2004/300/EC: Commission Decision of 27 May 2003 on the State aid implemented by Spain for Minas de Rio Tinto SA (Text with EEA relevance) (notified under document number C(2003) 1663)
Date: 2003-05-27
Institutions: European Commission
Subjects: Spain, State aid, control of State aid, mining industry

2.4.2004

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Official Journal of the European Union

L 98/49

COMMISSION

COMMISSION DECISION

of 27 May 2003

on the State aid implemented by Spain for Minas de Rio Tinto SA

(notified under document number C(2003) 1663)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2004/300/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity, 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 the provisions cited above (1) and having regard to
their comments,

Whereas:

I. PROCEDURE

By letter dated 9 August 1999, the Spanish authorities
notified the Commission of
their intention to grant
rescue aid, in the form of a State guarantee, to Minas de
Rio Tinto SAL (MRT)
loans made by
various banks to the company worth EUR 9 015 182.

in respect of

By letter dated 16 February 2000,
informed Spain of
compatible with the common market (2).

its decision to consider

the Commission
the aid

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

By letter dated 4 December 2000,
the Commission
requested Spain, pursuant to the Community guidelines
on State aid for rescuing and restructuring firms in diffi-
culty (3) (rescue and restructuring guidelines), to notify
the aid included in the plan.

By letter dated 9 January 2001, registered the following
day, the Spanish authorities notified the aid that Spain
planned to implement in favour of MRT for restruc-
turing purposes.

By letter dated 2 February 2001,
requested additional information.

the Commission

By letter dated 15 February 2001, the Spanish authori-
ties informed the Commission that the abovementioned
State guarantee approved by the Commission (see recital
2) would be in force until 31 December 2003.

By letter dated 17 April 2001, registered on 25 April
2001, the Spanish authorities provided additional infor-
mation in reply to the Commission's request dated 2
February 2001.

By letter dated 20 June 2001, the Commission informed
Spain that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid.

By letter dated 27 October 2000, Spain submitted the
restructuring plan for MRT for the period 2000 to
2005, dated August 2000, which included the continua-
tion of the guarantee mentioned in recital 1, as well as a
loan from the Instituto de Crédito Oficial (ICO) for the
amount of EUR 6 010 121.

(10)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (4). The Commission invited interested parties to
submit their comments on the aid.

(1) OJ C 367, 21.12.2001, p. 19.
(2) OJ C 94, 1.4.2000, p. 8.

(3) OJ C 288, 9.10.1999, p. 2.
(4) See footnote 1.

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(11)

The Commission received comments from interested
parties. It forwarded them to Spain, which was given the
opportunity to react;
its comments were received by
letters dated 30 July 2001, 8 March 2002, 3 July 2002
and 7 March 2003.

January 2001, the judge approved, after having obtained
the agreement of the majority of the creditors, the plan
for the reduction and rescheduling of MRT's ordinary
debts.

II. THE FACTS

A. The company

(12) Minas de Rio Tinto SAL was founded in 1995 by former
workers from Rio Tinto Minera (now Atlantic Copper
SA) with the aim of taking over Rio Tinto Minera's
mining activities (1). Until September 2001, the company
operated as a workers' cooperative (sociedad anónima
laboral), where the shares are distributed among all the
workers.

(13)

(14)

(15)

The company was mainly active in the extraction of
copper, gold and silver. Its copper production amounted
to approximately 30 000 tonnes per year.

Besides its mining activities, MRT provides additional
services, such as supplying potable water to the whole
mining area, and control and maintenance of mining
dams in order to avoid any environmental damage.

Because of falling copper prices on the world market,
MRT ceased copper extraction in September 1998.
Following the approval by the Commission of rescue aid
in February 2000, MRT restarted its copper operations.
In November 2000, however, the company had to cease
production again due to a lack of funds and the trend in
copper prices. The only activities carried out by the
company since
the
preparation of further reserves and, for a short period,
gold mining.

then have been maintenance,

(16) According to its published accounts, MRT's main finan-
indicators in the years 1997 to 2000 are the

cial
following:

(EUR million)

1997

1998

1999

2000

Turnover

52,8

33,1

16,7

29,8

Operating losses

10,0

19,1

14,4

19,8

Long-term debts

10,6

14,5

10,7

24,7

Short-term debts

33,9

42,8

53,0

30,29

(18)

In September 2001 a private investor, Promociones
Barty Cros, bought 54 % of the shares and the company
was transformed into a public limited company.

B. The market

(19)

(20)

(21)

(22)

Copper is extracted from various ores or recovered from
waste and scrap. Mined copper ore is processed into a
fine, gray powder called concentrate; this contains up to
45 % copper and is shipped to the smelter. The copper
concentrate is further treated and refined and cast into
ingots, which are sent to the rolling mills for rolling,
extruding or forging.

