Council Regulation (EC) No 1407/2002 of 23 July 2002 on State aid to the coal industry
Date: 2002-07-23
Institutions: Council of the European Union
Subjects: State aid, aid policy, coal industry, exchange of information, industrial restructuring, terms for aid

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(Acts whose publication is obligatory)

COUNCIL REGULATION (EC) No 1407/2002

of 23 July 2002

on State aid to the coal industry

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Commu-
nity, in particular Article 87(3)(e) and Article 89 thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Parliament (2),

Having regard to the opinion of the Consultative Committee set
up in accordance with the Treaty establishing the European
Coal and Steel Community (3),

Having regard to the opinion of the Economic and Social
Committee (4),

Whereas:

(1)

(2)

(3)

The ECSC Treaty and the rules adopted for its applica-
tion,
in particular Commission Decision No 3632/93/
ECSC of 28 December 1993 establishing Community
rules for State aid to the coal industry (5), expire on 23
July 2002.

The competitive imbalance between Community coal
and imported coal has forced the coal
industry to
embark on substantial restructuring measures involving
major cutbacks in activity over the past few decades.

The Community has become increasingly dependent on
external supplies of primary energy sources. As stated in
the Green Paper on a European strategy for the security
of energy supply adopted by the Commission on 29
November 2000, the diversification of energy sources,
both by geographical area and in products, will make it
possible to create the conditions for greater security of
supply. Such a strategy includes the development of indi-
genous
sources of primary energy, more especially
sources of energy used in the production of electricity.

(5)

(6)

(7)

wider meaning to the concept of security of supplies. In
this connection a regular assessment must be made of
the risks linked to the Union’s energy supply structure.

As indicated in the Green Paper on a European strategy
for the security of energy supply, it is therefore neces-
sary, on the basis of the current energy situation, to take
measures which will make it possible to guarantee access
to coal reserves and hence a potential availability of
Community coal.

In this connection, the European Parliament adopted a
Resolution on 16 October 2001 on the Commission
Green Paper on a European strategy for the security of
energy supply which acknowledges the importance of
coal as an indigenous source of energy. The European
Parliament said that provision should be made for finan-
cial support for coal production, whilst recognising the
need for more efficiency in this sector and for cutting
back subsidies.

coal-producing

the maintenance of

Strengthening the Union’s energy security, which under-
pins the general precautionary principle, therefore justi-
fies
capability
supported by State aid. However
implementing this
objective does not put
into question the need to
continue the restructuring process of the coal industry
given that, in the future, the bulk of Community coal
production is likely to remain uncompetitive vis-à-vis
imported coal.

(4)

In addition,
the world political situation brings an
entirely new dimension to the assessment of geopolitical
risks and security risks in the energy sector and gives a

(8)

(1) OJ C 304 E, 30.10.2001, p. 202.
(2) Opinion delivered on 30 May 2002 (not yet published in the Offi-

cial Journal).

(3) OJ C 321, 16.11.2001, p. 2.
(4) OJ C 48, 21.2.2002, p. 49.
(5) OJ L 329, 30.12.1993, p. 12.

A minimum level of coal production, together with other
measures,
in particular to promote renewable energy
sources, will help to maintain a proportion of indigenous
primary energy sources, which will significantly boost
the Union’s energy security. Furthermore, a proportion
of indigenous primary energy sources will also serve to
promote environmental objectives within the framework
of sustainable development.

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The strategic context of energy security is of an evolving
nature which justifies at medium term an evaluation of
this Regulation, taking into account the contributions of
all indigenous primary energy sources.

renewable energy sources will be
sources. Aid for
granted in accordance with the rules and criteria set out
in the Community guidelines on State aid for environ-
mental protection (1).

(9)

(10)

(11)

(12)

This Regulation does not affect
the Member States’
freedom to choose what energy sources will make up
their supply. Aid, and the amount of it, will be granted
in accordance with the rules applying to each category
of energy source and on the merits of each of
the
sources.

