2003/373/EC: Commission Decision of 11 December 2002 on the State aid which Germany is planning to implement for BMW AG in Leipzig (Text with EEA relevance) (notified under document number C(2002) 4830)
Date: 2002-12-11
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, control of State aid, motor vehicle industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 December 2002

on the State aid which Germany is planning to implement for BMW AG in Leipzig

(notified under document number C(2002) 4830)

(Only the German text is authentic)

(Text with EEA relevance)

(2003/373/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

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,

Having called on interested parties to submit their comments
pursuant to those provisions (1),

Whereas:

I. PROCEDURE

(1)

(2)

On 3 December 2001 Germany notified the Commis-
sion of a proposal to grant aid to Bayerische Motoren-
werke AG (BMW). The Commission asked for additional
information by letter dated 16 January 2002, to which
Germany replied on 20 February.

By letter dated 3 April 2002, 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
the aid (hereinafter referred to as the decision to initiate
the procedure). By letter dated 17 May 2002, Germany
submitted comments on the initiation of the procedure.

(4)

(5)

The decision to initiate the procedure was published in
the Official Journal of the European Communities of 30 May
2002 (2). The Commission called on interested parties to
It received comments from
submit
France on 3 July 2002;
these were forwarded to
Germany. Germany responded to those comments by
letter dated 16 August 2002.

their comments.

II. DESCRIPTION

A. The proposal and the planned aid

BMW plans to set up a new passenger-vehicle produc-
tion plant in Leipzig with an eligible investment volume
of some EUR 1 204,9 million (net present value). It is
initially planned to manufacture passenger vehicles of
the [...] (*) 3-series model at the new plant. However, it
will also be possible in the medium and long term to
manufacture other BMW models there. The project is
expected to create some 5 400 direct new jobs.

It

is to be granted under

The aid recipient is BMW. According to the notification,
the total amount of planned aid is EUR 418,6 million
the
(net present value).
Gemeinschaftsaufgabe
regionalen
Wirtschaftsstruktur (GA) — 30. Rahmenplan (30th outline
plan for the joint Federal Government/Länder scheme for
improving regional economic structures) and under the
Investitionszulagengesetz 1999 (1999 Investment Allow-
ance Law). The aid intensity is 34,74 %.

Verbesserung

der

(1) OJ C 128, 30.5.2002, p. 15.

(2) See footnote 1.
(*) […] represents confidential information.

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(6)

(7)

Leipzig was recognised by the Commission as an area
eligible for regional aid under Article 87(3)(a) of the EC
Treaty in the regional aid map for 2000 to 2003. The
regional aid ceiling for large companies in Leipzig, a
‘structurally stronger’ region in the new Länder, is 28 %.
However, at the request of one Land (Saxony) and with
the approval of the GA subcommittee, which is respon-
sible for regional aid at national level, up to 35 % (gross)
may be granted to large companies in such regions.
Germany has stated that these conditions have been met
and has submitted the relevant minutes of the committee
in question.

a

Germany has also indicated that the most viable alterna-
tive location to Leipzig would be Kolin (Czech Republic).
After BMW issued a public call
for expressions of
in serving as a location for the new plant,
interest
around 250 locations
questionnaire
submitted
concerning the main selection criteria. Following an
extensive selection procedure, the five most attractive
locations (Augsburg in Bavaria, Arras in France, Leipzig
in Saxony, Kolin in the Czech Republic and Schwerin in
Mecklenburg-Western Pomerania) were identified. These
locations were analysed in detail and assessed over
several months, and specific siting and land-purchase
contracts were negotiated with the respective authorities.
Finally, Leipzig […]* was identified as the best location
in Germany and Kolin […]* as the best alternative loca-
tion abroad. On 18 July 2001 the BMW board decided
in favour of Leipzig.

