2003/647/EC: Commission Decision of 27 May 2003 on the State aid which Austria is planning to implement for BMW Motoren GmbH in Steyr (Text with EEA relevance) (notified under document number C(2003) 1664)
Date: 2003-05-27
Institutions: European Commission
Subjects: Austria, State aid, control of State aid, engine, motor vehicle industry

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COMMISSION

COMMISSION DECISION

of 27 May 2003

on the State aid which Austria is planning to implement for BMW Motoren GmbH in Steyr

(notified under document number C(2003) 1664)

(Only the German text is authentic)

(Text with EEA relevance)

(2003/647/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having regard to 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),

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

Whereas:

PROCEDURE

(1)

(2)

Austria notified the aid proposal to the Commission
pursuant to Article 88(3) of the EC Treaty by letters
dated 26 April 2002 and 7 May 2002. The Commission
asked for additional information by letter dated 4 July
2002. Austria answered by letter dated 2 August 2002.

the Commission
By letter dated 4 October 2002,
informed Austria that
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of the aid.

(3)

(4)

(5)

(6)

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (2). The Commission called on interested parties to
submit their comments. The Commission received no
comments from interested parties.

The Commission carried out a visit on site on 12 and
13 December 2003. By letters dated 7 November 2002
and 25 February 2003, Austria submitted comments on
the initiation of the investigation procedure.

DETAILED DESCRIPTION

The beneficiary

The beneficiary of
the aid is BMW Motoren GmbH
(hereinafter ‘BMW’), which is a subsidiary of BMW AG,
Munich. The engine plant in Steyr is the largest engine
plant in the BMW group. It produces 4- and 6-cylinder
petrol/diesel engines and develops diesel engines and
diesel engine technology. In 2001, the plant produced
630 000 engines (47 % diesel and 53 % petrol engines)
and employed around 2 500 persons.

Five distinct measures, relating to regional aid, training
aid, innovation aid, research and development aid and
environmental aid, are planned for BMW. The total
planned aid, which is to be granted under Article 51 of
the
to
EUR 40,25 million.

Labour market promotion act,

amounts

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

(2) OJ C 308, 11.12.2002, p. 19.

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Regional aid

(7)

(8)

(9)

The overall
investment of EUR 459 million is to be
carried out during the period 2002 to 2006. It aims at
extending the production of internal parts and engines
and at making production more flexible. The investment
concerns mainly three production lines,
for cylinder
heads, crankshafts and crank cases, including bedplate,
as well as an assembly line.

According to Austria, the mobile part of the investment
concerns the production of crank cases and bedplates.
This investment could have alternatively been carried
out in the existing BMW plant in Landshut (Germany).
The eligible costs of the mobile part of the investment
amount
to EUR 111,7 million (net present value
EUR 103,56 million).

to Article 87(3)(c) of

The plant in Steyr is located in an area (Upper Austria)
that was recognised by the Commission as a regionally
the EC
assisted area pursuant
Treaty, under the regional aid map for the period 2000
to 2006, with a regional ceiling of 12,5 % net grant
equivalent for large companies (corresponding to 16,7 %
aid
gross grant
equivalent). The planned regional
amounts
to EUR 18,99 million (net present value
EUR 17,6 million).

Training aid

(10)

The training project runs from 2000 to 2006. Austria
intends to grant training aid totalling EUR 6,86 million
under Article 51(a) of the Labour market promotion act.
training
The eligible investment cost of
project is EUR 5,96 million. The eligible investment cost
of the specific training project is EUR 11,94 million.
The aid for general training measures would amount to
EUR 3,28 million and the aid for specific training
measures would amount to EUR 3,58 million.

the general

(11) According to the information provided by the Austrian
authorities, the training programme affects around 25 %
of the workforce fundamentally and another 50 % to a
large extent. As there is a large proportion of workers in
the age range of 35 to 45, where the basic skills were
acquired some time ago, the training needs to focus not
so much on specific knowledge as on the updating of
basic knowledge. Basic vocational training is given to
trainees in several areas, in which the trainees acquire a
formal qualification. This is tested and accredited by the
State (‘Facharbeiterprüfung bzw. Lehrabschlussprüfung’).
In 2001, 88 trainees were being trained by BMW.

programming, process knowledge/capability, PC knowl-
edge and web knowledge, visualisation interfaces, CA
tools, simulation tools and methods, data interpretation,
information and data management, quality and measure-
ment methods, test and inspection technology, combina-
tory and analytical capabilities, social competence and
working structures.

Environmental aid

(13) According to Austria, the purpose of the investment is
to bring the inspection technology used to test
the
engines produced up to ‘state of the art’, which is the
‘cold control technology’ (cold engine testing). The aim
is to reduce emissions (CO2, HC, NOx, CO, particles) and
to meet future legislative provisions. The currently used
technology (hot engine testing) requires the engine to be
fuelled between 8 and 12 minutes, which leads to higher
emissions. By 2006, BMW therefore plans to check all
engines on the basis of the cold control technology,
which will lead to substantial savings in fuel and to a
95 % reduction in emissions. Based on the number of
engines produced and fuel savings resulting from the
project, according to Austria, the reduction in emissions
compared to the current hot engine testing technology
the year 2005 to 3 950 kg for HC,
amounts
9 100 kg
for NOx,
CO and
1 520 000 kg for CO2.

16 000 kg

for

for

(14)

BMW is investing EUR 23,4 million in the project. The
environmental programme covers a four-year period,
from 2002 to 2005, and covers the following areas:
extension of cold engine testing for 6-cylinder gasoline:
EUR 6 million; cold engine testing for 6-cylinder diesel:
EUR 8,6 million; cold engine testing for 6-cylinder gaso-
line: EUR 8,6 million; environmental data collection
system: EUR 0,2 million.

