2003/162/EC: Commission Decision of 9 April 2002 on measures taken by Germany providing assistance towards industrial plant to firms in Thuringia through the Landesentwicklungsgesellschaft Thüringen (Text with EEA relevance) (notified under document number C(2002) 1339)
Date: 2002-04-09
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, industrial plot, property leasing, real property, sale

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 9 April 2002

on measures taken by Germany providing assistance towards industrial plant to firms in Thuringia
through the Landesentwicklungsgesellschaft Thüringen

(notified under document number C(2002) 1339)

(Only the German text is authentic)

(Text with EEA relevance)

(2003/162/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
comments (1), and having regard to the comments received,

interested

submit

parties

called

on

to

their

Whereas:

1. PROCEDURE

(1)

(2)

the

By letters dated 23 April 1997 and 6 October 1997 the
Commission received information from third parties
concerning
activities of Landesentwicklungsge-
sellschaft mbH Thüringen (‘LEG Thüringen’), which
might not be compatible with Community State aid
legislation. By letters dated 15 May 1997 and 13
November 1997 the Commission asked Germany to
supply certain further details and any other relevant
information
information. Germany supplied additional
by letters of 1 July 1997, 7 July 1998, 13 July 1998, 23
September 1998, and 9, 18 and 30 December 1998.

By letter dated 3 March 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
aid towards industrial plant which the Land of Thuringia
might have granted via LEG Thüringen.

(1) OJ C 280, 2.10.1999, p. 8.

(3)

(4)

(5)

(6)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (2). The Commission invited interested parties to
submit their comments.

The Commission received comments from interested
parties and forwarded them to Germany by letter dated
6 January 2000; Germany submitted its observations on
the comments by letter dated 17 September 2001.

2. DETAILED DESCRIPTION

LEG Thüringen is a private limited company (GmbH) set
up in 1992 by the Government of the Land of Thuringia,
under private law, for an indefinite period. The share-
holders are the Land of Thuringia (with a 97,6 %
holding); Landeswohnungs- und Städtebaugesellschaft
Bayern GmbH, Nürnberg
and Wohnstatt
Stadtentwicklungs-
und Wohnungsbaugesellschaft
Hessen mbH, Kassel (1,2 %).

(1,2 %);

The Government of Thuringia has given LEG Thüringen
in several areas (3). The Commission
power
to act
initiated the formal
investigation procedure only in
respect of LEG Thüringen's role in connection with
industrial plant. According to its memorandum and arti-
cles of association (Gesellschaftsvertrag), LEG Thüringen is
to provide assistance in any form in connection with
tasks and measures which are in the interests of Thur-
ingia and which seek to promote structural develop-
ment, in particular building, infrastructure and economic
development.

(2) See footnote 1.
(3) For further details see the Commission decision initiating the formal

investigation, and in particular points 2.2 to 3.1 (footnote 1).

(7)

(8)

(9)

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LEG Thüringen's main task is to carry on infrastructure
development work in the interests and on behalf of the
Land. After 40 years in a socialist planned economy
there are industrial sites in Thuringia which are in
danger of decaying into wastelands of abandoned build-
ings and environmental hazards, and as part of its trade
and industry work, therefore, LEG Thüringen seeks to
find an economic future for these sites. It dismantles
plant that is no longer needed, demolishes buildings that
are not worth maintaining, renovates buildings that can
usefully be kept and put to use, plans and develops sites,
and then sells, rents or leases the property.

(12)

The Commission could not be certain, either, that no
one-off financial assistance or funding for all or part of
these projects was being allocated to LEG Thüringen's
industrial plant activities from some other heading in the
Thuringian budget.

(13) Nor could the Commission rule out the possibility that
LEG Thüringen's activities might benefit firms in diffi-
culty. In six cases LEG Thüringen had allowed its tenants
longer deadlines for payment of rent, or had granted
them loans.

In practice, therefore, LEG Thüringen buys, administers,
mortgages, acts as a mediator for, sells and renovates
real estate, and develops and lays out land and makes it
ready for building. It may also purchase or dispose of
building leases, and buy, build, operate, administer,
handle and sell buildings, plants and facilities of any
kind, under its own or another party's name, for its own
account or for the account of others. LEG Thüringen has
to maintain, take care of and modernise its fixed assets.

