State aid — United Kingdom — Aid C 21/03 (ex N 474/02) — Waste resources action programme — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2003-06-03
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, waste management, waste recycling

C 129/6

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Official Journal of the European Union

3.6.2003

STATE AID — UNITED KINGDOM

Aid C 21/03 (ex N 474/02) — Waste resources action programme

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2003/C 129/04)

(Text with EEA relevance)

By means of the letter dated 19 March 2003 reproduced in the authentic language on the pages following
this summary, the Commission notified the United Kingdom of its decision to partially initiate the
procedure laid down in Article 88(2) of the EC Treaty concerning the abovementioned measure.

Interested parties may submit their comments on the measure in respect of which the Commission is
initiating the procedure within one month of the date of publication of this summary and the following
letter, to:

European Commission
Directorate-General for Competition
State Aid Registry
B-1049 Brussels
Fax (32-2) 296 12 42

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

WRAP will administer several aid measures:

1. PROCEDURE

the British authorities provided

By letter dated 9 July 2002, registered on 16 July, the United
Kingdom notified, pursuant to Article 88(3) of the EC Treaty,
the Waste resources action programme. By letter dated 2
August 2002, the Commission asked for further information,
which was provided by the British authorities by their letter
dated 28 August 2002. Following a meeting between the
Commission and the British authorities that was held on 29
further
August 2002,
information by letter dated 13 September 2002, registered
on 18 September 2002. The Commission sent another
request of information by letter dated 23 October 2002, to
which the British authorities
replied by letter dated 3
December 2002, registered on 6 December 2002. By letter
dated 15 January 2003, registered on 23 January 2003, the
British authorities
requested a new meeting with the
Commission, which was held on 21 January 2003. Following
that meeting, the British authorities provided supplementary
information by a series of letters dated between 24 January
2003 and 7 February 2003.

2. INTRODUCTION

The objective of
the Waste resources action programme
(WRAP), a publicly funded body established on behalf of the
British Department of the Environment, Food and Rural Affairs,
is to promote sustainable waste management and efficient
markets for waste management, with the view to enabling
the United Kingdom to fulfil
the Community targets for
waste recycling set by the Council directive of 26 April
1999 on the landfill of waste and the Council directive of
20 December 1994 on packaging and packaging waste.

— The WRAP grant funding: this measure is divided in three

submeasures:

— a first submeasure provides investment grants to SMEs
only (the WRAP SME scheme). It will be implemented
on the basis of Commission Regulation (EC) No
70/2001 of 12 January 2001 on the application of
Articles 87 and 88 of the EC Treaty to State aid to
small and medium-sized enterprises (1) (hereafter ‘Regu-
lation (EC) No 70/2001’) and does not form part of the
present notification,

— a second submeasure,

scheme,
involves aid to large firms in assisted areas and is
notified on the basis of
the guidelines on national
regional aid (2) (hereinafter ‘the regional guidelines’),

the WRAP regional

— a third submeasure, the WRAP environmental scheme,
covers cases that do not fall under either Regulation
the regional guidelines. The
(EC) No 70/2001 or
British authorities notified this
submeasure on the
basis of the Community guidelines on State aid for
environmental protection (3)
(hereinafter ‘the environ-
mental guidelines’),

(1) OJ L 10, 13.1.2001, p. 33.
(2) OJ C 74, 10.3.1998, p. 9.
(3) OJ C 37, 3.2.2001, p. 3.

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— the WRAP pilot fund (hereinafter referred to as the ‘pilot
take equity
specialised in waste

fund’). This is a risk-capital
participations
recycling activities,

fund that will

in SMEs

that are

equipment for the purpose of reprocessing waste materials or
manufacturing products from those materials.

— the WRAP lease guarantee fund (hereinafter referred to as
the ‘guarantee fund’). This measure is also divided into three
submeasures:

4. ASSESSMENT

4.1. The WRAP environmental scheme

— a first submeasure is the SME section of the guarantee
fund, which will provide lease guarantees to SMEs,

Existence of aid

— a second submeasure is the regional section of

the
guarantee fund, which will provide lease guarantees to
large firms located in assisted areas,

— a third submeasure is the environmental section of the
guarantee fund, which will provide lease guarantees to
cases that are not covered by the regional section or the
SME section of the guarantee fund,

— the support to the Composting Association,

— the Business development service, Exemplar companies

initiative and Advice to composting firms initiative.

The Commission has decided not to raise objections to these
aid measures, with the exception of the WRAP environmental
scheme and the part of the WRAP lease guarantee fund that is
notified on the basis of the environmental guidelines.

