2002/785/EC: Commission decision of 7 May 2002 on the aid Italy is planning to grant under Article 21 of Region of Sardinia Law No 21/2000 to agricultural holdings using fuel other than methane (notified under document number C(2002) 1785)
Date: 2002-05-07
Institutions: European Commission
Subjects: Italy, State aid, agricultural holding, control of State aid, fuel

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COMMISSION DECISION

of 7 May 2002

on the aid Italy is planning to grant under Article 21 of Region of Sardinia Law No 21/2000 to
agricultural holdings using fuel other than methane

(notified under document number C(2002) 1785)

(Only the Italian text is authentic)

(2002/785/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(6)

The Italian authorities sent comments on the initiation
of the procedure by letter dated 11 February 2002.

Having regard to the Treaty establishing the European Com-
munity, and in particular the first subparagraph of Article 88(2)
thereof,

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

Whereas:

I. PROCEDURE

(1)

(2)

(3)

(4)

By letter dated 11 January 2001, received on 16 January
2001, Italy notified the Commission, in accordance with
Article 88(3) of the Treaty, of the aid measures provided
for in Region of Sardinia Law No 21 of 14 November
2000.

By letters dated 7 May 2001 and 22 June 2001, received
respectively on 10 May 2001 and 25 June 2001, Italy
provided the Commission with further information.

By letter dated 25 July 2001, the Commission informed
Italy of its decision not to raise any objection in respect
of the measures provided for in Articles 1 to 12 and 14
to 20 of Law 21/2000 and to initiate the procedure
provided for in Article 88(2) of the Treaty in respect of
the aid provided for in Article 21 of that law.

The Commission decision to initiate the procedure
was published in the Official
Journal of the European
Communities (1). The Commission invited interested par-
ties to submit their comments on the aid.

(5)

The Commission received no comments from interested
parties.

II. DESCRIPTION OF THE AID

(7)

(8)

(9)

Regional Law 21/2000 governs the grant of a wide
range of aid to the agricultural and forestry sectors in
the Region of Sardinia. The Law, comprising 28 Articles,
replaces a number of regional laws applicable in the
agricultural sector to bring regional legislation into line
with the Community Guidelines for State aid in the
agriculture sector (2)

Article 21 of Law 21/2000 provides for aid for the
reduction of production costs linked to the use of
fuels other than methane. The regional authorities are
authorised to grant aid to agricultural holdings to cover
the difference in cost between methane and the fuel
used, provided that this does not benefit from any other
concession. In their letter dated 11 February 2002 in
reply to the initiation of the procedure the Italian
authorities said that the aid was paid only to greenhouse
growers. The wording of the Article is, however, general
and does not exclude any type of undertaking. The aid
is to be withdrawn on completion of the ‘Programme
for the construction of a methane supply network in
Sardinia’ referred to in Article 6 of Law No 73 of
31 March 1998.

According to the information provided by the Italian
authorities, this measure is justified by the fact that diesel
is much more expensive than methane, which is not
available on the island because there is no distribution
network there. According to the calculations made by
the Italian authorities, 10 calories of energy from diesel
on the island cost 1,125 lire compared with 0,63 lire
from methane.

( 1) OJ C 20, 23.1.2002, p. 7.

(2) OJ C 28, 1.2.2000, p. 2.

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(10) According to the Italian authorities,

the lack of a
methane network is a major drawback and a structural
handicap for the island seriously affecting agricultural
production costs there, creating imbalance and placing
producers at a disadvantage compared with producers
in other regions who are able to use a source of energy
(methane) that is much cheaper than diesel. Against this
background, the aid is designed simply to provide the
island’s producers with the same competitive conditions
as producers in regions with access to methane until a
methane network is set up there.

(11) The Italian authorities have not paid the aid.

III. COMMENTS FROM ITALY

(12) By letter dated 11 February 2002, received on 13 Febru-
ary 2002, the Italian Permanent Representation to the
European Union forwarded the comments of the Italian
authorities on the observations set out in the Com-
mission decision to initiate the procedure.

(13) The letter states that the aid is intended exclusively
for greenhouse growers, with a total production of
75 700 tonnes, almost entirely for domestic consump-
tion, against national production of 1 300 000 tonnes.

(14) The letter also states that the aid is to be granted for a
limited period, since the Italian Government, with the
support of the European Community, has approved a
programme for the construction of a methane supply
network in Sardinia.

(15) The Italian authorities agree with the Commission that
the aid has no structural effect on the sector as a whole
and cannot
therefore be approved on the basis of
Article 87(3)(c) of the Treaty. However, since the cost of
heating greenhouses in Sardinia is much greater than in
other regions of Italy and other Member States where
methane is available, they claim that the aid, rather than
relieving greenhouse growers on the island of costs that
all other holdings have to bear, does no more than place
the former on an equal footing with the latter. The
Italian authorities stress that because of the high cost of
diesel, greenhouses are underutilised,
leading to an
increase in fixed costs, a reduction in the potential of the
holdings concerned and the loss of potential markets for
products with unique characteristics much appreciated
by consumers.

