2001/825/EC: Commission Decision of 25 July 2001 on State aid C 67/99 (ex NN 148/98) implemented by Germany for the Dampfkesselbau Hohenturm group, Germany (Text with EEA relevance) (notified under document number C(2001) 2382)
Date: 2001-07-25
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, control of State aid, industrial equipment, power plant

L 308/28

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Official Journal of the European Communities

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COMMISSION

COMMISSION DECISION

of 25 July 2001

on State aid C 67/99 (ex NN 148/98) implemented by Germany for the Dampfkesselbau Hohenturm
group, Germany

(notified under document number C(2001) 2382)

(Only the German text is authentic)

(Text with EEA relevance)

(2001/825/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

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,

In that communication Germany informed the Commis-
sion about the failure of the original restructuring plan
approved by the Commission and about a substantial
modification of the plan involving new restructuring
measures which potentially contained state aid elements
of up to DEM 13,825 million. By letter dated 31 March
1999, Germany provided the Commission with further
information.

on

called

interested

Having
their
comments (1) pursuant to Article 88(2) of the EC Treaty and
pursuant to Article 6(1) of Council Regulation (EC) No 659/
1999 of 22 March 1999 laying down detailed rules for the
application of Article 93 of the EC Treaty (2),

submit

parties

to

Whereas:

I. PROCEDURE

(1)

restructuring

By letter dated 27 December 1996, the Commission
notified Germany of its decision to approve aid totalling
DEM 32,5 million in connection with the privatisation
of Dampfkesselbau Hohenturm
and
GmbH (3). That decision stipulates that annual restruc-
turing reports have to be provided to the Commission.
By letter dated 20 November 1998, Germany presented
the company's
the 1997 report on the progress of
restructuring.

(1) OJ C 379, 31.12.1999, p. 4.
(2) OJ L 83, 27.3.1999, p. 1.
(3) State aid N 729/96; Commission letter dated 27.12.1996 (SG (96)

D/11702).

(3)

(4)

By letter dated 25 October 1999,
the Commission
informed Germany that it had decided to initiate the
procedure 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 Communities (4). The Commission invited other
interested parties to submit their comments on the aid,
but it received no comments.

After Germany had delivered its comments on the
opening of procedure by letter dated 27 January 2000,
information by
the Commission requested additional
letter dated 22 February, which was answered by
Germany by letter dated 14 April. At a meeting in
Brussels on 16 May, the Commission informed Germany
of its misgivings in the matter. Germany provided addi-
tional information by letter dated 22 November. Final
questions were raised by the Commission in a letter
dated 8 January 2001. These questions were answered
by letter dated 15 February.

(4) See footnote 1.

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II. DETAILED DESCRIPTION OF THE AID

August 1998. DHDB took over some 50 of DHD's
former workforce of 80 employees.

1. The recipient

(10)

(5)

(6)

(7)

(8)

(9)

The recipient of the aid is the Dampfkessel Hohenturm
group, an economic unit consisting of several
legal
persons each separately constituted under German
company law (5). This economic unit comprises the
companies continuing the business of Dampfkessel
Hohenturm GmbH, a formerly state-owned East German
the
company. The privatisation and restructuring of
Dampfkessel group was approved by a decision of the
Commission in 1996 (hereinafter referred to as the
‘1996 Decision’) (6).

At the time, the key element of the restructuring of the
former Dampfkessel Hohenturm GmbH was to split the
company up into a new holding company DH Industrie-
holding GmbH (‘DH Holding’) and to establish five
operational units. All assets taken over from the former
Dampfkessel Hohenturm GmbH remained with the
holding company. The operational units were then to
hire these facilities from DH Holding according to their
business needs.

Accordingly, the following five operational subsidiaries
were hived off from the former Dampfkessel Hohenturm
GmbH: DH Dampfkesselbau GmbH & Co. KG (‘DHD’),
DH Kraftwerksservice GmbH & Co. KG (‘DHKS’), DH
Werkstoffprüfung GmbH & Co. KG (‘DHW’), DH
Schweißtechnik & Service GmbH (‘DHSS’) and DH Bio-
Energieanlagen GmbH (‘DHBio’). A 50 % stake which
DH Holding had initially held in DHBio has in the
meantime been sold. The other subsidiaries were origi-
nally 100 %-owned by DH Holding.

the Dampfkessel Hohenturm group
The activities of
comprised the development, manufacture, assembly and
marketing of power plant equipment and installations,
environmental products and piping construction as well
as the corresponding repair and maintenance work. In
1998 the companies, which belonged to a group of
private investors, employed some 160 workers and had
an annual
turnover of some DEM 28 million. The
companies, even considered jointly as a group, qualify as
an SME.