In the EU, there are still four countries operating copper
mines, which produced the following quantities in 1999:
Portugal 100 500 tonnes, Sweden 71 300 tonnes,
Finland 10 500 tonnes and Spain 3 900 tonnes (this
figure does not
take into account MRT's production
which would normally be around 30 000 tonnes). The
large majority of the EU's consumption comes from
third countries. Imports of copper concentrates into the
EU in 1999 were some 2 million tonnes.

Intra-Community trade is rather limited compared with
imports from third countries. Meaningful imports from
other Member States were realised only by Germany
(212 580 tonnes), Spain (98 455 tonnes) and Finland
(153 255 tonnes).

Copper has been internationally traded on the London
Metal Exchange (LME) since 1877. Copper metal prices,
In 1995,
as those of other metals, fluctuate sharply.
copper prices averaged nearly USD 3 000/tonne.
In
1996, 1997, 1998, 1999, 2000, 2001 and 2003 (first
quarter), copper prices were on average respectively
2 294, 2 276, 1 653, 1 574, 1 814, 1 578, 1 557 and
1 662 USD/tonne.

C. The aid

Own resources (capital +
reserves – losses)

20,4

13,1

9,4

– 16,37

(23)

The aid consists in:

(17) On 26 November 1998 the company applied for
temporary receivership. Nevertheless,
it continued its
gold and silver activities, which represented around 15 %
review. On 12
of

turnover, under judicial

its total

(a) a loan granted on 28 March 2001 by the Instituto
de Crédito Oficial (ICO), the State financial agency
attached to the Ministry of Economic Affairs, of
EUR 6 010 121 for
six
months + 1 %, and

at Euribor

five years

(1) This sale was transacted at a symbolic price. Moreover, Atlantic
Copper provided funds amounting to ESP 4 450 million and
assumed MRT's existing debts towards the State (social security and
taxes) amounting to ESP 2 210 million.

(b) the extension until 31 December 2003 of the guar-
antee granted by the Government of Andalusia on
loans of up to EUR 9 015 181 made by private
banks to MRT.

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(24)

The loan was completely disbursed before the end of
2001.

has been assumed that it will be 179 ESP/USD in the
second semester of 2000, 169 ESP/USD in 2001 and
167 ESP/USD in the period 2002 to 2005.

D. The restructuring plan

(25)

From the industrial point of view, the aim of the plan is
to:

(30) According to the plan, the company will only be profit-

able if copper prices stay over USD 1 750 per tonne.

— resume mining the higher-grade copper reserves,

— continue operating the gold/silver plant for at least

18 months (until the end of 2001),

— complete the exploration of the southern part of
Cerro Salomón, which will make it possible to
extract 3 million tonnes of ore a year,

— continue
Salomón,

removing the overburden from Cerro

— supplement production from Cerro Salomón with
that from Cerro Colorado, to reach 30 kt per year in
the first years and 40 kt per year at the end of the
period,

— consolidate

cost

reductions, mainly

in energy,

supplies and external contractors.

(31)

(32)

(26)

The investments proposed in the plan for the period
from the second half of 2000 to 2005 amount
to
EUR 13,81 million. The bulk of these (72 %) would be
carried out in the first two and a half years.

(27)

From the financial viewpoint, the plan is based on the
following features:

If copper prices are lower than the minimum assumed
in the plan,
the only measure proposed is to halt
production (MRT has already done so twice since it was
created in 1995). The plan acknowledges that other
companies can do this either because they belong to
integrated copper groups or because they are supported
by the State.

In its decision to initiate proceedings, the Commission
expressed its doubts as to the viability of the company,
since the assumptions of the plan as to the price of
copper, at least in the short term, were not generally
acknowledged. The Commission noted that if the prices
of copper did not reach USD 1 750 per tonne, the only
solution for the company was to stop production. As a
consequence, since copper extraction would be MRT's
only source of revenues, to stop production would only
aggravate its already deteriorated financial situation. In
such circumstances, MRT would not be able to generate
resources to pay its debts or its suppliers and to carry
out the necessary investments. For this reason alone, the
Commission considered that the restructuring plan did
not appear to enable MRT to attain viability.

— termination of the insolvency proceedings through
the acceptance by creditors of a reduction in their
credits,

(33) Moreover,

the plan's
the Commission noted that
assumptions regarding MRT's costs were over-optimistic
and that no sensitivity study had been provided.

— obtaining the investment aid granted in 1998 but

not yet disbursed (ESP 364 million) (1),

— using the credit of EUR 9 015 181 guaranteed by
the Government of Andalusia and approved as
rescue aid,

— using a credit of EUR 6 101 121 granted by the

ICO.

