Commission Decision of 28 March 2001 on the State aid which Germany is planning to implement for the steel firm BRE.M.A Warmwalzwerk GmbH & Co. KG (Text with EEA relevance) (notified under document number C(2001) 971)
Date: 2001-03-28
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, iron and steel industry

6.2.2002

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Official Journal of the European Communities

L 35/15

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 28 March 2001

on the State aid which Germany is planning to implement for the steel firm BRE.M.A Warmwalz-
werk GmbH & Co. KG

(notified under document number C(2001) 971)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/81/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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 (1) (hereinafter referred to as the ‘Steel Aid
Code’), and in particular Article 6(5) thereof,

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 18 January 2000, Germany, acting under
Article 3 of Decision No 2496/96/ECSC (Steel Aid
Code), notified the Commission of aid for a plant
belonging to Stahlwerke Bremen GmbH and which in
the meantime has become a legally independent firm,
BRE.M.A Warmwalzwerk GmbH & Co. KG (hereinafter
referred to as ‘Brema’). The aid amounted to DEM 1,214
million (EUR 622 564), representing 15 % of an invest-
ment of DEM 8,09 million (EUR 4,14 million).

(2)

By letter dated 5 July 2000, the Commission informed
Germany that it had decided to initiate the procedure

(3)

(4)

(5)

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

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 German authorities presented their comments by
letter dated 31 July 2000. The UK Steel Association, the
beneficiary undertaking Brema and SIDMAR, the parent
company of Stahlwerke Bremen GmbH, sent comments
in the context of the procedure. The Commission noti-
fied Germany of these comments by letter dated 22
December 2000 and Germany gave its comments in a
letter dated 19 January 2001.

II. DESCRIPTION OF THE AID

Brema became an undertaking with an independent legal
status in January 2000, separating itself from Stahlwerke
Bremen GmbH, which became its parent company, is in
turn owned by SIDMAR and forms part of the Luxem-
bourg-based ARBED group. It is an ECSC steel company
that manufactures mainly hot-rolled sheets.
Its hot-
rolling mill produces 3,12 million tonnes per year. Slabs
for the hot-rolling process are reheated in a walking-
beam furnace. According to the German authorities, the
steering system of the furnace, which is 27 years old, is
based on obsolete technology and requires modernisa-
tion.

(1) OJ L 338, 28.12.1996, p. 42.
(2) OJ C 310, 28.10.2000, p. 11.

(3) See footnote 2.

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Official Journal of the European Communities

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(6)

(7)

(8)

The necessary modernisation of the furnace would have
involved an investment of DEM 3,91 million (EUR 2
million). However, instead of limiting itself to carrying
out
this necessary modernisation, Brema decided to
undertake a complete reconstruction of the steering and
operating system of the walking-beam furnace in the
interest of energy saving. The additional
investment
amounted to DEM 8,09 million, bringing the total
investment cost to DEM 12 million (EUR 6,15 million).
According to the German authorities,
it qualifies for
environmental aid on the basis of the energy-saving
effect and the reduction in CO2

emissions.

The reconstruction of the operating and steering equip-
ment will lead to a total energy saving of 6 %, equivalent
to 11,7 million Nm3 of natural gas per year. Total CO2
emissions would be reduced by about 21 000 tonnes
per year. In the case of the necessary modernisation
alone, 3,3 million Nm3 of gas would be saved, permit-
ting an emission reduction of 6 000 tonnes CO
per
year. The total reconstruction of
the operating and
steering system of the furnace as decided by the firm will
lead to additional energy saving of 8,4 million Nm3 of
natural gas and a further CO
reduction of 15 000
tonnes per year.

2

2

The additional energy saving of 8,4 million Nm3 of
natural gas represents DEM 1,58 million in terms of
direct cost savings per year for the firm. There will be
other indirect cost savings associated with the effect that
the investment will have on the firm's efficiency,
capacity and productivity.

(9)

The increased efficiency of the process will
lead to a
workforce reduction of five people, resulting in a cost
reduction of DEM 432 800 per year.

(10)

There will also be a small capacity increase of the rolling
mill of 550 tonnes per year, yielding DEM 58 000 per
year in extra revenue.

(11)

Total annual savings resulting from the extra investment
will thus amount to DEM 2,07 million per year.

III. COMMENTS FROM GERMANY

(12)

In its reply to the initiation of proceedings, Germany
confirmed the position it had already taken during the
preliminary investigation, namely that the investment is
eligible for aid because the firm would not contemplate
making such an investment without aid because of its
high initial cost. In spite of a depreciation period of 12,5

years, the fact that the investment will earn a return on
capital
in four years is not decisive for the firm's
decision to invest. The extra improvement in the protec-
tion of the environment is significant since the addi-
tional energy saving of 8,4 million Nm3 of natural gas
emissions of 15 000
entails a further reduction in CO2
tonnes per year, with the initial
investment already
leading to a reduction of 6 000 tonnes.

IV. COMMENTS FROM INTERESTED THIRD PARTIES

The beneficiary undertaking Brema and its parent
company SIDMAR take the same view as Germany
regarding the eligibility of the investment on environ-
mental protection grounds.

important

The UK Steel Association shares the Commission's
misgivings and deems it
to examine the
reason for State aid. In view of the most recent techno-
logical developments, all new investments have an
indirect positive effect on the environment. There is
therefore the temptation to present normal productive
investments as being determined by environmental
factors in order to attract State aid.