In accordance with the principle of proportionality, the
production of subsidised coal must be limited to what is
strictly necessary to make an effective contribution to
the objective of energy security. The aid given by
Member States will
therefore be limited to covering
investment costs or current production losses where
mining is part of a plan for accessing coal reserves.

State aid to help maintain access to coal reserves to
ensure energy security should be earmarked for produc-
tion units which could contribute to this objective at
satisfactory economic conditions. The application of
these principles will help to contribute to the digression
of aid to the coal industry.

(13) Given risks related to geological uncertainties, aid to
investment cost allow production units
cover initial
which are viable, or close to economic viability,
to
implement the technical investments necessary to main-
tain their competitive capacity.

(14)

The restructuring of the coal industry has major social
and regional repercussions as a result of the reduction in
activity. Production units which are not eligible for aid
as part of the objective of maintaining access to coal
reserves must therefore be able to benefit, temporarily,
from aid to alleviate the social and regional conse-
quences of their closure. This aid will in particular enable
the Member States to implement adequate measures for
the social and economic development of
the areas
affected by the restructuring.

(15) Undertakings will also be eligible for aid to cover costs
which, in accordance with normal accounting practice,
do not affect the cost of production. This aid is intended
in
costs,
to cover
particular.

inherited liabilities

exceptional

(16)

The degression of aid to the coal industry will enable the
Member States,
in accordance with their budgetary
constraints, to reallocate the aid granted to the energy
sector on the basis of the principle of a gradual transfer
of aid normally given to conventional forms of energy,
to renewable energy
sector,
in particular

the coal

(17)

In accomplishing its task, the Community must ensure
that normal conditions of competition are established,
maintained and complied with. With regard more espe-
cially to the electricity market, aid to the coal industry
must not be such as to affect electricity producers’ choice
of sources of primary energy supply. Consequently, the
prices and quantities of coal must be freely agreed
between the contracting parties in the light of prevailing
conditions on the world market.

(18) A minimum level of production of subsidised coal will
also help to maintain the prominent position of
European mining and clean coal technology, enabling it
in particular to be transferred to the major coal-produ-
cing areas outside the Union. Such a policy will contri-
bute to a significant global reduction in pollutant and
greenhouse gas emissions.

(19)

(20)

(21)

(22)

The Commission’s authorising power must be exercised
on the basis of precise and full knowledge of
the
measures which governments plan to take. Member
States should therefore provide the Commission with a
consolidated report showing the full details of the direct
or indirect aid which they plan to grant to the coal
industry, specifying the reasons for and scope of the
proposed aid, its relationship with a plan for accessing
coal reserves and, where appropriate, any closure plan
submitted.

In order to take account of the deadline set in Directive
2001/80/EC (2) on large combustion plants, Member
States should have the possibility to notify the Commis-
sion of
identity of production units
forming part of the closure plans or the plans for acces-
sing coal reserves by June 2004 at the latest.

the individual

Provided it is compatible with the present scheme, aid
for research and development and aid for environmental
protection and training may also be granted by Member
States to the coal industry. The aid must be granted in
compliance with the requirements and criteria laid down
by the Commission for these categories of aid.

The implementation of the provisions of this Regulation
on the expiry of the ECSC Treaty and Decision No
3632/93/ECSC may give rise to difficulties for undertak-
ings owing to the fact that two aid schemes will apply
during the same calendar year. It is therefore necessary
to provide for a transitional period up to 31 December
2002.

(1) OJ C 37, 3.2.2001, p. 3.
(2) OJ L 309, 27.11.2001, p. 1.

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(23)

The proposed State aid scheme takes account of very
diverse factors which characterise the present coal
industry and the Community energy market as a whole.
These factors, which may change to a lesser or greater
extent, some of
them unexpectedly, particularly the
ability of Community coal to help strengthen the Union’s
energy security, need to be re-evaluated during the
course of the scheme in the context of sustainable devel-
opment by way of a report. On the basis of this report,
taking into account the different categories of fossil fuels
available on the territory of
the
Commission will present proposals to the Council which
will take account of the development and long-term
prospects of the scheme,
in particular the social and
regional aspects of the restructuring of the coal industry.

