enfersa’s costs. The sensitivity
study yielded the following cash flow/sales ratio:

1995

1996

1997-
2000

Restructuring plan

10,6 % 11,5 % 12,3 %

Sensitivity study scenario

8,3 %

9,1 % 10 %

The impact of these projections was a reduction in
the profit/sales ratio of between 3,5 % and 2 % and
slight losses. These variations were not likely to
affect the company’s profitability.

(b)

Early reimbursement of debts: in this scenario, it
was assumed that Fertiberia had to reimburse early,
in 1995, debts amounting to ESP 12 000 million.
Such a scenario would result
in extraordinary
expenditure of ESP 10 000 million in 1995. A
cash-flow deficit by the end of 1995 would require
short-term borrowing of ESP 2 000 million for a
period of one year. This projection shows that the
company could continue to operate despite having
a considerably reduced cash flow. By 2004, the
cash flow would be ESP 12 000 million instead of
ESP 24 600 million. This would not compromise
the company’s profitability.

(65)

Lastly, Spain confirmed that the company returned to
profit (to the tune of ESP 350 million) in 2000. The
losses incurred in 1998 and 1999 were due, according
to the Spanish authorities, to external circumstances
that could not have been anticipated at
the time
the restructuring plan was drawn up. Moreover, the
company undertook fresh restructuring without using
state resources.

(66)

Spain confirmed that Fertiberia was fulfilling all the
commitments entered into under the composition with
creditors.

(67)

Spain recalled that the new private investor, Grupo Villar
Mir, had submitted an offer to take over Fesa-Enfersa; it
had decided to make investments amounting to ESP
19 500 million over the period 1995 to 1999. Spain
submitted, together with its observations, a certified
statement to the effect that Inmobiliaria Espacio had
supplied guarantees to five private banks to cover loans
to Fertiberia totalling ESP 12 500 million.

V. ASSESSMENT OF THE AID

(68) The Fesa-Enfersa group was, and continues to be, a
European-scale market player. The measures described
improved the financial position of the Fesa-Enfersa
group and, therefore, were likely to have an impact on
the economic position of competitors in other Member
States and hence affect trade between Member States.
Consequently, the measures may distort or threaten to
distort competition and affect trade between Member
States.

V.1. Three short-term loans and two equity loans
granted by the ICO

(69) The ICO is a State-owned company within the meaning
of Article 6(1)(b) of the General Budget Law (approved
by Royal Legislative Decree 1091/1988 of 23 September
1988) (14). Its objectives and operations are regulated by
the Sixth Additional Provision of Royal Decree-Law 12/
1995 of 28 December 1995 on urgent budget, tax and
financial measures (15). Its financial resources therefore
constitute State resources within the meaning of
Article 87(1) of the Treaty.

(70)

Since the ICO is a State-owned bank, any transfer of
resources from the ICO to a company involves a transfer
of State resources within the meaning of Article 87(1)
of the Treaty.

(71) The purpose of these loans was to cover the capital and
liquidity requirements of the Fesa-Enfersa group. The
three short-term bridging loans were granted to Fesa-
Enfersa through Fertiberia SL, a vehicle set up with the
aim of implementing the group’s restructuring plan.

(14) Spanish Official Gazette No 234, 29.9.1988, p. 28406.
(15) Spanish Official Gazette No 312, 30.12.1995, p. 37519.

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found any State aid element

(72) The three bridging loans totalling ESP 13 113 million
were granted on market terms and were covered by an
appropriate security (mortgage). Under certain con-
ditions, a State measure of this nature could be deemed
to constitute rescue aid within the meaning of the
restructuring aid guidelines (16), but the Commission has
not
in the measure.
However, the three bridging loans were subsequently
converted into equity loans. That conversion as well as
the terms of the new loans (non-interest-bearing equity
loans with no reimbursement date) can be deemed to
constitute restructuring aid. The conversion was directly
linked to the implementation of the restructuring plan.
The Commission will therefore base its examination of
these loans on the criteria for assessing restructuring aid.