3. DESCRIPTION

3.1. The WRAP environmental scheme

The aim of the WRAP environmental scheme is to subsidise
investments by private companies in recycling facilities for
(plastics, glass, wood, aggregates,
various waste products
to
compost). The selected firms will commit
themselves
the
recycle a certain amount of waste.
It is expected that
existence and operation of
these recycling facilities will
encourage the selective collection of waste and will reduce
waste disposal to landfills. The beneficiaries of these grants
will be selected by open tender, with a view to limiting the
amount of aid.

Eligible costs under this scheme will be limited to the cost of
investment in machinery and plant, from which the British
authorities will deduct any benefits accruing to the recipient
of aid over a five-year period. The aid intensities will not
exceed 30 %, plus the extra percentage points allowed under
point 34 of the environmental guidelines.

3.2. Lease guarantee fund

The Lease guarantee fund will be an entirely public fund. It will
lease guarantees that cover leases of machinery and
grant

This scheme provides an economic and selective advantage to
the beneficiaries in the form of a grant. The waste products
that are recycled or the end products that are produced from
the recycled waste can be internationally traded. Therefore this
measure may have an effect on competition and may constitute
State aid within the meaning of Article 87(1) of the EC Treaty.

Compatibility with the EC Treaty

This aid measure does not appear to be compatible with the
common market under Article 87(2), nor under Article
87(3)(a), (b) or (d) of the EC Treaty. Article 87(3)(c) appears
to be the only possible basis of compatibility.

The British authorities notified this scheme on the basis of the
environmental guidelines. At this stage, the Commission is of
the opinion that further investigation is necessary to determine
whether the investment aid provided under this scheme would
qualify for an assessment under these guidelines, in particular
concerning the following issues.

— Under point 29 of the environmental guidelines, investment
aid may be given on the basis of these guidelines when
firms undertake investment in the absence of mandatory
to comply with
Community standards or
national
than
that
Community ones. The Commission notes that investment
to enable the
aid granted under this scheme is meant
United Kingdom to fulfil the general targets for Member
States set by the EC Landfill Directive and the EC Packaging
Directive.

in order
are more

standards

stringent

— Investment

aid

the

under

approved

environmental
guidelines could be interpreted as aiming only at reducing
the emissions and pollution caused by the beneficiary in the
course of its production process. The Commission notes
that the environmental objective of this scheme is more
indirect:
it is expected that the recycling activities of the
beneficiaries will result in a greater selective collection of
waste,
in a decrease in waste disposal to landfills and a
decrease in the use of primary raw materials, according
to the information provided by the British authorities.
The Commission doubts whether
environmental
guidelines apply to such cases.

the

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the environmental guidelines were found to be
Even if
applicable, the Commission would still have doubts about the
way in which the British authorities propose to calculate the
eligible costs under these guidelines. In particular, point 37 of
the environmental guidelines states that eligible costs must be
strictly confined to the extra investment costs necessary to
In the present case, the
meet the environmental objectives.
British authorities have included in the calculation of
the
eligible investment costs
the investments
linked to the recycling activity. From these, they have only
deducted the benefits to the recipient over a five-year period.
This does not appear to be in line with point 37.

the entirety of

this aid
the Commission has doubts on whether
Finally,
measure can be found to be compatible directly on the basis
of Article 87(3)(c) of the EC Treaty, since the British authorities
have not shown that this measure does not adversely affect
trading conditions to an extent contrary to the common
interest.

4.2. The WRAP lease guarantee fund

Existence of aid

This fund enables firms that want to acquire equipment to
obtain leases on conditions that are more favourable than
normally available on the market. Therefore the lessees get
an economic advantage, which is selective. The products manu-
factured by the firms operating in the sectors of waste
recycling may be internationally traded. This measure may
therefore have an effect on competition and trade between
Member States
an aid within the
meaning of Article 87(1) of the EC Treaty.

and may constitute

Compatibility with the EC Treaty

the type of

The British authorities partially notified the measure on the
basis of environmental guidelines. The Commission notes
that
investments targeted by the WRAP lease
guarantee fund is similar to the ones targeted by the WRAP
environmental scheme. The Commission has already explained
why it has doubts concerning the applicability of the guidelines
to this type of investment. Furthermore, the British authorities
the
failed to provide information on the compatibility of
measure with the environmental guidelines, in particular with
regard to the calculation of the eligible costs under point 37 of
these guidelines. Therefore,
the Commission also expresses
doubts on the compatibility of the measure with the environ-
mental guidelines if they are found to be applicable.