the Community,

(24)

This Regulation should enter into force as soon as
possible after the expiry of the ECSC Treaty and it should
be applied retroactively in order to ensure the full benefit
of its provisions,

HAS ADOPTED THIS REGULATION:

CHAPTER 1

GENERAL PROVISIONS AND DEFINITIONS

Article 1

Aim

This Regulation lays down rules for the granting of State aid to
the coal industry with the aim of contributing to the restruc-
turing of the coal industry. The rules laid down herein take
account of:

— the social and regional aspects of the sector’s restructuring,

— the need for maintaining, as a precautionary measure, a
minimum quantity of indigenous coal production to guar-
antee access to reserves.

Article 2

Definitions

For the purposes of this Regulation:

(a) ‘coal’ means high-grade, medium-grade and low-grade cate-
gory A and B coal within the meaning of the international
codification system for coal
laid down by the United
Nations Economic Commission for Europe (1);

(b) ‘plan for accessing coal reserves’: plan drawn up by a
Member State, providing for
the
minimum quantity of indigenous coal necessary to guar-
antee access to coal reserves;

the production of

(c) ‘closure plan’: plan drawn up by a Member State providing
for measures culminating in the definitive closure of coal
production units;

(d) ‘initial investment costs’: fixed capital costs directly related
to infrastructure work or to the equipment necessary for
the mining of coal resources in existing mines;

(e) ‘production costs’ means costs related to current produc-
tion, calculated in accordance with Article 9(3). These
cover, apart from mining operations, operations for the
dressing of coal, in particular washing, sizing and sorting,
and the transport to the delivery point;

(f) ‘current production losses’ means the positive difference
between the coal production cost and the delivered selling
price freely agreed between the contracting parties in the
light of the conditions prevailing on the world market.

Article 3

Aid

1.
Aid to the coal industry may be considered compatible
with the proper functioning of the common market only if it
complies with the provisions of Chapter 2, without prejudice to
State aid schemes concerning research and technological devel-
opment, the environment and training.

Aid shall cover only costs in connection with coal for the
2.
production of electricity, the combined production of heat and
electricity, the production of coke and the fuelling of blast
furnaces in the steel industry, where such use takes place in the
Community.

CHAPTER 2

CATEGORIES OF AID

Article 4

Aid for the reduction of activity

Aid to an undertaking intended specifically to cover the current
production losses of production units may be considered
compatible with the common market only if it satisfies the
following conditions:

(a) operation of the production units concerned shall form part
of a closure plan whose deadline does not extend beyond
31 December 2007;

(b) the aid notified per tonne coal equivalent shall not exceed
the difference between the foreseeable production costs and
the foreseeable revenue for a coal year. The aid actually
paid shall be subject to annual correction, based on the
actual costs and revenue, at the latest by the end of the coal
production year following the year for which the aid was
granted;

(1) International system for the codification of medium-grade and high-
grade coal (1998); International classification of coal in seam (1998)
and International system of codification for low-grade coal (1999).

(c) the amount of aid per tonne coal equivalent may not cause
delivered prices for Community coal to be lower than those
for coal of a similar quality from third countries;

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(d) aid must not lead to any distortion of competition between

coal buyers and users in the Community;

(e) aid must not lead to any distortion of competition on the
electricity market, the market of combined heat and electri-
city production, the coke production market and the steel
market.

(b) aid shall be granted to production units which, with parti-
cular reference to the level and pattern of production costs,
and within the limits of the quantity of indigenous coal to
be produced in accordance with the plan referred to in (a),
afford the best economic prospects.

Article 5

Aid for accessing coal reserves

in accordance with paragraphs 2
1. Members States may,
and 3, grant aid to an undertaking,
intended specifically to
production units or to a group of production units, only if the
aid contributes to maintaining access to coal reserves. A
production unit may receive aid only under one of the cate-
gories referred to in paragraphs 2 or 3. No cumulation of aid
under paragraph 2 and paragraph 3 shall be possible.