(16)

In addition, given that Sardinia is eligible under Objec-
tive 1, the aid could be eligible for the derogation
provided for in Article 87(3)(a) of the Treaty as aid to
promote the economic development of areas where the
standard of living is abnormally low or where there is
serious underemployment.

IV. ASSESSMENT OF THE AID

(17) Under Article 87(1) of

the Treaty establishing the
European Community, any aid granted by a Member
State or through State resources in any form whatsoever
which distorts or threatens to distort competition by
favouring certain undertakings or the production of
certain goods shall, insofar as it affects trade between
Member States, be incompatible with the common
market.

The existence of aid

(18) Article 21 of Law No 21 provides for the possibility of
granting aid to agricultural holdings to cover the differ-
ence between the cost of two types of fuel, methane and
diesel. Under the measure, which is financed from
public funds, the beneficiaries, which are exclusively
agricultural holdings in Sardinia, receive funding for
expenditure that they would normally have to bear
themselves to the detriment of other holdings not in
receipt of similar aid. According to decisions of the
Court of Justice, financial assistance granted by the State
that strengthens the position of an undertaking in
relation to its competitors distorts competition with
undertakings not in receipt of the aid (3).

(19)

(20)

In the letter notifying Italy that it was initiating the
procedure, the Commission stated that, since the under-
takings receiving the aid are operating in a highly
competitive international market, the measure in ques-
tion affects trade between Member States (4) and is
therefore covered by Article 87(1) of the Treaty.

In their reply, as stated in recital 13, the Italian authorities
stressed the limited nature of the aid and that it would
be paid exclusively for the greenhouse production of
75 700 tonnes, almost entirely for domestic consump-
tion,
of
1 300 000 tonnes.

compared with

production

national

(3) See judgment of the Court of 17 September 1980 in Case 730/
79, Philip Morris Netherlands v Commission of the European
Communities, [1980] ECR 2671.

(4) In 1999, agricultural exports from Italy to other Member States
of the European Union were worth EUR 10 258 million, while
Italy imported agricultural goods worth EUR 15 271 million from
other EU countries (source: Eurostat).

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(21)

It should be pointed out that, contrary to what the
Italian authorities claim, the wording of Article 21 of
Law 21/2000, which provides for the aid concerned,
does not restrict the aid to greenhouse growers but
makes it available to all agricultural holdings fulfilling
the conditions it lays down. It cannot therefore be ruled
out that the aid could also be paid to undertakings that
might export to other Member States. As regards the
limited nature of the aid, it should be stressed that the
fact that an aid is relatively small and that the beneficiary
undertaking is of relatively modest dimensions does not,
a priori, rule out the possibility that trade between
Member States could be affected (5). As regards the
agricultural sector, this is confirmed by Commission
Regulation (EC) No 69/2001 on the application of
Articles 87 and 88 of the EC Treaty to de minimis aid,
which explicitly excludes agricultural activities from its
field of application (6).

(22) With regard to the fact that the beneficiary undertakings
operate mainly on the island’s domestic market, it must
be pointed out that, according to decisions of the Court
of Justice, aid in favour of an undertaking may affect
trade between Member States and distort competition
even when the undertaking does not export to other
Member States but is in competition on the domestic
market with producers from other Member States.
Where a Member State grants aid to an undertaking,
domestic production may for that reason be maintained
or increased with the result that undertakings established
in other Member States have less chance of exporting
their products to the market in that Member State. Such
aid is therefore likely to affect trade between Member
States and distort competition (7).

(23)

In view of the fact that there is considerable intra-
Community trade in agricultural products, the Com-
mission concludes that the measure under examination
falls within the scope of the prohibition laid down in
Article 87(1) of the EC Treaty.

(24) Derogations

from the prohibition laid down in
Article 87(1) of the Treaty are set out in paragraphs 2
and 3 of that Article.

( 5) See judgment of the Court of 21 March 1990 in Case C-142/87,
Kingdom of Belgium v Commission of the European Communi-
ties, [1990] ECR I-959 and judgment of 14 September 1994 in
joined Cases C-278/92, C-279/92 and C-280/92, Kingdom of
Spain v Commission of the European Communities, [1994] ECR I-
4103.

( 6) OJ L 10, 13.1.2001, p. 31.
( 7) See judgment of the Court of 13 July 1988 in Case 102/87,
French Republic v Commission of the European Communities,
[1988] ECR 4067.

