2002/899/EC: Commission Decision of 7 May 2002 on State aid Spain is planning to implement in favour of Ford España SA (notified under document number C(2002) 1803) (Text with EEA relevance)
Date: 2002-05-07
Institutions: European Commission
Subjects: Spain, State aid, control of State aid, engine, mechanical engineering

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Official Journal of the European Communities

18.11.2002

COMMISSION DECISION

of 7 May 2002

on State aid Spain is planning to implement in favour of Ford Espaæa SA

(notified under document number C(2002) 1803)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2002/899/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, 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,

November 2001 requested further information. After
requesting an extension of the deadline for reply on 19
November 2001, the Spanish authorities submitted the
additional information on 14 January 2002.

II. DETAILED DESCRIPTION OF THE AID

Having given interested parties notice, in accordance with the
abovementioned Articles, to submit their comments (1),

T h e I 4 p r o j e c t

Whereas:

(1)

(2)

(3)

(4)

(5)

I. PROCEDURE

By letter dated 15 December 2000, registered on 18
December 2000, Spain notified the Commission of a
plan to grant regional aid to Ford Espaæa S.A. The
Commission requested more information on 7 February
2001. After requesting an extension of the deadline for
reply on 14 February 2001,
the Spanish authorities
submitted additional information on 2 April 2001.

By letter dated 6 June 2001 the Commission informed
Spain of its decision to initiate proceedings pursuant to
Article 88(2) of the Treaty, since it had doubts about
the compatibility of the aid with the common market.

The Commission decision to initiate the procedure was
the European
published in the Official
Communities (2), with an invitation for comments on the
aid from interested parties.

Journal

of

The Commission received no replies from interested
parties.

On 24 and 26 October 2001 the Commission carried
(Valencia) and
out on-site visits
on 12
and
Bridgend

to the Almusafes
plants,

(United Kingdom)

(6)

(7)

(8)

The planned aid would be granted to Ford Espaæa SA
(Ford), a subsidiary of the automotive group Ford Motor
Company Inc. The notified project
the
production of an engine known as (cid:145)I4(cid:146), which has never
a
been produced in Europe before. The
four-cylinder, 16-valve engine, which comes in 1,8, 2,0
and 2,3 litre versions. A 2,5 litre and a diesel version
will be developed at a later stage. Among others, the
Focus and new Mondeo models will use the new engine
from 2003 onwards.

concerns

I4 is

According to the company plans, production of the I4
the
engine at Almusafes will replace production of
smaller HCS and Zetec engines. The former is to be
phased out due to obsolescence, and production of the
latter is to be concentrated at
the group’s Bridgend
(United Kingdom) factory.

Capacity for
the new I4 engine will be 700 000
engines/year, with a reduction of total capacity in the
Almusafes plant by 330 000 units/year from 2000 to
2004. A similar reduction should occur at group level,
following an increase in capacity at
the Bridgend
(United Kingdom) plant, and a decrease at the Cologne
(Germany) plant. In all, 79 % of the engines produced at
Almusafes will be exported to Ford plants in Germany
and Sweden.

(9)

The investment programme covers a three-year period,
from August 2000 to August 2003.

(1) OJ C 219, 4.8.2001, p. 14.
(2) See footnote 1.

(10)

The Spanish authorities affirm that
the technologies
employed in the current plant do not allow the
is
production of

the I4 engine. For this reason,

it

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necessary to dismantle the existing production lines,
of
the
modify
components, and transform the assembly line.

production

radically

lines

for

L e g a l b a s i s ; i n v e s t m e n t a n d a i d a m o u n t s

(11)

(12)

The notified aid, which takes
the form of direct
investment aid, is granted under the approved scheme
provided for by Royal Decree No 2489 of 5 December
1996 (3) (4) amending Royal Decree No 883 of 14 June
1989 defining the assisted area in the Community of
Valencia (5) this was adopted pursuant to Law No 50 of
27 December 1985 (6) and Royal Decree No 1535 of
1987 (7) which
the
11
implementing regulations.

December

approved

Spanish

Ford intends to invest EUR 334 460 000, of which EUR
297 990 000 have been considered eligible investment
(real
authorities
by
EUR
the
value:
the base year and
taking 2000 as
277 320 000,
assuming a discount factor of 5,7 %). The gross grant
equivalent of
is EUR
15 740 000.

the proposed aid (real value)

(17)

(18)

(19)

Fourthly, the Spanish authorities do not consider that a
cost-benefit analysis is necessary for assessing the case,
since the aid intensity of the project is lower than the
relevant regional ceiling of 20 %. This is the threshold
below which a cost-benefit analysis
is not
required by the Community framework for State aid to
the motor vehicle sector (8) (the framework), since the
regional maps for 2000-06 have lower ceilings than
those for the 1994-1999 period.

