Report from the Commission - Monitoring of Article 95 ECSC Steel aid cases, Sixteenth Report, November 2001
Date: 2001-11-26
Institutions: European Commission
Subjects: Austria, ECSC aid, Ireland, Portugal, aid to industry, control of State aid, iron and steel industry

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 26.11.2001
COM(2001) 693 final

REPORT FROM THE COMMISSION

Monitoring of Article 95 ECSC Steel aid cases, Sixteenth Report, November 2001

REPORT FROM THE COMMISSION

Monitoring of Article 95 ECSC Steel aid cases, Sixteenth Report, November 2001

Table of contents

1.

2.

3.

4.

5.

Summary.................................................................................................................. 3

Overview.................................................................................................................. 4

Irish Steel, Ireland .................................................................................................... 5

Siderurgia Nacional, Portugal................................................................................... 6

Voest Alpine Erzberg GmbH, Austria..................................................................... 11

2

1.

SUMMARY

The Commission presents its Sixteenth Report on the Monitoring of Article 95 ECSC steel and
to its decisions of 4 April 19941, 21 December 19942 and
iron ore aid cases pursuant
29 November 19953.

In accordance with the above mentioned decisions, this sixteenth report will cover the following
companies: Irish Steel, Siderurgia Nacional and Voest Alpine Erzberg. Since most conditions
imposed by the Commission in its decisions approving the aid are already fulfilled, only the
conditions still monitored by the Commission are addressed in this report.

1.1.

Irish Steel, Ireland

Investments carried out at Irish Ispat up to 31 May 2001 did not modify the company’s
production capacities.

1.2.

Siderurgia National, Portugal

The monitoring is focused on following up the plan for installation of the electric arc furnace,
which according to a modified plan should be operational in the first quarter of 2002. The
closing down of SN Serviços steel making facilities took place in March 2001 with the
consequent reduction of workforce. In order to monitor the completion of the aided restructuring
the Commission decided to continue the monitoring until 15 March 2002.

1.3.

Voest-Alpine Erzberg, Austria

The price charged for iron ore was in line with market prices and higher than the price of
imported iron ore in the monitored period.

The decision authorises ATS 52 million aid to be granted over 2001. In the first half of 2001
ATS 18 million has been disbursed.

1.4.

Outstanding issues from previously monitored companies.

• ILP

The total production capacity of the company for crude steel and hot rolled products in the first
semester of 2001 has not been increased.

• EKO Stahl

The limitation of the capacity of the new hot-rolling mill to 1.5 million t/y up until the end of
January 2005 is guaranteed by an electronic device that makes it technically impossible to
exceed that ceiling. The system operates reliably and the records of the quantities produced are
regularly submitted to the Commission.

1

2

3

Decisions No 94/257/ECSC (OJ L 112, 3.5.1994, p. 52, 58, 64, 71, 77)
Decision No 94/1075/ECSC (OJ L 386, 31.12.1994, p. 18)
Decision No 96/269/ECSC (OJ L 94, 16.4.1996, p. 17)

3

2.

OVERVIEW

Compan
y

SN

IRISH
STEEL

VAEG

Aid Article 95 ECSC

Aid Steel Aid Code

Capacity reduction

Redundancies

Siderurgia Nacional, Irish Steel, Voest Alpine Erzberg

Required

Achieved

Remarks

Authorized

Granted

Authorized

Granted

kt/y

Date

Kt/y

Date

Plan

Achieved

100 %

PTE 60.12
billion
€
306
(
million)

IEP 38.298

100%

million
€
(
on )

47.7 milli

ATS 408 mi
llion
€
(
ion)

29.7 mill

ATS 292.8
million
€
(
lion)

21.28 mil

140

31.12.95

100%

31.12.95

1798

2618

PTE 5,925
million
€
(
lion)

29.55 mil

PTE 3,401.
76
million
€
(
ion)

16.97mill

by

205
1996

209
1996

by

-

-

-

-

-

-

by

100

Redundancies ahead of schedule.

71
2002

4

3.

IRISH STEEL, IRELAND

The Commission decided on 7 February 1996 (Commission Decision 96/315/ECSC)4 to approve
aid under Article 95 ECSC linked to the sale of Irish Steel Ltd (ISL) to Ispat International
amounting to a maximum of IRL£ 38.298 million5, serving various purposes toward the
restructuring of Irish Steel (for details see the previous monitoring reports).

Under the terms of the decision the aid was approved subject to various conditions (for details see
previous monitoring reports). The Irish authorities submitted on 16th March 2001 the eleventh
monitoring report in accordance with the Commission's decision. This report included a set of
financial data and ratios in line with the Annex to that decision.