B. Decision to initiate the procedure

(8)

The Commission justified its decision to initiate the
procedure on the basis of the following factors:

(9)

the notified cost handicap for Leipzig was
Firstly,
EUR 591,4 million (net present value). The planned aid
of EUR 418,6 million (net present value) would thus
still leave additional costs of EUR 172,8 million to be
borne by BMW if
located there. The Commission
therefore doubted whether Leipzig's regional handicap is
in fact as great as indicated.

it

(10) As regards the level of regional handicap indicated in the
cost-benefit analysis (hereinafter referred to as CBA), the
Commission considered that,
it
might be necessary to take into account and quantify
certain risks related to BMW's brand image or to the

in the case of Kolin,

(11)

(12)

(13)

(14)

(15)

including the integration of
start-up of production,
suppliers. Germany was asked to provide an estimate of
the costs associated with those risks.

regards

labour costs,

Secondly, as
the Commission
doubted that a sufficiently high convergence factor for
the level of wages had been applied in the CBA to take
account of labour-market developments after enlarge-
ment. The CBA assumed a real convergence rate lower
than applied by the Commission in similar cases (5 %
annually).

Thirdly, the Commission had doubts concerning the esti-
mated number of jobs at both sites. Although produc-
tivity is lower in Kolin than in Leipzig, the number of
jobs was assumed in the CBA to be higher in Leipzig
than in Kolin during the reference period.

Finally, the Commission doubted whether account had
been taken at both sites of all the training measures that
would be needed during the reference period of the
CBA, i.e. the five years after the commercial start-up of
production.

III. COMMENTS FROM INTERESTED PARTIES

France presented comments on the decision to initiate
the procedure in which it essentially supported the
doubts raised by the Commission,
in particular as
regards the extent of Leipzig's regional handicap as
compared with Kolin. These comments were received on
3 July 2002, i.e. after the expiry of the one-month dead-
line set by the Commission. France did not apply for an
extension of the deadline or provide any due justification
for such an extension. France's comments have therefore
not been formally taken into account in the Commis-
sion's assessment. Germany, which had the opportunity
to respond to France's comments, has backed the
Commission's position.

France pointed out that such a high level of aid would
lead to distortions of competition between BMW and
the other European car manufacturers. French manufac-
turers would be particularly affected as the French
market would be targeted by BMW and as French manu-
facturers operated in the same market segment. The aid
for the plant in Leipzig would not compensate for any
regional handicap and was therefore not necessary.
Three press articles were submitted to the Commission
in support of these arguments (3).

(3) La Tribune, 19 July 2001 (BMW préfère Leipzig à Arras pour sa
nouvelle usine de production); Les Echos, 7 July 2001 (BMW
construira sa nouvelle usine à Leipzig); Les Echos, 10 July 2001
(Arras serait hors course pour la future usine de BMW).

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(16) As regards the proportionality of the aid, France consid-
ered that Leipzig's geographical location represented an
industrial and economic advantage for BMW. The
company already had established suppliers in the region.
Moreover, it could more easily profit from an exchange
of workers between production plants, depending on
demand. France also pointed to the quality, availability
and competitiveness of
the
construction of a new car plant by a producer of
premium cars in a central European country would
involve industrial and economic risks which could be
reduced only by means of additional expenditure. A
greenfield investment
in the Czech Republic, where
BMW did not yet have an assembly plant, would involve
higher costs and risks, particularly since there might be
difficulties with the start-up of production. In addition,
manufacturing motor vehicles in central Europe would
require additional marketing costs
to maintain the
BMW's image as a producer of premium cars.

Finally,

labour.

local

IV. COMMENTS FROM GERMANY

(17)

In its reply to the comments from France, Germany
considered that, for procedural reasons, these comments
should not be taken into account by the Commission
since they had been received after the deadline laid down
in the decision to initiate the procedure. The main
purpose of setting a deadline in accordance with the first
sentence of Article 6(1) of Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (4) is to
treating all parties
ensure a correct procedure for
equally. There did not seem to be any duly justified case
for extending the deadline pursuant
to the second
sentence of Article 6(1).