(CBA)

The Spanish authorities maintain that, although the
regional aid ceiling for the region of Valencia increased
with the new maps from 30 % to 37 %, the overall
ceilings in Spain decreased, and that therefore no CBA
is needed if the project’s aid intensity is lower than 20 %
of the regional ceiling.

the CBA
The Spanish authorities also argue that
presented to the Commission was not intended to verify
the aid, but exclusively to
the proportionality of
reinforce
viable
the
alternative for the project was effectively considered.

an economically

claim that

III. COMMENTS FROM SPAIN

(13) On 13 July 2001 the Spanish authorities submitted their
comments on the initiation of
they
supplied further information on 14 January 2002. The
Commission has taken the comments into account.

the proceedings;

(20)

Fifthly, the Spanish authorities cleared up the doubts
expressed by the Commission concerning the CBA
provided with the notification.

the project

In their comments, the Spanish authorities first reaffirm
that
is mobile, and that Ford seriously
considered the alternative site of Bridgend. In their letter
of 14 January 2002 the Spanish authorities provided
additional documents as evidence of this claim.

(21)

(14)

(15)

(16)

in their comments of 13 July 2001,

the
Secondly,
Spanish authorities reaffirm that the project is to be
regarded
the
transformation,
Commission to visit the Almusafes plant to verify the
ongoing transformation of the production lines.

invite

and

as

a

Thirdly, the Spanish authorities affirm that the amount
eligible for assistance is EUR 297 990 000 (ESP 49 582
million) in nominal terms. In their letter of 14 January
2002 the Spanish authorities give a detailed breakdown
of
investment
amounts.

concerned and the

the machinery

(3) BOE No 21, 24.1.1997, p. 2405.
(4) Case N 463/94, approved by the Commission by letter dated

7 September 1995. OJ C 25, 31.1.1996, p. 14.

(5) BOE No 171, 19.7.1989, p. 22874.
(6) BOE No 3, 3.1.1986, p. 790.
(7) BOE No 299, 15.12.1987, p. 36729.

impact

a minor
is not

inconvenience, while
important. The

Regarding the costs for equipment and machinery, the
Spanish authorities state that
the greater distance of
Almusafes from the suppliers was only indicated in the
its
notification as
economic
greater
obsolescence of the plant in Almusafes is the reason
why a
existing lines was
necessary. The more modern lines in Bridgend would
have required a less radical intervention, and thus lower
transformation costs. In their letter of 14 January 2002,
the Spanish authorities provided a detailed breakdown
by machining operation of
the investment costs in
Almusafes and Bridgend.

transformation of

the

(22) With regard to transport costs, the Spanish authorities
information on the calculation of
provided additional
to the
the costs of
destination assembly plants,
including the original
estimates of transport costs by Ford that were used to
calculate the costs presented in the CBA.

shipping the finished engines

(8) OJ C 279, 15.9.1997, p. 1. Its validity was extended in OJ C 368,

22.12.2001, p. 10.

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(23) As regards layoff costs, the Spanish authorities affirm
that if the project were not carried out in Almusafes,
the Spanish plant [(cid:133)](*). However, the company has
not considered the relative layoff costs when studying
the alternative locations.

(29)

The aid in question is
intended for Ford, which
manufactures and assembles cars. The firm is therefore
part of the motor vehicle industry within the meaning
of the framework.

(24)

The Spanish authorities state that the exchange rates
used in the analysis are those determined by Ford for its
internal studies. This is considered legitimate, since the
CBA was presented not to prove the proportionality of
the proposed aid, but
to demonstrate the economic
viability of the alternative location.

(30)

(25)

Regarding the reference discount
the Spanish
authorities provided a CBA in which the figures are
updated using a discount rate of 5,7 %.

rate,

The framework specifies that aid which the public
authorities plan to grant to an individual project under
an authorised aid scheme for a firm operating in the
motor vehicle industry must, in accordance with Article
88(3) of the Treaty, be notified before being granted if
either of the following thresholds is reached: (i) a total
(ii) total
amount for the project of EUR 50 million;
gross aid for the project, whether State aid or aid from
Community instruments, of EUR 5 million. Both the
total cost of the project and the amount of aid exceed
the notification thresholds. Thus,
in notifying the
the Spanish authorities have
proposed aid for Ford,
complied with the requirements of Article 88(3) of the
Treaty.