(25) Given the nature and objectives of the aid, the dero-
gations provided for in Article 87(2) of the Treaty are
clearly inapplicable. Furthermore, Italy has not asked for
this provision to be applied.

(26) Article 87(3) sets out the circumstances under which
State aid may be considered compatible with the com-
mon market. Compatibility must be assessed from the
point of view of the Community and not that of an
individual Member State. In the interests of the operation
of
the derogations from the
prohibition on the payment of State aid must be
interpreted restrictively.

the common market,

(27) With regard to Article 87(3)(b), it should be borne in
mind that the aid in question is not intended to promote
the execution of an important project of common
European interest or to remedy a serious disturbance of
Italy’s economy.

(28) Moreover, the aid is neither intended to achieve nor
in
for achieving the objectives

set out

suitable
Article 87(3)(d) of the Treaty.

(29) Under Article 87(3)(a), aid to promote the economic
development of areas where the standard of living is
abnormally low or where there is serious underemploy-
ment may be considered to be compatible with the
common market.

(30)

the Italian authorities claimed that

In their comments in reply to the initiation of the
this
procedure,
derogation was applicable. In support of their argument,
they stressed that Sardinia is an Objective 1 region with
an employment rate in 1999 equivalent to 36,9 % (8),
implying that on average every person in work was
supporting two others.

(31) The argument put forward by the Italian authorities
cannot be accepted. It must first of all be pointed out
that classification as an ‘Objective 1’ region is for the
purposes of the Structural Funds (9) and confers no right

(8) Source: Istat.
(9) Council Regulation (EC) No 1260/1999 of 21 June 1999 laying
down general provisions on the Structural Funds (OJ L 161,
26.6.1999, p. 1).

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to the aid referred to in Article 87(3)(a) of the Treaty,
even though in most cases the areas defined for the
Structural Funds and those defined for State aid are the
same. With regard to State aid in the agricultural sector,
regions eligible under Objective 1 are allowed a higher
rate of aid than other regions, but only for the processing
and marketing of agricultural products and then only on
the conditions laid down in the Community Guidelines
for State aid in the agriculture sector (10). The Com-
mission
under
such
Article 87(3)(c) of the Treaty as aid to facilitate the
development of certain economic activities and not
under Article 87(3)(a) to which the Italian authorities
refer.

authorises

however

aid

(32) Only certain aid granted in particular regions of the
Community fulfilling specific and extremely strict cri-
teria and conditions laid down in the Guidelines on
national regional aid (11) may benefit from the dero-
gation provided for in Article 87(3)(a) of the Treaty.
Those Guidelines do not apply to the agricultural
sector (12) and therefore the argument put forward by
the Italian authorities cannot be accepted. In addition,
under points 4.15 and 4.17 of
those Guidelines,
operating aid may be granted only in exceptional cases
and must be progressively reduced, which is not the case
with the aid under examination.

(33)

It would appear from the above that the aid under
examination might be eligible only for the derogation
provided for in Article 87(3)(c) of the Treaty, under
which aid to facilitate the development of certain
economic activities or of certain economic areas, where
such aid does not adversely affect trading conditions to
an extent contrary to the common interest, may be
considered compatible with the common market. To
that end, it must be determined whether the aid complies
with the provisions of the Community Guidelines for
State aid in the agriculture sector, which apply to all
State aid granted for the production, processing and
marketing of the agricultural products listed in Annex I
to the Treaty (13).

(34) As stated above, the measure in question provides for
the possibility of granting aid to cover the difference
between the cost of the fuel used by agricultural holdings
on the island, i.e. diesel, and that of methane. According
to the information supplied by the Italian authorities,
the measure is justified by the fact that diesel costs much
more than methane (14), which is not available on the
island since there is no supply network. According to
the Italian authorities, the lack of a methane network is
a major drawback and a structural handicap for the
island seriously affecting agricultural production costs
there, creating imbalance and placing producers at a
disadvantage compared with producers in other regions
who are able to use a source of energy (methane) that is
much cheaper than diesel. Against this background, the
aid is designed simply to provide the island’s producers
with the same competitive conditions as producers in
regions with access to methane until a methane network
is set up there.

(35)

In initiating the procedure, the Commission, raising
doubts about the compatibility of the aid with the
common market, pointed out that the sole purpose of a
subsidy to cover the difference in the cost of a more
expensive fuel such as diesel and a less expensive one
such as methane is to help Sardinian farmers to contain
their overall production costs by artificially reducing (by
means of State funding) one of the factors making up
those costs. By artificially reducing the overall pro-
duction costs of the beneficiary undertakings, the aid
concerned ‘artificially’ improves the competitive position
of the beneficiary undertakings at the expense of other
Community undertakings, who must bear the full cost
of the factors of production or seek more innovative
production methods in order to try and reduce those
costs. Aid of this type is, by definition, operating aid (15)
with no structural effect on the sector and therefore
incompatible with the common market.