5. CONCLUSION

and of

In the light of the foregoing considerations, on the basis of the
information available,
the preceding preliminary
assessment, the Commission decided to initiate the proceedings
according to Article 88(2) of the EC Treaty with the respect to
the WRAP environmental scheme and the part of the lease
guarantee
the
Community
environmental
protection. In accordance with Article 14 of Council Regu-
lation (EC) No 659/1999, all unlawful aid can be subject to
recovery from the recipient.

is notified on the basis of
aid for

guidelines on State

fund that

TEXT OF THE LETTER

‘The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the measure referred to above, it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

I. PROCEDURE

the Commission asked for

(1) By letter dated 9 July 2002, registered on 16 July, the
United Kingdom notified, pursuant to Article 88(3) EC,
the Waste resources action programme. By letter dated 2
August 2002,
further
information, which was provided by the British auth-
orities by their letter dated 28 August 2002. Following
a meeting between the Commission and the British auth-
orities that was held on 29 August 2002, the British
authorities provided further information by letter dated
13 September 2002, registered on 18 September 2002.
The Commission sent another request of information by
letter dated 23 October 2002, to which the British auth-
orities replied by letter dated 3 December 2002, registered
on 6 December 2002. By letter dated 15 January 2003,
registered on 23 January 2003, the British authorities
requested a new meeting with the Commission, which
was held on 21 January 2003. Following that meeting,
provided
the
supplementary
information by a series of
letters dated between 24
January 2003 and 7 February 2003.

authorities

British

II. DETAILED DESCRIPTION OF THE MEASURE

2.1. Presentation of WRAP and its objectives

(2) This notification includes several aid measures admin-
istered by the Waste resources action programme, an
entity established on behalf of the Department of the
Environment, Food and Rural Affairs. Whilst WRAP has
a private corporate form, it functions as a Government
body:
its operating costs are wholly funded by the
Government, and one of the directors in the company's
for
board is appointed by the Secretary of State
Environment, Food and Rural Affairs.

(3) The legal basis of this program is Section 153 of the
Environmental Protection Act 1990 and the Financial
Assistance for Environmental Purposes (No 2) Order
2000 (SI 2000:2211).

for waste management

(4) Its objective is to promote sustainable waste management
and efficient markets
and
recycling. In particular, the aim of the British Government
is to fulfil the Community targets for waste recycling set
by the EC Landfill Directive (4), which requires Member
States to reduce the disposal of municipal waste to landfill
and by the EC Packaging Directive (5) which requires
significant increases in packaging waste recycling by at
least 2006.

(5) In order to achieve this objective, the Waste resources
action programme will manage the following measures:

(4) Council Directive 1999/31/EC of 26 April 1999 on the landfill of

waste (OJ L 182, 16.7.1999, p. 1).

(5) Council Directive 94/62/EC, of 20 December 1994 on packaging

and packaging waste (OJ 1994 L 365).

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— the WRAP grant funding: this measure is divided in

three submeasures:

— a first submeasure provides investment grants to
SMEs only (the WRAP SME scheme).
It will be
implemented on the basis of Commission Regu-
lation (EC) No 70/2001 of 12 Januray 2001 on
the application of Articles 87 and 88 of the EC
Treaty to State aid to small and medium-sized
enterprises (6)
‘Regulation (EC) No
70/2001’) and does not form part of the present
notification,

(hereafter

— a second submeasure, the WRAP regional scheme,
involves aid to large firms in assisted areas and is
notified on the basis of the guidelines on national
regional
regional
(hereinafter
guidelines’),

aid (7)

‘the

— a third submeasure,

that do not

the WRAP environmental
fall under
scheme, covers cases
the
either Regulation (EC) No 70/2001 or
authorities
regional
notified this
the
Community guidelines on State aid for environ-
mental protection (8)
‘the environ-
mental guidelines’),

submeasure on the basis of

(hereinafter

guidelines.

British

The

— the WRAP pilot fund (hereinafter referred to as the
‘pilot fund’). This is a risk-capital fund that will take
equity participations in SMEs that are specialised in
waste recycling activities,

— the WRAP lease guarantee fund (hereinafter referred to
as the guarantee fund). This measure is also divided
into three submeasures:

— a first submeasure is the SME section of

the
guarantee fund, which will provide lease guar-
antees to SMEs,

— a second submeasure is the regional section of the
guarantee fund, which will provide lease guar-
antees to large firms located in assisted areas,

— a third submeasure is the environmental section of
the guarantee fund, which will provide lease guar-
that are not covered by the
antees
regional
the
the SME section of
guarantee fund,

section or

to cases

— the support to the Composting Association,

— the

Business

Exemplar
companies initiative and Advice to composting firms
initiative.

development

service,

Each of these measures is described in detail below.