(26)

(27)

Regarding the Ford group’s production capacity in
2000(cid:151)2005,
provided
Spanish
information both for engines and for cars, including the
brands of the Premier Automotive Group and Volvo.

authorities

the

IV. ASSESSMENT OF THE AID

the Treaty, since it

The measure notified by Spain in favour of Ford
constitutes State aid within the meaning of Article 87(1)
of
is financed by the State or
through state resources. Furthermore, as it constitutes a
significant proportion of the funding of the project, the
aid is liable to distort competition in the Community by
giving Ford an advantage over competitors not receiving
aid. Lastly, the fact that the majority of the engines
manufactured at Almusafes are exported to other
sold
European countries
throughout Europe shows that
there is a substantial
trade in automobiles between Member States.

and installed in vehicles

firm,

subparagraphs

(28) Article 87(2) of the EC Treaty lists the types of aid that
are compatible with the Treaty. In view of the nature
and purpose of the aid, and the geographical location of
(b) and (c) are not
the
applicable to the plan in question. Article 87(3) specifies
other forms of aid that may be regarded as compatible
with the common market. The Commission notes that
the project is located in the region of Valencia, which
qualifies for assistance under Article 87(3)(a), with a
maximum regional ceiling of 37 % net grant equivalent
for large companies.

(a),

(*) Business secret.

(31) According to the framework, the Commission should
ensure that the aid granted is both necessary for the
realisation of the project and proportional to the gravity
of
is intended to solve. Both tests,
necessity and proportionality, must be satisfied if the
Commission is to authorise state aid in the motor
vehicle industry.

the problems it

regional aid,

(32) According to point 3.2.(a) of the framework, in order to
demonstrate the necessity for
the aid
recipient must clearly prove that it has an economically
viable alternative location for its project. If there were
no other industrial site, whether new or in existence,
capable of receiving the investment in question within
the group, the undertaking would be compelled to carry
out its project in the sole plant available, even in the
absence of aid. Therefore, no regional aid may be
is not geographically
authorised for a project
mobile.

that

(33)

The Commission has, with the help of an external
automotive expert, assessed the documentation provided
the
by Spain, with a view to establishing whether
is mobile. The documents provided with the
project
letter of 14 January 2002 prove that
in 1998 Ford
conducted a study for the selection of a European site
for the production of the I4 engine. The study includes
a comparative analysis of the Cologne, Bridgend and
Almusafes plants. Documents dated June 1999 indicate
that Valencia and Bridgend were the most suitable
locations for the project, and that the final choice would
be between the two sites. In the course of the on-site
visit to the Bridgend plant on 26 October 2001, the

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Commission was able to verify that the plant had the
technical capability to host the project. Official press
releases show that the decision to produce the engines
in Valencia was announced on 12 November 1999.

the aid intensity of the project is very small. This is
located in an assisted area
because a mobile project
always suffers from disadvantages.

(34)

(35)

(36)

(37)

aid

intended

and
Regional
for modernisation
rationalisation, which is generally not mobile,
is not
authorised in the motor vehicle sector. However, a
transformation, involving a radical change in production
structures on the existing site could be eligible for
regional aid. During the on-site visit to the Almusafes
plant on 24 October 2001, the Commission was able to
verify the considerable investment in machinery needed
I4 engine, which is
to the
for
completely different to the Zetec model produced at the
same location. The investment required a complete halt
in the production of
the
the lines, and the introduction of
dismantling of
completely new or extensively modified machines.

the old Zetec

changeover

engine,

the

(39)

The Commission notes that
the Spanish authorities
consider that the threshold below which a CBA is not
required in the present case is an aid intensity of 20 %,
because the overall regional ceilings in Spain were lower
in the 2000(cid:151)2006 map. The Commission notes,
however, that the framework consistently refers to the
regional ceiling for the region where the investment
takes place, and not to a national average of different
the
regional aid ceilings. The regional ceiling for
Valencia region is higher with the new regional maps
(37 %) than with the old ones (30 %).
In such cases,
under the framework, the threshold below which a CBA
is not required is an aid intensity of 10 %.

In view of the above, the Commission concludes that
the project
is mobile in
is a transformation that
character and can therefore be considered eligible for
regional aid, since the aid is necessary to attract the
investment to the assisted region.