The freeze on production capacity up to the end of May 2001 has been respected. Investments
carried out by Irish Ispat Ltd. in the first half of 2001 did not modify the company’s production
capacities and related to replacement and maintenance.

Irish Ispat decided to cease all operations in mid-June 2001. A liquidator was appointed to the
company on 28 June 2001

4

5

€

OJ L 121 of 21/5/1996, p. 6
1

= IRL 0,7876.

5

4.

SIDERURGIA NACIONAL, PORTUGAL

4.1.

Introduction

On 12 April 1994 the Commission approved6 PTE 60.12 billion7 aid to the
Portuguese public steel undertaking Siderurgia Nacional under Article 95 of the
ECSC Treaty (see details in the previous monitoring reports). This aid was paid in
1994 and 1995.

In September 1994 the Commission approved under the Fifth Steel Aid Code:8

–

–

PTE 4 925 million in social aid,

PTE 1 000 million in aid for environmental protection.

By the end of the first half of 2001, social aid amounting to PTE 3 401.76 million has
been paid.

Authorisation of the aid was subject to several conditions. The following conditions
are still monitored by the Commission :

–

–

replacement of
(outstanding),

the blast

furnace at Seixal by an electric arc furnace

total workforce to be reduced by 1798 employees by the end of 1996

The present report covers developments up to 30 June 2001 on the basis of
information provided by the Portuguese Government
in its sixteenth monitoring
report, which was submitted on 17 September 2001. The present report concentrates
on the conditions still monitored by the Commission.

4.2.

Investments

SN Longos – Electric arc furnace

Under the initial restructuring plan (PERG), the blast furnace was to be replaced by
an electric arc furnace by the beginning of 1996. The Portuguese Government’s
decision to privatise the operating companies immediately, which was not envisaged
by the initial restructuring plan, and the approach taken by the authorities of leaving
the final investment decision to the new private shareholders in SN Longos have led
to a five-year delay in installation of the electric arc furnace (cf. previous reports).

6

7

8

€

OJ L 112, 3.5.1994, p. 52.
1
OJ C 390, 31.12.1994, p. 18.

= 200,482 PTE. Total amount 299 million

€

.

6

The revised timetable for the completion of the investment is as follows:

Civil construction works

Installing the equipment

Start of operations

2nd semester 2001; partially in
process

2nd and 3rd quarters 2001

4th quarter 2001/1st quarter 2002

In view of this delay, the Commission decided to continue the monitoring period till
15 March 20029.

4.3.

Evolution of workforce

The initial restructuring plan (PERG) envisaged a reduction in the workforce by
1798 at the end of the restructuring period. The Portuguese Government’s decision to
privatise the operating companies immediately, will lead to a reduction of 2618 in
2002. With the closure of the blast furnace in March 2001, only 44 workers remain in
SN Serviços which are needed for the dismantling of the installations.

The following table shows the evolution of the workforce and the forecasts:

1999

2000

2001*

SN Longos + Lusosider

SN Serviços

Total workforce

710

878

1588

Planned total workforce

1410

Deviation from plan

178

648

795

1443

1410

33

590

44**

634

1410

-776

*Expected reduction during the year 2001

**Workers needed for dismantling the installations

9

SG (2001) D/285564 of 31.01.2001

7

Financing of redundancies:

Nature

Number of
workers

Art 56
ECSC

State (Art 56
ECSC)

Company1

Total

Costs in PTE million

Early retirement

1094

294.25

294.25

36.3

624.9

1993 -

Redundancy2

670

310.31

310.31

2994.9

3615.63

2000 *

Other

Total

111

0

0

0

0

1875

604.56

604.56

3031.2

4240.53

2001

Early retirement

562

115.7

115.7

-

231.4

first half

Redundancy2

Other

Total

38.7

38.7

1495.4

1572.8

193

3

758

154.4

154.4

1495.4

1804.2

*

1

2

For details on the period 1993 - 2000 see previous Reports.

In accordance with Article 4(1) of the Fifth (until 1996 included) respectively the Sixth Steel Aid Code (as from 1997),
a contribution from the State defrays 50% of these costs.

Through mutual agreement (negotiated redundancy).

In the first half of 2001, PTE 732.6 million in social aid authorised under Article 4 of
the Sixth Steel Aid Code was disbursed.

4.4.