In May 1998 DH Holding's main subsidiary, DHD, had
to apply for bankruptcy. In order to continue the busi-
subsidiary, a new
this bankrupt
ness activities of
subsidiary of DH Holding, DH Dampfkessel- und Behäl-
terbau Hohenturm GmbH (‘DHDB’), was set up in

In April 2000 Germany informed the Commission that
the investors were planning to sell DHDB to another
industrial
(‘DIM’).
group, DIM Industriemontagen
According to Germany, this sale will be conducted under
market conditions, subject to control by outside experts.
The sale is to take effect once the Commission has
approved the restructuring measures, but it will be retro-
active from 1 January 2000. This operation resembles
that involving another of DH Holding's former subsidia-
ries, DHKS, which was sold to DIM in 1999.

(11) DIM is controlled directly and indirectly by the same
private investors who own a majority stake in DH
Holding. Through its numerous subsidiaries, DIM offers
a large variety of
including the
production of complete machinery for specific industrial
purposes. In 1999 DIM had a workforce of over 700,
generated a turnover of DEM 125 million and expected
to boost this figure to DEM 150 million in 2000. It is
not therefore an SME.

industrial services,

(12) DIM itself forms part of a larger industrial conglomerate
controlled by the same investors, the Hydraulik Nord
GmbH group, which employs some 1 700 workers and
generated a turnover of some DEM 400 million in
1999. The group is active via its many subsidiaries in
construction, mechanical engineering and industrial
services. It also holds some risk-capital participations. It
is not an SME.

(13)

(14)

The private investors controlling all these companies
have on various occasions in the past demonstrated their
ability to restructure successfully former state-owned
East German companies.

The companies belonging to the Dampfkessel Hohen-
turm group are located in Hohenturm, in the Land of
Saxony Anhalt, a region with high unemployment
(20,4 %). Saxony-Anhalt qualifies as a region eligible for
aid under Article 87(3)(a) of the EC Treaty.

2. The restructuring plan approved in 1996

(5) According to the case law of the Court of Justice and the Court of
First Instance of the European Communities, the term ‘undertaking’
in competition law must be understood as designating an economic
unit even if that economic unit consists of several natural or legal
persons (Case 170/83 Hydrotherm v Compact [1984] ECR 2999
and Case T-234/95 DSG Dradenauer Stahlgesellschaft v Commission
[2000] ECR II-2603, at 124).

(6) See footnote 3.

(15)

The original restructuring plan, approved in 1996, envis-
aged the Dampfkessel Hohenturm group as a provider of
complete plants and machinery for small and medium-
sized power plants and boilers. The group thus had to
meet the estimated demands of municipal and medium-
sized plant operators.

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(16)

from the splitting-up of

In connection with the implementation of this initial
restructuring plan, the Commission approved restruc-
turing aid totalling DEM 32,5 million in its 1996
Decision. Apart
the former
Dampfkessel Hohenturm GmbH, the key elements of
investment in
this restructuring plan were substantial
new production facilities and various cost-reduction
measures. It was assumed at the time that the restruc-
tured group would return to viability at the very latest
by 1999.

3. The failure of the 1996 restructuring plan

(17) Germany has referred to a number of factors which are
supposed to have led to the failure of
the original
restructuring plan and thus to the bankruptcy of DHD.
The crucial shortcoming of the 1996 plan was identified
as being the misguided conception of the group as a
one-stop-shop provider of complete small and medium-
sized power plants and machinery. From the start, the
group lacked not
technical
know-how and commercial expertise but also the finan-
cial resources required to provide successfully all the
services associated with such complex contracts.

the necessary

only

(18)

(19)

The general market for plant and machinery since 1995/
96 has also experienced a downturn and undergone
structural change. These developments are attributed to
the Asian economic crisis, on the one hand, and to the
uncertain prospects for energy plants against the back-
ground of energy market liberalisation, on the other.
These market changes have obliged a number of larger
suppliers of power plants (such as Babcock, Steinmüller,
Lentjes and EVT) to restructure or merge and to reposi-
tion themselves. Traditionally, these larger competitors
specialised in larger power plants. Now, however, they
are having to move into the markets for relatively small
plants, which the Dampfkessel Hohenturm group tried
to enter after its restructuring. As a result, competitive
pressures on the group's target market were much
stronger than at the time the restructuring plan was
drawn up.