(36) That principle is set out clearly in point 3.5 of the
Community Guidelines for State aid in the agriculture
sector, which lays down that ‘Unless exceptions are
expressly provided for in Community legislation or in
these guidelines, unilateral State aid measures which are
simply intended to improve the financial situation of
producers but which in no way contribute to the
development of the sector ... are considered to constitute
operating aids which are incompatible with the common
market’.

( 10) See points 4.1 and 4.2 of the Community Guidelines for State

aid in the agriculture sector.

( 11) OJ C 74, 10.3.1998, p. 9.
( 12)
( 13) See point 2.1 of the Community Guidelines for State aid in the

Ibid, point 2.

agriculture sector.

(14) According to the calculations made by the Italian authorities,
10 calories of energy from diesel cost 1,125 lire compared with
0,63 from methane.

(15) See judgment of the Court of First Instance of 8 June 1995 in
Case T-459/93, Siemens SA v Commission of the European
Communities, [1995] ECR 1675.

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(37) Community legislation does not provide for the granting
of operating aid such as that under examination. The
Commission considers operating aid to be compatible
with the common market only in special cases and on
very strict conditions, in accordance with the Guidelines
on national regional aid and the Community guidelines
on State aid for environmental protection (16). It is stated
in paragraph 32 that the former do not apply to the
agricultural sector. Since the aid under examination is
not for environmental purposes, neither are the latter
applicable.

(43)

(38) As regards the Community Guidelines for State aid in
the agriculture sector, point 5.5 authorises derogations
from the general prohibition on operating aid only in
the special case of environmental aid, such as aid to offset
the costs of new mandatory national environmental
requirements which go beyond existing Community
rules, aid for the development of biofuels and tax
reductions as referred to in point 5.5.4 of those Guide-
lines. The measure provided for in Article 21 of Law 21/
2000 clearly does not qualify for any of those dero-
gations.

(39)

In the light of the above, it can be concluded that the aid
provided for in Article 21 of Law 21/2000 does not
qualify for any of the derogations for operating aid
provided for in Community legislation and the Com-
munity Guidelines for State aid in the agriculture sector
and is therefore incompatible with the common market.

(40) The comments made by the Italian authorities following
the initiation of the procedure are not such as to change
the Commission’s position.

(41)

It must above all be stressed that the Italian authorities
agree with the Commission that the aid has no structural
effect on the overall development of the sector and
cannot therefore be considered compatible within the
meaning of Article 87(3)(c) of the Treaty.

(42) As stated above, the Italian authorities stress only the
limited nature of the aid (17) and assert that, in view of
the higher heating costs incurred by greenhouse growers
in Sardinia compared with growers in other Member

States and other regions of Italy who can use methane,
the aid does not in fact relieve greenhouse growers on
the island from costs that other greenhouse growers
operating in the same conditions have to bear but rather
places the former on an equal footing with the latter.

to change its original position,

In the absence of further information that might cause
it
the Commission
confirms that differences in the cost of the factors of
production in different geographical regions or different
economic sectors cannot justify aid whose only purpose
is to artificially eliminate such differences. Such aid is
simply operating aid for the undertakings concerned
designed to provide the beneficiaries with a temporary
economic advantage. The objective of the aid in fact is
solely to reduce the production costs borne by the
beneficiaries during the period the aid is granted,
relieving the undertakings concerned of operating
expenses that they would normally have to bear. This
has no structural effect on the development of the sector
and cannot be considered to facilitate the development
of certain economic activities or of certain economic
areas. The aid is therefore covered by the prohibition on
operating aid laid down in point 3.5 of the Community
Guidelines for State aid in the agriculture sector, without
being eligible for any of the derogations provided for in
Community legislation, and is therefore incompatible
with the common market.

V. CONCLUSION

(44)

In the light of
the above, the aid provided for in
Article 21 of Regional Law No 21 is incompatible with
the common market and is not eligible for any of the
derogations provided for in Article 87(1) of the Treaty.

It is not necessary to recover the aid since it has not
been paid,

HAS ADOPTED THIS DECISION:

( 16) OJ C 37, 3.2.2001, p. 3.
( 17) See recital 15 of this Decision.

The State aid provided for in Article 21 of Region of Sardinia
Law No 21 for agricultural holdings using fuel other than
methane is incompatible with the common market.

Article 1

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The aid scheme shall accordingly not be implemented.

Article 3

This Decision is addressed to the Italian Republic.

Done at Brussels, 7 May 2002.

Article 2

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

For the Commission

Franz FISCHLER

Member of the Commission