2.2. The WRAP grant funding in the wood, plastics, glass,

aggregates and compost sectors

2.2.1. Aim of the measure

(6) The purpose of

funding programme is to
subsidise investments by private companies in recycling

this grant

(6) OJ L 10, 13.1.2001, p. 33.
(7) OJ C 74, 10.3.1998, p. 9.
(8) OJ C 37, 3.2.2001, p. 3.

facilities in order to increase the recycling of waste in the
United Kingdom. The selected firms will commit them-
selves to recycling a certain amount of waste per year. As
a result, local authorities would have the incentive to set
up systems of selective collection of waste since the
existence of these facilities would ensure the reprocessing
of their selected waste. According to the British auth-
orities, the necessity of such aid stems from the uncer-
tainty of returns on this type of investment, due to the
appropriate waste
risks
materials and the difficulty in motivating the purchase
of products with recycled contents.

associated with

obtaining

2.2.2. The WRAP SME scheme

(7) In a certain number of projects, which concern in
particular wood and aggregates,
the British authorities
will directly provide the aid on the basis of Regulation
(EC) No 70/2001. These cases are not part of this notifi-
cation.

2.2.3. The WRAP regional scheme

(a) Description of the scheme

(8) Projects under this scheme will

involve investment aid
with the view to optimising the recycling of aggregates
(stone, gravel etc. used in construction) and compost
(processing of organic waste into compost and horti-
that
cultural products). The British authorities expect
this scheme will provide extensive regional benefits, by
generating new and increased economic activity in the
development of aggregates recycling and composting in
these regions. It is expected that it will encourage other
companies to involve themselves in these activities. The
British authorities also consider that these investments
will assist
the regions concerned in managing their
construction, demolition or industrial wastes or organic
wastes, which will help relieve the pressure on landfills
the
and contribute to the sustainable development of
region.

(9) In order to identify the proportional level of aid funding
and to select the recipients of support, WRAP uses open
and competitive tenders for each type of products. These
tenders are advertised in the specialised press throughout
Europe. Projects are selected on the basis of a certain
number of criteria: most economically advantageous
offer, magnitude and relevance of deliverables in relation
to the environmental objectives of
the competition,
organisational feasibility.

(10) The UK authorities consider that these projects will not
lead to over-capacity in the aggregates recycling and
composting sectors, because these are immature and
under-developed sectors, and because a tender process
will be launched only following an assessment of the
regional needs and existing capacity.

(b) Characteristics of the investment aid provided under this scheme

(11) This scheme will support

initial

investment only.

In
particular, application for aid must be made before
work starts on a project. Recipients of the aid under the
scheme will be required to maintain aided investment in
the region for a period of at least five years. The eligible
costs will be limited to investment
in tangible assets,
namely land, buildings and plant/machinery. All projects
will fall below the thresholds for assessment under the

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Multisectoral
investment projects (9).

Framework on regional

aid for

large

(12) This scheme will only apply in regions qualifying for
assistance under Articles 87(3)(a) and (c) of
the EC
remain
Treaty. The aid intensities in each case will
within the applicable limits of the regional aid map for
the United Kingdom currently in force, as approved by
the Commission until 2006 (10). In each case, recipients
are required to contribute at least 25 % of the project's
costs.

the same eligible costs

(13) The British authorities will ensure that no project will
receive aid for
from other
sources if the cumulated aid exceeds the applicable aid
intensities.
to ensure compliance with this
principle, recipients will be asked to provide a declaration
on the other aid applied for.

In order

(14) The firms concerned will operate in the aggregate and
compost sectors. Therefore no firm involved in the
sensitive sectors will receive aid. In particular, it is to be
noticed that the production of compost is not an activity
linked to the production, processing or marketing of
products listed in Annex I of the Treaty. It is estimated
that at
least seven, and probably more projects will
benefit from this scheme.

(15) The budget for the WRAP regional scheme is GBP 4,5
million (around EUR 6,75 million). This scheme will
operate until the end of 2006.