(14)

From 1994 to mid-2000, LEG Thüringen received
funding towards these activities from the Thuringian
budget
EUR 257 841 077
(DEM 504 293 314,57) in all. There is a special heading
in the budget for the purpose. No additional payments
were made.

amounting

to

(10) Germany has not enacted any legislation governing the
work done by LEG Thüringen on industrial sites, which
would formally identify these activities as State aid.
There is no aid programme. Germany has accordingly
drawn up a list of firms to be considered with reference
to the subject matter of these proceedings.

(15)

3. GROUNDS FOR INITIATING THE PROCEDURE

4. COMMENTS FROM INTERESTED PARTIES

The only firm to submit observations in the course of
the formal investigation was LEG Thüringen. LEG Thür-
ingen argued that it was a legal person established under
private law, and as such had no part in the exercise of
authority by the public administration of Germany or
any constituent part of it; the property it had developed
had always been sold on commercial terms. LEG Thür-
ingen drew attention to a number of aspects, which it
said had been misrepresented in the Commission deci-
sion to initiate the formal investigation. It argued that
the decision to initiate the procedure had not allowed it
to defend itself. This was an infringement of due process.
By letter dated 17 September 2001 Germany stated its
support for the observations submitted by LEG Thür-
ingen and corroborated in full their factual content.

5. ASSESSMENT

5.1. Attribution to the State and use of State

resources

LEG Thüringen has to be considered a State body,
because 97,6 % of its capital belongs to the Land of
Thuringia, which in addition has certain powers over the
running of the company conferred on it by the memor-
andum and articles of association; LEG Thüringen also
receives funding from the budget of Thuringia. Conse-
quently,
in determining whether State aid may have
reached firms from LEG Thüringen, the fact that LEG
Thüringen is in the form of a limited company governed
by private law does not remove it from the sphere of
State aid law. No distinction should be drawn between
aid granted directly by the State or a local authority and
aid granted by public or private bodies established or
appointed by the State or the local authority to admin-
ister the aid (5).

(11)

formal

The Commission initiated the
investigation
procedure in respect of LEG Thüringen's activities in this
area because it was not satisfied that these disposals of
property or other interests always complied with the
Commission communication on State aid elements in
sales of land and buildings by public authorities (4).

(4) OJ C 209, 10.7.1997, p. 3.

(16)

The resources given to LEG Thüringen for its work in
connection with industrial plant are granted entirely
under a specific item in the Land budget. LEG Thüringen
does not receive any additional financial resources for
these activities.

(5) Judgment of the Court of First Instance in Case T-37/97, Forges de

Clabecq v Commission, [1999] ECR II-0859, paragraph 3.

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5.2. Assessment on a case-by-case basis

(17)

There is no aid programme covering LEG Thüringen's
activities in relation to industrial plant, and no evidence
has come to light in the course of the formal investiga-
that LEG Thüringen has taken any
tion to suggest
measures in respect of
industrial plant which satisfy
common criteria and apply across the board to all firms;
the measures taken by LEG Thüringen have conse-
quently to be considered case by case. Germany has
submitted a list in this respect.

(18)

The list of firms submitted by Germany for examination
does not allow any pattern to be discerned with respect
to any specific category of recipient. Potentially, there-
fore, any firm may be concerned, regardless of its size,
business, or financial situation.

5.3. Effect on trade

(19)

In the six cases involving loans referred to in the
Commission's decision to initiate the investigation (see
recital 13), Germany has shown that the aid was de
minimis (6). Accordingly, no aid within the meaning of
Article 87 of the EC Treaty is involved here.

5.4. Granting of an economic benefit to firms

(20)

The firms listed by Germany have bought or rented from
LEG Thüringen land and/or buildings, which were
previously renovated using State resources. The sale or
rental may have meant that the State forfeited income,
which would be equivalent
to a transfer of public
resources to the firms. The Commission must therefore
examine whether in individual transactions the relevant
firms received an economic advantage.

(a) Market economy investor

(21) Germany argues that in the industrial plant area LEG
Thüringen has acted as a private investor would have
done (7). Its conduct in investing in old industrial sites is
comparable to that of a private investor. In accordance
with the doctrine of the private investor operating under
market economy conditions, or private investor prin-
ciple, therefore, LEG Thüringen's activities in respect of
industrial plant do not constitute State aid within the
meaning of Article 87(1) of the EC Treaty.