(18) As for the substance of France's comments, Germany
pointed out that they were essentially based on French
press articles concerning the Arras site and not on infor-
mation concerning the two remaining options, Leipzig
and Kolin. As regards the question whether regional aid
was necessary, Germany rejected France's comments as
unjustified, stressing, inter alia, that the region was classi-
fied as an Objective 1 area. As regards the credibility of
Kolin as a viable alternative location, Germany argued
that the Commission had not questioned the mobility of
the project when initiating the procedure. Moreover, a
French motor-vehicle manufacturer
(together with a
non-European producer) had recently announced its
intention to set up a new car plant at the site which
BMW had examined as an alternative location. This
proved the feasibility and viability of the alternative loca-
tion. Any effect the project might have on the industry
and on competition would be taken into account by the
Commission in its ‘top-up analysis’. As regards the
proportionality of the aid, Germany noted among other
things that the French comments on this matter referred

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

to criteria indicated in the French press as grounds for
the decision not to choose the Arras site. Such consid-
erations could not be applied to the Kolin site. Germany
submitted information on specific points
raised by
France and concluded that the latter's comments did not
contain any tangible elements which called into question
the aid's compatibility with the common market.

(19) As regards the doubts raised in the decision to initiate
the procedure concerning the level of Leipzig's regional
handicap, Germany stated that there would be no signifi-
cant differences in logistical costs between Leipzig and
Kolin since, in contrast to Arras, they are both located at
the same distance from the existing BMW production
network. As for training costs, the main measures would
be implemented before the start-up of production (start
of the CBA period). Costs relating to vocational training
at both sites and further training at both sites had been
taken into account during the reference period. Labour
costs relating to the exchange of workers between
different sites had been included in the CBA. Germany
justifies the increase of less than 5 % in real wages in
Kolin as compared with Leipzig by pointing out in parti-
cular that, for the Leipzig site, a special agreement had
been concluded with employees to take account of the
specific characteristics of the local wage structure. Under
individual working hours would be
this agreement,
reduced in Leipzig. This implied a real rise in wages and
thus a reduction of the real convergence rate of 5 %. As
regards productivity and the number of employees,
lower productivity and longer working hours per
employee had been assumed for Kolin.

(20) With regard to the doubts expressed in the decision to
initiate the procedure concerning possible production
risks, Germany pointed to the successful Skoda plant in
Mlada Boleslav and the recent decision by PSA/Toyota to
locate in Kolin. Although Germany considered that the
start-up risks in Kolin did not have to be taken into
account, this element had been included in a worst-case
scenario. The CBA was also based on the conservative
and risk-minimising assumption that both sites would
receive identical investment in buildings and machinery.
On the question of risks to BMW's image, Germany
pointed out that BMW successfully operated production
plants
in different continents. The quality of cars
produced in South Africa was the same as in Germany.
The BMW 3-series was currently assembled at various
locations. Customers who were concerned solely with
quality would not normally know where a car had been
manufactured.

V. ASSESSMENT OF THE AID

(21)

The measure notified by Germany in favour of BMW
constitutes State aid within the meaning of Article 87(1)

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(22)

(23)

(24)

of the EC Treaty. It is to be financed by the State or
it would
through State resources. Furthermore, as
finance a significant proportion of
the
project, the aid is liable to distort competition in the
Community by giving BMW an edge over competitors
not receiving aid. There is also extensive trade between
Member States in the motor-vehicle market.

the costs of

The aid is to be granted to a company which manufac-
tures and assembles motor vehicles. The company thus
forms part of the motor vehicle industry within the
meaning of the Community framework for State aid to
the motor vehicle industry (5) (hereinafter referred to as
the relevant Community framework).