examination of

Before buying Dampkessel Hohenturn GmbH,
the
investors had had the opportunity to execute a due
diligence
company. However,
according to Germany, they had to rely on statements
by the company for lack of time. Some of the figures
obtained turned out later to be misleading or even incor-
rect.

the

(20) After the privatisation, the private investors realised that
the volume of offers indicated by the company exceeded
effective market opportunities. Out of placed offers
totalling more than DEM 180 million, only contracts
worth some DEM 1 million were signed. In addition,
the private investors had to cope with unexpected losses
resulting from old contracts signed by Dampkessel
Hohenturn GmbH before privatisation. Execution of
these contracts led to losses of some DEM 5,5 million.
The investors also stated that they were originally misin-
for damages against
formed about pending claims
Dampkessel Hohenturn GmbH under old contracts.

(21)

Lastly, as far as turnover and profit are concerned, the
situation in December 1998 differs markedly from what
had been envisaged in the approved restructuring plan.
About 80 % of the losses incurred since privatisation by
the whole Dampfkessel group — DM 24 million — can
be attributed to the plant building sector. The bank-
ruptcy of the group's main subsidiary on this market,
DHD,

in May 1998 was a result of this situation.

4. The modified restructuring plan

(22)

In the light of these difficulties, the private investors
controlling the Dampfkessel Hohenturm group decided
in 1998 to modify their restructuring plan substantially
in order to reflect more accurately both the — limited
— capabilities of the DH group and the changed market
conditions.

4.1. Internal measures

(23)

(24)

shown that

the Dampfkessel
Since experience has
Hohenturm group was ill-equipped to provide one-stop-
shop solutions for complete power plants,
the key
element of the new restructuring plan was to re-focus
the group. The original ambition to compete as a
provider of complete plants was abandoned.

The Dampfkessel Hohenturm group now operates as a
subcontractor to larger companies. This re-focusing will
reduce considerably the demands on both the group's
engineering capabilities and its financial resources, and
this will be more in line with the size of the group.
Moreover, the group will increasingly act as a supplier of
components and services in the market for power plants.
An effort will also be made to offer in future increas-
ingly customised solutions such as repair work and
modifications of existing plants. The larger companies,
which tend to offer standardised products, are less
present in this market segment.

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(25) An important development in this connection was the
setting up of a new company, DHDB, to continue the
business of the bankrupt DHD. The private investors
provided it with start-up capital of DEM 1 million. Since
all the assets which the predecessor company DHD had
used for its operations had remained with DH Holding,
the newly created DHDB could take over only the work-
force and not the assets. No price was paid for this
transaction.

(26) However,

the private investors came to realise that,
despite these measures, DHDB would still not be able to
operate profitably within the Dampfkessel Hohenturm
group. They thus decided to integrate DHDB into the
profitable DIM group, also under their control. They
hoped that this operation would generate substantial
synergy effects, with DHDB being able to benefit from
the group's know-how and contacts in the general
industrial services sector. This know-how is of decisive
importance at both the management and the engin-
eering level. The DIM group will
in the future also
ensure adequate financing of DHDB's operations.

(27) Of the remaining subsidiaries of DH Holding, DHSS was
reported to be developing a new melting technology due
to be launched on the market by 2000. DHW made a
loss in 1999 but expects to break even in 2000.

4.2. Financial measures

(28)

The modified restructuring plan, presented to the
Commission in 1998, also envisaged three new meas-
ures to be implemented by the State in favour of the
Dampfkessel Hohenturm group. These measures poten-
tially contain state aid elements.

4.2.1. D E M 3 m i l l i o n g u a r a n t e e f r o m t h e B v S
( s u c c e s s o r t o t h e T r e u h a n d p r i v a t i s a t i o n
a g e n c y )

(29)

In its initial communication, Germany had stated that
the BvS would provide the new company DHDB with a
DEM 3 million guarantee (Avalbürgschaft). Pending the
this
final decision of
measure had not yet been implemented.

the Commission in this case,

(34)

4.2.2. P u b l i c c a p i t a l p a r t i c i p a t i o n

(31)

The second measure for the Dampfkessel group consists
of a public capital participation of DEM 825 000 by the
Land of Saxony-Anhalt that has already been granted to
the new company DHDB. It was intended to build up
the current assets of DHDB, which had difficulty in
obtaining finance on the private capital market on
account of the group's economic situation. According to
Germany, the public capital participation is covered by
an approved aid scheme (7).