2.2.4. The WRAP environmental scheme

(a) Description of the scheme

(16) Under this scheme, aid will be granted to investment
projects that will contribute to the optimisation of the
recycling of various products,
including plastics, glass,
possibly wood, aggregates and compost. Projects have
been or will be selected on the basis of an open
tendering procedure, which is identical to the one used
under the WRAP regional scheme.
In cases where the
selection of the company has already been completed,
to a
the granting of
positive decision of the Commission on this notification.

the aid has been made subject

(17) This tender has already been completed in at least one
case, which concerns plastics. In the case of plastics, the
British authorities underlined that in 2001 the United
Kingdom collected 14 700 tonnes of plastics bottle for
recycling, which is only 3 % of all British plastic bottle
waste. Analysis has shown that the best way to achieve an
increase in the recycling of plastics would be to increase
the waste sorting capacity. The [. . .] (*) project will
consist of creating an entirely new waste plastics sorting
and recycling plant [. . .] (*). The sorting plant will have a
capacity that will allow it to sort 20 000 tonnes of waste
plastics per annum for reprocessing. Plastic waste will be
sorted by polymer type, and will be used to produce high
quality plastic products [. . .] (*).

(18) The WRAP environmental scheme will also grant aid to at
least one glass recycling project. No bidder has been

It would be

selected yet, but the aim of the British authorities is to
develop reprocessing capacity that will produce very
finely ground glass. This will be a new technology in
the United Kingdom.
environmentally
desirable since it would provide a means of recycling
waste glass for end markets that do not exist in sufficient
quantity (e.g.
for flat glass in windows), and therefore
increase the overall amount of recycled waste glass in
the United Kingdom. The proposed intervention is
expected to recycle an additional 320 000 tonnes of
waste glass. According to the British authorities, current
waste glass processors have not invested in this type of
facility as the initial
investment costs cannot offset a
potential demand for the final product.

(19) Finally, it is important mentioning that a separate grant
award in the paper recycling sector is the subject of
another notification under the environmental guidelines,
which was notified on 20 March 2002, and in respect of
which a complaint was received. This case has led to an
opening of
the investigation procedure and is now
registered under C 61/2002.

(b) Characteristics of the investment aid provided under this scheme

(20) The British authorities have included in the calculation of
the eligible investment costs all
the investment costs
directly associated with the achievement of the environ-
mental benefit, i.e. the increase in recycling capacity. As a
result, the total cost of the plant, machinery, equipment
and where appropriate technology transfers, related to the
reprocessing of the different types of waste are included in
the eligible costs.

(21) For example, in the case of the [. . .] (*) plastics recycling
project,
the
the eligible investment costs will
equipment and works to enable mixed plastic waste to
be sorted by polymer type and to be decontaminated, as
well as the equipment and works to convert the polymer
into high quality feedstock
separated waste plastics
[. . .] (*).

include:

(22) The British authorities have explicitly confirmed that any
benefits accruing to the recipient of
the aid will be
deducted from these investment costs, as required under
point 37 of the environmental guidelines. In particular,
they confirmed that the benefits to be deducted are the
savings over five years of the life of the investment, any
increase in production during that five year period and
any increased revenue or other benefit to the recipient
during that period. They will also deduct any costs
associated with the achievement of mandatory environ-
mental standards. However,
the British authorities did
not provide any precise indication of how they would
calculate the benefits to be deducted in practice.

(23) The aid intensities will not exceed 30 %, plus the extra
percentage points allowed under point 34 of the environ-
mental guidelines for projects involving SMEs and/or
located in assisted areas. For instance,
in the plastic
recycling project,
the eligible costs are valued at no
more than GBP 10,8 million (around EUR 16,2 million)
and the requested support amounts to a maximum of
GBP 2,3 million (around EUR 3,45 million), which
would represent a gross aid intensity of 21,3 %.

(9) OJ C 107, 7.4.1998.
(10) Commission Decision of 17 August 2000 in case N 265/2000.
(*) Confidential information.

(24) No aid will be provided under this scheme to firms whose
activities are linked to the production, processing or
marketing of products listed in Annex 1 of the Treaty.

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(25) The budget for the WRAP environmental scheme will be
GBP 14 million (around EUR 21 million). The Scheme
will operate until the end of 2006.