A i d for i ni ti a l i nve st me nt

Aid intended to cover initial

2.
investment costs may be
declared to be compatible with the common market only if it
satisfies the conditions laid down in Article 4(c), (d) and (e) and
the following conditions:

(a) the aid shall be earmarked for existing production units
which have not received aid under Article 3 of Decision No
3632/93/ECSC or which have received aid authorised by
the Commission under the said Article 3 having demon-
strated that they were able to achieve a competitive position
vis-à-vis prices for coal of a similar quality from third
countries;

(b) production units shall draw up an operating plan and a
financing plan showing that the aid granted to the invest-
ment project in question will ensure the economic viability
of these production units;

(c) the aid notified and actually paid shall not exceed 30 % of
the total costs of the relevant investment project which will
enable a production unit to become competitive in relation
to the prices for coal of a similar quality from third
countries.

Article 6

Degression of aid

The overall amount of aid to the coal industry granted in
1.
accordance with Article 4 and Article 5(3) shall follow a down-
ward trend so as to result in a significant reduction. No aid for
the reduction of activity may be granted under Article 4 beyond
31 December 2007.

2.
The overall amount of aid to the coal industry granted in
accordance with Articles 4 and 5 shall not exceed, for any year
after 2003, the amount of aid authorised by the Commission in
accordance with Articles 3 and 4 of Decision No 3632/93/
ECSC for the year 2001.

Article 7

Aid to cover exceptional costs

1.
State aid granted to undertakings which carry out or have
carried out an activity in connection with coal production to
enable them to cover the costs arising from or having arisen
from the rationalisation and restructuring of the coal industry
that are not related to current production (‘inherited liabilities’)
may be considered compatible with the common market
provided that the amount paid does not exceed such costs.
Such aid may be used to cover:

(a) the costs incurred only by undertakings which are carrying
out or have carried out restructuring, i.e. costs related to
the environmental rehabilitation of
former coal mining
sites;

(b) the costs incurred by several undertakings.

The aid granted in accordance with this paragraph, whether in
the form of a single payment or spread over several years,
cannot be paid after 31 December 2010.

2.
The categories of costs resulting from the rationalisation
and restructuring of the coal industry are defined in the Annex.

Cu r r e nt p r odu c ti o n a i d

3.
Aid intended to cover current production losses may be
declared to be compatible with the common market only if it
satisfies the conditions laid down in Article 4(b) to (e) and the
following conditions:

Article 8

Common provisions

(a) operation of

the production units concerned or of

the
group of production units in the same undertaking forms
part of a plan for accessing coal reserves;

The authorised amount of aid granted in accordance with
1.
any provision of
this Regulation shall be calculated taking
account of the aid granted for the same purposes, in whatever
form, by virtue of any other national resource.

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All aid received by undertakings shall be shown in the
2.
profit-and-loss accounts as a separate item of revenue distinct
from turnover. Where an undertaking receiving aid granted
pursuant to this Regulation is engaged not only in mining but
also in another economic activity, the funds granted shall be
the subject of separate accounts so that financial flows under
this Regulation can be clearly identified. The funds shall be
managed in such a way that there is no possibility of their
being transferred to the other activity concerned.

CHAPTER 3

NOTIFICATION,

APPRAISAL

AND

AUTHORISATION

PROCEDURES

Article 9

Notification

1.
In addition to the provisions of Article 88 of the Treaty
and Council Regulation (EC) No 659/1999 of 22 March 1999
laying down detailed rules for the application of Article 93 of
the EC Treaty (1), aid as referred to in this Regulation shall be
subject to the special rules laid down in paragraphs 2 to 12.

2. Member States which grant aid to the coal industry shall
provide the Commission with all
the information needed,
against the current energy background, to justify the estimated
production capacity forming part of the plan for accessing coal
reserves, the minimum production level needed to guarantee
such access, as well as, regarding the categories of aid provided
for in this Regulation, the appropriate types of aid, taking
account of the specificities of the coal industry in each Member
State.

3.
Production costs are calculated in accordance with the
three-monthly outline statements of costs sent to the Commis-
sion by the coal undertakings or associations thereof. The coal
include normal depreciation and interest on
undertakings
borrowed capital
in their calculation of production costs.
Eligible interest costs on borrowed capital shall be based on
market-based interest rates and limited to operations (processes)
listed in Article 2(e).

