Report from the Commission - Monitoring of Article 95 ECSC Steel aid cases, Seventeenth Report, May 2002
Date: 2002-05-27
Institutions: European Commission
Subjects: ECSC aid, Portugal, aid to industry, control of State aid, iron and steel industry

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 27.05.2002
COM(2002) 248 final

REPORT FROM THE COMMISSION

Monitoring of Article 95 ECSC Steel aid cases, Seventeenth Report, May 2002

   
REPORT FROM THE COMMISSION

Monitoring of Article 95 ECSC Steel aid cases, Seventeenth Report, May 2002

1.

INTRODUCTION

The Commission presents its Seventeenth Report on the Monitoring of Article 95 ECSC steel
and iron ore aid cases pursuant to its decisions of 12 April 19941, and 29 November 19952. It
covers  developments  up  to  31  December  2001  on  the  basis  of  information  provided  by  the
Portuguese and Austrian authorities on Siderurgia Nacional and Voest Alpine Erzberg. Since
most  conditions  imposed  by  the  Commission  in  its  decisions  approving  the  aid  are  already
fulfilled, only the conditions still monitored by the Commission are addressed in this report.

As  for  EKO  Stahl  GmbH,  which  was  previously  subject  to  monitoring  obligation,  the
limitation of the capacity of the new hot-rolling mill to 1.5 million t/y runs up until the end of
January 2005. It is guaranteed by an electronic device that makes it technically impossible to
exceed that ceiling. The  system  operates  reliably  and the records of  the  quantities  produced
are regularly submitted to the Commission.

2.

SIDERURGIA NACIONAL, PORTUGAL

2.1.

Introduction

On  12 April 1994  the  Commission  approved3  PTE  60.12  billion4  aid  to  the
Portuguese  public  steel  undertaking  Siderurgia  Nacional  under  Article 95  of  the
ECSC Treaty (see details in the previous monitoring reports). This aid was paid in
1994 and 1995.

In September 1994 the Commission approved under the Fifth Steel Aid Code5:

– 

– 

PTE 4 925 million in social aid,

PTE 1 000 million in aid for environmental protection.

By the end of 2001, social aid amounting to PTE 3 401.76 million and environmental
aid amounting to PTE 750 million have been paid.

Authorisation of the aid was subject to several conditions. The following conditions
are still monitored by the Commission :

– 

replacement  of  the  blast  furnace  at  Seixal  by  an  electric  arc  furnace
(outstanding),

1

2

3

4

5

Decisions No 94/257/ECSC (OJ L 112, 3.5.1994, p. 52).
Decision No 96/269/ECSC (OJ L 94, 16.4.1996, p. 17).
OJ L 112, 3.5.1994, p. 52.
1 € = 200,482 PTE. Total amount 299 million €.
OJ C 390, 31.12.1994, p. 18.

2

                                                
– 

total workforce to be reduced by 1798 employees by the end of 1996

2.2.

Investments

SN Longos – Electric arc furnace

Under the initial restructuring plan (PERG), the blast furnace was to be replaced by
an  electric  arc  furnace  by  the  beginning  of  1996.  The  Portuguese  Government’s
decision to privatise the operating companies immediately, which was not envisaged
by the initial restructuring plan, and the approach taken by the authorities of leaving
the final investment decision to the new private shareholders in SN Longos have led
to a six-year delay in installation of the electric arc furnace (cf. previous reports).

All the equipment has been installed. Cold trials have already taken place. Hot trials
are scheduled for the first half of May.

2.3.

Evolution of workforce

The  initial  restructuring  plan  (PERG)  envisaged  a  reduction  in  the  workforce  by
1798 at the end of the restructuring period. The Portuguese Government’s decision to
privatise  the  operating  companies  immediately,  will  lead  to  a  reduction  of  2663  in
2002. With the closure of the blast furnace in March 2001, only 44 workers remain in
SN Serviços which are needed for the dismantling of the installations.

Financing of redundancies:

Nature

Number of
workers

Art 56
ECSC

State (Art 56
ECSC)

Company1

Total

Costs in PTE million

2001

Early retirement

606

121.49

121.49

-

242.98

Redundancy2

196

39.29

39.29

1465.12

1543.71

Other

Total

9

811

160.78

160.78

1465.12

1786.69

*

1

2

For details on the period 1993 - 2000 see previous Reports.

In accordance with Article 4(1) of the Fifth (until 1996 included) respectively the Sixth Steel Aid Code (as from 1997),
a contribution from the State defrays 50% of these costs.

Through mutual agreement (negotiated redundancy).

In 2001, PTE 732.6 million in social aid authorised under Article 4 of the Sixth Steel
Aid Code was disbursed.

2.4.

Sales

Following  the  closure  of  its  blast  furnace,  SN Serviços  did  not  produce  or  sell  any
billets in the second half of 2001.

3

2.5.

Financial performance

The Portuguese authorities provided a full set of financial data and financial ratios in
line with the Annex to the Commission’s Decision.

According to the Portuguese authorities, the losses of SN Serviços’ were chiefly due
to the high level of depreciation costs and provisions.

The closure of the blast furnace also resulted in an extraordinary charge owing to the
inclusion in the accounts of the total compensation paid in respect of termination of
the employment contracts of workers to be laid off from April 2001 onwards.