(73)

Equity loans can be defined as loans which, in the event
of the insolvency of the debtor company, are repaid
after all other creditors have been satisfied but before
shareholders receive any payment. Such loans are fre-
quently made by public authorities. As regards the
nature of equity loans, the question has been raised
whether they should be included under liabilities in the
balance sheet. The Contact Committee for the Directives
on Accounting took the view that equity loans should
be included under ‘Creditors’ and not under ‘Capital
and reserves’ (17). This view was confirmed in the
certain
Interpretative
Articles of the Fourth and Seventh Council Directives on
accounting (18).

communication

concerning

(74)

In 1994, in the context of the restructuring of Fesa-
Enfersa, the three bridging loans were converted into
non-interest-bearing equity loans with no reimburse-
ment date. In the same year, two further equity loans
totalling ESP 10 500 million were granted to Fertiberia
SL to cover the company’s cash-flow requirements and
settle some of Fesa-Enfersa’s outstanding debts.

(75) The conversion of the three bridging loans and the grant,
also in 1994, of two further equity loans on the same
terms can be deemed to involve elements of State aid.

(16) See footnote 13.
(17) See Accounting harmonisation in the European Communities.
Problems of applying the Fourth Directive on the annual accounts
of limited companies, Luxembourg, 1990, page 14. See also the
definition of subordinated liabilities in Article 21 of Council
Directive 86/635/EEC of 8 December 1986 on the annual
accounts and consolidated accounts of banks and other financial
institutions (OJ L 372, 31.12.1986, p. 1).

(18) See document XV/7009/97-EN, point 2.3.3, page 5.

(76) Considering the situation of Fesa-Enfersa at the time the
loans were granted, the aid element in a non-interest-
bearing loan with no repayment date, which in the event
of insolvency is to be repaid after all other creditors
have been satisfied but before shareholders receive any
payment, is equivalent to the amount of the loan. In the
present case, the total amount of aid involved in the five
loans is therefore ESP 23 613 million. The amendments
made to the repayment terms in 1996 and 1997 do
not alter this assessment since the establishment of a
timetable for repayment (running until the year 2030)
could have the effect of only marginally reducing the
total amount of aid.

(77) This analysis was not contested by the Spanish auth-
orities in their response to the decision initiating the
procedure laid down in Article 88(2) of the Treaty. The
Commission therefore confirms the view it took of these
loans in its decision to initiate the procedure in the
present case.

V.2. Equity loan granted to Inmobiliaria Espacio to
increase Fertiberia SL’s capital

(78)

In 1995 an equity loan amounting to ESP 1 500 million
was granted to Immobiliaria Espacio to enable Grupo
Villar Mir, the new investor, to increase Fertiberia SL’s
capital in the context of the restructuring of Fesa-Enfersa,
thereby strengthening the fertiliser group’s position.
The terms were similar to those laid down for the
abovementioned equity loans.

(79) Considering the situation of Fesa-Enfersa at the time the
loan was granted, the aid element in a non-interest-
bearing loan with no repayment date, which in the event
of insolvency is to be repaid after all other creditors
have been satisfied but before shareholders receive any
payment, is equivalent to the amount of the loan (ESP
1 500 million).

V.3. Behaviour of the Spanish State in the context of the
composition with creditors

(80) By participating in the composition with creditors, the
State institutions (the Treasury,
the Social Security
administration and the ICO) secured 30 % of their
claims, while the private creditors recovered 33 % of
their claims. The precise figures are shown in the
following table:

Creditors

Amount of
claim

Amount
waived

(in ESP million)

Private creditors

71 039

47 161

Treasury and Social Security

26 671

18 631

ICO

19 702

13 794

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24.6.2002

(81)

It should be noted here that in the Ercros case the
Treasury and the Social Security administration did use
their abstention right in the context of the insolvency
proceeding. Accordingly, they were not bound by the
composition agreement signed by Ercros’s creditors.
Unlike the claims covered by the composition, the State’s
claims were not reduced. If the State had accepted the
composition it would, according to the information
submitted by the Spanish authorities, have had to waive
98,6 % of its claims. In its Decision of 20 July 1999 (19),
the Commission therefore concluded that the Spanish
State had acted as a private creditor would have done in
similar circumstances, and that, accordingly, its action
did not involve any aid.