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

In view of the nature and purpose of the aid and the
location of the investment, Article 87(2) is not relevant.
Under Article 87(3), certain other types of aid may be
regarded as compatible with the common market.
Compatibility must be assessed from the standpoint of
the Community as a whole and not simply from the
point of view of a single Member State. In order to safe-
guard the proper functioning of the common market
and to comply with the principle established in Article
3(g) of the Treaty, the exceptions in Article 87(3) must
be interpreted narrowly. With regard to the derogations
in Article 87(3)(b) and (d), it is clear that the aid in ques-
tion is not intended for an important project of common
European interest, to remedy a serious disturbance in the
German economy or to promote culture and heritage
conservation.

(25) As regards the derogations in Article 87(3)(a) and (c), the
Commission notes
imple-
mented in areas of Saxony qualify for aid under subpara-
graph (a). Under the new regional aid map for Germany,

investments projects

that

approved by the Commission on 29 July 1999 for
assisted areas covered by Article 87(3)(a), the project is
located in an area with a regional aid ceiling for large
companies of 28 % gross grant equivalent. However, at
the request of one Land (Saxony) and with the approval
the GA subcommittee, which is responsible for
of
regional aid at national level, up to 35 % (gross) may be
granted to large companies in these regions (6). Germany
has confirmed that these conditions have been met and
has submitted the relevant minutes of the GA subcom-
mittee.

In assessing the aid's compatibility with the common
market, the Commission has not, as explained in recital
14, formally taken account of the comments submitted
during the procedure by France. Since these comments
nevertheless repeat and support many of the doubts
expressed by the Commission in its decision to initiate
the procedure, an indirect response is given to them in
this assessment.

In order to be able to determine whether regional aid
consistent with Article 87(3)(a) of the Treaty may be
deemed compatible with the common market,
the
Commission must check whether the conditions speci-
fied in the relevant Community framework have been
met.

To authorise aid under this framework, the Commission,
after checking that the region in question is eligible for
aid under Community law, establishes whether
the
investor could have chosen an alternative site for its
project so as to establish the need for the aid, with parti-
cular reference to the mobility of the project.

Taking into account the nature of the investment (on a
greenfield site) and on the basis of
the documents
received (e.g. location studies, correspondence with the
Czech authorities), it is to be assumed that the project
was mobile and that Kolin was a viable alternative loca-
tion.

Regional aid for modernisation and rationalisation
measures, which are generally not mobile,
is not
authorised in the motor vehicle sector. However, the
project in question involves setting up a completely new
production plant and may therefore be eligible for
regional aid. The eligible investment costs amount to
EUR 1 204,9 million (net present value).

(26)

(27)

(28)

(29)

(30)

(5) OJ C 279, 15.9.1997, p. 1.

(6) N 195/99, regional aid area for Germany (2002 to 2003)

for

regions covered by Article 87(3)(a).

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(31)

Together with an external expert on the motor vehicle industry, the Commission has evaluated the
notified CBA with a view to ascertaining whether the proposed aid is proportional to the regional
problems. The main reason for Leipzig's regional handicap is the significantly higher level of labour
costs in Germany. Following the initiation of the procedure, Germany clarified some aspects of the
CBA which had given rise to doubts. These related in particular to the productivity assumptions, the
number of employees at both plants and the necessary skill-training measures. The CBA assumes
identical investment in buildings and machinery at both locations and thus the same level of auto-
mation. However, labour productivity would have been lower in Kolin, reflecting a lower level of
skills and a possible need to train the local workforce. Skill-training costs after the start-up of
production were taken into account in the CBA. It was also assumed that the working time per
employee would be longer in Kolin than in Leipzig. As regards the number of employees at both
locations, lower productivity in Kolin would have been more than offset by the longer working
hours. On the basis of the information submitted, the Commission considers the assumptions
concerning the number of employees and the weekly working hours at both locations to be plau-
sible. Since the labour-cost handicap is the decisive factor in determining the regional handicap, it is
of crucial importance that the assumed labour costs are in fact incurred ex post.