(22) Germany submits here that

in applying the private
investor principle one has to take account of exceptional
economic circumstances that cannot be understood by
reference to classical market laws alone. Specifically, the
idea of normal market economy conditions has to be

the special

factors affecting
extended to allow for
competition on the property market in Thuringia. The
special circumstances in Thuringia are described by
Germany as follows:
‘there is a substantial excess of
supply, with a small number of would-be buyers on the
demand side.’ ‘The reclamation of old industrial sites (…)
is suffering from a lack of potential demand.’
‘At the
time of the survey (…) carried out in 1995 (…) there
was a large surplus of industrial building land in the new
Länder, and this has grown further since.’ ‘In 1995 devel-
oped industrial sites in the new Länder exceeded require-
ments by a factor of 6,7.’
‘Expanding firms seeking to
penetrate the market prefer (…) newly developed sites.’
‘Industrial building land in old industrial sites started to
become available only at a time when the need for land
was already to a great extent met by newly-developed
sites, and the supply of designated industrial land was
already surplus to requirements.’
‘Sales of industrial land
(…) peaked in 1992.’
‘The development of old industrial
sites was a long and difficult process, so that they began
to reach the market only in the middle of the 1990s,
and this alone left them at a severe disadvantage in
marketing terms.’ ‘The price of industrial land has tended
to fall’.

(23)

This analysis is confirmed by an expert report drawn up
for LEG Thüringen by the market research department
of the real estate firm Aengevelt, which was supplied to
the Commission in the course of the formal investiga-
tion.

(24)

The Commission cannot agree that LEG Thüringen has
acted as a private investor operating under market
economy conditions would have done. LEG Thüringen
acts as a sort of general contractor providing compre-
hensive management of industrial sites that are to be
reclaimed for another use. LEG Thüringen operates in
this respect as a property developer, which handles the
entire process from purchase to utilisation. The question
is, therefore, whether a private player of the same size as
LEG Thüringen would in comparable circumstances have
taken the same microeconomic decisions on industrial
site management.

(25)

LEG Thüringen carries on the activities under examina-
tion on a market where there is already substantial
excess supply of developed industrial and commercial
land. LEG Thüringen is therefore consciously entering a
glutted market (8), and is taking steps to restore industrial
and commercial premises even though it is clear before-
In a
hand that demand will be weak or very weak.

(6) Letter from Germany, 9 April 1999.
(7) Letter from Germany, 28 July 1999.

(8) LEG Thüringen was set up in 1992 at a time when ‘the sale of

industrial land … had peaked’: see recital 22.

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heavily saturated market, to engage in precisely those
activities that are already in surplus will necessarily result
in market prices below the costs of acquisition and
modernisation.
cannot be
expected that the invested capital will produce a reason-
able return even in the longer term. A private player
pursuing profit maximisation would not follow such a
market strategy.

circumstances

In the

it

(30)

The communication refers explicitly only to sales. In the
case of rentals and leases the Commission applies by
analogy the principles set out in the communication on
State aid elements in sales of land and buildings by
public authorities (12).

(26)

It may be that when LEG Thüringen has disposed of
industrial property it has secured a market price,
if
‘market price’
is understood to mean the price that
would-be buyers are prepared to pay for a particular site
at a particular time. But that price would not necessarily
be the outcome of the conduct of a private market
player. In a project of this scale and complexity a private
player does not ask only what price he can obtain for a
particular item on a particular day.

(27) When applying the market economy investor test, the
social and regional policy objectives pursued by the Land
of Thuringia have to be left to one side: creating and
maintaining jobs, improving the attractiveness of Thur-
ingia as an industrial
location, or compensating the
disadvantages suffered by old industrial sites which make
them less attractive to investors than newly developed
ones (9) are not relevant here (10).

(28) On this point, therefore, the conclusion has to be that
the market economy investor principle does not remove
LEG Thüringen's industrial plant activities from the
scope of Article 87 of the EC Treaty.

(31)

(32)

(33)

(b) Communication on State aid elements in sales of land and

buildings by public authorities

(29)

look at

the Commission
The following paragraphs
communication on State aid elements in sales of land
and buildings by public authorities. If the criteria set out
in the communication were complied with, aid can be
ruled out. The decisions taken by the Commission in this
area (11) are a fairly close reflection of this communica-
tion (published in 1997), which can therefore be taken
as a basis for assessment in the present case, which
examines events that occurred as from 1992.

(9) See footnote 8: development and reclamation costs can be higher in
the case of old industrial sites; there is a greater fear of inherited
burdens; the image of the location may be negative; ownership can
be unclear; buildings or land may be listed for preservation; delays
can occur in the process of preparation for building; infrastructure
the possible site configurations may be
may be insufficient;
restricted; and there may be disadvantages in the positioning of the
site and especially the transport links available.
the Court of

Justice in Case C-40/85, Belgium v
Commission, dated 10 July 1986 [1986] ECR 2321, paragraph 13.
(11) See Commission decision in the Fresenius case, OJ C 21,
25.1.1994, p. 4 and Commission Decision 98/384/EC, OJ L 171,
17.6.1998, p. 36.