(15) According to Austria, the eligible investment amounts to
EUR 6,33 million. The eligible investment has been
calculated by deducting the saved fuel costs from the
planning/development costs and the additional
invest-
ment costs (compared to the current hot engine testing
the environ-
technology). Austria intends to support
mental programme with a total aid amount of EUR 1,9
million (net present value EUR 1,77 million) and an aid
intensity of 30 %.

Research and development aid

(12)

In the technical field, the following training areas are
mentioned in the notification: product knowledge,
technology and
production/tools-technology,

control

(16) According to Austria, the purpose of the research and
development project is to implement ‘state of the art’
technology in engine control. The ‘state of the art’ is to

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control the operation of the engine in a cold state in
order to reduce emissions (CO2, HC, NOx, CO, particles)
and to comply with future legal standards.

(17)

BMW is investing EUR 28,7 million in the project, of
which EUR 11,67 million is
considered industrial
research and EUR 17,03 million precompetitive devel-
opment. The programme covers a five-year period, from
2002 to 2006. Austria intends to support the research
programme with a total aid amount of EUR 11,53
million (net present value EUR 10,63 million), namely
EUR 6,42 for industrial research (aid intensity of 55 %)
and EUR 5,11 million for precompetitive development
(aid intensity of 30 %).

(22) Advanced development of variable compression ratio with
diesel engines:
the high compression ratios in direct-
injected diesel engines in motor cars are only needed for
reliable cold engine start and warm-up behaviour. With
a lowering of the compression ratio it is possible to
achieve an increase in performance without an ignition
pressure increase through adjustment of the combustion
chamber geometry and improvements in emission beha-
viour. Different adjustment mechanisms are conceivable
[…](*) to represent the compression ratio. Ultimately,
with all known adjustment principles, this involves a
change in the distance between the piston and the
cylinder head and hence the piston gap as a value rele-
vant to combustion. The investment cost amounts to
EUR 1,87 million.

(18) According to Austria, the industrial research programme

covers the following areas.

(23) According to Austria,

the precompetitive

research

programme covers the following areas.

(19) Homogeneous

diesel

combustion: homogenous

charge
compression ignition (HCCI) is the engine-based method
of meeting expected emissions legislation after 2008. A
new type of diesel combustion is obtained through
prehomogenisation of
injected diesel.
Because of the very low local temperatures, NOx forma-
tion is extremely low, accompanied by very low soot
output
to
EUR 4,56 million.

[…] (*). The

the directly

investment

amounts

cost

(20)

(21)

Soot-filtering technique using plasma technology: […](*) The
plasma particle filter is a possible solution. It consists of
an emission electrode and a consecutively arranged
porous filter ceramic, on which an alternating current
plasma is placed. The soot particles are electrically
charged by means of the emission electrode and oxygen
is added. The particles are deposited in the next filter
and burnt off
through the plasma after energy is
supplied. The investment cost amounts to EUR 3,15
million.

Variable valve train for diesel engines: because of the quality
management of the fuel-air mixture without a throttle
valve, there is considerably less improvement potential
through valve train variability with diesel engines than
with petrol engines. Nevertheless, variability in the valve
train would bring considerable functional improvements.
[…](*) In this way, exhaust gas recirculation within the
combustion chamber and final discharge pressure are
affected as important parameters for the start of ignition.
The investment cost amounts to EUR 2,1 million.

(*) Confidential information.

(24)

(25)

[…](*) supercharger concept: exhaust gas turbocharging is
currently the standard with diesel engines in motor cars.
BMW mass produces only exhaust gas turbochargers
with variable turbine geometry (variable nozzle turbine
— VNT). This greatly eases the conflict of aims between
starting torque and rated power. Another approach is
separation into two units. […](*) The investment cost
amounts to EUR 2,56 million.

Third generation common rail: The reduction in consump-
tion and emissions offered by modern diesel engines in
motor cars has become possible only thanks to the
development of ultra-flexible injection systems. BMW
uses the common rail system. […](*) current series stan-
dard allows maximum pressures of up to 1 600 bar and
a maximum of four injections per work cycle. The injec-
tion events are controlled by a hydraulic on/off valve
with electromagnetic actuators. In […](*) next genera-
tion, the actuator is to be replaced with a piezoelectric
circuit element. In connection with further far-reaching
changes to reduce moving masses and friction,
the
system speed will be considerably increased. […](*) The
investment cost amounts to EUR 2,9 million.

(26) Dispersion-restricting measures

to

comply with strictest
exhaust gas standards (USA): The extremely low American
limits for diesel engines are a very big challenge in terms
of compliance with the limits and in-use monitoring
(on-board diagnosis) of emission variations. Apart from
reduction of NOx and PM mean values, reduction of
dispersion is also very important. This is the only way to
guarantee the prescribed emission stability, even with
to
very low limits. The investment cost amounts
EUR 3,92 million.

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(27)

(28)

(29)

Soot filter […](*): There are two ways of using soot filters
[…](*) at the start of the pre-competition phase: CSF
(coated soot filter) = catalytic, coated monolith to reduce
soot burning temperature; CRT (continuously regener-
ating trap) = filter regeneration of the deposited carbon
using the NO2 in the exhaust gas. […](*) For operating
conditions without continuous regeneration and there-
fore with soot collection, burn strategies
involving
adjustment of the engine are to be worked out. The
investment cost amounts to EUR 4,43 million.

this. Essentially one

technology chosen is

Barrel technology […](*): In the case of diesel engines for
motor cars, the aluminium crankcase must be resistant
to very high thermal and mechanical
stress. One
problem consists in adhering to the small gap width
(distance between adjacent cylinders) in the BMW in-line
the key
engines. The barrel
criterion for
can differentiate
between a liner-free design and various liner solutions.
In the precompetitive development phase the suitable
technology for future BMW in-line engines will be
selected from this range of solutions using FEM simula-
tion, unit tests and test runs on engine test beds. The
subsequent series development phase requires structural
implementation and subsequent development of
this
technology.
[…](*) The investment cost amounts to
EUR 3,23 million.