(32)

(33)

4.2.3. M o d i f i c a t i o n

a n d
e x i s t i n g g u a r a n t e e

e x t e n s i o n

o f

a n

The third measure under the modified restructuring plan
consists of various structural changes and extensions to
an existing guarantee. According to the information
supplied by Germany, the relevant East German privati-
sation agency had granted this guarantee in 1995 to the
company prior
to privatisation. This measure was
authorised by the Commission under an approved aid
scheme (8). The revolving guarantee initially covered a
maximum risk of DEM 15 million. Its terms were subse-
quently altered on several occasions:

the original privatisation
Firstly, under the terms of
agreement, the private investors buying the Dampfkessel
group were obliged to assume responsibility for all the
remaining risks covered by the guarantee by 1998 at the
latest. The privatisation agreement also provided for
penalties in the event of non-compliance and stipulated
that a final tranche of DEM 5 million of the aid previ-
ously authorised (9) was to be paid out only if, on the
agreed date, the investors assumed full responsibility for
the
the risks covered by the guarantee. Otherwise,
remaining tranche of DEM 5 million could be used by
the BvS to redeem the guarantee from the banks,
thereby substantially reducing its exposure.

In 1998, however, the investors were able to provide
only DEM 5 million to redeem part of the guarantee.
The remaining part, covering risks of up to DEM 10
million, was therefore temporarily retained by the BvS.
By two subsequent agreements,
the deadline for the
investors to redeem the guarantee was extended until the
end of 2000. In its last communication of 15 February
2001, Germany confirmed that the guarantee had in the
meantime been fully redeemed by the investors.

(30) Germany now states that the pending integration of
DHDB into the much larger DIM group has rendered
this measure unnecessary. DIM will henceforth be able
to provide the required financing of DEM 3 million
itself. Therefore, by letter dated 22 November 2000,
Germany formally withdrew this part of its notification.

(7) See footnote 14.
(8) State aid N 768/94,

‘Third Treuhand regime’ approved by Commis-

sion letter SG(95) D/1062 of 1.2.1995.

(9) By the Commission Decision referred to in footnote 3.

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(35)

(36)

(37)

(38)

the last

tranche of aid under

The Commission notes that the condition for payment
of
the privatisation
contract, namely that the investors take over the risks
covered by the guarantee, was not met at the relevant
moment. BvS nonetheless decided to pay out that aid
tranche to the investors, instead of using it to reduce its
own exposure under the guarantee, as provided for by
the privatisation contract (10). According to Germany,
the
amounted to
DEM 9,961 million at the beginning of 1998.

risk covered by the guarantee

the structure of
Initially,

the guarantee was subse-
Secondly,
quently altered.
the guarantee had been
provided as a revolving guarantee. Accordingly, within
it covered at all
the limits of its maximum amounts,
times all the obligations, including any new ones, which
the Dampfkessel Hohenturm group entered into at any
given moment. By an agreement of September 1998, the
revolving nature of the guarantee was abandoned. This
was intended to ensure that no new obligations would
be covered by the guarantee provided by the BvS. As a
result, the risk that recourse would be had to the guar-
antee would decline steadily.

Thirdly, a further agreement of December 1998 altered
the guarantee in another way. Initially, the BvS guar-
antee was structured as a deficiency guarantee (Ausfall-
bürgschaft). Hence, creditors had a claim only against the
guarantor (i.e. BvS) if they failed to enforce it against the
principal debtor. This had the following implications:
the group's creditors had a claim against the BvS only if
they had previously requested payment
from the
Dampfkessel group. In the light of the group's constant
lack of liquidity, such a request would inevitably have
lead to the group's bankruptcy. In December 1998 the
guarantee still covered risks totalling some DEM 6,3
million.

In order to avoid the scenario of Dampfkessel's bank-
ruptcy, which would have been costly for the BvS on
account of its guarantee, the structure of the guarantee
as a deficiency guarantee was modified in December
1998 so that the group's creditors could have direct
recourse to the BvS up to an amount of DEM 5 million
without
from the
first having to request payment
Dampfkessel group. This direct claim was, however,
permissible only if the liquidity of the DH group would
otherwise be put at risk. Under this new agreement, the
BvS directly settled claims totalling DEM 2,55 million,

(10) In its communication dated 15.2.2001, Germany confirms that this

would have been legally possible.

thereby avoiding the bankruptcy of the Dampfkessel
group.

(39) As compensation for this modification, the BvS and the
private investors agreed on a repayment scheme for the
payments effected by the BvS on the basis of the guar-
antee. Under this scheme, the Dampfkessel Hohenturm
group would pay to the BvS a third of its annual cash
flow in 2001 and two thirds in the following years
(Besserungsscheinregelung). The scheme would remain in
force until the Dampfkessel group had repaid to the BvS
the total amount paid out by it in claims under the
guarantee.