(82)

In the present case, neither the Treasury nor the Social
Security administration used their respective abstention
rights.

(83) The Commission has examined the observations submit-
ted by the Spanish authorities and has come to the
conclusion that the behaviour of the Spanish State in
the context of Fesa-Enfersa’s insolvency did not involve
any element of State aid, for the reasons set out below.

(84) The Court of Justice of the European Communities
confirmed in Magefesa (20) that measures taken by the
State in the context of insolvency proceedings may in
certain circumstances involve elements of State aid.

(85)

In the context of an insolvency proceeding, the State
does not act as a public investor. Its conduct cannot
therefore be compared to that of a private investor
laying out capital with a view to making a profit in the
term. The Commission must rather
relatively short
examine whether the State has acted as a diligent private
creditor trying to maximise the chances of recovering its
claim.

(86) As the Court held in Tubacex (21), a good test is to
compare the behaviour of the State with the behaviour
of the private creditors. This approach was confirmed
by the Court in DMT (22), in which it stated that the
public creditor must be compared ‘with a hypothetical
private creditor which, so far as possible, is in the same
position vis-à-vis its debtor as the (public creditor) and
is seeking to recover the sums owed to it’ (paragraph 25
of the judgment).

(19) See footnote 3.
(20) Judgment of 12 October 2000 in Case C-480/98 Spain v
Commission, not yet published. A provisional non-authentic
version of the judgement can be found on the Court’s website at
http://curia.eu.int.

(21) Judgment of 29 April 1999 in Case C-342/96 Spain v Com-

mission [1999] ECR I-2459.

(22) Judgment of 29 June 1999 in Case C-256/97 Déménagements-

Manutention Transport SA (DMT) [1999] ECR I-3913.

(87) There are two relevant facts to be taken into consider-

ation in assessing the behaviour of the Spanish State:

(i)

(ii)

the State did not make use of its abstention right in
the context of the insolvency proceeding; and

the State, together with the private creditors but
under different conditions, agreed to waive a sub-
stantial proportion of its claims.

(88) The Commission has examined,

first, whether the
decision of the Spanish State not to exercise its absten-
tion right means that the entire amount of the debt
waived constitutes State aid. The Spanish authorities
have shown that the net value of Fesa-Enfersa’s only
asset (the plants) at the time the composition with
creditors was concluded was zero. If Fesa-Enfersa had
been liquidated, the Spanish State would very likely not
have received any payments at all. It therefore did not
waive any collateral representing economic value.

(89) The Commission can thus conclude that the Spanish
State acted in the same way as a diligent private creditor
trying to recover its claim would have done in similar
circumstances.

(90) Nevertheless,

it is not sufficient to demonstrate the
overall advantages of the agreement reached in order to
show that
the requirements of the private creditor
principle have been fulfilled: it also has to be established
that the State and the private creditors were afforded
equal treatment. There must therefore be a second stage
in the analysis to determine whether the amounts paid
to the State in return for waiving a proportion of its
claims are similar to those received by the private
creditors.

