2002/632/EC: Commission Decision of 12 March 2002 on the State aid which Germany is planning to implement for Flender Werft AG, Lübeck (Text with EEA relevance) (notified under document number C(2002) 913)
Date: 2002-03-12
Institutions: European Commission
Subjects: Germany, State aid, investment aid, regional aid, shipbuilding

L 203/60

EN

Official Journal of the European Communities

1.8.2002

COMMISSION DECISION

of 12 March 2002

on the State aid which Germany is planning to implement for Flender Werft AG, Lübeck

(notified under document number C(2002) 913)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/632/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, 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 1540/98 of 29
June 1998 establishing new rules on aid to shipbuilding (1),

lifting capacity of 20 000 tonnes. The yard would build
the dock itself. The cost of the dock would be EUR 16,4
million and the amount of aid, EUR 869 000.

(6)

The new dock is to replace the former floating dock,
which had a lifting capacity of 16 000 tonnes. The old
dock was sold and delivered to the new owner in
February 2001. The proceeds of EUR 9,2 million have
been used to finance the new dock.

Having called on interested parties to submit their comments
pursuant to the provisions cited above,

(7)

Whereas:

I. PROCEDURE

The recipient of the aid is the shipyard Flender Werft AG
in Lübeck, Schleswig-Holstein, an area assisted under
the EC Treaty. The yard builds
Article 87(3)(c) of
seagoing ships and currently has 780 employees. Besides
shipbuilding, it also carries out ship repair. On the basis
of man hours, ship repair represents around 5 % of its
work. The yard also builds floating docks.

By letter dated 20 October 2000, Germany notified the
Commission of
to
Flender Werft, Lübeck. It provided the Commission with
further information by letters dated 15 December 2000
and 15 February 2001.

intended to grant

the aid that

it

(8)

By letter dated 18 April 2001, 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 Commu-
nities (2). The Commission called on interested parties to
submit their comments.

The Commission received no comments from interested
parties.

II. DETAILED DESCRIPTION OF THE AID

In its decision initiating the procedure the Commission
noted that, under Article 7 of Council Regulation (EC)
No 1540/98 of 29 June 1998 establishing new rules on
aid to shipbuilding (4)
(hereinafter referred to as the
‘Shipbuilding Regulation’), aid may be allowed only for
investment in upgrading or modernising yards with the
objective of improving the productivity of existing instal-
lations. It was the Commission’s opinion that the scope
of Article 7 was restricted to the upgrading of existing
to improve productivity and
installations
thereby
yards
concerned. The Commission therefore doubted whether
replacing the old floating dock with a lifting capacity of
16 000 tonnes by a new one with greater lifting capacity
could constitute modernisation or upgrading within the
meaning of Article 7 of the Regulation.

competitiveness of

in order
the

boost

the

investment aid to
Germany plans to grant regional
Flender Werft AG, Lübeck, under the approved joint
Federal Government/Länder
improving
regional
(Gemeinschaftsaufgabe:
economic
Verbesserung der regionalen Wirtschaftsstruktur) (3). The
aid is to be for investment in a new floating dock with a

structures

scheme

for

(1) OJ L 202, 18.7.1998, p. 1.
(2) OJ C 191, 7.7.2001, p. 15.
(3) 29th outline plan, State aid E 3/2001; acknowledgement of appro-
priate measures communicated to Germany by letter D/50559 of 8
February 2001.

III. COMMENTS FROM GERMANY

(9)

Germany states that the ever increasing traffic in the
Baltic sea makes it necessary to have sufficient capacity
for ship repair in Lübeck, Germany’s largest Baltic port.
Consequently, Flender Werft has concentrated in parti-
cular on ship repair and has maintained the necessary

(4) See footnote 1.

(1)

(2)

(3)

(4)

(5)

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repair capacity over many years. The old floating dock of
16 000 tonnes has been in use since 1986 but has
increasingly proved to be too small for current require-
ments. When construction of the large ferries which are
soon to start operating in the Baltic is complete, there
will be at least 16 ships that cannot be repaired by
Flender Werft owing to the small size of the old floating
dock. Unless it adapts its dock to this development, not
only will the yard’s activity in this area stagnate but its
turnover will also decrease still further, since experience
shows that customers go where their requirements are
met. This would produce a situation in which the work-
force could not be used to full capacity, which in turn
would lead to a decrease in the yard’s competitiveness
and to workers being laid off. The new floating dock
would help to reverse this development, maintaining
jobs and keeping the yard competitive. By changing to a
larger floating dock, Flender Werft will adapt to market
development and ensure sufficient repair capacity in
accordance with market demand.