4.2.4. I n v e s t o r c o n t r i b u t i o n

(40) Under

the modified restructuring plan,

the private
investors have already provided the newly created DHDB
with equity capital totalling DEM 1 million. Moreover,
they contributed a DEM 3,5 million shareholder's loan
(Gesellschafterdarlehen) to the capital of DH Holding. Of
this amount, DH Holding used DEM 1,6 million to
compensate the other subsidiaries of the Dampfkessel
Hohenturm group for losses incurred in the course of
DHD's bankruptcy. In addition, DIM will grant a DEM 3
million guarantee to DHDB once it has been sold to the
DIM group.

5. Reasons for opening the formal investigation

(41) When opening the formal investigation, the Commission
expressed its misgivings regarding the restoration of
viability on the back of the modified restructuring plan.
In particular, it wondered whether the new subsidiary
DHDB would be in a position to receive enough
resources within the Dampfkessel group. The Commis-
sion also stated that there was at the time insufficient
information to justify an exception to the principle that
aid should be granted only once. Lastly, it was doubtful
whether Germany, in granting the earlier restructuring
aid, had complied with the terms of the 1996 Decision.

III. ASSESSMENT OF THE AID

1. Applicability of Article 87(1) of the EC Treaty

(42) Under Article 87(1) of the EC Treaty, state aid granted to
individual undertakings
incompatible with the
is
common market in so far as it affects trade between
Member States and distorts or
threatens to distort
competition.

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1.1. Measures in relation to the BvS guarantee

(43) After the predecessor of the BvS had granted a guarantee
of DEM 15 million to Dampfkessel Hohenturm GmbH
in 1995, the BvS subsequently modified it on several
occasions. According to Germany, this reduced the BvS'
exposure. It was therefore claimed that these measures
did not constitute state aid. In order to assess whether
these measures do constitute state aid within the
meaning of Article 87(1) of the EC Treaty, they have to
be analysed individually.

(44) According to the case law of the Court of Justice, a
measure by a public body does not constitute state aid if
the public body acted like a private creditor in seeking to
obtain payments of sums owed to it by a debtor in
financial difficulties (11). Therefore,
it has to be ascer-
tained whether the measures implemented by the BvS
from 1997 onwards were designed to reduce its
exposure under the guarantee.

(45)

final

tranche

The Commission notes first of all that, under the 1995
privatisation agreement,
(DEM 5
the
million) of the restructuring aid authorised by the 1996
Decision was to be paid out to the investors only on
condition that they had fully redeemed the guarantee,
originally amounting to DEM 15 million, by 1998. This
condition was not met as the private investors were able
to redeem an amount of only DEM 5 million. Although
the condition laid down in the privatisation agreement
was not met, the BvS decided to pay out the remaining
aid of DEM 5 million none the less. It thereby refrained
from substantially reducing its exposure under the guar-
antee.

(46) Germany explained that, without

this payment,

the
Dampfkessel group would have gone bankrupt. Against
this background its creditors would have resorted to the
guarantee issued by the BvS, which would have had to
settle outstanding obligations amounting to DEM 9,961
million at the time. Germany also stated that,
if the
Dampfkessel group had been driven into liquidation, the
BvS would have recovered an estimated DEM 3,9
million from the assets.

(47)

The BvS was thus faced with the choice of paying out
the DEM 5 million or using this sum to redeem the
guarantee, thereby substantially reducing its exposure
under the guarantee. A comparison between these two
options leads to the conclusion that the BvS, by paying
out the DEM 5 million, did not opt for an arrangement
which would have reduced its exposure more effectively:
with the payment to the investors, the BvS' exposure

the guarantee remained at around DEM 10
under
million. The BvS would otherwise have been able to
reduce its exposure by DEM 5 million. Moreover,
it
would have been able to meet at least some of its claims
from out of Dampfkessel's assets.

(48)

The BvS' decision to pay out the DEM 5 million aid
tranche was motivated by the desire to keep the
Dampfkessel group afloat and did not seek primarily to
reduce its own exposure. To this extent, the BvS did not
act like a private creditor.

(49)

(50)

(51)

Furthermore, the Commission notes that the decision to
pay out this final tranche of DEM 5 million is not in
accordance with the terms of
the 1996 Decision.
Germany itself states (12) that this payment was intended
to rebuild the current assets of the Dampfkessel group.
This payment therefore constituted liquidity aid and not
investment aid in any event.