2.3. WRAP pilot fund initiative (the pilot fund)

2.3.1. Aim and justification of the pilot fund

(26) The pilot fund will invest in the equity of SMEs that are
specialised in recycling activities and that have difficulties
in obtaining private funding to invest in this type of
activities.
Its main objective is to promote the devel-
opment of recycling activities in the United Kingdom,
and by doing so to improve the environment.

transparency,

information and market

(27) According to the British authorities, the recycling markets
that the pilot fund will target are too risky to attract
sufficient commercial equity investment. Market
failure
in the recycling sector is due to a number of factors:
the
the lack of
fact that these market sectors are not well-established,
the lack of technological
the high level of regulation,
and market understanding amongst
the
lack of management capability in the sector and the
relatively small transaction sizes. As a result, there is no
investment fund specifically focused on the
commercial
carried out by ESYS
recycling
industry. A study
Consulting Ltd also showed the lack of
from
mainstream funds in investing in this type of sectors:
no member of the British Venture Capital Association
identified
for
as
investment in early stage/expansion SME projects. The
pilot fund is meant to address this market failure.

the investors,

environment

preferred

interest

sector

a

2.3.3. Eligible companies

(31) The pilot fund will only invest in the equity of SMEs (11)
that have difficulty in obtaining private funding to invest
in waste recycling facilities. The primary focus of the fund
will be small enterprises, or medium-sized enterprises in
their start-up or early stages.
In exceptional cases, the
fund may invest
in medium-sized enterprises that are
past their start-up phase, but that are expanding into
recycling for the first time or experimenting with a new
process.

(32) Investments will be limited to firms concerned with the
collection and reprocessing of waste paper, plastic, glass,
compost and ceramics. No firms
wood, aggregates,
involved in the sectors explicitly excluded from the
application of the Communication on State aid and risk
capital (12),
like shipbuilding or the ECSC sectors, will
from the Fund's interventions. No firm whose
benefit
linked to the production, processing or
activity is
marketing of products listed in Annex I of the Treaty
will receive aid under the scheme.

2.3.4. Nature of the investments of the Fund

(33) All

at

EUR 500 000

investments will consist of equity or equity-type
participation in the share capital of eligible SMEs.
Investment by the Fund per individual company will be
capped
areas,
EUR 750 000 in Article 87(3)(c) regions, and EUR 1
million in Article 87(3)(a)
regions. The maximum
investment in medium sized firms beyond start-up and
early stages will be GBP 500 000 (around EUR 750 000).
There is an exit mechanism for the Fund's investment.

non-assisted

in

2.3.2 Characteristics and mechanisms of operation of the pilot

fund

2.3.5. Cumulation and reporting

(28) The pilot fund will start with a GBP 5 million public grant
(EUR 7,5 million). At least 20 % of the capital of the Fund
will come from private investors. These private investors
will be sought through a process of competitive tender.
No person eligible to invest in the Fund will be debarred
from doing so. These investors will be afforded a waiver
of the entrance fees and administrative costs. [. . .] (*).

receive

(29) The pilot fund will be managed by a manager who is
selected through competitive tender. He will be remun-
erated on the basis of a fixed management fee, which will
be subject to negotiation with the successful tenderor and
will not exceed 5 % of the fund's value capital. He will
also
remuneration,
equivalent to 20 % of the profits of the fund. According
to the British authorities, the fund will be independent
from WRAP in its investment decisions. In particular, a
majority of the board of the fund,
including the fund
manager will be drawn from the private sector and will
be experienced market operators. WRAP will have no
power of veto over investment decisions.

performance-related

a

(30) Investment decisions will be based on an assessment of a
business plan submitted by the applicants. The applicants
will have to provide evidence that
the project will
generate a clear environmental gain. The fund will look
positively on schemes, which have already been turned
down for funding by the private sector. The fund may
not invest in competition with the private sector, but
when private
fund may
co-invest alongside private funding.

insufficient,

funds are

the

(34) The British authorities have undertaken that where
companies have received investment
from the pilot
fund, they will be eligible for regional and SME aid at
only 50 % of the level of intensity otherwise allowed by
the Commission, for a period of three years from the date
of the initial investment by the Fund.

(35) They also committed themselves to provide an annual
report on the operation of this Fund. In particular, this
report will show the actual
level of participation of
private investors in the fund.

2.4. WRAP lease guarantee fund (the guarantee fund)

2.4.1. Aim and general features of the guarantee fund

(36) Like the WRAP grant funding and the WRAP pilot fund,
the guarantee fund supports investments in reprocessing
activities and aims, in this manner, to contribute to an
increase in the waste recycling capacity in the United
Kingdom.

(37) The guarantee fund will be managed by a third party
tender by
agent,
WRAP, which is a public body, and its resources will
come from the State.

selected following

competitive

a

(38) It will provide guarantees

leases of
machinery and/or equipment for the purposes of repro-

that will cover

(11) As defined in Annex I

to Commission Regulation (EC) No

70/2001.

(12) OJ C 235, 21.8.2001, p. 3.

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cessing recyclable materials or manufacturing products
from those materials. Only leases that have a duration
of at least five years will be eligible.

