State aid — Ireland — Aid C 78/2001 (ex NN 22/01) — Exemption from excise duty on mineral oils used as fuel for alumina production in the Shannon region — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2002-02-02
Institutions: European Commission
Subjects: Ireland, State aid, control of State aid, fuel, mineral oil, tax exemption

2.2.2002

EN

Official Journal of the European Communities

C 30/25

STATE AID (cid:151) IRELAND

Aid C 78/2001 (ex NN 22/01) (cid:151) Exemption from excise duty on mineral oils used as fuel for
alumina production in the Shannon region

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2002/C 30/07)

(Text with EEA relevance)

By means of the letter dated 30 October 2001, reproduced in the authentic language on the pages
following this summary, the Commission notified Ireland of its decision to initiate the procedure laid
down in Article 88(2) of the EC Treaty concerning the abovementioned aid.

Interested parties may submit their comments on the aid in respect of which the Commission is initiating
the procedure within one month of the date of publication of this summary and the following letter, to:

European Commission
Directorate-General for Competition
State Aid Registry
B-1049 Brussels
Fax (32-2) 296 12 42.

These comments will be communicated to Ireland. Confidential treatment of the identity of the interested
party submitting the comments may be requested in writing, stating the reasons for the request.

SUMMARY

Facts

Article 6 of Council Directive 92/82/EEC (1), establishes a
minimum rate of excise duty on heavy oil of ECU 13 per
1 000 kg. The excise duty applied by Ireland to industrial
heavy oil
is EUR 13,46 per 1 000 kg (accrued by VAT of
12,5 %) which is slightly above the minimum rate.

the

Council

Decisions

92/510/EEC (2),

However, based on the authorisation granted by Article 1
97/425/EC (3),
of
1999/880/EC (4) and 2001/224/EC (5),
Ireland exempts from
the excise duty the mineral oils used as fuel
for alumina
production in the Shannon region. According to the fifth
recital of
(cid:145)this
decision shall be without prejudice to the outcome of any
procedures relating to distortions of
the
single market
in particular under
It does not override the
Articles 87 and 88 of the Treaty.
requirement
instances of
to notify
for Member States
potential State aid to the Commission under Article 88 of
the Treaty(cid:146).

said Council Decision 2001/224/EC,

that may be undertaken,

the operation of

Alumina is a white powder principally used in smelters to
produce aluminium.

(1) OJ L 316, 31.10.1992, p. 19.
(2) OJ L 316, 31.10.1992, p. 16.
(3) OJ L 182, 10.7.1997, p. 22.
(4) OJ L 331, 23.12.1999, p. 73.
(5) OJ L 84, 23.3.2001, p. 23.

Within the EU, alumina is produced in Ireland, France, Italy,
Germany, Greece, Spain and the United Kingdom. Energy is
one very important cost item in alumina production (about
20 % of total costs). Except in Germany where gas is used as
fuel, the plants in all the other countries use mineral oils.

There is only one producer of alumina in Ireland, Aughinish
Alumina Ltd, which is located in the Shannon region and
It has 430
which belongs
around 1,5 million tonnes of
employees
alumina which is
the
European Union.

to the Glencore group (6).

exported mainly to the

and produces

rest of

In 1998,
the EU
Irish exports of alumina to the rest of
amounted to 713 000 tonnes (51 % of production) and to
778 000 tonnes (54 % of production) in 1999.

Irish Government

The
requested the derogation to the
minimum rate for excise duty in 1992 on the grounds that
the plant was located in a relatively underdeveloped area and
that, since it used heavy oil as an energy source, it could not
compete with other countries’ industries having lower tax rates
on fuel and possibly also using lower or non-taxed natural gas
or other energy sources.

(6) Glencore is a diversified resources group with worldwide activities
in the mining, smelting, refining, processing and trading of minerals
and metals, energy products and agricultural products. Its turnover
in 2000 was USD 48 billion.

C 30/26

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Official Journal of the European Communities

2.2.2002

Assessment

The exemption from excise duty in point constitutes State aid
within the meaning of Article 87(1) of the EC Treaty since it
confers an advantage to its beneficiary which is financed
through State resources and which only applies to certain
undertakings or regions.
It distorts competition and, since
alumina is exported from Ireland to the rest of the EU, intra-
community trade is affected.

fifth recital of

from the excise duty the mineral oils used as fuel for
alumina production in the Shannon region. According
to the
said Council Decision
the
2001/224/EC,
(cid:145)this decision shall be without prejudice
to the outcome of any procedures relating to distortions
of
that may be
in particular under Articles 87 and 88 of
undertaken,
the Treaty.
for
It does not override the requirement
Member States to notify instances of potential State aid
to the Commission under Article 88 of the Treaty(cid:146).

the single market

the operation of

for

the

its compatibility with the common market,
exemption fulfils

the
As
Commission has doubts
the
that
conditions established in the guidelines on national regional
aid (7)
for operating aid (points 4(15) and 4(17)), since the
Irish authorities have not demonstrated the existence of
particular handicaps nor gauged their importance in order to
justify the granting of operating aid and the aid is neither
limited in time nor progressively reduced.