Innovation aid

innovation investments of
BMW plans to carry out
EUR 9,7 million during the period 2002 to 2004.
Austria intends to support the investments with an aid
amount of EUR 0,97 million. The aid is to be granted
for the following projects: measurement of uniform
distribution […](*), variable valve train […](*): EUR 4,5
million;
EUR 9,3
million; process development for the measurement of
uniform distribution and dynamic
chassis dynam-
ometers: EUR 0,4 million.

dynamometers:

dynamic

chassis

equipment could result in severe disturbance to internal
processes, since the realisable sampling rate was still
relatively low.
In addition, this would lead to longer
routing in quality control.

GROUNDS FOR INITIATING THE PROCEDURE

(31)

The Commission decided to initiate the procedure on
the following grounds.

(32)

The doubts concerning the regional
investment aid
related mainly to the proportionality of the aid and the
increase
in production capacity. The Commission
considered it necessary to verify the investment costs in
land and buildings in Steyr, which, according to Austria,
would not be necessary to the same extent in Landshut.
In addition, the Commission questioned whether, in the
event of production in Steyr, the existing building in
Landshut could have been used for alternative purposes,
reducing the overall cost handicap.

(33) With respect to the planned training aid, the Commis-
sion mainly expressed doubts that Austria might have
applied an excessively wide definition of general training
and questioned whether Austria had combined the
training aid with other State aid, possibly relating to the
same eligible costs.

(34) As regards the planned environmental aid, the Commis-
sion had doubts that the project might not be eligible
for environmental aid as the Community guidelines on
State aid for environmental protection (referred to below
as ‘the environmental guidelines’) (1) state that the design
and manufacture of machines or means of transport
which can be operated with fewer natural resources are
not covered by the guidelines. In addition, Austria had
not demonstrated which existing Community standards
or more stringent national standards were being met or
improved on by the project. Neither had Austria indi-
cated that no Community standards exist. The Commis-
sion therefore had doubts whether the incentive effect of
the project was achieved.

(30) As regards the measurement of uniform distribution,
Austria states that it would be necessary to carry out a
full measurement of all cylinder head and valve train
parts if the intended measuring procedure failed. In addi-
tion, all parts would need to be classified as to their
tolerance situation and assigned to a corresponding
cylinder head. Such a procedure would not be justifiable
from a quality or economic point of view and threaten
the deployment of the innovative variable valve train
technology […](*). As regards the risks involved in
chassis dynamometers, Austria
developing dynamic
explained that a failure of the highly-sensitive measuring

(35)

The doubts with respect to the planned research and
development aid concerned the required incentive effect
of the aid. The Commission suspected that the planned
aid did not induce the company to carry out additional
research, but that the company was conducting normal
day-to-day R & D activities. The Commission therefore
had doubts whether BMW would not in any case have
to undertake the whole of the research in question in
order to remain competitive.

(1) OJ C 37, 3.2.2001, p. 3.

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(36)

The Commission also expressed doubts whether the
innovation aid, as required, concerned genuinely new
products and whether it carried a risk of failure. The
Commission had doubts whether the project was genu-
inely innovative in the sense that the technology had not
yet been used or marketed by other parties operating in
the industry. In addition, there were doubts whether the
aid provided an incentive for industrial or technological
risk-taking.

COMMENTS FROM AUSTRIA

(37)

By letters dated 7 November 2002 and 25 February
2003, Austria submitted comments on the opening of
the investigation procedure.

(38) As regards the planned regional aid, Austria provided
discounted values for the eligible investment and the aid.
Additional explanations were given with respect to the
transformational character and the costs of the invest-
ment, the potential alternative use of available building
space in Landshut for the scenario involving production
in Steyr, the effects of the project on capacity and the
circumstances of the land sale in Steyr.

(39) As regards the planned training aid, Austria confirmed
that the general training measures consists of basic voca-
training, which is recognised and certified by
tional
public authorities. Detailed information and documenta-
tion on the content of the training was provided. In
addition, Austria gave an assurance that there will be no
cumulation of aid in relation to the same eligible costs,
resulting in an aid intensity exceeding that fixed by the
training aid regulation.

(40) As

regards

the planned environmental aid, Austria
considered that the exception provided for in paragraph
6 (1) of the environmental guidelines did not apply to
the project
in question, which only concerned the
process of checking engines already produced. In addi-
tion, Austria indicated with respect
to the incentive
effect of the project that no Community standards for
the testing process of engines existed.

Instead it

range […](*).

focused on the
the diesel
improvement of technological competence and a rapid
improvement of
functional characteristics of diesel
engines. With respect to the incentive effect, Austria
stated that, compared to the base year 2001,
the
company was increasing its R & D expenditure due to
the project. In addition, Austria stated that the projects
were being carried out with other industrial partners,
universities and research institutes.

(42) As regards the planned innovation aid, Austria explained
that the new element in the measurement of uniform
distribution was the measurement of air volume. This
technology would be unique for the measurement of
series of 6-cylinder engines. As regards dynamic chassis
dynamometers, Austria stated that this technology had
been used by other manufacturers only in the R & D
area and not, as in the case of the project in question,
for the measurement of engine series.

