2001/489/EC: Commission Decision of 28 February 2001 on State aid which Italy plans to grant to Fiat Sata SpA at Melfi (Text with EEA relevance) (notified under document number C(2001) 683)
Date: 2001-02-28
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, motor vehicle industry

L 177/76

EN

Official Journal of the European Communities

30.6.2001

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 28 February 2001

on State aid which Italy plans to grant to Fiat Sata SpA at Melfi

(notified under document number C(2001) 683)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2001/489/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 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) and having regard to
their comments,

Whereas:

I. PROCEDURE

(1)

By letters dated 17 March and 16 April 1999 the Italian
authorities notified the Commission of a plan to grant
regional aid to Sata SpA for an investment in its car
plant at Melfi (Basilicata). The case was registered on 22
March 1999 as notified aid under number N 167/99.
the Italian
On 19 May 1999 the Commission sent
authorities a request
to which they
replied by letter dated 24 June 1999. A site visit was
made to Poland and to Melfi, following which additional
information was requested by the Commission by letter
dated 27 July 1999. After requesting an extension of the

for information,

(2)

(3)

(4)

deadline, Italy supplied partial replies by letter dated 11
October 1999.

By letter dated 25 January 2000 (3) the Commission
informed Italy that it had decided to initiate the proce-
dure laid down in Article 88(2) of the EC Treaty in
respect of the aid.

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (4). The Commission called on interested parties to
submit their comments.

After a meeting with Commission representatives in
Rome on 1 March, by letter dated 18 April 2000, regis-
tered on 25 April 2000, Italy submitted its comments
and provided information which it considered necessary
for assessing the aid.

(5)

The Commission did not receive any comments from
interested parties.

II. DETAILED DESCRIPTION

(6)

The recipient of the aid would be Sata SpA, a wholly
owned subsidiary of Fiat Auto SpA. The Fiat group is
active in the motor vehicle sector mainly through the
following three companies: Fiat Auto for passenger cars,
Iveco for commercial vehicles and Magneti Marelli for
components. Fiat Auto operates plants in Italy, Poland,
Turkey and South America and sells vehicles of the Alfa
Romeo, Ferrari, Fiat, Lancia and Maserati makes.

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 110, 15.4.2000, p. 27.

(3) SG 2000 D/100810.
(4) See footnote 3.

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(7)

At present, the Melfi plant manufactures the segment B
vehicles Fiat Punto and Lancia Y and has an overall
capacity of 1 600 vehicles/day (two shifts working six
days a week) broken down as follows: 1 200 Fiat Punto
and 400 Lancia Y models. The notified project, which
does not involve any change in capacity, is essentially
intended to develop new,
flexible bodywork and
assembly lines in connection with the launch of the new
Punto (given the code name ‘model 188’ by Fiat).
Commercial production of
this model began during
1999.

(8)

The following investments totalling ITL 436 billion
have beeen carried out over the period 1997 to 2000 (in
ITL million):

Type of investment

Amount

Project management

Building refurbishment

308

6 150

Machinery

429 450

Total

435 908

(9)

The Italian authorities asserted that the investment could
have been carried out at an alternative site, namely the
Fiat group's plant at Tychy in Poland,
for a mobile
volume of 400 vehicles/day. A cost-benefit analysis was
prepared by Italy to compare the cost of manufacturing
1 200 model 188 cars a day at Melfi with that of
splitting production between Melfi
(800 vehicles/day)
and Tychy (400 vehicles/day). This gave, according to
the Italian authorities, a handicap for Melfi of 273 %,
which would be sufficient to authorise an aid intensity
of 15,3 %. The notified aid, granted under Law No 488
of 19 December 1992, takes the form of a regional
grant of ITL 78 billion (EUR 40 million).

III. COMMENTS FROM INTERESTED PARTIES

(12)

(13)

(14)

registered by the Commission on 25 April 2000. Those
comments have been taken into account.