(32) With regard to productivity, the number of employees and the site-specific working hours, the

following assumptions are applicable to Leipzig:

2002

2003

2004

2005

2006

2007

2008

2009

2010

Weekly working hours

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

Local workers

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

Relocated workers

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

Total

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

(33) With regard to productivity, the number of employees and the site-specific working hours, the

following assumptions are applicable to Kolin:

2002

2003

2004

2005

2006

2007

2008

2009

2010

Weekly working hours

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

Local workers

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

Relocated workers

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

Total

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

[…]*

(34) However, doubts raised in the decision to initiate the procedure concerning other aspects of the
CBA cannot be dispelled. These relate to the assumed level of convergence of wage costs, the quanti-
fication of certain risks related to the effects of the location decision on BMW's image and possible
difficulties in starting up production.

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(35)

The Commission considers the real convergence of
wages in Kolin to have been understated. It has been the
consistent practice of the Commission in cases where
the comparator plant is located in a central or eastern
European country to apply a convergence factor to the
level of wages in order to take account of labour-market
developments in the wake of enlargement. Although
Germany does not, in principle, oppose the application
of such a factor, the CBA assumes a lower convergence
rate than hitherto applied by the Commission in similar
cases.
In cases where the chosen location is in the
Community and the comparator location is in central or
eastern Europe, the Commission consistently assumes a
convergence rate of 5 %. Examples of this are Decisions
2002/143/EC (VW/Dresden) (7), 2002/781/EC (Daimler-
Chrysler/Kölleda) (8), and 2002/900/EC (Renault/Valla-
dolid) (9), and the decision to initiate the procedure in
of Opel/Azambuja (10). Germany
respect
justifies
assuming a rate of convergence lower than 5 % by
its
an
claiming
employees (11),
the workers in Leipzig would benefit
from a variety of measures, in particular a likely reduc-
tion in weekly working hours (12), (which would impli-
citly increase
costs). The Commission
reduction of weekly
that
considers
working hours in Leipzig from […] * hours in 2002 to
[…] * hours from 2008 may be regarded as plausible.
However, the assumption of a ‘real’
increase in wage
costs in Leipzig cannot necessarily be inferred from this
since this assumption would lead to a different wage
convergence factor than the consistently applied rate of
5 % and particularly since such an effect could theoreti-
cally also be assumed for Kolin. This
is why the
Commission's assessment is based on a real convergence
of wages for Kolin of 5 % per annum. This calculation
leads to a labour cost handicap of EUR 332,01 million
rather than the notified figure of EUR 433,55 million.
Consequently,
regional handicap of Leipzig is
the
reduced to EUR 101,54 million.

‘real’ wage
such a gradual

agreement with

under

that,

(37) However, the Commission considers that image risks
must be taken into account. In another case concerning
the possible production of Rover models in Hungary,
this risk was taken into account by BMW itself (loss of
10 % in UK sales or increase in advertising) (13). More-
over, BMW models produced at non-German sites (such
as South Africa or Spartanburg in the United States) are
not primarily intended for the German or European
market. However, the situation in the case under consid-
eration is that premium vehicles would be produced in a
central or eastern European country largely for sale on
the European or German market. It is very likely a deci-
sion by BMW to implement a major investment project
giving rise to extensive job creation not in a region in
the new Länder with high unemployment but in Kolin
would have had a negative impact on BMW's public
image in Germany. In addition, it is plausible to assume
that customers' subjective perception of the quality of a
premium car produced in an eastern European location
might also have a negative impact on sales. The image
effect must therefore be included in the CBA.