(91) The information submitted by Spain shows that:

— the amount waived by the private creditors (66 %)
was, globally speaking, slightly lower than that
waived by the public creditors (70 %),

— however, under the composition agreement sub-
mitted by the Spanish authorities, all creditors,
private and public, waived their claims on the basis
of the same percentages (ranging from 10 % to
99 %) which were applied to the same tranches of
debt (i.e. for the tranche ESP 1-100 000, a 10 %
waiver; for the tranche ESP 100 000-10 million, a
40 % waiver; for the tranche ESP 10 million-
50 million, an 80 % waiver; for the tranche above
50 million, a 99 % waiver or, alternatively,
its
conversion into capital). Some private creditors
(such as Ercros or Grupo Torras) waived even
higher percentages of their claims than the Treasury
or the Social Security administration,

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L 165/11

— moreover, the amount of the private debt (ESP
71 000 million) was substantially higher than the
amount of public debt (ESP 463 000 million, in
taxes, social security contributions and payments
due to the ICO).

(98)

(92) The Commission therefore concludes that the State was
treated on an equal footing with the private creditors,
since both were subject to the same terms as regards the
waiver of their claims.

(93) No State aid element has thus been identified in the
behaviour of the Spanish State in the context of Fesa-
Enfersa’s insolvency.

V.4. Assessment of compatibility

(94) As the aid measures, amounting to ESP 25 113 million,
were not granted under an authorised aid scheme, the
Commission has to assess their compatibility with the
common market directly in the light of Article 87 of the
Treaty.

(95) Article 87(1) provides that, save as otherwise provided
in the Treaty, any aid granted by a Member State or
through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods
shall, insofar as it affects trade between Member States,
be incompatible with the common market.

(96) Article 87 of

the Treaty allows exceptions to the
principle that State aid is incompatible with the common
market. The exceptions in Article 87(2) could serve as a
basis for considering the aid compatible with the
common market. However, the aid measures under
examination neither have a social character nor are
granted to individual consumers, nor do they make good
the damage caused by natural disasters or exceptional
occurrences, nor are they granted to the economy of
certain areas of Spain. The above exemptions are not
therefore applicable in the present case.

(97) As regards the exceptions provided for in Article 87(3)(b)
and (d), the aid in question is not intended to promote
the execution of an important project of common
European interest or to remedy a serious disturbance in
the Spanish economy, nor does it display the features of
projects of that kind; nor is it intended to promote
culture or heritage conservation.

Further exceptions for regional aid are provided for in
Articles 87(3)(a) and c). The aim of the aid measures
under examination was, however, to support the pro-
duction of fertilisers and not to promote the economic
development of certain areas of Spain. Neither did the
Spanish authorities maintain, in the various replies they
transmitted to the Commission,
the measures
constituted regional aid. The Commission is therefore
assessing the measures on the basis of the exception
provided for in Article 87(3)(c) of the Treaty. The
Commission’s assessment of aid to favour the develop-
ment of certain economic activities, where such aid does
not adversely affect trading conditions to an extent
contrary to the common interest, is governed by specific
Community guidelines.

that

(99) The Commission considers that the only Community
guidelines applicable in this case are the Community
guidelines on State aid for rescuing and restructuring
firms in difficulty. Indeed there is no doubt that Fesa-
Enfersa underwent very substantial restructuring.

(100) The restructuring aid guidelines set out certain con-
ditions for the authorisation of aid by the Commission.

(101) The assessment of the above measures in the light of the
conditions laid down in the restructuring aid guidelines
shows that:

(a)

Eligibility of the firm

(102) The Commission considers it sufficiently proven that the
Fesa-Enfersa group qualifies as a company in difficulty
within the meaning of the restructuring aid guidelines.
As indicated in point 12 above, in 1992 Fesa-Enfersa
filed for insolvency in the context of extremely adverse
market conditions in the European fertiliser sector. It
was suffering from serious liquidity problems. The
company was declared insolvent on 4 December 1992
by Madrid Court of First Instance No 64, with liabilities
amounting to ESP 117 000 million and losses of ESP
20 000 million.

(b) Restoration of viability

(103) The Commission must, for all individual aid measures,
endorse the corresponding restructuring plan after
assessing its potential to restore the company’s long-
term viability.