ASSESSMENT OF THE AID

(43)

The Commission considers that the measures constitute
State aid within the meaning of Article 87(1) of the EC
Treaty. They are evidently being financed by the State or
through State resources; moreover, given that
they
represent a significant proportion of the project funding,
they are likely to distort competition within the Commu-
nity, giving an advantage to BMW over other companies
not receiving aid. Lastly, the market for motor vehicles is
characterised by extensive trade between Member States.

(44) Article 87(2) of the EC Treaty lists certain types of aid
that are compatible with the EC Treaty. In view of the
nature and purpose of the aid, and the geographical
location of the firm, those provisions are not applicable
to the project. Article 87(3) specifies other forms of aid
which may be regarded as compatible with the common
market. The Commission notes than the project
is
located in Upper Austria (Steyr), a region which qualifies
for assistance under Article 87(3)(c).

(41) As regards the planned research and development aid,
Austria stated that the aid in question did not concern
the basic development of existing concepts, comprising
the maintenance and development of competitiveness,
the updating of models and the regional expansion of

(1) ‘The design and manufacture of machines or means of transport
which can be operated with fewer natural resources are not covered
by these guidelines’.

(45)

The aid is intended for BMW, which manufactures and
assembles engines for motor vehicles. The firm is there-
the motor vehicle industry within the
fore part of
meaning of the Community framework for State aid to
the motor vehicle industry (hereinafter
‘the motor
vehicle framework’) (2).

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

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Regional aid

(51)

(46)

The motor vehicle framework (1) specifies that all aid
which the public authorities plan to grant to an indivi-
dual project under authorised aid schemes for a firm
operating in the motor vehicle industry must, in accor-
dance with Article 88(3) of the Treaty, be notified before
being granted if either of the following thresholds is
reached:
(i) the total cost of the project amounts to
EUR 50 million; (ii) the total gross aid for the project,
whether State aid or aid from Community instruments,
amounts to EUR 5 million.

(47)

Both the total cost of the project and the amount of aid
in notifying
exceed the notification thresholds. Thus,
both the training aid and the regional aid proposed for
BMW, Austria has complied with the requirements of
Article 88(3) of the EC Treaty.

(48) Under the motor vehicle framework, the Commission
must ensure that the aid is both necessary for the realisa-
tion of the project and proportional to the gravity of the
regional problems. Both tests, necessity and proportion-
ality, must be satisfied if the Commission is to authorise
State aid in the motor vehicle industry.

(49) Under point 3.2(a) of the motor vehicle framework, in
order to demonstrate the necessity for regional aid, the
aid recipient must clearly prove that it has an economic-
ally viable alternative location for its project. The exis-
tence of a viable alternative defines the ‘mobility’ of the
project; no regional aid may be authorised for a project
which is not geographically mobile.

the

existing BMW plant

(50) Austria stated that the best viable alternative location to
Steyr was
in Landshut
(Germany). The final location decision in favour of Steyr
was taken on 10 October 2001. Austria provided a copy
of the minutes from the meeting in which the decision
was taken. In addition, the Commission received a copy
of the location analysis. The analysis contains a compar-
ison of costs of both locations and the respective layouts
of the plants in Steyr and Landshut for both scenarios.
The Commission notes that the location analysis is dated
22 June 2001, i.e. it was carried out prior to the location
decision. On the basis of the documents submitted by
Austria, Landshut is considered a viable alternative loca-
tion to Steyr. The Commission concludes that
the
project
is mobile in character and can therefore be
considered eligible for regional aid, since the aid is
necessary to attract the investment to the assisted region.

Regional aid intended for modernisation and rationalisa-
tion, which is generally not mobile, is not authorised in
the motor vehicle sector. However, a transformation,
involving a radical change in production structures on
the existing site, is eligible for regional aid. The Commis-
sion verified on site that the planned project, which
concerns the setting-up of completely new production
facilities
include any
elements of modernisation. It is considered to constitute
a transformation, which is eligible for regional aid.

in a new building, does not

(Oberösterreichische

(52) As regards the sale of land to BMW, Austria informed
the Commission that the necessary area in Steyr was sold
to BMW not by public authorities, but by a real estate
company
Baulandentwicklungs-
fonds AG & Co) at market price. The purchase price
corresponded to the price estimated by an independent,
certified real estate expert before the purchase of the
land. The Commission therefore considers that BMW did
not receive any aid in relation to the purchase of the
land.

(53) Under point 3.2(c) of

the motor vehicle framework,
when considering the mobile aspects of a project, the
Commission needs to ensure that the planned aid is in
proportion to the regional problems it is intended to
resolve. To that end, the cost-benefit analysis method
(hereinafter referred to as ‘CBA’) is used.

(54) A CBA compares, with regard to the mobile elements,
the costs which an investor would bear in order to carry
out the project in the region in question with those it
would bear for an identical project in a different loca-
tion, which makes it possible to determine the specific
handicaps of
assisted region concerned. The
Commission authorises regional aid within the limit of
the regional handicaps resulting from the investment in
the comparator plant.

the

(55)

The Commission notes that Austria has provided with
the notification a CBA comparing the two locations,
Steyr and Landshut. The investments are being carried
out between 2002 and 2007. In accordance with point
3.2(c) of the motor vehicle framework, operating handi-
caps are assessed over three years, as from the start of
commercial production in 2005, since the project in
question concerns an extension of an existing site.

(1) Under paragraph 39 of the multisectoral framework on regional aid
for large investment projects (OJ C 70, 19.3.2002, p. 8), notifica-
tions registered by the Commission before 1 January 2003 for the
motor vehicle sector will be examined in the light of the criteria in
force at the time of notification.

(56)

The Commission has evaluated the notified CBA with a
view to ascertaining to what extent
the proposed
regional aid is in proportion to the regional problems it
seeks to solve.