(39) According to the British authorities, leasing companies are
for waste recycling
very reluctant
to provide leases
equipment. This is due to the perceived low re-sale
value of the specialist equipment used in the recycling
sector. As a result, leasing contracts for such equipment
are regarded by leasing companies as very high-risk and
are therefore disproportionately expensive, especially in
cases involving start-up companies.

the residual value of

(40) To remedy this problem, the guarantees provided by the
guarantee fund will cover
the
equipment, which, under an operating lease, will remain
the lessor's asset and which the lessor will sell at the end
of the lease-period or earlier, in the case of bankruptcy of
the lessee. Before the lease contract
the
management agent will set a residual value of the asset
concerned in negotiation with a panel of
lessors. The
guarantee fund will be obliged to acquire this asset for
the agreed residual value in two circumstances: either if,
during the lease period, the lessee goes bankrupt or if the
residual value of the assets falls short of the guaranteed
value at the end of the lease period. The residual value
that is guaranteed will normally be set at a maximum of
20 % of
the investment but may
sometimes be set at a slightly higher percentage.

the initial value of

signed,

is

(41) According to the British authorities, these guarantees will
reduce the risk-element of
lease contracts for waste
recycling equipment and enable SMEs to obtain such
leases
fund's
guarantee will be well below the 80 % of the value of
the lease.

cost. The guarantee

reasonable

at

a

(42) In order to calculate the net grant equivalent, the British
authorities have used the method laid down in the
Commission's Notice on State aid in the form of guar-
antees (13) which states the grant equivalent is equal to
(guaranteed sum × risk) — premium. In the case of a
GBP 100 000 investment, the guaranteed residual value
would typically be GBP 20 000. According to the United
Kingdom, a normal commercial asset finance portfolio has
a risk basis of a 10 to 20 % default rate. Given the higher
risk profile of the risk recycling activities covered by the
guarantee fund, the British estimates that it would be
appropriate to apply a higher default rate, namely 30 %.
The grant equivalent
for a GBP 100 000 investment
would therefore be GBP 20 000 × 30 % = GBP 6 000.
There are unlikely to be deductible premiums paid to
WRAP. It means that the aid intensity for this aid will
this aid
be 6 000/100 000 = 6 %. The calculation of
intensity is based on the assumption that the guaranteed
the
residual value is
set at 20 % of
investment. This will be
the
guarantee. In some cases, this guaranteed residual value
could exceed 20 %. In such cases, the calculation of the
aid element will vary accordingly.

the value of
level of

the average

(43) The majority of the beneficiaries of the guarantees will be
SMEs as defined in Annex I of Regulation (EC) No
or
70/2001,
medium-sized companies at a start-up or early stage.
The beneficiaries will not have significant financial track

companies

especially

small

and

(13) OJ C 71, 10.3.2000, p. 14.

record or credit rating. Exceptionally, the guarantee fund
may grant guarantees to large enterprises.

(44) The guarantee fund will guarantee a maximum of GBP 8
million (around EUR 12 million) in residual values over a
five year period (it will operate until 31 December 2006).
The likelihood of default
these residual
values is calculated at approximately 30 %, which means
that the size of the fund will be GBP 2,4 million (around
EUR 3,6 million).

in respect of

2.4.2. The SME section of the guarantee fund

(45) When applicable, the British authorities grant the guar-
antees on the basis of Regulation (EC) No 70/2001 and
have committed themselves to respect all its provisions.

2.4.3. The regional section of the guarantee fund

lease

guarantees

(46) In a limited number of cases, the guarantee fund will
investments
provide
undertaken by firms in areas covered by Article 87(3)(a)
or Article 87(3)(c) of the EC Treaty. In such cases, the
British authorities have confirmed that the guarantees will
be provided under the following conditions:

initial

for

— guarantees will only be granted to leases of equipment
that correspond to initial investments. Application for
the aid will have to be made before the purchase of
the machinery which is the subject of the guarantee.
Recipients will be further required to maintain aided
investments in the region for a period of at least five
years,

— eligible costs will be limited to investment in tangible

assets, namely machinery/equipment,

— the aid intensities will remain within the applicable
limits of
the United
the regional aid map for
Kingdom, currently approved by the Commission
required to
until 2006. The
contribute to at least 25 % of the investment's costs,

recipients will be

paper,

plastic,

glass, wood,

— the economic sectors to benefit from this initiative
will be those concerned with the reprocessing of
aggregates,
waste
compost and ceramics. The sectors which could use
those recycled materials to manufacture products may
also benefit. No firms involved in the sensitive sectors,
such as shipbuilding, car manufacturing, synthetic
the ECSC sectors or activities linked to the
fibres,
production, processing or marketing of products
listed in Annex I to the Treaty will be eligible for aid,

— the British authorities will ensure that no project will
receive aid for the same eligible costs from other
sources if the cumulated aid exceeds the applicable
aid intensities.
In other to ensure compliance with
this principle, recipients will be asked to provide a
declaration on the other aid applied for,

— they will send an annual report on the activity of the

lease guarantee fund.