4. Member States which intend to grant aid for the reduction
of activity as referred to in Article 4 shall submit beforehand to
the Commission a closure plan for
the production units
concerned by 31 October 2002 at the latest. This plan shall
provide for the following minimum elements:

(a) identification of the production units;

(b) the real or estimated production costs for each production
unit per coal year; these costs are calculated in accordance
with paragraph 3;

(c) estimated coal production, per coal year, of production

units forming the subject of a closure plan;

(1) OJ L 83, 27.3.1999, p. 1.

(d) the estimated amount of aid for the reduction of activity

per coal year.

5. Member States which intend to grant the aid as referred
to in Article 5(2) shall, by 31 December 2002 at the latest,
submit to the Commission a provisional plan for accessing coal
reserves. That plan shall provide, as a minimum, for objective
selection criteria, such as economic viability, to be met by the
production units in order to receive aid for investment projects.

6. Member States which intend to grant the aid as referred
to in Article 5(3) shall, by 31 October 2002 at the latest,
submit to the Commission a plan for accessing coal reserves.
That plan shall provide for the following minimum elements:

(a) objective selection criteria to be met by the production

units in order to be included in the plan;

(b) identification of production units or a group of production
units in the same coal undertaking meeting such selection
criteria;

(c) the real or estimated production costs for each production
unit per coal year; these costs are calculated in accordance
with paragraph 3;

(d) an operating plan and a financing plan for each production
unit or group of production units in the same undertaking
reflecting the budgetary principles of Member States;

(e) estimated coal production, per coal year, of the production
units or group of production units in the same undertaking
forming part of the plan for accessing coal reserves;

(f) the estimated amount of aid for accessing coal reserves for

each coal year;

(g) the respective shares of

indigenous coal and renewable
energy sources against the amount of indigenous primary
energy sources that contribute to the objective of energy
security within the framework of sustainable development
and their expected upward or downward trend.

7.
As part of the notification of the plans referred to in para-
graphs 4, 5 and 6, Member States shall provide the Commission
with all the information regarding reductions in greenhouse gas
emissions. They shall refer in particular to reductions in emis-
sions resulting from efforts made to use clean coal combustion
technologies.

8. Member States may, on duly justified grounds, notify the
Commission of
identity of production units
forming part of the plans referred to in paragraphs 4 and 6 by
June 2004 at the latest.

the individual

9. Member States shall
inform the Commission of any
amendments to the plan initially submitted to the Commission
in accordance with paragraphs 4, 5, 6, 7 and 8.

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10. Member States shall send notification of all the financial
support which they intend to grant to the coal industry during
a coal year, specifying the nature of the support with reference
to the forms of aid provided for in Articles 4, 5 and 7. They
shall submit to the Commission all details relevant to the calcu-
lation of the foreseeable production costs and their relationship
to the plans notified to the Commission in accordance with
paragraphs 4, 5, 6, 7 and 8.

It shall present a balance of the respective share of the
2.
different indigenous sources of primary energy in each Member
State, including the different categories of fossil fuels available.
It shall, taking into account the development of renewable
sources of energy, evaluate the actual contribution of indi-
to long-term energy security in the European
genous coal
Union as part of a strategy of sustainable development, and
present its assessment of how much coal is needed to that end.

11. Member States shall send notification of the amount and
full information about the calculation of the aid actually paid
during a coal year no later than six months after the end of that
year. Before the end of the following coal year, they shall also
declare any corrections made to the amounts originally paid.

12. When notifying aid as referred to in Articles 4, 5 and 7
and making the statement of aid actually paid, Member States
shall supply all the information necessary for verification of the
conditions and criteria set out in these provisions.

Article 10

Appraisal and authorisation

1.
The Commission shall appraise the plan(s) notified in
accordance with Article 9. The Commission shall take a deci-
sion on their conformity with the conditions and criteria set
out in Articles 4, 5, 6, 7 and 8 and on their compliance with
the objectives of this Regulation, in accordance with the rules
of procedure laid down in Regulation (EC) No 659/1999.