Sales

The sales of billets on the Portuguese market by SN Serviços go exclusively to
SN Longos. Prices for these products are fixed on normal market conditions for a
period of three months. Residual steel production is sold on the market against
market prices (Metal Bulletin spot prices). The average prices achieved by the
different product groups were given in the monitoring report. The Commission has
compared these prices with the average market prices and considers them to be
within the normal range.

After the closure of the blast furnace, the activity of SN-Serviços is limited to:

–

–

–

dismantling, removal and demolition of existing plant;

environmental rehabilitation of the disused industrial area and solution of the
long-standing environmental pollution problems which remained
the
responsibility of the previous shareholder;

promoting the conversion and refurbishment of areas previously used for steel
production, creating the necessary conditions for the location of new industrial
or service activities;

8

–

managing the closure processes in the different areas of the company's former
business, focusing particularly on personnel and financial questions.

4.5.

Financial performance

The Portuguese authorities provided a full set of financial data and financial ratios in
line with the Annex to the Commission’s Decision.

According to the Portuguese authorities, the deterioration of SN Serviços’ financial
performance was chiefly due to an increase in depreciation10 and provisions11.

The closure of the blast furnace also resulted in an extraordinary charge owing to the
inclusion in the accounts of the total compensation paid in respect of termination of
the employment contracts of workers to be laid off from April 2001 onwards.

Another reason for the deterioration in the results in 2000 was the increase in the
costs of raw and other materials stemming from the rise in their average acquisition
price caused by the successive increases in market rates for maritime freight and the
strong appreciation of the US dollar.

SN Serviços

(PTE million)

Sales and services performed

Other income

Cost of sales

Personnel costs

Depreciation + provisions

Net financial charges

Other costs

Operating result

Gross profit

* provisional figures

1999

2000

First semester
2001*

19 438

-949

13 053

4 081

954

211

3 171

-2 981

-2 611

20 670

-1 167

14 547

3 959

4 476

703

3 059

-6 538

-7 271

3 776

-328

2 771

1 314

1 009

228

1 266

- 3 140

- 2 778

10

11

The company decided, on prudential grounds, to redefine the criteria for determining the useful life of
plant to be decommissioned, the book value of which was deemed to be virtually nil in April 2001.
In order to cover any losses that might be incurred in the sale of stocks held at plants that have been or
are to be decommissioned and which have been entered on the balance sheet at their respective historic
cost.

9

4.6.

Aid

The aid authorised under Article 95 of the ECSC Treaty has been paid in six
instalments between March 1994 and June 1995 as explained in the fourth
monitoring report. The environmental aid approved under Article 3 of the Fifth Steel
Aid Code has not so far been paid. The use of the social aid approved under
Article 4(1) of the Fifth, respectively the Sixth Steel Aid Code is explained above
under 4.3 (financing of redundancies).

10

5.

VOEST ALPINE ERZBERG GMBH, AUSTRIA

5.1.

Introduction

On 29 November 1995 the Commission approved12 state aid to Voest Alpine Erzberg
GmbH (VAEG) to enable it to close down its mining operations gradually up to the
year 2002. Approved aid amounts to ATS 272 million to cover operating losses over
the period 1995-2002 and ATS 136 million13 to cover the costs of closing down
mines safely and in an environmentally friendly manner.

Authorisation of the aid was subject inter alia to the following conditions:

–

–

–

the annual aid ceilings and the production ceiling as given in the table above
were not to be exceeded (so far observed),

the amount of operating aid was not
production costs and revenues (so far observed),

to exceed the difference between

the price charged for iron ore was to be in line with market prices and was not
to be lower than the price of imported iron ore (so far observed).

This report covers developments up to 30 June 2001 on the basis of information
provided by Austria in its twelfth monitoring report, which was submitted, in line
with the Commission’s request, on 20 September 2001.

5.2.

New monitoring report

5.2.1.

The company

The company Voest Alpine Erzberg Gesellschaft mbH (VAEG) is held by ÖIA
Bergbauholding Aktiengesellschaft, which in turn belongs to Österreichische
lndustrieholding Aktiengesellschaft, an industrial holding company wholly owned by
the Austrian State. VAEG is involved in the mining of low-density iron ore (~32 %
Fe). The company has only one client, Voest Alpine Stahl AG (VASA), which was
privatised in the autumn of 1995.

5.2.2. Operating aid

5.2.2.1. Production and sales

In the first half of 2001 VAEG produced 447 000 tonnes of iron ore with an average
content of 33.6% Fe and 509,100 tonnes of low grade products which VASA can use
for the blast furnace burden (Möllerzusatzmaterial). These quantities were sold and
delivered to VASA. Since in 2000 VAEG’s production exceeded in 9 000 tonnes the
ceiling for that year, the Austrian authorities committed to deduct this surplus from
the authorised ceiling for 200114, which stands therefore at 991 000 tonnes.