The Commission recalls in this connection that
the
1996 Decision approved the DEM 32,5 million restruc-
turing aid on the understanding that some DEM 11,9
million of this sum would be invested in the former
Dampfkessel Hohenturm Gmb with a view to financing
restructuring measures. However, Germany stated (13)
that an amount of only DEM 6,2 million was used for
this purpose. The remaining restructuring aid was essen-
the
tially devoted to strengthening the liquidity of
Dampfkessel group. However, the 1996 Decision does
not authorise additional liquidity assistance of DEM 5
million.

Secondly,
it has to be ascertained whether the BvS'
decision to extend the deadline by which the private
investors had to redeem the remaining guarantee consti-
tutes new state aid. This guarantee was originally
granted under an approved aid scheme. Germany has
demonstrated to the Commission in particular that,
without this measure, the BvS would not have been able
to recover a substantial sum under its guarantee in view
of
liquidation.
the Dampfkessel group's
Notwithstanding the general
issue of whether such
behaviour can ever be regarded as that of a private
investor
in such circumstances, Germany has not
demonstrated to the Commission that a private guar-
antor in such a situation would really have extended the
deadline without requiring some financial compensation.
in
Hence the Commission cannot say that
extending the deadline, acted like a private guarantor
seeking to minimise its exposure over the medium term.

imminent

the BvS,

(11) Case C-342/96 Spain v Commission [1999] ECR I-2459, at 46, and

Case C-256/97 DMT [1999] ECR I-3913, at 24.

(12) In its communication dated 15.2.2001.
(13) In its communication dated 27.1.2000.

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(52) A similar

reasoning applies

to the agreement of
December 1998, whereby the deficiency guarantee was
abandoned and Dampfkessel's creditors thus given the
opportunity to exercise a direct claim against the BvS.
Although this agreement again helped to avert
the
group's bankruptcy and an immediate call on the BvS'
full guarantee, there is no evidence that a private cred-
itor in a comparable situation would have take such a
measure without any quid pro quo. This measure too is
therefore deemed to contain an aid element.

(53) Against

the

this,

agreement of September 1998,
whereby the revolving nature of the guarantee was aban-
doned, does not constitute state aid. This measure effec-
tively reduced the BvS' exposure without granting any
economic advantage to the Dampfkessel group or its
creditors.

1.2. The capital participation of the Land of Saxony-Anhalt

(54)

The DM 825 000 capital participation of the Land of
Saxony-Anhalt conferred an economic advantage on the
aid beneficiary. Given its economic difficulties at the
time, the company would not have received such a
participation from private sources.

(55) Germany claims that

(formerly Article 92(3)(a)) of

this measure was granted in
accordance with an aid scheme approved (14) under
Article 87(3)(a)
the EC
Treaty, namely the Richtlinie über Konsolidierungsbeteili-
gungen im Mittelstand des Landes Sachsen-Anhalt. However,
the Commission must point out that one of the condi-
tions of its approval for that scheme has not been met in
that it had given its approval on the explicit condition
that the aid would not be combined with other forms of
restructuring aid (15). In the present case, the participa-
tion of the Land Saxony-Anhalt was received together
with the payment of
the DEM 5 million following
extension of the deadline for redeeming the guarantee,
an arrangement which, as stated above, constitutes state
the scheme in question cannot be
aid. Accordingly,
applicable in this case, and the measure has to be exam-
ined in light of Article 87 of the EC Treaty.

(56)

The aforementioned measures are likely to distort
competition. Given the nature of the payments and the
existence of intra-Community trade on the markets on
which the Dampfkessel group is active, the following
measures are caught by Article 87(1) of the EC Treaty:

(14) State

aid N 337/97, Commission letter

SG(97) D/6876 of

(15) See Section 7 of

the Commission's approval

in state aid case

12.8.1997.

N 337/97.

(a) the payment by the BvS of the final aid tranche of

DEM 5 million;

(b) the on-time extension of the deadline for the private
investors; however the aid element of this measure
may not extend to the nominal coverage of the
guarantee at the time;

(c) the modification to the BvS' guarantee agreed in
December 1998 and enabling Dampfkessel's cred-
itors to have direct recourse to the BvS;

(d) the DEM 825 000 capital participation of the Land

of Saxony-Anhalt.

2. Compatibility of

the aid measures with the

Treaty

(57) Measures caught by Article 87(1) of the EC Treaty are
generally incompatible with the common market unless
they qualify for one of the derogations in Article 87(2)
or (3). In any event, Member States are obliged under
Article 88(3) to inform the Commission of such aid
beforehand.