V. ASSESSMENT OF THE AID

1. Legal basis

Brema is an undertaking within the meaning of Article
80 of the ECSC Treaty and is therefore subject to the
rules of the Steel Aid Code. The measure notified by
Germany constitutes aid within the meaning of Article 1
of the Steel Aid Code. In accordance with Article 3, aid
for environmental protection in the case of steel under-
takings may be deemed compatible with the common
market if it is in compliance with the Community guide-
lines on State aid for environmental protection (4) (here-
inafter referred to as the ‘guidelines’) and in conformity
with the criteria outlined in the Annex to the Steel Aid
Code.

(13)

(14)

(15)

(16) According to the guidelines (point 3.2.1), aid ostensibly
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. Moreover, the following rules
apply.

(17) Aid for investment that allows significantly higher levels
of environmental protection may be authorised up to a
maximum of 30 % of the eligible costs. Its level must be
in proportion to the improvement of the environment
that is achieved and to the investment necessary for
achieving the improvement (point 3.2.3.B).

(18) Aid for energy conservation will be treated like aid for
environmental purposes in so far as it aims at and
achieves significant benefits for the environment and the
aid is necessary, having regard to the cost savings
obtained by the investor (point 3.2).

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

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(19) According to the Annex to the Steel Aid Code, aid to
encourage firms to contribute to significantly improved
environmental protection (applying both to investments
in the absence of environmental standards and invest-
ments
is
governed by the following provisions.

to improve on environmental protection)

(20)

The Commission will analyse the economic and environ-
mental background of a decision to opt for the replace-
ment of existing plant or equipment. A decision to
undertake new investment which would have been
necessary in any event on economic grounds or on
account of the age of the existing plant or equipment
(useful life left of less than 25 %) will not be eligible for
aid.

(21)

The investor will have to demonstrate that a clear
decision was taken to opt for higher standards which
necessitated additional investment, that is, that a lower-
cost solution existed which would meet the statutory
requirements.

(22) Any advantage in regard to lower costs of production

will be deducted.

2. The present case

(23)

The notification by Germany does not relate to aid for
initial
investment made to replace old installations. It
relates only to aid towards the extra investment leading
to a reduction in energy consumption and hence, in CO
2
emissions. In Germany's view, therefore, the aid ceiling
for such investment is 30 %; however, Germany decided
to limit the grant to 15 %.

(24) Aid for investments in energy saving are assessed in the
same way as aid for other investments that bring about
an improvement in environmental protection. In view of
the applicable rules as set out above, the Commission
has to make sure in the present case that all the advan-
tages in the form of lower production costs attributable
to the investment are deducted from the eligible costs.
This is to ensure that only investments aimed exclusively
at environmental protection receive State aid. For this
purpose, the economic advantages obtained by the firm
during the life of
the
investments must be taken into consideration.

the equipment as a result of

(25)

The equipment that is being partially replaced is at least
27 years old, i.e. at the time of replacement. It could
therefore be assumed that the life of the new equipment
will be the same. If, however, the life of the equipment
cannot be readily determined, the Commission may, in
view of constant technological developments, apply in
some cases the normal depreciation period entered in
the accounts of the company.
It can do this if the
depreciation period is long enough to ensure that all the

economic gains obtained by the company from the
investment will be deducted. In the present case, the
depreciation period is 12,5 years. Although the potential
effective life can be more than double that, the deprecia-
tion period might be considered long enough for the
purpose mentioned and might be accepted by the
Commission as the life of the equipment.

(26) However, the Commission cannot accept the argument
put forward by Germany and by Brema and SIDMAR to
the effect that the aid is necessary in view of the high
cost of the investment. Such a criterion does not ensure
that the provisions of the Steel Aid Code and the guide-
lines will be complied with.

(27) According to the information provided by Germany, the
investment in question generates savings for the firm
not only at the level of energy consumption but also
through rationalisation of the production process. These
savings amount to around DEM 2,07 million per year.
As a result of these savings, the extra investment of
DEM 8,09 million will pay for itself within four years.
Although the investment has considerable positive
effects on environmental protection, the Commission
cannot accept that the aid is necessary, having regard to
the cost savings obtained by the investor.

VI. CONCLUSIONS

(28)

Since any advantage in the form of lower production
cost has to be deducted and since after four years the
notified investment will be paid for with the savings and
extra earnings it generates, the investment is not eligible
for State aid under the Steel Aid Code or the guidelines.
The aid notified by Germany of DEM 1,214 million for
an investment of DEM 8,09 million is, therefore, incom-
patible with the common market,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany is planning to implement for
BRE.M.A Warmwalzwerk GmbH & Co. KG, amounting to
DEM 1,214 million (EUR 622 564), is incompatible with the
common market.

The aid may accordingly not be implemented.

Article 2

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

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This Decision is addressed to the Federal Republic of Germany.

Article 3

Done at Brussels, 28 March 2001.

For the Commission

Mario MONTI

Member of the Commission