(28) According to the information provided on 17 April
2001, the workforce would be reduced from 623 (1
September 2000) to 543 (2) (31 December 2005), i.e. by
12,8 %, as a result of ceasing to mine gold and silver.

(29)

The key factor for the restructuring plan is the recovery
in the price of copper. The plan assumes that copper
prices will be USD 1 850/t in 2000, USD 2 137/t in
2001 and USD 2 250/t in the period 2002 to 2005.
These figures have been obtained by extrapolating the
historical trends. As for the ESP/USD exchange rate, it

(1) Aid to MRT approved by Spain in 1997 and 1998 under regional
investment aid schemes authorised by the Commission amounted to
ESP 1 243 million.

(2) The figures provided in the letter of 17 April 2001 differ from

those included in the plan (595).

(34)

Lastly, the Commission noted that the beneficiary was
not making any significant contribution to the financing
of the restructuring plan through its own resources.

III. COMMENTS FROM INTERESTED PARTIES

(35) MRT is the only interested party that has sent comments.
After
the
severely criticising the management of
company between June 1998 and September 2001, and
in view of its critical financial situation, it has presented
the basis
for a new restructuring plan. This plan
includes, as a starting point, the write-off of 50 % of the
outstanding debts and the conversion into subordinate
loans and subordinate equity loans of the remaining
50 %;
it also provides for a contribution from the
majority shareholder of EUR 2 million in new capital as
well as EUR 5 million in medium/long-term loans
(provided the plan is approved by the national authori-
ties and the Commission).

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IV. COMMENTS FROM SPAIN

(41)

(36)

The Spanish authorities maintain that:

The Commission assesses aid for restructuring purposes
for firms in difficulty according to the rescue and
restructuring guidelines. Under these, the aid must fulfil
certain conditions in order to be compatible with the
common market.

— the plan's assumptions regarding the copper prices

were in line with experts' forecasts,

— it would make no sense to provide a sensitivity
study: if copper prices do not reach the minimum
level, the company would stop production,

— the impact on competition would not be appreciable
and the company is an important employer located
in an area with high unemployment,

— the company contributes to the financing of the plan
through the ICO loan, which is granted on market
terms.

(37)

By letter dated 7 March 2003 the Spanish authorities
have confirmed that the only plan approved by them is
the one presented in 2001.

V. ASSESSMENT OF THE AID

(38) According to Article 87(1) of the EC Treaty, any aid
granted by a Member State or through State resources in
any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods shall,
in so far as it
affects trade between Member States, be incompatible
with the common market.

(39) As to the claim by the Spanish authorities that the loan
by the ICO was granted on market terms, the Commis-
sion notes, first of all, that Spain notified it as restruc-
turing aid; secondly, that, given the financial situation of
the company at the time it was granted, it is evident that
no private investor would have granted such a loan.
Moreover, even MRT's 1999 management report gives
an indication on the non-commercial nature of
the
loan (1).

(40)

The Commission considers that both the State guarantee
on the loan of EUR 9 015 181 and the loan from the
ICO for EUR 6 101 121 confer an advantage on MRT
which is financed through state resources (2). They are
part of the restructuring plan presented by the Spanish
authorities, they are intended to restore MRT's long-term
viability and therefore tend to distort competition. Since
copper is traded throughout the Community, they affect
trade between Member States and therefore they fall
within the scope of Article 87(1) of the EC Treaty.

(1) The chapter on the facts subsequent to the closing of the financial
year states ‘There is a political commitment by the Popular Party to
activate the granting of the credit of ESP 1 000 million by the ICO’.
(2) The ICO is the State financial agency attached to the Ministry of
Economic Affairs that serves to implement certain economic policy
measures in accordance with the guidelines laid down by the
Government, subject
to the rules and decisions adopted by its
General Board. The latter is composed of representatives of various
ministries.

the company's level of

(42) As for the eligibility of the firm, although MRT's insol-
vency proceedings were terminated in January 2001, the
company's own resources had decreased by one third
between 1999 and 2000 and by 69 % since 1997; simi-
indebtedness remained
larly,
extremely high (debts represented almost nine times
MRT's own resources). MRT's financial situation as of
September 2001 was described by the new owners as
close to bankruptcy and the company has not resumed
production. MRT is therefore to be regarded as ‘a firm in
difficulty’ within the meaning of the rescue and restruc-
turing guidelines and would not be able to recover
without State aid.