(10) Germany states that the old floating dock could not have
been made longer or broader or otherwise larger for
valid technical reasons. Modernising the dock is therefore
technically impossible. In Germany’s view, replacing the
dock is made necessary by the changed market condi-
tions and is therefore compatible with the provisions of
the Shipbuilding Regulation on the granting of invest-
ment aid.

(11) Germany also stresses that the Shipbuilding Regulation is
to reduce building capacity,
intended in particular
whereas the purpose of granting the aid in the present
case is to support the replacement of a floating dock
which in practice would be used exclusively for ship
repair, with the exception of the painting of new vessels.
It will be possible to obtain repair contracts for the new
large ferries operating in the Baltic only with the new
dock.

(13)

(14)

(15)

if the recipient
involving trade between Member States.

firm carries on an economic activity

The Commission notes that the notified aid involves the
financing through state resources of part of the costs that
the yard itself would normally have to bear when
acquiring a new floating dock. Moreover, shipbuilding is
an economic activity involving trade between Member
States. The aid therefore falls within the scope of Article
87(1) of the EC Treaty.

Pursuant to Article 87(3)(e) of the EC Treaty, categories
of aid specified by a decision of the Council acting by a
qualified majority on a proposal from the Commission
common
considered compatible with the
may be
market.

The Commission notes that on this basis the Council
adopted the Shipbuilding Regulation on 29 June
1998 (5). Under Article 2 of this Regulation, aid granted
directly or indirectly for shipbuilding, ship repair and
ship conversion must comply with its provisions in
order to be declared compatible with the common
market.

(16) Under Article 10(2)(b) of the Shipbuilding Regulation,
any decision by a Member State to apply a generally
applicable aid scheme,
including generally applicable
regional aid schemes, to undertakings covered by the
Regulation must be notified to the Commission in
advance so that the aid’s compatibility with Article 87 of
the Treaty can be verified.

(17)

The Commission notes that, under the Regulation, ‘ship-
building’ means the building, in the Community, of self-
propelled seagoing commercial vessels. The Commission
further notes that Flender Werft builds such ships and
consequently is an undertaking covered by the Regula-
tion. By notifying the aid in question, Germany has thus
complied with its notification obligation as laid down in
Article 10(2)(b) of the Regulation.

IV. ASSESSMENT OF THE AID

(12) Under Article 87(1) of the EC Treaty, any aid granted by
a Member State or through state resources in any form
whatsoever which distorts or threatens to distort compe-
tition by favouring certain undertakings or the produc-
tion of certain goods is,
in so far as it affects trade
between Member States, incompatible with the common
market. Pursuant to the established case law of the Court
of Justice and Court of First Instance of the European
Communities, the criterion of trade being affected is met

(18) Article 7 of the Shipbuilding Regulation stipulates that
aid granted for investment in upgrading or modernising
existing yards, not linked to a financial restructuring of
the yards concerned, with the objective of improving the
productivity of existing installations, may be deemed
compatible with the common market provided that in
regions meeting the criteria of Article 87(3)(c) of the
Treaty, the intensity of the aid does not exceed 12,5 %
or the applicable regional ceiling, whichever is the lower.

(5) See footnote 1.

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(19)

(20)

The yard is located in Lübeck in an area assisted under
Article 87(3)(c) with a regional ceiling of 18 % gge. The
Commission notes
to cost
EUR 16,4 million. The old dock has been sold and the
proceeds of EUR 9,2 million used to finance the new
dock.

the new dock is

that

The Commission notes that, according to Germany, the
replacement of the old dock by a new one with a greater
load capacity should be viewed not as a new investment
but as an investment in replacing and thus modernising
the old one. Accordingly, only the difference between
the cost of the new dock and the proceeds from the sale
of the old dock should be counted as eligible costs for
the purpose of calculating the aid intensity. Assuming
eligible costs to be EUR 7,2 million, the intensity of aid
worth EUR 869 000 would be 12 %, which would
comply with the Regulation.

(21) As to whether the replacement of the old floating dock
by a new,
larger one can be considered to constitute
upgrading or modernising within the meaning of Article
7 of the Shipbuilding Regulation, the Commission takes
note of the comments submitted by Germany when the
procedure was initiated. The information in the Commis-
sion’s possession confirms that increasingly larger vessels
are now operating in the Baltic Sea (6) and that a larger
floating dock is clearly necessary if Flender Werft is to
remain in the repair market in the years to come. This
finding is based not only on information on the docking
weight of the vessels, but also on their larger physical
size. The width and the lifting capacity of a floating dock
are correlated and greater lifting capacity also requires a
larger dock. Not only the lower lifting capacity, but also
the dimensions of the old floating dock would make the
repair of these larger vessels very difficult (7).