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(57)

The CBA indicates a cost handicap of EUR 19,07
million (net present value)
for the location in Steyr.
While the CBA assumes slightly higher labour costs and
material costs in Landshut compared to Steyr,
the
regional handicap of Steyr is mainly due to the invest-
ment costs in land (handicap of EUR 8 million) and
buildings (handicap of EUR 15,05 million)
in Steyr,
which are not necessary to the same extent in Landshut.
The reason for this is that, for the production of the
crank cases and bedplates in Steyr, BMW needed to
invest in the acquisition of land for a new production
building. In Landshut the production of the crank cases
could have been carried out in existing, slightly extended
buildings and bedplates would have been purchased
externally (costs for vendor tooling were taken into
account in the CBA).

(58) However, the Commission has modified the CBA with
respect to another element. In Landshut, the production
of crank cases would have taken place in an existing,
extended building. As was noted on site, this building is
currently used for the production of cylinder heads,
which will be phased out in 2003. Therefore,
in the
event of production in Steyr, this building in Landshut
could be used for alternative purposes. The Commission
considers that the possibility of an alternative use of the
existing building in Landshut, which would reduce the
overall cost handicap in the Steyr scenario, should be
taken into account in the CBA. On the basis of the infor-
mation provided by Austria, these costs have been esti-
mated at EUR 0,66 million (net present value of
EUR 0,54 million) (1).

(59)

(60)

This modification introduced in the analysis produces a
cost-benefit result that slightly differs from the one initi-
ally notified. The net present value of the eligible invest-
ment costs in Steyr amount to EUR 103,56 million. The
net present value of the regional handicap amounts to
EUR 18,53 million, leading to a handicap intensity of
the project, compared to Landshut, of 17,89 %.

The Commission finally needs to take into account the
question of a ‘top up’, which means a change in the
allowable aid intensity depending on the change in the
group's production capacity and the assisted area status
of the region. Aid proposals in support of investments
that potentially aggravate the overcapacity problem of
the industry can be modulated by the Commission by
reducing the ‘regional handicap ratio’ by up to two
percentage points. If the ratio between the capacity of
the group after the investment and the capacity of the
group before the investment
the
‘regional handicap ratio’ resulting from the CBA would

is 1,01 or over,

be reduced by two percentage points, as provided in the
motor vehicle framework for projects in an Article
87(3)(c) region that have a ‘high’ impact on the industry.

(61)

initiation of

Following the
the procedure, Austria
explained that the capacity […](*), for which the crank
cases are intended, will increase due to the investment in
question […](*), which is a significant increase […](*). In
addition, according to the motor vehicle framework, the
relevant market
for engine production by a vehicle
manufacturer is the vehicle market for which the engines
are built. As the crank cases and bedplates are intended
for engines for passenger cars,
the relevant capacity
consequently is the production capacity for passenger
cars. The Commission notes that the production capacity
of the group amounts to […](*) before the investment
and to […](*) after the investment. The capacity increase
of the BMW group is due to the capacity of […](*)
created by a new plant in Leipzig (Germany). Therefore,
taking into account the significant capacity increase and
the Article 87(3)(c) area status of the region, the motor
vehicle framework requires a reduction of the ‘regional
handicap ratio’ by two percentage points in the case in
question. Consequently,
the Commission reduced the
allowable aid intensity of the project by two percentage
points to 15,89 % for the investment in Steyr.

(62)

The net present value of the planned aid amounts to
EUR 17,6 million, resulting in a planned aid intensity of
17 % gge. The planned aid intensity is higher than the
regional handicap ratio as calculated in the CBA and
modified by the top-up amounting to 15,89 % of the
eligible investments. The regional aid ceiling is 16,7 %
gge. Consequently, the Commission can only authorise
an aid amount of 15,89 % of the eligible investment of
EUR 103,56 million (net present value), which corre-
sponds to EUR 16,46 million (net present value). The
is
excess aid of EUR 1,14 million (net present value)
incompatible with the common market.

Training aid

(63)

Commission Regulation (EC) No 68/2001 of 12 January
2001 on the application of Articles 87 and 88 of the EC
Treaty to training aid (2)
(‘the Regulation’) applies to
training aid in all sectors and provides that aid fulfilling
all the conditions laid down in the Regulation is compa-
tible with the common market and is exempt from the
notification requirement of Article 88(3) of
the EC
Treaty, provided that the measure contains an express
reference to the Regulation.

(1) Calculation based on an available area of 2 450 m2 and a potential

rent of EUR 90/m2.

(2) OJ L 10, 13.1.2001, p. 20.

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(64) Article 5 of the Regulation provides that the notification
requirement continues to apply if the amount of aid
granted to one enterprise for a single training project
exceeds EUR 1 million. The Commission notes that the
notified aid in this case amounts to approximately
EUR 6,86 million (net present value EUR 6,29 million);
that it is to be paid to one enterprise; and that the
training project is a single project. The Commission also
notes that the notification relates to an individual aid
measure that is not granted under an approved scheme.
The Commission therefore considers that the notification
requirement applies to the proposed aid and that the
notification must be assessed by the Commission in the
light of the criteria set out in the Regulation.

(65) Under Article 3(1) of the Regulation,

individual aid is
compatible with the
common market within the
meaning of Article 87(3) if it fulfils all of the conditions
of the Regulation.

training
(66) A distinction between specific and general
measures is drawn in Article 4 of
the Regulation.
Specific training is defined in Article 2 as training invol-
ving tuition directly and principally applicable to the
employee's present or future position in the assisted firm
and providing qualifications which are not, or only to a
limited extent, transferable to other firms or fields of
work.