(58)

In the present case Article 87(3), which allows the
Commission to approve state aid in certain specified
circumstances, is applicable. Under Article 87(3)(c), aid
to facilitate the development of certain economic activi-
ties or certain economic areas may be approved
provided that it does not adversely affect trading condi-
tions to an extent contrary to the common interest. In
its 1994 guidelines on rescue and restructuring aid (16)
(the ‘1994 guidelines’), the Commission spelled out in
detail
its
discretion under Article 87(3)(c).

the conditions for the positive exercise of

(59) Article 87(3)(a) of the EC Treaty also empowers the
Commission to approve state aid to promote the
economic development of areas where the standard of
living is abnormally low or where there is serious under-
employment. The new German Länder are such areas. In
the present case, however, the main purpose of the aid is
to restructure a company in difficulty rather than to
promote the economic development of an area. Even if a
successfully restructured company can contribute to the
development of an area,
the aid should be assessed
under Article 87(3)(c) rather than under Article 87(3)(a).

(60)

The conditions of eligibility for restructuring aid are set
out in Section 3.2 of the rescue and restructuring guide-
lines. The aid measures mentioned in recital 56 satisfy
all of those conditions:

(16) OJ C 368, 23.12.1994. These guidelines were revised in 1999 (OJ
C 288, 9.10.1999, p. 2). The 1999 version does not apply to the
present case because the aid measures were granted prior to its
publication (see Section 7 of the 1999 guidelines).

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2.1. Eligibility of the aid beneficiary

(61) According to the 1994 guidelines, restructuring aid may
be granted only to companies in difficulty. A newly
founded company is, in principle, not eligible for aid as
new companies do not generally rank as companies in
difficulty. This rule also applies to new companies set up
following the liquidation of a predecessor company. The
only exception to this rule concerns companies which
receive aid from the BvS within the framework of its
remit to privatise formerly state-owned East German
companies. This exception, which takes account of the
unique situation in eastern Germany, is applicable only
to privatisations carried out by the BvS before the end
of 1999 (17).

Such contracts require expertise and financial resources
on a more limited scale. For the rest, the focus on more
customised solutions will help DHDB to avoid the
competitive pressures exerted by larger competitors,
which generally tend to offer standardised products.

(65) As the main remaining subsidiary of the Dampfkessel
group, DHDB will also profit considerably from its inte-
gration into the DIM group, which will provide it with
the necessary experience as well as access to customers.
This integration into a larger company which is success-
fully operating in several
related markets can be
expected to generate significant synergies. Moreover,
DIM will provide its new subsidiary with the finance
necessary to win and carry out contracts in the manufac-
turing industry.

(62)

In the present case, all the aid measures in favour of the
Dampfkessel group were implemented before the end of
1999. In view of its continuing financial difficulties, the
Dampfkessel
created
including
subsidiary DHDB, can be considered a company in diffi-
culty which is eligible for restructuring aid.

group,

newly

its

(63) According to point 3.2.2(i) of

the 1994 guidelines,
restructuring aid should normally be granted only once.
In the present case, under the modified restructuring
plan the Dampfkessel group received a second aid
package following the aid measures which were the
subject of the 1996 Decision. However, account has also
in eastern
to be taken of
Germany, which
changes
underwent
throughout the 1990s. The principle that aid should
normally be granted only once need not therefore be
applied with the same rigour (18).

the economic context

profound

2.2. Restoration of long-term viability

(64) A crucial precondition for the application of the 1994
guidelines is that the long-term viability of the company
is restored within a reasonable timescale and on the
basis of realistic assumptions. The restructuring plan
addresses the problems previously faced by DHD. This
— now bankrupt — predecessor company did not
possess the technical and financial resources or the
management qualities necessary to carry out successfully
contracts for complete power plants. The new successor
company DHDB is focusing on a market segment where
it has significantly better market opportunities. It will in
future act as a subcontractor for other builders of power
plants and as a provider of services and maintenance.

(17) See footnote 10 to the 1999 guidelines.
(18) The 1999 guidelines are explicitly more flexible as regards the
principle that aid should normally be granted only once where the
restructuring operations in eastern Germany notified before the end
of 2000 are concerned.

(66)

that

the Commission would recall

For the rest,
the
investors behind the DIM group have in the past demon-
strated their capacity to privatise successfully formerly
state-owned manufacturing companies in related sectors
in East Germany. A series of special circumstances
contributed decisively to the failure of the initial restruc-
turing plan. DHDB's pending integration into the DIM
group renders superfluous the Commission's concerns
— as also expressed when the formal investigation was
opened — about
the resources that could be made
available to DHDB by the Dampfkessel group.