(40)

The Commission concludes therefore that, since the
CBA submitted was not intended primarily for verifying
the proportionality of
the maximum aid
intensity allowable for the investment in the Valencia
region is 10 % of the 37 % regional ceiling, i.e. a grant
equivalent of 3,7 % net, or 5,11 % gross.

the aid,

Regarding the eligible costs, the Commission notes that
the costs considered eligible by the Spanish authorities
amount to EUR 297 990 000 in nominal terms. The
communicated eligible costs include EUR [(cid:133)] in vendor
tooling investments, of which EUR [(cid:133)] arise within
Spanish assisted areas. The Commission notes
that,
under the framework, eligibility of aid is defined by the
regional
assisted region
concerned. Furthermore, vendor tooling costs cannot be
considered eligible for aid if they arise in non-assisted
areas.

applicable

scheme

in the

for

that

the legal basis

the approved scheme,
The Commission notes
the measure (9)
which provides
authorises aid for projects if they satisfy the conditions
both on areas and ceilings laid down in the Spanish
regional maps. The Commission concludes that
the
investment that Ford intends to carry out in locations
eligible
be
outside
investment under the framework. Therefore, only EUR
[(cid:133)] in vendor tooling investment can be considered as
eligible costs. Total eligible costs for the project amount
to EUR 234 620 000 in nominal
terms, or EUR
217 439 000 in real terms.

considered

cannot

Spain

as

(41) Nevertheless,

the Commission has analysed, with the
assistance of its external automotive expert, the CBA
presented by the Spanish authorities, to see whether it
can demonstrate the proportionality of
the aid in
accordance with the rules laid down in the framework.

(42)

The Commission notes that the CBA presented by the
Spanish authorities indicates a net cost handicap of
EUR 29 900 000 for
location in Almusafes
the
compared with the location in Bridgend. Consequently,
the (cid:145)regional handicap ratio(cid:146) of the project reported in
the CBA is 10,77 %.

(43)

The Commission notes that in the CBA the Spanish
authorities use the same exchange rate forecasts as Ford,
i.e. EUR 1 = GBP [(cid:133)] = ESP [(cid:133)] for 2000, EUR 1 =
GBP [(cid:133)] = ESP [(cid:133)] for 2001, and EUR 1 = GBP [(cid:133)] =
ESP [(cid:133)] for 2002(cid:151)2005.

(38)

In accordance with point 3.2.(c) of the framework, the
Commission needs to ensure that the planned aid is in
proportion to the regional problems it is intended to
resolve. For that, the Commission requires a CBA, unless

(9) See recital 11.

(44) However, it is the Commission’s established practice in
the assessment of the CBA to use, whenever possible,
the historical rates at the time of the location decisions.
Only if
the location decision is not
verifiable, or if no decision has yet been taken, is the
applicable rate the rate at the time of notification. The

the time of

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Commission’s practice was explained to the Spanish
authorities after the project had been notified. In the
present case, the time of the decision can be established
as November 1999; the exchange rate at the time was
EUR 1 = GBP 0,637 (10).

(49)

Regarding transport costs, the Commission notes that
the original internal estimates carried out by Ford (using
the dollar as the reference currency)
indicate a slight
advantage in unit transport costs for Almusafes (around
2,5 % per engine on average). This would mean an
advantage of approximately EUR 370 000 a year, which
has not been included in the CBA. The Commission also
notes that the advantage for Almusafes would have been
greater, if the exchange rate used in the calculations had
been that at the time of the investment decision.

layoffs

the Commission is not

(50) As regards layoff costs, the Commission accepts that
even without the I4 project, redundancies would have
the Zetec engine had
been limited if production of
continued. However,
in a
position to evaluate the extra costs deriving from the
indicated in the letter of 14
[(cid:133)] potential
January 2002, as the Spanish authorities have stated
that Ford did not take them into consideration when
studying the alternative locations. The Commission
notes however that, had such costs been considered,
they would have increased the costs of carrying out the
in the alternative location of Bridgend, and
project
would therefore have
cost
disadvantage of Almusafes.

further decreased the

(51)

(52)

Lastly, the Commission considered in its analysis the
question of the regional adjustment. Such an adjustment
is authorised on condition that the investment does not
aggravate existing capacity problems
in the motor
industry. The Spanish authorities provided
vehicle
documentation which shows
the Ford group’s
capacity in the European Economic Area and the
countries of central and eastern Europe will decline in
2000(cid:151)2005 for
In
accordance with the framework, the project would have
a minimum impact on competition and the intensity of
the disadvantage resulting from the CBA would be
increased by four percentage points.