Firstly, with regard to the question whether aid had been
granted to suppliers in the Melfi area, Italy replied that
there had been no aid requests under Law No 488/92 in
the Basilicata region for projects ascribable to industries
linked to Fiat Sata.

if

Secondly, Italy points out that Fiat does not at present
intend to increase its structural capacity in Europe. As a
it had been decided to produce the
consequence,
model 188 partly in Poland, the production of this
model would have been reduced by the same amount at
Melfi, without increasing production of the other model
produced there, the Lancia Y, which already fully satis-
fies demand.

Thirdly, Italy explained in greater detail the necessary
technical changes to the production structure at the two
alternative sites. In the alternative scenario of producing
the model 188 partly in Poland,
it would have been
possible at the Melfi plant to deactivate one production
line and transform it, with the adoption of cheaper
to reduced production status
technological solutions,
while continuing production at maximum speed on the
other production line. On the other hand, in the chosen
alternative of producing all the cars at Melfi,
it was
necessary to adopt new and more costly technological
solutions with a view to minimising disruption of
production while carrying out the necessary transforma-
tions.

(15)

Italy stressed the genuine mobility of the project and
submitted further documentation to demonstrate that
the investor's real intention of carrying out the invest-
ment at the alternative site was in fact taken into consid-
eration at the time.

(16)

Lastly,
Italy expressed its views and provided further
information with regard to assumptions and cost factors
applied in the cost-benefit analysis.

(10)

The Commission has not received any comments from
third parties.

V. ASSESSMENT OF THE AID

IV. COMMENTS FROM ITALY

(11) After requesting an extension of the deadline for submit-
ting comments on the decision to initiate the procedure
and following a meeting held on 1 March 2000 between
representatives of the Italian authorities, Fiat and the
Commission's Competition Directorate-General,
Italy
submitted its comments by letter dated 18 April 2000,

(17)

The measure notified by the Italian authorities for Fiat
Sata SpA constitute State aid within the meaning of
Article 87(1) of the Treaty. It would be financed by the
State or through State resources. Furthermore, as it
constitutes a significant proportion of the funding of the
project, the aid is liable to distort competition in the
Community by giving Fiat Sata SpA an edge over
competitors not receiving aid. Lastly, there is extensive
trade between Member States in the motor vehicle
market.

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(18)

(19)

(20)

The aid in question is intended for a firm which manu-
factures and assembles cars. The firm is therefore part of
the motor vehicle industry within the meaning of the
Community framework on State aid to the motor
vehicle industry (5) (hereinafter ‘the relevant Community
guidelines’).

The aid in question, notified on 17 March 1999 and 16
April 1999,
is to be granted under Law No 488/92,
which was approved by the Commission under the new
Italian regional aid map on 12 July 2000. Law No
488/92 allows two years' retroactivity as regards eligible
investments.

The relevant Community guidelines specify that aid
which the public authorities plan to grant to an indi-
vidual project under an authorised aid scheme for a firm
operating in the motor vehicle industry must, in accord-
ance with Article 88(3) of the Treaty, be notified before
being granted if either of the following thresholds is
reached: (i) total cost of the project equalling EUR 50
million, (ii) total gross aid for the project, whether State
aid or aid from Community instruments, equalling
EUR 5 million.

(21)

Both the total cost of the project and the total gross aid
exceed the notification thresholds. Thus, in notifying the
proposed aid for Fiat Sata SpA, the Italian authorities
have complied with the requirements of Article 88(3) of
the Treaty.

(22) Article 87(2) of the Treaty specifies certain types of aid
that are compatible with the Treaty.
In view of the
nature and purpose of the aid and the geographic loca-
tion of the investment, Article 87(2)(a), (b) and (c) are
not applicable. Article 87(3) specifies other forms of aid
which may be regarded as compatible with the common
market. Their compatibility with the Treaty must be
assessed from the standpoint of the Community as a
whole and not in a purely domestic context. In order to
maintain the proper functioning of the common market
and having regard to the principle enshrined in Article
3(g) of the Treaty, the exceptions in Article 87(3) must
be construed narrowly. With regard to the exceptions in
Article 87(3)(b) and (d), it is clear that the aid in ques-
tion is not intended for the execution of an important
project of common European interest or to remedy a
to
serious disturbance in the Italian economy or
promote culture and heritage conservation. As regards
the exceptions in Article 87(3)(a) and (c), the Commis-
sion notes that the Melfi plant is located in the region of

(23)

(24)

(25)

(26)

Basilicata, which qualifies for assistance under Article
87(3)(a).