2.3. No undue distortion of competition

(67) Aid beneficiaries may not use aid to increase capacity
and must reduce capacity in the event of sectoral overca-
pacity. Although this rule is, in principle, also applicable
to restructuring in assisted areas, a more flexible
approach is permissible in such cases (19). This applies
particularly to aid granted to SMEs since this has less
effect on trading conditions than aid to large firms and
since any harm to competition is more likely to be offset
by the economic benefits (20).

(68) On the basis of the information in its possession, the
Commission notes that the state aid measures under the
modified restructuring plan will not lead to any increase
in capacity. As DHDB has only taken over some 50 of
the 80 former employees of DHD, a more limited
capacity can even be expected. However, given the
nature of the group's activities (construction of power
plants and the provision of related customised services),
the capacity of the Dampfkessel group is difficult to
quantify.

(19) See Section 3.2.3. of the 1994 guidelines.
(20) See Section 3.2.4. of the 1994 guidelines.

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(69)

(70)

(71)

(72)

(73)

(74)

that

the
the Commission would point out
Finally,
Dampfkessel group faces competition from much larger
firms on the market
for the construction of power
plants. The aid to the group is likely, therefore, to have
only insignificant distortive effects on competition.
Given the benefits of the restructuring aid, the measures
will not result in any undue distortion of competition.
The 1994 guidelines have thus been complied with in
this respect.

2.4. Proportionality of the aid

The aid must be limited to the minimum required to
carry out the restructuring and must be in an appro-
priate relationship to the overall restructuring costs. The
beneficiary must make a significant contribution to the
costs of restructuring the Dampfkessel group.

the Commission notes that

In this connection,
the
private investors have now themselves assumed respon-
sibility for one of the originally planned state aid meas-
ures (i.e. the DEM 3 million guarantee). This contribu-
tion is to be seen in the light of the substantial financial
resources which the investors have already made avail-
able to the Dampfkessel group under the modified
restructuring plan. The investors provided DHDB with
capital of DEM 1 million and granted a new sharehold-
er's loan of DEM 3,5 million to DH Holding. In all, the
new capital provided to the
the
Dampfkessel group from private sources thus amounts
to some DEM 7,5 million. This stands in an appropriate
relationship to the public funds provided to the
company, i.e. DEM 5,825 million plus aid in the form
of the extension of the deadline for redeeming the BvS'
guarantee. The Commission is satisfied therefore that the
investors are making a significant contribution to the
costs of the restructuring.

companies of

2.5. Full

implementation of the restructuring plan

The company in receipt of the restructuring aid must
fully implement the restructuring plan approved by the
Commission. Implementation of the plan will be moni-
tored on the basis of annual reports communicated by
Germany to the Commission.

IV. CONCLUSIONS

The Commission notes that Germany has withdrawn its
notification as regards the planned DEM 3 million guar-
antee for the Dampfkessel Hohenturm group.

that

It also finds
the
the measures
Dampfkessel group listed in recital 56 constitute state
aid. Germany has unlawfully implemented those meas-
ures in breach of Article 88(3) of the EC Treaty. Never-
theless, the measures, although unlawfully implemented,

in favour of

satisfy the criteria laid down in the 1994 guidelines and
are therefore compatible with the common market
pursuant to Article 87(3)(c),

HAS ADOPTED THIS DECISION:

Article 1

The Commission notes that Germany has withdrawn its noti-
fication as regards the planned DEM 3 million guarantee for
the Dampfkessel Hohenturm group.

Article 2

The ad hoc restructuring aid in the form of:

(a) a DEM 5 million grant by the Bundesanstalt für vereinigungs-

bedingte Sonderaufgaben (BvS);

(b) an extension by the BvS of the deadline by which the

investors were to have redeemed its guarantee;

(c) the modification to the BvS' guarantee in December 1998
whereby Dampfkessel's creditors can have a direct claim
against the BvS, and

(d) a DEM 825 000 capital participation by the Land of

Saxony-Anhalt,

which Germany granted to the Dampfkessel Hohenturm group
in 1998 and 1999 is compatible with the common market.

Article 3

The restructuring plan shall be fully implemented. All
1.
appropriate measures shall be taken to ensure that the plan is
implemented.

2.
Implementation of the plan shall be monitored on the
basis of annual reports communicated by Germany to the
Commission.

If the conditions laid down in this Article are not met, the

3.
derogation may be withdrawn.

Article 4

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 25 July 2001.

For the Commission

Mario MONTI

Member of the Commission