(67) General training is defined in Article 2 as training invol-
ving tuition which is not applicable only or principally
to the employee's present or future position in the
assisted firm, but which provides qualifications that are
largely transferable to other firms or fields of work and
thereby substantially improve the employability of the
employee. It is linked to the overall activities of the firm
and provides qualifications which are largely transferable
to other firms or to other fields of work. Training is
considered general if, for example, it is jointly organised
by different independent enterprises, or if employees of
different employees may avail themselves of the training;
or if it is recognised, certified or validated by public
authorities or bodies or by other bodies or institutions
on which a Member State or
the Community has
conferred the necessary powers.

nees' personnel costs have been taken into account only
up to the amount of the total of the other eligible costs
referred to in Article 4(7)(a) to (e). On the basis of the
information provided by Austria, the Commission notes
that the total eligible costs of the training programme
amount to EUR 17,90 million.

(69) Under Article 4(2) and (3), training aid is compatible
with the common market if it complies with the speci-
fied aid intensities, in relation to eligible costs. Under the
terms of the Regulation, the maximum aid intensities
that can be authorised for the project in question, which
is carried out by a large firm in an Article 87(3)(c) area,
are 30 % for specific training and 55 % for general
training.

(70)

(71)

(72)

In its decision to initiate proceedings, the Commission
mainly noted that it had not received sufficient docu-
mentary evidence to allow it to verify the classification
of a large part of
the training measures as general
training. In addition, the Commission expressed doubts
as regards the possible combining of aid with other
Community funding in relation to the same eligible
costs, thus possibly exceeding the allowable aid intensity.

In its comments on the initiation of proceedings, Austria
confirmed that the general training measures consist of
basic vocational training which is jointly organised with
independent company (MAN Steyr). Detailed
another,
information and documentation on the content of the
basic vocational training was provided to the Commis-
sion. In all the basic vocational training measures, trai-
nees will acquire a formal qualification which is recog-
nised and certified by public authorities (‘Facharbeiter-
prüfung bzw. Lehrabschlussprüfung’).

This additional
information and documentation have
allowed the Commission to verify the general training
character of the notified measures. The tuition provided
is not only applicable to the employee's present or future
position in the assisted firm, but provides qualifications
which are largely transferable to other firms or fields of
work and thereby substantially improve the employ-
ability of the employee.

(68)

The eligible costs in the context of the training aid
project are listed in Article 4(7) of the Regulation. As
regards trainees' personnel costs, Austria confirmed that
only hours during which the trainees effectively partici-
pate in the training have been taken into account. In
accordance with Article 4(7)(f) of the Regulation, trai-

(73)

the general

training
The Commission concludes that
costs amount
to EUR 5,96 million and the specific
training costs to EUR 11,94 million. The applicable aid
intensity ceiling for specific training is 30 % of eligible
costs and the applicable aid intensity ceiling for general
training is 55 % of eligible costs.

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(74)

training

(30 % of

The allowable aid amounts to EUR 3,58 million for
specific
and to
EUR 3,28 million for general training (55 % of eligible
costs). The total allowable aid for
is
EUR 6,86 million and will be paid in yearly instalments
until 2006 (net present value EUR 6,29 million).

the project

eligible

costs)

(79)

Pursuant to paragraphs 33 and 34 of the environmental
guidelines, the maximum aid allowed for a company
investing in Steyr, an assisted region, amounts to 35 %
gross.

(75) Under Article 6(2) of the Regulation, aid exempted by
the Regulation may not be cumulated with other State
aid or with other Community funding in relation to the
same eligible costs, if such cumulation would result in
an aid intensity exceeding that fixed by the Regulation.
Austria has assured the Commission that there will be
no cumulation of aid in relation to the same eligible
cost, such as would result in an aid intensity exceeding
that fixed by the Regulation.

(80)

Environmental aid

Paragraph 37 of the environmental guidelines lays down
the rules concerning eligible costs. Eligible costs must be
confined strictly to the extra investment costs necessary
to meet
the environmental objectives. This has the
following consequences: where the cost of investment in
environmental protection cannot be easily identified in
take account of
the Commission will
the total cost,
objective and transparent methods of calculation, e.g.
the cost of a technically comparable investment that
does not though provide the same degree of environ-
mental protection. In all cases, eligible costs must be
calculated net of the benefits accruing from any increase
in capacity, cost savings engendered during the first five
years of the life of the investment and additional ancil-
lary production during that five-year period.

(76)

(77)

the

that

The Commission considers
environmental
guidelines apply to the project in question. The excep-
tion provided for in paragraph 6 of the guidelines does
not apply to the project in question, as the planned
environmental aid does not concern the development or
production of engines, but only the process of checking
engines already produced.

Paragraphs 28 to 40 of the environmental guidelines lay
down the rules when investment aid for environmental
reasons can be authorised. Under paragraph 29 of the
guidelines, investment aid enabling firms to improve on
the Community standards applicable may be authorised
up to 30 % gross of the eligible investment costs. These
conditions also apply to aid where firms undertake
in the absence of mandatory Community
investment
standards or where they have to undertake investment in
order to comply with national standards that are more
stringent than the applicable Community standards.

(78)

Paragraphs 33 and 34 of the guidelines lay down further
rules for bonuses for firms located in assisted regions,
according to which the maximum rate of aid applicable
is the higher of the following options:

— either the basic rate for environmental

investment
aid,
i.e. 30 % gross (standard system), 40 % gross
(investments in energy saving, in renewable sources
of energy or to promote the combined production of
electric power and heat) or 50 % gross (investments
in renewable sources of energy that supply an entire
community), plus five percentage points gross in the
regions covered by Article 87(3)(c) and 10 percen-
tage points
in the regions covered by Article
87(3)(a),

— or the regional aid rate plus 10 percentage points

gross.