SN Serviços

(PTE million)

Sales and services performed

Other income

Cost of sales

Personnel costs

Depreciation + provisions

Net financial charges

Other costs

Operating result

Gross profit

1999

19 438

-949

13 053

4 081

954

211

3 171

-2 981

-2 611

2000

20 670

-1 167

14 547

3 959

4 476

703

3 059

-6 538

-7 271

2001

4 360

-337

3 124

1 505

1 155

477

2 009

- 4 247

- 3 110

2.6.

Aid

The  aid  authorised  under  Article 95  of  the  ECSC Treaty  has  been  paid  in  six
instalments  between  March 1994  and  June 1995  as  explained  in  the  fourth
monitoring report. Environmental aid approved under Article 3 of the Fifth Steel Aid
Code  amounting  to  EUR  3 740 984  was  paid  in  2001.  The  use  of  the  social  aid
approved  under  Article 4(1)  of  the  Fifth,  respectively  the  Sixth  Steel  Aid  Code  is
explained above under 2.3 (financing of redundancies).

3.

VOEST ALPINE ERZBERG GMBH, AUSTRIA

3.1.

Introduction

On 29 November 1995 the Commission approved6 State aid to Voest Alpine Erzberg
GmbH (VAEG) to enable it to close down its mining operations gradually up to the

6

OJ L 94, 16.4.1996, p. 17.

4

                                                
year 2002. Approved aid amounts to ATS 272 million to cover operating losses over
the period 1995-2002 and ATS 136 million7 to cover the costs of closing down mines
safely and in an environmentally friendly manner.

Authorisation of the aid was subject inter alia to the following conditions:

– 

– 

– 

the  annual aid ceilings  and  the production ceiling as  given in  the  table  above
were not to be exceeded (so far observed),

the  amount  of  operating  aid  was  not  to  exceed  the  difference  between
production costs and revenues (so far observed),

the price charged for iron ore was to be in line with market prices and was not
to be lower than the price of imported iron ore (so far observed).

3.2.

Production and sales

In  2001  VAEG  produced  980 000  tonnes  of  iron  ore  with  an  average  content  of
33.6%  Fe  and  902 000  tonnes  of  low  grade  products  which  its  only  client,
voestalpine  Stahl  GmbH 
furnace  burden
(Möllerzusatzmaterial). The company has therefore respected the  authorised  ceiling
for 20018.

(VSG),  can  use 

the  blast 

for 

The standard-grade iron ore was sold at € 10.14 per  tonne.  This  standard price  had
been set in November 2000 for the whole of 2001.

The low-grade material (Möllerzusatzmaterial) was sold at € 6.03 per tonne, fixed on
the basis of the market price for lime gravel (Kalkschotter).

The  average  price 
low-grade  material
(Möllerzusatzmaterial) results in € 7.92 per tonne. Including the costs of transport to
VSG/Linz, the price charged was € 53.01 per tonne Fe.

for  deliveries  of 

iron  ore  and 

The  above  price  per  tonne  Fe  for  iron  ore  is  higher  than  the  comparable  price  for
imported iron ore. It may therefore be concluded that the prices charged in 2001 were
not  lower  than  required  under  Article 2  of  the  Commission’s  Decision  of
29 November 1995.

A detailed overview of production, production costs, sales, prices and losses is given
in the Annex.

7

8

1 € = ATS 13,7603. ATS 272 million = 19,76 million €; ATS 136 million = 9,88 million €.
Cf. 16th Report point 5.2.2.1.

5

                                                
3.3.

Aid payments in relation to aid authorised

.

Total aid

Operating aid

Closure aid

(ATS million) Authorised

Paid

Authorised

Paid

Authorised

1995-2000*

306

274.8

2001

2002

52

50

26

 Total

408

300.8

226

26

20

272

* For details on the period 1995 - 2000 see previous Reports

3.4.

Evolution of workforce

The plan for reducing the workforce is as follows:

Paid

63.8

211

26

80

26

30

237

136

63.8

Workforce

1995

1996

1997

1998

1999

2000

2001

2002

Production

280

Closure operations

6

Total

286

276

10

286

273

13

286

273

13

286

254

20

274

242

20

262

210

31

241

181

34

215

Departing  from  the  original  plan  the  total  workforce  was  reduced  to  183  by
31st December 2001. Reduction of workforce is therefore ahead of plan.

6

ANNEX

Comparison of production costs and revenues, 2001

Iron ore

Low-grade product

Closure and
securing

Production
(tonnes)

 980 000

902 000

Total

1 882 000

Costs

(EUR 000’)

(EUR/tonne)

(EUR 000’)

(EUR/tonne)

(EUR 000’)

(EUR 000’)

(EUR/tonne)

1 380

1 380

983

271

441

983

1.53

1.53

1.09

0.30

0.49

1.09

1.97

3.62

3.68

0.64

0.49

1.09

0.33

3 312

4 931

4 592

903

922

2 054

321

1.76

2.62

2.44

0.48

0.49

1.09

0.17

627

627

0.33

Production

Extraction

Processing

Quality control

Transport

1 932

3 551

3 609

632

481

Overheads

1 071

321

Cost  related  to
exhausted
parts of mine

Closure  (tech-
nical  and  so-
cial measures)

Total  cost  of
sales

Revenues:

Sales (tonnes)

11 597

11.82

5 438

6.03

627

17 662

9.38

Iron ore

980 000

Low grade product

Total

902 000

1 882 000

Sales (value)

9 937

10.14

5 438

6.03

15 375

8.17

Deduction  for
difference 
in
quality

-455

-396

Total

9 482

9.68

5 438

6.03

14 920

7.93

Difference

Operating
result

Aid

-2 115

1 924

-627

-2 742

1 924

7