12

13

14

€

OJ L 94, 16.4.1996, p. 17
1
Cf. 15th Report point 6.2.2.1

= ATS 13,7603. ATS 272 million = 19,76 million

€

; ATS 136 million = 9,88 million

€

11

5.2.2.2. Production costs

In the first half of 2001, the production costs for iron ore and the low grade product,
including closure and rehabilitation operations, stood at ATS 134.8 per tonne. A
detailed overview of production costs is given in the Annex.

5.2.2.3. Pricing

The standard-grade iron ore was sold at ATS 139.50 (
standard price has been set in November 2000 for the whole of 2001.

10.14) per tonne. This

€

The low-grade material (Möllerzusatzmaterial) was sold at ATS 83 (
tonne, fixed on the basis of the market price for lime gravel (Kalkschotter).

€

6.03) per

for

price

average

The
(Möllerzusatzmaterial) results in ATS 109.42 (
of transport to VASA/Linz, the price charged was ATS 653.61 (
Fe.

low-grade material
7.95) per tonne. Including the costs
€
47.50) per tonne

deliveries

iron
€

and

ore

of

The information submitted by Austria in its twelfth report confirm the information
given by Voest Alpine Rohstoffbeschaffungs GmbH, a subsidiary of Voest-Alpine
Stahl AG responsible for the purchase of raw material, that the above price per tonne
Fe for iron ore is higher than the comparable price it has to pay for imported iron ore.

It may therefore be concluded that the prices charged in the first half of 2001 were
not
the Commission’s Decision of
29 November 1995.

than required under Article 2 of

lower

5.2.2.4. Operating aid

The total losses incurred by VAEG in the first half of 2001 were ATS 24.66 million
€
1.79 million). Of the total losses sustained in this period, ATS 4.9 million related
(
to closure operations.

In the first half of 2001, ATS 18 million has been disbursed as operating aid while
the amount authorised by the Commission for this year is ATS 26 million.

5.2.3. Closure aid

In the first half of 2001, no closure aid has been disbursed while the amount
authorised by the Commission for this year is ATS 26 million.

12

5.2.4.

Aid payments in relation to aid authorised

Total aid

Operating aid

Closure aid

(ATS million) Authorised

Paid

Authorised

Paid

Authorised

1995-2000*

306

274.8

2001

2002

52

50

18

Total

408

292.8

226

26

20

272

* For details on the period 1995 - 2000 see previous Reports

5.2.5.

Evolution of workforce

The plan for reducing the workforce is as follows:

Paid

63.8

211

18

80

26

30

229

136

63.8

Workforce

1995

1996

1997

1998

1999

2000

2001

2002

Production

280

Closure operations

6

Total

286

276

10

286

273

13

286

273

13

286

254

20

274

242

20

262

210

31

241

181

34

215

Departing from the original plan the total workforce was reduced to 186 by
30th June 2001. Reduction of workforce is therefore ahead of plan.

13

Cost related to
exhausted
parts of mine

Closure (tech-
nical and so-
cial measures)

Total cost of
sales

Revenues:

Sales (tonnes)

ANNEX

Comparison of production costs and revenues, first half of 2001

Iron ore

Low-grade product

Closure and
securing

Production
(tonnes)

447 000

509 100

Total

956 100

Costs

(ATS 000’)

(ATS/tonne)

(ATS 000’)

(ATS/tonne)

(ATS 000’)

(ATS 000’)

(ATS/tonne)

Production

13 938

Extraction

28 111

Processing

22 452

Quality control

4 513

Transport

Overheads

2 928

6 893

31.18

62.89

50.23

10.10

6.55

15.42

10 692

10 707

7 637

2 036

3 335

7 850

21.00

21.03

15.00

4.00

6.55

15.42

2 887

6.46

24 630

38 818

30 089

6 549

6 263

25.76

40.60

31.47

6.85

6.55

14 743

15.42

2 887

3.02

4 900

4 900

5.12

81 722

182.82

42 257

83.00

4 900

128 879

134.80

Iron ore

447 000

Low grade product

Total

509 100

956 100

Sales (value)

62 356

139.50

42 257

83.00

104 613

109.42

Deduction for
difference
in
quality

-396

-396

Total

61 960

138.61

42 257

83.00

104 217

109.00

Difference

Operating
result

Aid

-19 762

18 000

-4 900

-24 662

18 000

14