(81)

The eligible investment amounts to EUR 6,33 million.
The eligible investment has been calculated by deducting
the saved fuel costs from the planning/development
costs and the additional investment costs (compared to
the current hot engine testing technology).

(82)

The Commission takes the view that, in accordance with
paragraphs 20 and 29 of the guidelines, aid is not justi-
fied in the case of investments designed merely to bring
large companies into line with new or existing Commu-
nity technical standards. Aid may though be useful
where it serves as an incentive to achieve levels of
protection which are higher than those required by
Community standards. This is the case when a Member
State decides to adopt standards which are more strin-
gent than the Community standards so as to achieve a
It will also
higher level of environmental protection.
apply when a firm invests in environmental protection
over and above the strictest existing Community stan-
dards or where no Community standards exist.

standards. Such standards

(83) However, it has not been shown that aid has an incen-
tive effect of this kind where it is designed merely to
help firms to comply with existing or new Community
technical
the
ordinary law with which firms must comply, and it is
not necessary to provide them with aid in order to
encourage them to obey the law. In view of the fact that
no specific Community standards for engine testing tech-
nology exist, as made clear by Austria after the initiation
of proceedings,
the
required incentive effect on the part of the project is
achieved.

the Commission concludes that

constitute

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L 229/33

(84)

The environmental aid planned for BMW amounts to
EUR 1,9 million (net present value EUR 1,77 million),
corresponding to an aid intensity of 30 % gross. The
Commission notes that the aid intensity is below the
maximum ceiling of 35 % that may be authorised under
the environmental guidelines.

The Commission notes that the R & D expenditure as a
proportion of total turnover over the same period only
slightly increased […](*), back to the same level as in
1999. The number of employees working in R & D
decreased slightly during the same period from […](*).

Research and development aid

(90)

(85)

(86)

(87)

(88)

In view of the amounts of the investment and aid, the
project was notified under paragraph 4.7 of the Commu-
nity framework for State aid for research and develop-
ment (referred to below as ‘the R & D framework’) (1).
When it assesses compatibility of R & D aid,
the
Commission pays particular attention to the type of
research carried out, the recipients of the aid, the accessi-
bility of the results, the planned intensity and the incen-
tive effect of the aid.

Pursuant to point 6.2 of the R & D framework, the aid
must induce firms to pursue research which they would
not otherwise have pursued or could not have pursued
within the same time-frame. State aid for R & D should
therefore serve as an incentive for firms to undertake
R & D activities in addition to their normal day-to-day
operations. Member States are therefore required, when
notifying R & D aid, to demonstrate that the aid is neces-
sary as an incentive, and is on no account operational
aid. Where this incentive effect
the
Commission may consider such aid less favourably than
it usually does. In order to verify that the planned aid
will induce firms to pursue research which they would
not otherwise have pursued, the Commission also takes
account of quantifiable factors.

is not evident,

The Commission attributes particular importance to the
incentive requirement of R & D aid in the case of indivi-
dual, close-to-the-market research projects to be under-
taken by large firms and in all cases in which a signifi-
cant proportion of the R & D expenditure has already
been made prior to the aid application.

The Commission notes that BMW qualifies as a large
firm and, given the nature of the project, it assumes that
the research is close-to-the-market. For these reasons,
the Commission attributes particular importance to the
incentive requirement of R & D aid in this case.

(89) With respect to the incentive effect, Austria stated in its
comments on the
that,
compared to the base year 2001, the company was
increasing its R & D expenses as a result of the project.

initiation of proceedings

of

the

initiation

Following
proceedings, Austria
explained that the project focused on the improvement
of technological competence and a rapid improvement
of the functional characteristics of diesel engines. The
Commission recognises that some parts of the envisaged
R & D programme qualify
ambitious high-risk
research in the public interest which would not be
included in the normal day-to-day operation of
the
company. This concern the subprojects ‘homogeneous
diesel combustion’, ‘soot-filtering technique using plasma
technology’ and ‘variable valve train for diesel engines’.

as

(91) Homogeneous diesel

combustion aims at

reducing
noxious exhaust and particulate emissions. Nitrogen
oxides, produced at significant levels during the diesel
combustion, and particulate emissions can be consider-
ably reduced by means of this technology. It also allows
significant fuel economy to be achieved. However, while
the technology is relatively easy to apply in a small part
of an engine's operating range,
i.e. at low torque and
low engine speed, it is very difficult to expand this range
to the full engine power. This requires a large-scale and
ambitious research effort and involves a very high risk.
Variable valve control (VVC) is used for increasing fuel
efficiency. Because of the completely different combus-
tion processes, VVC technology is less efficient in diesel
engines than in petrol engines. The application of homo-
geneous diesel combustion could however offer new
opportunities
the application of VVC to diesel
engines in future. Research in this area is very costly,
and the success of the research is far from assured.
Research into the ‘soot-filtering technique using plasma
technology’ in conjunction with particle filters is still at
a very early stage and therefore risky. It could however
prove to be promising in terms of
the objective of
removing fine particles in particular from diesel engines.

for

(92)

The Commission also notes that the sixth framework
programme of the European Community for research,
technological development and demonstration activities,
adopted pursuant to Decision No 1513/2002/EC of the
European Parliament and of the Council (2), encompasses
similar research topics for the development of a future
generation of clean and economical engines for cars, as
part of the thematic priority ‘sustainable surface trans-
port’. The Commission concludes that the three subpro-
jects
‘soot-filtering
technique using plasma technology’ and ‘variable valve
train for diesel engines’ are carried out in addition to the
company's day-to-day operations. The research aid for
the three subprojects is thus necessary as an incentive to
carry out the research activities.