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(104) On the basis of the information referred to in points 63,
64 and 65 above, the Commission considers that the
Spanish authorities have submitted sufficient evidence
that the restructuring plan included the projected profit
and loss accounts for the restructuring periods with
estimated returns on capital as well as a sensitivity study
based on several scenarios including a risk analysis.
that Fesa-Enfersa
Moreover, Spain has pointed out
returned to profit in 1997, that is to say before the end of
the restructuring period (1992-1997). The restructuring
plan fulfilled the condition that the aid must restore the
long-term viability of the firm within a reasonable
timescale.

(105) Spain has further claimed that the losses incurred by
Fertiberia in 1998 and 1999 correspond to a change in
business conditions which is mainly due to the impact
of the Agenda 2000 reforms on the common agricultural
policy coupled with the acute crisis in south-east Asia,
traditionally a net fertiliser importer. This position is
supported by the views recently expressed by the sector.

(106) At its annual meeting on 26 October 2000, the EFMA’s
General Assembly discussed the dramatic losses (EUR
500 million) suffered in 1999 by the western European
fertiliser industry: worse results had only ever been
recorded in 1993 (23). Consequently, towards the end of
1998, EFMA members began to embark on ambitious
restructuring programmes (24). By the end of 2000, some
30 plants will have been closed, production will have
ceased completely at 13 sites around Europe, and some
4 000 jobs will have been lost.

(107) Although the industry began to show better results,
thanks in part to Community measures to control the
dumping of fertiliser products from eastern Europe,
profitability continued to be negatively affected by
massive increases (more than 85 %) in the price of gas,
which can represent up to 65 % of total manufacturing
costs.

tion of distortions in gas and fertiliser markets, especially
those in the former Soviet Union.

(109) Page 8 of the EFMA Annual Review 1998-1999 (25)
indicates that additional events took place which could
not have been foreseen and which had a major impact
on the European fertiliser industry.

(110) The factors which contributed to these European market
conditions are both internal to Europe and also a result
of worldwide trends and events. World urea markets
continued to be depressed throughout 1998. This was
caused by a combination of factors including the ban on
urea imports imposed by China in 1997, the fall in
Indian imports,
the commissioning of new export
capacities and the high level of exports from the former
Soviet Union.

(111) This depression affected all sectors of the nitrogen
industry but had a particular impact on the western
European market. Given the state of the world markets,
it became more and more difficult for European pro-
ducers to use exports as a safety valve. At the same time
import pressure, in particular from the former Soviet
Union countries, did not ease.

(112) Against this background Fertiberia undertook further
restructuring measures, which involved stopping nitrate
production at Cartagena (260 000 tonnes), closing a
urea plant at Huelva (75 000 tonnes) and closing three
plants producing sulphuric acid also at Huelva. As a
result, 160 jobs were cut. The cost of this restructuring
amounts to EUR 78 million, which, according to the
information provided by the Spanish authorities, has
been financed exclusively by the company without any
support from the State (26).

(113) As a result of the restructuring measures taken by
Fertiberia, Spain has informed the Commission that the
company will record profits of ESP 350 million in 2000
(based on the 3/4-year results).

(108) According to the EFMA, a better and more secure future
will involve improving access for EFMA members to
more competitively priced gas supplies and the correc-

(114) The Spanish authorities have confirmed that they do not
intend to grant additional restructuring aid and that
the current restructuring will be implemented by the
company using exclusively its own resources.

(23) See, for this and other references to the EFMA, the organisation’s

website: www.efma.org.

(24) For further details see point II.3 above.

(25) See footnote 23.
(26) The Commission draws attention in this connection to the ‘one
time, last time’ condition as laid down in the new version of the
restructuring aid guidelines.

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(115) In view of the foregoing, the Commission considers that
the current crisis should not call
into question the
Spanish authorities’ assertion that the original restructur-
ing plan devised in 1992 was a realistic plan on the basis
of which the company successfully returned to profit.

was 0,49, slightly higher than a company of similar size
operating on the same market (27). The aid beneficiaries
will therefore normally be expected to make a significant
contribution to the restructuring plan from their own
resources or from external commercial financing.