(10) Judgment of

The view taken in the communication is that where
there is a sufficiently well publicised, open and uncondi-
tional bidding procedure, accepting the best or only bid,
it is clear that the resulting price reflects the natural
market balance. There is then no advantage to any firm,
and there is consequently no State aid.

In many cases of sale and rental (13) LEG Thüringen has
followed such a procedure (14). In these cases a sign was
displayed at the site, and a prospectus or Internet or
newspaper advertisement published, over a period of at
least two months; in some cases the project was also
presented at
fairs. These
projects, then, were sufficiently well publicised, so that
they could come to the notice of all potential buyers.
The process was not confined to a particular user, so
that the sale was unconditional. In most cases only one
buyer came forward. Where there was more than one
bidder, the best bid was accepted.

supraregional

regional or

in accordance with point

In addition to the bidding procedure, the communica-
tion allows an independent expert evaluation to be
presented. In three cases, LEG Thüringen had an inde-
pendent expert evaluation carried out to establish the
market value,
the
Commission communication.
In two cases, Germany
submitted an independent expert evaluation during the
proceedings; the independent expert evaluation looks at
the specific features of these cases. The market value
established by the independent expert
is below the
selling price obtained by LEG Thüringen.

II.2 of

(34)

It must be concluded, therefore, that LEG Thüringen's
activities in respect of the undertakings referred to in
recitals 32 and 33 are in line with the Commission
communication on State aid elements in sales of land
and buildings by public authorities. Accordingly, they do
not contain any State aid component.

(12) See Commission Decision 2000/389/EC (English Partnerships), OJ L
145, 20.6.2000, p. 27; and Commission Decision of 12 January 2001
in the Business Infrastructure Development case, State aid measure N 657/
1999, which can be consulted on the Internet site of the Secretariat-
General of the European Commission:
http://europa.eu.int/comm/secretariat_general/sgb/droit_com/index_-
en.htm#aides.
(13) Cases where the annual rent exceeded EUR 15 338,78.
(14) The Commission has a table listing all such undertakings; see recital

10.

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(c) Comparison of the price actually paid and the undistorted

(38)

market price

(35)

In the case of four transactions, the criteria set out in the
Commission communication were not complied with.
On the question of whether these four firms derived any
economic advantage, a comparison could be made of
the purchase prices actually paid with an ex-post
analysis of the market. In this instance, however, a snap-
shot of market prices taken after the event does not
provide any useful evidence,
since the Commission
assumes that the market price for vacant industrial land
was influenced by LEG Thüringen as a result of
its
specific market behaviour.

(36) According to the expert report drawn up by Aengevelt,
within a period of five years (mid-1993 to mid-1998),
the price for the type of land being examined slumped
from EUR 46 (DEM 90) per m2 to EUR 13 (DEM 25,5)
per m2. This sharp decline in prices is no doubt due to a
number of circumstances, such as the decline in invest-
ment activity in eastern Germany and cyclical factors.
However, it is also evident that LEG Thüringen's massive
intervention in this market segment contributed to the
decline. It is a basic tenet of established economic theory
that an increase in supply on an already glutted market
produces this effect.

(37)

The Commission cannot therefore use the very low price
established for the relevant transactions (the years in
question are specifically 1995, 1997 and 1998) as a
guide, since such market price was artificially brought
about by LEG Thüringen's behaviour on the market.

Since LEG Thüringen began buying and selling industrial
and commercial land on a fairly large scale (15) only as
from mid-1994, the Commission has taken this year as
the reference. According to the expert evaluation carried
out by the firm Aengevelt, the price of vacant industrial
some EUR 24,5
building land at
(DEM 48) per m2.

time was

that

(39)

Since in all four cases the transaction prices for vacant
industrial land were more than EUR 24,5 per m2, the
Commission finds that no economic advantage accrued
to these undertakings and that Article 87 of the EC
Treaty does not apply,

HAS ADOPTED THIS DECISION:

Article 1

The measures examined in this Decision taken by Germany
with regard to sales and rentals by Landesentwicklungsge-
sellschaft mbH Thüringen relating to industrial plant do not
contain any State aid element and do not constitute aid within
the meaning of Article 87(1) of the EC Treaty.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 9 April 2002.

For the Commission

Mario MONTI

Member of the Commission

(15) Letter from Germany, 6 July 2000.