Similarly, the Commission considers that the conditions estab-
lished in point 3(4) of the Community guidelines on State aid
for environmental protection in force between March 1994 and
February 2001 (8)
(they should only compensate for extra
production costs and be temporary and in principle degressive)
the current guidelines (9)
as well as those in point 53 of
(limited duration of
five years progressively reduced (point
45) or non-degressive but limited to 50 % of the extra costs
(point 46)) do not appear to be met.

In the light of the foregoing, the Commission has decided to
initiate the procedure laid down in Article 88(2) of the EC
Treaty against it.

TEXT OF THE LETTER

(cid:145)The Commission wishes
to inform Ireland that, having
examined the information supplied by your authorities on
the measure referred to above, it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

1. FACTS

(1) Article 6 of Council Directive 92/82/EEC (10) establishes a
minimum rate of excise duty on heavy oil of ECU 13 per
1 000 kg. The excise duty applied by Ireland to industrial
heavy oil is EUR 13,46 per 1 000 kg (accrued by VAT of
12,5 %) which is slightly above the minimum rate.

(2) However, based on the authorisation granted by Article 1
of Council Decisions 92/510/EEC (11), 97/425/EC (12),
1999/880/EC (13) and 2001/224/EC (14),
Ireland exempts

(7) OJ C 74, 10.3.1998, p. 9.
(8) OJ C 72, 10.3.1994, p. 3.
(9) OJ C 37, 3.2.2001, p. 3.
(10) OJ L 316, 31.10.1992, p. 19.
(11) OJ L 316, 31.10.1992, p. 16.
(12) OJ L 182, 10.7.1997, p. 22.
(13) OJ L 331, 23.12.1999, p. 73.
(14) OJ L 84, 23.3.2001, p. 23.

(3) Alumina is a white powder principally used in smelters to
produce aluminium. It is produced out of bauxite ore by a
refining process, the last step of which consists of calci-
nation. More than 90 % of the calcined alumina will be
used in the smelting of aluminium metal. The remainder
is further processed and used in chemical applications. In
several merger decisions (15), the Commission has found
that there are two separate product markets: smelter grade
alumina (SGA) and chemical grade alumina (CGA). While
the geographical market for SGA is worldwide, that for
CGA is not wider than Europe.

(4) Within the EU, alumina is produced in Italy, France,
the United
Ireland, Germany, Greece,
item in
Kingdom. Energy is one very important cost
alumina production (about 20 % of total costs). Except
in Germany where gas is used as fuel, the plants in all
the other countries use mineral oils.

Spain and

(5) There is only one producer of alumina in Ireland,
Aughinish Alumina Ltd, which is
located in the
Shannon region and which belongs to the Glencore
group (16).
It has 430 employees and produces around
1,5 million tonnes of alumina which is exported mainly
to the rest of the European Union.

(6) Aughinish Alumina Ltd’s consumption of heavy fuel oil
and
328 000 000 kg

1998

in

amounted
336 000 000 kg in 1999.

to

(7) In 1998, Irish exports of alumina to the rest of the EU
amounted to 713 000 tonnes (51 % of production) and to
778 000 tonnes (54 % of production) in 1999.

(8) The Irish Government requested the derogation to the
minimum rate for excise duty in 1992 on the grounds
that the plant was located in a relatively underdeveloped
area and that, since it used heavy oil as an energy source,
it could not compete with other countries’
industries
having lower tax rates on fuel and possibly also using
lower or non-taxed natural gas or other energy sources.

(15) See, for instance, Case COMP/M.1693 (cid:151) Alcoa/Reynolds.
(16) Glencore is a diversified resources group with worldwide activities
in the mining,
refining, processing and trading of
minerals and metals, energy products and agricultural products.
Its turnover in 2000 was USD 48 billion.

smelting,

2.2.2002

EN

Official Journal of the European Communities

C 30/27

2. ASSESSMENT

(9) In accordance with Article 6(1) of Council Regulation (EC)
No 659/1999 of 22 March 1999, the decision to initiate
proceedings shall summarise the relevant issues of fact
and law, shall include a preliminary assessment from the
Commission as to the aid character of
the proposed
measure, and shall set out the doubts as to its compati-
bility with the common market.

(10) As for the nature of State aid of the measure within the
meaning of Article 87(1) of the EC Treaty, the following
considerations apply:

(11)

It is clear that the exemption from excise duty in point
confers an advantage to its beneficiary which is placed in
a more favourable financial position than the other under-
takings
industries or
regions.

that use mineral oils

in other

(12)

It is also evident that the exemption is financed through
State resources, since the State foregoes a certain amount
of money that otherwise it would collect.

(13) The exemption only applies to certain companies (those
producing alumina)
located in one specific region (the
Shannon region). It favours therefore certain undertakings
or the production of certain goods within the meaning of
Article 87(1). Moreover,
there is only one company
producing alumina in the Shannon region, Aughinish
Alumina Ltd.

(14) As seen above, alumina is exported from Ireland to the
rest of the EU. Intra-community trade is therefore affected.