(38) As Germany has not quantified these risks, the Commis-
sion must estimate the costs related to them. As in
previous aid cases, these risks have been quantified by
assuming that potential negative effects might be offset
by additional marketing expenditure. In a prudent esti-
mate made by the Commission together with the
it is assumed that the necessary addi-
external expert,
tional marketing expenditure would represent 1 % of
total
(ex-factory unit price multiplied by
production volume) during the five-year assessment
period. The estimate is based on an earlier decision in a
comparable case where the comparator plant was also
located in an eastern European country (14). The resulting
additional marketing costs are EUR 85,37 million.

turnover

location decision,

(36) As regards the quantification of image risks associated
with the
the Commission does
consider that a decision to locate in the Czech Republic
would have had a negative effect on the image and sales
of BMW, in particular in Germany. Germany argues that
image risks need not be taken into account in this case
since the crucial factor for customers is quality, which is
as high at non-German BMW production sites as in
Germany. Although Germany was asked to provide an
estimate of the costs related to these risks, no such data
were submitted.

(7) OJ L 48, 20.2.2002, p. 25.
(8) OJ L 282, 19.10.2002, p. 23.
(9) OJ L 314, 18.11.2002, p. 92.
(10) OJ C 151, 25.6.2002, p. 2.
(11) This agreement has not been submitted to the Commission.
(12) Employees will also increasingly benefit from other measures, e.g.
allowances exceeding agreed rates, Christmas bonuses and the
‘BMW allowance’.

(39) Account must likewise be taken in the CBA of the start-
up risks (i.e. the time needed to reach full production
capacity) in the event of production in Kolin. These risks
also include possible quality problems (because,
for
example, the workforce is less skilled or it is more diffi-
cult for equipment manufacturers to transfer technology
or provide support), potential difficulties arising from
language barriers and the possibility that suppliers might
be more difficult
the last-
mentioned risk is limited, as the external expert has
confirmed, because virtually the same supplier structure
was assumed for both locations. In addition, BMW has
confirmed that it generally pursues a policy of global
sourcing and that
the best suppliers worldwide are
chosen for the whole production network of a specific
model.

to integrate. However,

(13) OJ C 62, 4.3.2000, p. 12.
(14) OJ L 48, 20.2.2002, p. 25. This case concerned the production of
a luxury car by VW in Dresden/Mosel. The alternative site was in
the Czech Republic.

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(40) Germany considers that the start-up risks for Kolin are
relatively minor and do not need to be taken into
account. However, the risk was quantified by BMW for
the worst-case scenario. This calculation is based on the
nominal output being achieved with a delay of [....]* In
Kolin, this would lead to a lower volume of […]* vehi-
cles, which would have to be manufactured at other,
existing sites. The BMW 3-series model is produced at
several different plants within the BMW network
and
(Munich, Regensburg, Rosslyn (South Africa)
Dingolfing). Temporary output reductions in Kolin of
[…]* vehicles could be offset by increased production of
the other plants manufacturing the
[…]* vehicles at
same model
(in particular Munich and Regensburg).
Such a shift of production within the BMW network
would lead to additional costs of EUR […]* per vehicle.
In the event of start-up difficulties, additional expendi-
ture of EUR 29,32 million would thus arise. This
amount for the start-up risks must be taken into account
in the CBA, in particular considering that BMW does not
currently produce passenger vehicles in eastern Europe
and that it experienced considerable start-up problems at
its (greenfield) plant in Spartanburg (United States of
America).[…]*. Such quantification of the start-up risks
includes possible quality problems. It recognises that the
Spartanburg project
is not entirely comparable given
that it involved setting up a new production plant for a
completely new model at some distance from BMW's
other plants, whereas the project involved in this case is
concerned with the production of an existing model
which is already manufactured at three relatively nearby
plants (Munich, Regensburg and Dingolfing).

(41)

Including these considerations in the CBA gives rise to a
different result from that indicated in the original notifi-
cation. The net present value of the regional handicap of
Leipzig becomes EUR 375,16 million. Since the net
present value of the eligible costs in Leipzig is now
EUR 1 204,9 million, the site handicap compared to
Kolin is 31,14 %.