vehicles

engines

alike.

that

and

In the light of the information submitted and of the
the Commission concludes that
considerations above,
the elements of
the CBA presented by the Spanish
authorities do not show that the location of Almusafes
would suffer a regional handicap higher than 5,11 %
the eligible costs, even if a positive regional
gge of
four percentage points is taken into
adjustment of
that an aid
it concludes
this
account. For
intensity that is higher than the intensity for which no
CBA is necessary under the framework would not be
compatible with the common market.

reason,

(53)

The Commission calculates that the maximum aid that
can be granted to Ford for the project in question is
5,11 % gross grant equivalent of the total eligible costs

(45)

(46)

The Commission notes that the exchange rates used by
the Spanish authorities give the euro (and the peseta) a
higher value vis-(cid:224)-vis the pound sterling during the
years in question than would be the case under the
Commission’s practice. The Commission also notes that
the exchange rates used by the Spanish authorities are,
respectively, [(cid:133)] and [(cid:133)] higher than the historical
values in the years 2000 and 2001, and that
the
predicted sharp devaluation of
the pound has not
occurred in recent years.

The Commission notes that the lower estimated value
attributed to the GBP by the Spanish authorities has the
effect of making the costs occurring in the alternative
site of Bridgend lower than under the Commission’s
practice. The Commission has calculated that,
the
exchange rate of EUR 1 = GBP 0,637 is applied to the
operating costs, the regional handicap of the Almusafes
location is reduced from the notified EUR 29 900 000
to EUR 15 210 000 (7 % of the eligible costs).

if

(47) As regards the costs for equipment and machinery, the
Commission, with the aid of
its external automotive
expert, was able to verify that the existing machines in
Almusafes are older and less flexible than those in
Bridgend. The Bridgend plant could have been adapted
to the production of the I4 engine with a lower degree
of transformation of the existing lines, and therefore
with a lower capital investment. However, these factors
do not
the 17 %
suffice to justify the entirety of
difference in investment costs between the two plants.

(48)

that

respect,

the Commission notes

In this
the
investment costs at Bridgend are artificially low because
the exchange rate assumptions. The investment
of
breakdown provided by the Spanish authorities on 14
January 2002 assumes a euro 25 % stronger with
respect to the USD and 18 % stronger with respect to
the GBP than it actually was in November 1999. This
has the effect of reducing all non-euro denominated
the
investment costs, which would largely arise at
alternative
Assuming,
Bridgend.
conservatively,
that using the correct exchange rate
would increase the costs of machinery and equipment in
Bridgend by only 7 %, the regional handicap would be
reduced further to EUR 2 870 000 (or 1,04 % gge of the
eligible costs).

location

of

(10) Source: Eurostat.

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of EUR 217 439 000 at 2000 prices (discount factor:
is therefore EUR
5,7 %). The maximum aid amount
11 111 146 gross grant equivalent at 2000 prices
(discount factor: 5,7 %).

V. CONCLUSIONS

(54)

The Commission finds that the aid for the project in
question is compatible with the common market,
exceed 5,11 % gross grant
provided it does not
equivalent
of
the
EUR 217 439 000 at present value, base year 2000,
discounted at the rate of 5,7 %. The maximum amount
of aid that can be granted is EUR 11 111 146 at present
value.

investment

eligible

of

eligible investment, which is EUR 217 439 000, discounted at
a rate of 5,7 % (base year 2000).

Implementation of
the aid, amounting to no more than
EUR 11 111 146, discounted at the rate of 5,7 % (base year
2000), is accordingly authorised.

Article 2

Any state aid in addition to the aid referred to in Article 1 that
Spain plans to grant to Ford for the project relating to the
production of the new I4 engine shall be incompatible with
the common market.

Article 3

(55) Any additional state aid for the investment projects in
question is incompatible with the common market,

Spain shall inform the Commission, within two months of the
date of notification of this decision, of the measures it has
taken to comply with it.

HAS ADOPTED THIS DECISION:

Article 4

This Decision is addressed to the Kingdom of Spain.

Article 1

Done at Brussels, 7 May 2002.

The state aid which Spain has planned to implement for Ford
Espaæa SA for the project relating to the production of the
new I4 engine is compatible with the common market within
the meaning of Article 87(3)(a) of
the Treaty, up to a
maximum intensity of 5,11 % gross grant equivalent of the

For the Commission

Mario MONTI

Member of the Commission