The Commission shall examine the measures notified in
2.
accordance with Article 9(10)
the plans
submitted in the framework of Article 9(4), (5), (6), (7) and (8).
It shall take a decision in accordance with the requirements of
Regulation (EC) No 659/1999.

in the light of

Article 12

Implementing measures

take all necessary measures for the
The Commission shall
implementation of this Regulation.
It shall establish a joint
framework for communication of the information which will
enable it
to evaluate compliance with the conditions and
criteria laid down for the granting of aid.

Article 13

Review measures

1.
On the basis of the report produced in accordance with
Article 11, the Commission shall, if necessary, submit to the
this Regulation
Council proposals for
concerning its application to aid for the period from 1 January
2008.
the
proposals shall establish, inter alia, the principles on the basis of
which Member States’ plans are to be implemented as from 1
January 2008.

In keeping with the principle of aid reduction,

the amendment of

2.
The principles referred to in paragraph 1 shall be estab-
lished in the light of the objectives referred to in Article 1, with
particular reference to the social and regional consequences of
the measures to be taken and the energy context.

CHAPTER 4

TRANSITIONAL AND FINAL PROVISIONS

Article 14

Entry into force

Article 11

Commission reports

This Regulation shall enter into force the day of its publi-

1.
cation in the Official Journal of the European Communities.

It shall apply from 24 July 2002.

1.
By 31 December 2006, the Commission shall report to
the European Parliament, the Council, the Economic and Social
Committee and the Committee of the Regions, covering in
particular its experience and any problems encountered in the
application of this Regulation since its entry into force. It shall
evaluate in the light of the measures taken by the Member
States the results of the restructuring of the coal industry and
the effects on the internal market.

2.
Aid covering costs for the year 2002 may, however, on
the basis of a reasoned request by a Member State, continue to
be subject to the rules and principles laid down in Decision No
3632/93/ECSC, with the exception of rules regarding deadlines
and procedures.

3.

This Regulation shall apply until 31 December 2010.

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This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 23 July 2002.

For the Council

The President

P. S. MØLLER

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ANNEX

Definition of costs referred to in Article 7

1. Costs incurred and cost provisions made only by undertakings which are carrying out or have carried out restructuring and

rationalisation

Exclusively:

(a) the cost of paying social welfare benefits resulting from the pensioning-off of workers before they reach statutory

retirement age;

(b) other exceptional expenditure on workers who lose their jobs as a result of restructuring and rationalisation;

(c) the payment of pensions and allowances outside the statutory system to workers who lose their jobs as a result of

restructuring and rationalisation and to workers entitled to such payments before the restructuring;

(d) the cost covered by the undertakings for the readaptation of workers in order to help them find new jobs outside

the coal industry, especially training costs;

(e) the supply of free coal to workers who lose their jobs as a result of restructuring and rationalisation and to

workers entitled to such supply before the restructuring;

(f) residual costs resulting from administrative, legal or tax provisions;

(g) additional underground safety work resulting from the closure of production units;

(h) mining damage provided that it has been caused by production units subject to closure due to restructuring;

(i) costs related to the rehabilitation of former coal mining sites, notably:

— residual costs resulting from contributions to bodies responsible for water supplies and for the removal of

waste water,

— other residual costs resulting from water supplies and the removal of waste water;

(j) residual costs to cover former miners’ health insurance;

(k) exceptional intrinsic depreciation provided that it results from the closure of production units (without taking
account of any revaluation which has occurred since 1 January 1994 and which exceeds the rate of inflation);

2. Costs incurred and cost provisions made by several undertakings

(a) increase in the contributions, outside the statutory system, to cover social security costs as a result of the drop,

following restructuring, in the number of contributors;

(b) expenditure, resulting from restructuring, on the supply of water and the removal of waste water;

(c) increase in contributions to bodies responsible for supplying water and removing waste water, provided that this

increase is the result of a reduction, following restructuring, in the coal production subject to levy.