(42)

Lastly, the relevant Community framework requires that
account be taken of the change in the group's produc-
tion capacity before and after the project (according to a
top-up analysis). As a result of the so-called ‘top-up’, the
permissible aid intensity changes according to variations
in production capacity and the assisted-area status of the
region. According to Germany, the group's production
capacity is […]* million vehicles/year before the invest-
ment and […]* million vehicles/year after the invest-
ment. This means that the increase in capacity is attribu-
table solely to the 160 000-vehicle rise in capacity
provided by the Leipzig plant. Taking account of this
significant capacity increase and the region's status as an

area eligible for regional aid under Article 87(3)(a), the
relevant Community framework requires a reduction of
the ‘regional handicap ratio’ by one percentage point in
this case. Consequently, the Commission has reduced the
permissible aid intensity for the investment in Leipzig by
one percentage point to 30,14 %.

VI. CONCLUSION

(43)

(44)

(45)

(46)

The Commission notes that the project is mobile and
that the aid is necessary for its implementation. The net
present value of the aid to be granted to BMW for the
project in Leipzig is EUR 418,6 million, with an aid
intensity of 34,7 % gge. Even though this is lower than
the regional aid ceiling of 35 % gge,
it is nevertheless
higher than the regional handicap ratio, as calculated in
the CBA and reduced in accordance with the ‘top-up’
procedure, of 30,14 % of the eligible investment costs.

Consequently, the Commission can only authorise aid of
30,14 % of the eligible investment costs of EUR 1 204,9
million (net present value), or EUR 363,16 million (net
present value). Any aid exceeding this amount is incom-
patible with the common market.

In view of the potential distortion of competition arising
from the high aid amount and aid intensity in this case,
the Commission deems it necessary for Germany to
monitor the implementation of the eligible investment
and the precise amount of aid granted. The relevant
Community framework stipulates that ex post monitoring
and assessment of aid already granted may be required,
the amount of detail varying according to the case and
the potential distortion of competition. The Commission
accordingly requires Germany to submit
its annual
reports concerning the result of such monitoring before
the aid is disbursed.

the

The purpose of such monitoring and reporting is not
only to ensure that the regional aid intensity expressed
in terms of gross grant equivalent, as defined in this
Decision,
is complied with by Germany but also to
confirm the assumptions in the CBA concerning the
factor in
labour-cost handicap, which is the crucial
determining
regional handicap. Although the
Commission has no prior doubts as to the plausibility of
the labour-cost handicap, Germany should be required
to submit annual reports to the Commission over the
reference period of the CBA (2005 to 2010) indicating
total labour costs, the number of jobs created, weekly
working hours and the number of vehicles manufac-
tured. Should the labour costs differ from those notified
in the CBA, the Commission reserves the right to reduce
the amount of compatible aid accordingly,

24.5.2003

EN

Official Journal of the European Union

L 128/19

HAS ADOPTED THIS DECISION:

Article 3

Article 1

The State aid which Germany is planning to implement for
Bayerische Motorenwerke AG (BMW) in respect of its invest-
ment project in Leipzig is compatible with the common market
to the extent of EUR 363,16 million (net present value), corre-
sponding to an aid intensity of 30,14 % of the eligible invest-
ment costs, subject to the conditions set out in Article 3.

Germany shall submit annual reports concerning the imple-
mentation of the eligible investment under the project and the
precise amounts of aid disbursed. It shall also submit annual
reports covering the period 2005 to 2010 indicating total
labour costs, the number of jobs created, weekly working hours
and the number of vehicles manufactured.

This Decision is addressed to the Federal Republic of Germany.

Article 4

Article 2

Done at Brussels, 11 December 2002.

The amount of the planned aid for BMW's investment project
in Leipzig that exceeds this aid intensity is incompatible with
the common market and may not therefore be granted.

For the Commission

Mario MONTI

Member of the Commission