(43) As for the restoration of viability, the rescue and restruc-
turing guidelines require that
the restructuring plan
‘must restore the long-term viability of the firm within a
reasonable timescale and on the basis of
realistic
assumptions as to future operating conditions. […] The
improvement
in viability must derive mainly from
internal measures contained in the restructuring plan
and may be based on external factors such as variations
in prices and demand over which the company has no
the market assumptions made are
great
generally acknowledged’ (section 3.2.2, point 32). The
Commission notes that in the present case the main
factor on which viability was based is the price of
copper.

influence if

(44)

In its decision to initiate proceedings, the Commission
noted that, at least in the short term, the plan's assump-
tions as to copper prices were not generally accepted.
The Commission also noted that if the prices of copper
did not reach the minimum expected value, the only
solution for
the company was to stop production.
Although this is a step already taken by the copper
producers which, like MRT, have the highest production
costs (3), in MRT's case, since copper extraction would be
its only source of revenues,
the stop in production
would only aggravate its already deteriorated financial
situation. In such circumstances MRT would not be able
to generate resources to pay its debts or its suppliers and
to carry out the necessary investments. The Commission
considered that on this ground, the restructuring plan
did not appear to enable MRT to attain viability.

(3) Pinto Valley, Sierrita, Chino y Tohono, San Manuel and Robertson
in the United States; Ojos del Salado in Chili; Highland Valley in
Canada. (Source: MRT 1999 Annual Report).

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(45)

(46)

The Spanish authorities have not provided any element
that could contradict
the Commission's preliminary
assessment on this point. Furthermore, the Commission's
doubts have been confirmed by the comments submitted
by MRT: the debts accumulated by the company since
the stop of production have placed it on the verge of
bankruptcy.

The Spanish authorities have not provided any informa-
tion that could allay the Commission's doubts as to the
assumptions of production costs included in the plan: in
2000, copper prices were over the minimum value
contemplated in the plan and yet MRT made huge losses
and had to stop production again. The comments
submitted by MRT have, on the contrary, confirmed the
Commission's doubts: the continuation of labour costs at
the level of the original plan (number of workers, pay
levels) would make the company unviable.

(51) According to Article 14(1) of Council Regulation (EC)
No 659/1999 (1), where negative decisions are taken in
cases of unlawful aid, the Commission shall decide that
the Member State concerned shall
take all necessary
measures to recover the aid from the beneficiary.

(52) As for the State guarantee, the Commission notes that it
considered it compatible with the common market until
it adopted a position on the restructuring plan. Since,
for the reasons stated above, this position is negative,
the Commission considers that the continuation of the
abovementioned guarantee is
incompatible with the
common market,

HAS ADOPTED THIS DECISION:

Article 1

(47)

In view of the foregoing, the Commission considers that
the restructuring plan will not enable the firm to
progress towards a new structure that offers the prospect
of long-term viability and enables it to stand on its own
feet as the rescue and restructuring guidelines require.

The State aid which Spain has implemented for Minas de Rio
Tinto in the form of a loan amounting to EUR 6 010 121 is
incompatible with the common market.

(48) As regards the fact that MRT is located in an area eligible
for regional aid pursuant to Article 87(3)(a) of the EC
Treaty, the Commission would take this into account for
the purposes of the capacity reduction requirement in
accordance with point 54 of the rescue and restructuring
guidelines. However, in the present case, given that the
company is not viable, the question does not arise.

Article 2

The continuation of the guarantee granted by Spain in favour
of Minas de Rio Tinto on loans worth EUR 9 015 181 granted
by private banks constitutes State aid which is incompatible
with the common market. Spain shall
forthwith take any
measures necessary to suspend the guarantee.

(49) As to the condition that the aid should be limited to the
minimum necessary, the rescue and restructuring guide-
lines expect beneficiaries of the aid to make a significant
contribution to the restructuring plan through their own
resources. The Commission cannot accept the Spanish
authorities' argument that the loan granted by the ICO
constitutes a significant contribution by the company
since, as pointed out in recitals 39 and 40, the loan
constitutes State aid. The Commission considers, there-
fore, that this condition is not fulfilled.

Article 3

1.
Spain shall take all necessary measures to recover from
the beneficiary the aid referred to in Article 1 and unlawfully
made available to the beneficiary.

2.
Recovery shall be effected without delay and in accord-
ance with the procedures of national law, provided that they
allow the immediate and effective execution of the decision.
The aid to be recovered shall include interest from the date on
which it was at the disposal of the beneficiary until the date of
its recovery. Interest shall be calculated on the basis of the
reference rate used for calculating the grant-equivalent of
regional aid.

VI. CONCLUSION

Article 4

(50)

The Commission finds that Spain has unlawfully granted
the loan of EUR 6 101 121 in breach of Article 88(3) of
the Treaty. For the reasons stated above, the loan consti-
tutes State aid that is incompatible with the common
market.

Spain shall inform the Commission, within two months of noti-
fication of this Decision, of the measures taken to comply with
it.

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

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This Decision is addressed to the Kingdom of Spain.

Article 5

Done at Brussels, 27 May 2003.

For the Commission

Mario MONTI

Member of the Commission