(116) The Commission has taken note of the fact that Spain
has no intention of granting additional restructuring aid.

(117) After assessing the potential of the restructuring plan to
restore the company’s long-term viability, the Com-
mission accordingly endorses it.

(c) Avoidance of undue distortions of competition

(118) The exception provided for in Article 87(3)(c) of the
Treaty is conditional on the aid not distorting compe-
tition to an extent contrary to the common market. The
restructuring aid guidelines specify that measures must
be taken to mitigate as far as possible any adverse effects
of the aid on competitors.

(119) This condition usually takes the form of a limitation on
or reduction of the presence which the company can
enjoy on the relevant product market. The limitation or
reduction should be in proportion to the distortive
effects of the aid and,
in particular, to the relative
importance of the firm on its market or markets.

(120) As regards mitigation measures, the restructuring plan
provided for an average reduction of 49,3 % in existing
capacity. According to information in the EFMA’s pos-
session, Fesa-Enfersa’s share of the Community market
fell
from 7,9 % in 1992 to 5,7 % in 1997. The
Commission notes that during the implementation of
the restructuring plan, the company effectively reduced
its production capacity by closing plants at Zaragoza,
Valladolid, Seville, Escombreras and El Hondo´ n, all of
which are located in assisted areas. These capacity
reductions gave rise to 1 487 redundancies, which
represented 41 % of the existing workforce at the time.

(d) Aid in proportion to the restructuring costs and benefits

(121) 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 antici-
pated from the Community’s point of view. The ratio of
current liabilities to total liabilities after the restructuring

(122) Taking into account

the costs of

the amount of

the restructuring
(ESP 44 000 million),
the aid (ESP
25 113 million) cannot be deemed to have been excess-
ive. When it initiated the procedure, the Commission
expressed doubts as to whether the private investor had
made a significant contribution to the restructuring plan
from its own resources.

(123) The

set

shareholder’s

contribution was

at ESP
4 000 million plus an amount of between ESP
5 000 million and ESP 7 000 million to be provided by
an American industrial investor with which talks were
being held for a takeover of Fesa-Enfersa. The talks were
broken off in early 1995 when a new private investor,
Grupo Villar Mir, submitted an offer to take over Fesa-
Enfersa.

(124) The new investor decided to make investments amount-
ing to ESP 19 500 million over the period 1995-
1999. Spain submitted, together with its observations, a
certified statement to the effect that Immobiliaria Espacio
had supplied guarantees to five private banks to cover
loans to Fertiberia totalling ESP 12 500 million.

(125) In view of the foregoing, the Commission finds that the
private investor did make a significant contribution to
the restructuring plan from its own resources.

(126) In conclusion, the abovedescribed aid measures granted
to Fesa-Enfersa fulfil the conditions laid down in the
Community guidelines on state aid for rescuing and
restructuring firms in difficulty and can consequently be
authorised.

VI. CONCLUSION

that Spain has unlawfully
(127) The Commission finds
implemented the
aid in question in breach of
Article 88(3) of the Treaty. However, the Commission
concludes that the aid granted to Fesa-Enfersa fulfils the
conditions laid down in the Community guidelines on
State aid for rescuing and restructuring firms in difficulty
and can therefore be authorised,

(27) For example, in the case of Grande Paroisse (Elf Aquitaine), the

ratio was 0,48 in 1997 and 0,44 in 1998.

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HAS ADOPTED THIS DECISION:

Article 2

Article 1

The restructuring aid which Spain has implemented for the
Fesa-Enfersa group (now ‘Fertiberia SA’), amounting to ESP
25 113 million, is compatible with the common market within
the meaning of Article 87(3)(c) of the Treaty.

This Decision is addressed to the Kingdom of Spain.

Done at Brussels, 31 January 2001.

For the Commission

Mario MONTI

Member of the Commission