‘homogenous diesel combustion’,

(1) OJ C 45, 17.2.1996, p. 5.

(2) OJ L 232, 29.8.2002, p. 1.

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(93) On the basis of the project description provided by the
Austrian authorities, the Commission takes the view that
these three subprojects can be regarded as industrial
research with eligible investment costs of
in total
EUR 9,81 million. The allowable aid intensity for indus-
trial research projects amounts to 55 %. Consequently,
an aid amount of EUR 5,39 million is considered to be
compatible with the R & D framework.

(CEEC) of genuinely or substantially new products or
processes, that is products or processes which have not
yet been used or marketed by other parties operating in
the industry. A genuine innovation carries a risk of
failure, and the Commission will take account of the
scale of this risk when it assesses the intensity of the aid
envisaged.

(94) However, the Commission considers that the purpose of
the remaining notified subprojects (‘advanced develop-
ment of variable compression ratio with diesel engines’,
‘[…](*) supercharger concept’, ‘third generation common
‘dispersion-restricting measures to comply with
rail’,
strictest exhaust gas standards’, ‘soot filter […](*)’, ‘barrel
technology for […](*) crankcase’) is simply to make the
diesel engines more competitive by improving diesel
engine technology. In the motor vehicle industry, such
research activities are carried out continuously as part of
the normal activities of an engine manufacturer. Given
the highly competitive world market for the product, it
is
to constantly develop
completely new diesel engine technology. Therefore,
BMW would in any case have had to undertake the
research for these subprojects in order to stay competi-
tive.

commercially

imperative

(95)

(96)

The Commission concludes that the remaining R & D
subprojects carried out by BMW are normal
for a
company in the motor vehicle industry. As a conse-
the Commission takes the view that Austria
quence,
failed to prove the incentive effect of
these R & D
projects. Thus, the planned aid for these projects is not
compatible with the common market. Given that the
incentive effect with regard to these subprojects has not
been proven, the Commission does not consider that
further analysis of the case, and notably of these single
subprojects and of the admissible aid intensities, is neces-
sary.

In addition to the points above, the Commission also
notes that, although Austria claims that the projects are
carried out with other industrial partners, universities
and research institutes, it did not provide any substantial
evidence which would support this claim. Neither did
Austria demonstrate that the projects involve effective
cross-border cooperation between independent partners
in at least two Member States. The Commission there-
fore has to conclude that competitors will not necessa-
rily benefit
from the progress achieved through the
research projects.

(98)

(99)

for

aid

Investment
innovation can therefore be
authorised only in duly justified cases, as an incentive to
industrial or technological risk-taking. The maximum
intensity of such aid is set at 10 % of all eligible costs,
corresponding to engineering activities and investments
of direct and exclusive relevance to the innovative part
of the project.

The Commission has analysed the project with the tech-
nical assistance of an external automotive expert. As a
result of the analysis, the Commission takes the view
that the project cannot be regarded as genuinely innova-
tive in the sense that the technology has not yet been
used or marketed by other parties operating in the
industry.

(100) As regards the measurement of uniform distribution
VVT […](*), the Commission notes that Austria stated
that this technology is for the first time used for 6-
cylinder engines. However, the technology has in fact
already been implemented for 4- and 8-cylinder engines
and can therefore not be considered genuinely innova-
tive. As regards the dynamic chassis dynamometers, the
Commission notes that according to Austria, this tech-
nology is for the first time used in series production.
However, the Commission does not consider the tech-
nology genuinely innovative as it is already used by
other manufacturers (for individual engines).

(101)

In addition, the Commission considers that the aid in
question does not provide an incentive for industrial or
technological risk-taking. In order to remain competitive,
it is a necessary day-to-day activity for engine manufac-
turers to invest in ‘state of the art’ testing-and-measuring
equipment. It can be assumed that BMW would have
carried out the investment even in the absence of the
planned aid,

HAS ADOPTED THIS DECISION:

Article 1

Innovation aid

(97) According to the motor vehicle framework, innovation
means the development and industrialisation in Europe,
the EEA and the countries of central and eastern Europe

EUR 16,46 million (net present value) of the regional State aid
amounting to EUR 17,6 million (net present value) which
Austria is planning to implement for BMW Motoren GmbH,
Steyr (BMW) for its investment in Steyr is compatible with the
common market within the meaning of Article 87(3)(c) of the
Treaty.

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EUR 1,14 million (net present value) of that regional State aid
is incompatible with the common market and may not be
implemented.

Article 2

The State aid which Austria is planning to implement for BMW
for training measures is compatible with the common market
within the meaning of Article 87 of
the Treaty up to a
maximum of EUR 6,86 million in nominal value (net present
value EUR 6,29 million).

Article 3

The State aid which Austria is planning to implement for BMW
for environmental protection measures is compatible with the
common market within the meaning of Article 87 of the Treaty
up to a maximum of EUR 1,9 million in nominal value (net
present value EUR 1,77 million).

Article 4

EUR 5,39 million of the State aid for research and develop-
ment amounting to EUR 11,53 million which Austria is plan-
ning to implement for BMW for its investment in Steyr is
compatible with the common market.

EUR 6,14 million of that aid is incompatible with the common
market and may not be implemented.

Article 5

The State aid amounting to EUR 0,93 million (net present
value) which Austria is planning to implement for BMW to
promote innovation is incompatible with the common market
within the meaning of Article 87 of the Treaty and may not be
implemented.

Article 6

Austria shall inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

Article 7

This Decision is addressed to the Republic of Austria.

Done at Brussels, 27 May 2003.

For the Commission

Mario MONTI

Member of the Commission