(15) The exemption of excise duties for the heavy oil used in
Aughinish Alumina Ltd’s production of alumina reduces
the cost of an important input, giving it an advantage
over other EU producers of alumina in the EU, and is
therefore liable to distort competition.

(16) As for its compatibility with the common market, neither
the exceptions of Article 87(2) nor those contained in the
exemption regulations (17) apply in the present case.

(17) As for the possible applicability of other exceptions under

Article 87(3), the following considerations apply:

(18) Since the aid reduces Aughinish Alumina Ltd’s current
expenses, it constitutes operating aid which is normally
prohibited.

(19) Nevertheless, according to point 4(15) of the guidelines
on national regional aid (18), operating aid may excep-
tionally be granted in regions eligible under the dero-
gation in Article 87(3)(a) provided that it is justified in
terms of its contribution to regional development, and
that
to the
level
handicaps it seeks to alleviate. In any case, it is for the
Member State to demonstrate the existence of any

its nature and its

is proportional

handicaps and gauge their importance (point 4(15)) and
operating aid must be both limited in time
and
progressively reduced (point 4(17)).

the end of 2001,

(20) These conditions do not appear to be met in the present
case. Although the Shannon region has lost its 87(3)(a)
status as a result of the review of the regional map in
1999 and could, exceptionally, benefit from operating aid
the Irish authorities have not
until
demonstrated the existence of particular handicaps nor
gauged their importance in order to justify the granting
of operating aid. Moreover, it appears that the exemption
in point
is neither limited in time nor progressively
reduced. The Commission considers that a period of 23
years (from 1983 until the end of 2006 if Ireland so
wishes
required to shorten that
deadline) is too long a period to be considered (cid:145)limited(cid:146).
On the other hand, there is no progressive reduction of
the advantage.

since unanimity is

(21) Operating aid is also contemplated in the Community
guidelines on State aid for environmental protection
when it adopts the form of tax relief from environmental
taxes (19).

(22) Originally, excise duties on mineral oils were not designed
as an instrument of environmental policy. However, the
Commission has acknowledged in its Communication on
environmental taxes and charges in the single market (20),
that (cid:145)one likely feature for a levy to be considered as
the
environmental would be that
levy has a clear negative effect on the environment(cid:146). As
mineral oils have
effect on the
environment, excise duties on mineral oils could be
considered as environmental taxes for the purposes of
the application of the environmental guidelines.

the taxable base of

clear negative

a

relief

taxes

should

principle

for
and

production

costs
degressive.

from environmental
extra
in

(23) In any case, at this stage of the procedure, the conditions
established in the Community guidelines for environ-
mental protection do not appear to be met. According
to point 3(4) of the Community guidelines on State aid
for environmental protection in force between March
1994 and February 2001 (21), operating aid in the form
only
of
and
compensate
be
Similarly,
temporary
according to point 53 of the current guidelines,
(cid:145)when
the reductions concern a tax that has been harmonised
at Community level and when the domestic tax is lower
or equal to the Community minimum, the Commission
takes
long-term exemptions are not
justified(cid:146).
In this case, any exemptions granted are
subject to a limited duration of five years where the aid
is degressive (point 45) or non-degressive but limited to
50 % of the extra costs (point 46). In the present case, the
the period of
that
Commission notes
is
exceeded and that
aid has not been neither
the
progressively reduced nor limited to extra costs.

the view that

five years

(17) Commission Regulation (EC) No 70/2001 of 12 January 2001;
Commission Regulation (EC) No 68/2001 of 12 January 2001.

(18) OJ C 74, 10.3.1998, p. 9.

(19) OJ C 37, 3.2.2001, p. 3.
(20) COM(97) 9 final of 26 March 1997.
(21) OJ C 72, 10.3.1994, p. 3.

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Official Journal of the European Communities

2.2.2002

(24) The Commission will take duly into account the fact that
the decision adopted by the Council on 12 March 2001,
on the basis of a Commission proposal, has extended the
derogation in point. In this regard, the Commission states
the
this Council decision is without prejudice of
that
application of the State aid rules.

3. CONCLUSION

(25) In the

the

light of

foregoing

considerations,

the
Commission, has doubts that the aid in question fulfils
the criteria for declaring its compatibility with the
common market. It has therefore decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty
against it.

(26) The Commission accordingly requests Ireland to submit
its comments and to provide all such information as may

help to assess the measure, within one month of the date
of receipt of this letter.
It requests your authorities to
forward a copy of this letter to the potential recipient
of the aid immediately.

(27) The Commission warns

it will

Journal of

Ireland that

summary of

inform
interested parties by publishing this letter and a mean-
ingful
in the Official
it
the
European Communities.
It will also inform interested
parties in the EFTA countries which are signatories to
the EEA Agreement, by publication of a notice in the
EEA Supplement to the Official
the European
inform the EFTA Surveillance
Communities and will
this letter. All such
Authority by sending a copy of
interested parties will be
their
comments within one month of the date of such publi-
cation(cid:146).

invited to submit

Journal of