In order to decide whether the planned regional aid is
compatible with the common market under the excep-
tion in Article 87(3)(a) of the Treaty, the Commission
must check whether the conditions specified in the rele-
vant Community guidelines have been met.

To authorise aid under the guidelines, the Commission,
after checking that the region in question is eligible for
aid under Community law, establishes whether
the
investor could have chosen an alternative site for its
project, so as to demonstrate the need for the aid, with
special reference to the mobility of the project. Under
the new Italian regional map, approved by the Commis-
sion on 1 March 2000 for
the Article 87(3)(a)
regions (6), (the Melfi (Basilicata) car plant is located in
an assisted area under Article 87(3)(a) in which regional
aid may be allowed up to a ceiling of 35 % nge, corre-
sponding to 50,67 % gge, for large firms.

The Commission has, with the help of its external motor
industry consultant, studied the geographic mobility of
the project. It considers that it is technically possible to
produce a volume of 400 vehicles/day at the Tychy
plant in Poland, which constitutes a viable alternative.
This has been confirmed by a visit to the Polish plant
and the documents provided by Italy. Following the
initiation of the procedure, Italy submitted additional
documentation, dating from before the investments
began, showing that Fiat did in fact consider locating
part of the production of the model 188 at Tychy. Thus,
the project is mobile in character and can therefore be
considered eligible for regional aid, since the aid is
necessary to attract the investment to the assisted region.

Regional aid intended for modernisation and rationalisa-
tion, which is generally not mobile, is not authorised in
the motor vehicle sector. However, a transformation
involving a radical change in production structures on
an existing site could be eligible for regional aid. The
external expert appointed by the Commission has
confirmed that the investments in question concern the
radical renovation of an existing plant, involving a total
investment of
together with the
complete renewal of a model. Many transfer lines have
been extended in order to make room for and set up
new machinery. On the basis of the layouts provided by
Italy, the report by the external motor industry experts
and the site visit, the Commission considers that the
investments in the context of the launch of the new
model 188 constitute a transformation.

ITL 436 billion,

(5) OJ C 279, 15.9.1997, p. 1.

(6) OJ C 175, 24.6.2000, p. 11.

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(27) However, the Commission can consider eligible only the
costs relating to the mobile aspects of the project. Italy
has split the investments into two categories:
‘eligible
mobile investments’, amounting to ITL 149,1 billion,
and ‘other eligible investments’ amounting to ITL 287,0
billion. The Commission considers that the latter are not
mobile since they are determined by the fixed share of
800 model 188 vehicles per day that would have been
produced at Melfi whatever the option chosen by Fiat.
The Commission has therefore regarded as eligible only
investments amounting to ITL 149,1 billion, which
significantly changes the aid intensity and the regional
handicap ratio of the project.

(28)

The Commission has, with the help of
its external
consultant, evaluated the cost-benefit analysis with a
view to ascertaining whether the proposed regional aid
is in proportion to the regional problems it is intended
to solve. Detailed examination of
the cost-benefit
analysis has made it possible to clarify certain points
that were raised when it was decided to initiate the
procedure. The relative handicap of the Melfi plant is
mainly due to the fact that labour costs are significantly
higher in Italy than in Poland. As regards the investment
the option of
costs, which are slightly higher
producing all 1 200 model 188 cars at Melfi,
the
different technological solutions that would have been
adopted in both cases have been taken into considera-
tion, resulting in a more capital-intensive investment at
Melfi than in Poland. Other factors, such as transport
costs for spare parts and finished vehicles, were also
considered in the analysis. Taking into account the addi-
tional
information received from Italy following the
initiation of the procedure, some aspects of the CBA
were modified:

for

would have been easy to achieve both by not making
turnover
replacements and by enabling workers
made redundant at the Melfi plant to be hired by
supplier companies in the region. The Commission
nevertheless considers that a reduction of 400 cars
per day in capacity, and consequently in production,
at the Melfi plant resulting from a shift of produc-
tion to Poland would also have an influence on the
level of employment at Fiat suppliers in the Melfi
area. Given their dependence on production at the
Melfi plant, instead of hiring new workers they too
would be obliged to lay off personnel. The Italian
authorities have not provided any evidence that
dispels the Commission's doubts in this respect. The
Commission therefore considers that the CBA has to
include redundancy costs in order to assess the
comparative disadvantages of Melfi with respect to
Poland. The Commission has to take its decision on
the basis of the information in its possession,
in
particular that provided by Italy in response to the
decision to initiate the procedure. As the Italian
authorities did not quantify this
the
Commission has estimated the redundancy costs that
would arise at Melfi as a consequence of a shift of
production of 400 model 188 cars to Poland: those
costs would amount
to ITL 19 415 million. The
Commission has included these costs in its assess-
ment of the comparative disadvantages of Melfi with
respect to Poland,

element,

— as explained above, the Commission has considered
only the costs relating to the mobile aspects of the
project, amounting to ITL 149,1 billion, as eligible,
which significantly increases both the aid intensity
and the regional handicap ratio of the project.

(29)

(30)

— as regards the set-up costs,

in its reply to the
opening of the investigation Italy agreed on the need
to modify the amount related to these costs and
submitted corrected figures. The Commission has
taken into account, for the option of shifting part of
the production to Poland, a handicap of ITL 2,4
billion, as opposed to the initially notified handicap
the handicap for
of
Melfi in the CBA as regards set-up costs was reduced
by ITL 1,6 billion

ITL 4 billion. Consequently,

— as regards the inclusion of redundancy costs at Melfi
in the CBA, Italy has not included in its CBA any
extra costs to cover charges in connection with
redundancies as a consequence of a shift of produc-
tion to Poland. In this respect, Italy refers to the lack
of skilled labour with adequate industrial experience
in the region. If the number of jobs at the Melfi plant
were reduced, workers would be released for auto-
motive suppliers and other industries in the region.
Readjustment of the workforce at the Melfi plant

results

that differ

The above modifications introduced in the analysis
produce cost-benefit
from those
initially notified by Italy. The net present value of the
eligible investment is ITL 134,1 billion and that of the
aid is ITL 60,0 billion; the aid intensity of the project is
therefore 44,7 % gge (compared to the initially notified
15,3 % gge) and the project handicap amounts to
ITL 89 366 million, giving a handicap intensity of
66,6 % (compared to the initially notified 27,3 %).

to invest

Lastly, the Commission considered the question of a
possible ‘top-up’, which is an increase in the allowable
aid intensity intended as a further incentive for the
in the region in question. Such
investor
top-ups are authorised on condition that the investment
does not
increase the capacity problems facing the
motor vehicle industry. However, the results of the cost-
benefit analysis obviate the need to include a top-up in
this particular case.

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VI. CONCLUSION

(31)

The aid intensity of the project is less than both the
disadvantage identified by the cost-benefit analysis and
the regional aid ceiling. The regional aid that Italy plans
to grant Fiat Sata SpA is therefore compatible with the
common market under Article 87(3)(a) of the Treaty,

Implementation of the aid, amounting to ITL 78 billion,
accordingly authorised.

is

Article 2

This Decision is addressed to Italy.

HAS ADOPTED THIS DECISION:

Done at Brussels, 28 February 2001.

Article 1

The State aid which Italy plans to grant to Fiat Auto at Melfi,
amounting to ITL 78 billion, is compatible with the common
market within the meaning of Article 87(3)(a) of the Treaty.

For the Commission

Mario MONTI

Member of the Commission