(22)

The Commission notes that replacing the old floating
dock by the larger one will help to improve the produc-
tivity of repair work at the yard. Considering the devel-
opment of the market, use of the old floating dock had
reached its limits, making optimal usage of the work-
force unlikely in the coming years. The larger dock
allows repair contracts to be concluded for all sizes of
vessels operating in the market. Provided that the yard is
competitive and succeeds in getting orders in all market
segments, it will be able to make better use of its existing
workforce and thereby increase its productivity. The
current potential
increase in productivity, however,
would not be directly attributable to the larger floating
dock, but to the overall competitiveness of the yard. The

(6) The most

frequently encountered vessels in the Baltic are the
following: passenger ferries, RoRo vessels, feeder container vessels,
general cargo vessels and small tankers.

(7) The internal width of the old dock was 34 m while that of the new
like the
in the Baltic have a width of some

dock is 37 m. Panama Canal maximum-sized vessels,
passenger ferries operating,
32 m.

larger floating dock will contribute to this potential
development in that it is a precondition for it to happen
in the first place.

(23)

The information in the Commission’s possession also
confirms that for technical reasons, the old floating dock
could not have been enlarged or modified to a dock with
greater lifting capacity. Consequently, the only possibility
for upgrading the floating dock is to replace it by a new
one.

(24) As regards capacity, the Commission notes that using a
floating dock for building new ships increases the ship-
building capacity of
the yard concerned. However,
according to its information, 95 % of existing floating
docks in the world are currently used for ship repair or
conversion, and not for new building.

(25)

The old dock was used for ship repair by Flender Werft
and was sold to the port authority of Dunkirk, France,
where floating docks are used exclusively for repair,
since there is no shipbuilding activity in Dunkirk.
Germany also confirms that Flender Werft will use the
new replacement dock, except for painting new vessels,
only for ship repair.

(26) Accordingly, and in particular given the fact that the old
floating dock could not have been enlarged for technical
reasons and that the larger ships in the Baltic make it
necessary for the yard to adapt its repair facilities in
order to remain in the business, it is the opinion of the
Commission that replacing the old floating dock by a
new one with greater breadth and lifting capacity to be
used exclusively in ship repair can be considered to
constitute the upgrading of an existing facility within the
meaning of Article 7 of the Shipbuilding Regulation.

(27) However, the Commission considers that replacing the
floating dock can rank as upgrading an existing facility
within the meaning of the Shipbuilding Regulation only
if the dock is used exclusively for ship repair. A floating
dock used for new building could not be viewed in terms
of upgrading or modernisation but would constitute a
new facility that would increase new building capacity.
Consequently, the aid can be considered compatible with
the Shipbuilding Regulation and thereby with the
common market only if the use of the floating dock is
restricted to ship repair and does not
include new
building, thereby ensuring that there is no increase of
capacity in this area.

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(28)

(29)

The Commission therefore requires Germany to ensure
that the new floating dock is used exclusively for ship
repair by Flender Werft. The only exception is the use of
the floating dock for painting new vessels. Germany
must also ensure that the floating dock with a lifting
capacity of 20 000 tonnes used by Flender Werft for
ship repair, whenever it may be sold by Flender Werft,
will not be sold to any shipyard that might use it for
new shipbuilding.

V. CONCLUSION

For the above reasons, the Commission considers the
replacement of the floating dock with a lifting capacity
of 16 000 tonnes by a larger one with a lifting capacity
of 20 000 tonnes to constitute the upgrading of an
existing facility within the meaning of Article 7 of the
Shipbuilding Regulation. However,
in order to ensure
that the floating dock is not used for new building of
ships, thereby contributing to a capacity increase in this
sensitive area, Germany must ensure that the floating
dock is used exclusively for ship repair. Germany must
also ensure that the floating dock is not sold in the
future to any yard that might use it
for new ship-
building,

with the common market subject to the conditions set out in
Article 2.

Article 2

Germany shall ensure that Flender Werft AG uses the floating
dock with a lifting capacity of 20 000 tonnes only for ship
repair and the painting of new vessels.

Germany shall ensure that the floating dock with a lifting capa-
city of 20 000 tonnes, whenever it may be sold by Flender
Werft AG, will not be sold to any shipyard that might use it for
building new vessels.

Article 3

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

Article 4

This Decision is addressed to the Federal Republic of Germany.

HAS ADOPTED THIS DECISION:

Done at Brussels, 12 March 2002.

Article 1

The aid amounting to EUR 869 000 which Germany is
planning to grant to Flender Werft AG, Lübeck, is compatible

For the Commission

Mario MONTI

Member of the Commission