2.4.4. The environmental section of the guarantee fund

(47) In exceptional cases that do not fall under Regulation (EC)
No 70/2001 or the regional guidelines (e.g. guarantees to
large companies outside Article 87(3)(a) or Article 87(3)(c)
regions),
the
environmental section of the guarantee fund. The British

the guarantees will be granted under

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authorities ask for exemption of this submeasure on the
basis of the environmental guidelines. However, they have
not provided any further information that would enable
the Commission to assess
this
submeasure with the said guidelines.

the compatibility of

(54) Following discussions with the Commission, the British
authorities have agreed to provide aid under the three
above programmes in conformity with Commission Regu-
lation (EC) No 69/2001 on de minimis aid.

2.5. Support to the composting association

appropriate

standards are

(48) WRAP is also responsible for developing markets for
compost products in the United Kingdom. WRAP has
identified that
to
increasing confidence in compost products and thus
increasing their use. As a result,
to
identify an organisation best placed to prepare an appro-
priate quality standard for the production of compost, to
achieve accreditation of that standard with the British
Standards Institute, to liase with the industry and set up
an accreditation system.

sought

critical

it has

(49) WRAP concluded that

trade

the Composting Association, a
non-profit, member-funded
association, was
uniquely placed to provide this service, since it has
already elaborated a preliminary standard and an outline
accreditation process for composted products. Under the
contract with WRAP, WRAP will assume the intellectual
property rights to all the further work carried out on both
the standard and the accreditation process and will make
that work generally available to all interested parties.

(50) In order to develop this standard and encourage industry
wide implementation of the standard, the Composting
Association will receive a grant of GBP 95 000 (around
EUR 142 000).

2.6. Business Development Service, Exemplar Companies
Initiative and Advice to Composting Firms Initiative

(51) The Business Development Service aims at providing
business advisory services
to firms operating in the
recycling sectors, such as advice on market research
practices and quality, on business plan development, on
management and technical
issues. These services will
normally be delivered by WRAP staff. According to the
type of service provided and the extent to which it is
tailored to the need of the company, WRAP has valued
them from GBP 165 (around EUR 247,5 for general
information) to GBP 18 934 (around EUR 28 400) for
assistance in the preparation of business plans, market
research information and similar services. About 600
companies will benefit from this form of support.

(52) The Exemplar Company Initiative will encourage the use
of recycled products. Under that program, WRAP will
provide advisory support
that commit
themselves to improve their performance with regard to
the procurement of recycled products. This support is
a maximum of GBP 15 000
valued by WRAP at
(around EUR 22 500), with a maximum number of
companies to receive support evaluated at 30.

to companies

(53) The advice to composting companies will consist of
providing consultancy to companies producing compost
in order to help them to test various processes over a
period of two years. The average value of the services to
the recipient companies is expected to be less than
GBP 6 000 (around EUR 9 000).

III. ASSESSMENT OF THE AID MEASURE

3.1. Legality of the aid measures

(55) The British authorities notified these aid measures to the
Commission before
them and have
therefore complied with their obligation on the basis of
Article 88(3) of the EC Treaty.

implementing

3.2. Assessment of the WRAP grant funding

3.2.1. Assessment of the WRAP regional scheme

Existence of aid

(56) This measure is provided through State resources. It gives
a selective economic advantage to certain firms in the
form of a grant. The use of a competitive tender
procedure can ensure that the amount of the subsidy is
this does not
limited to the minimum necessary, but
remove the aid character of the measure. Furthermore,
it is possible that the recycled products,
like compost,
are internationally traded:
this scheme may therefore
affect competition and trade between Member States.
For these reasons,
it constitutes a State aid within the
meaning of Article 87(1) of the EC Treaty.

Compatibility of the aid with the EC Treaty

(57) The Commission notes that the British authorities have
the regional

structured the scheme on the basis of
guidelines and in particular that:

— the scheme will support initial investment only, which
the beneficiary will have to keep in the region for at
least five years,

— the aid is limited to the minimum amount thanks to
the use of an open tender to select the beneficiary and
the amount of the aid,

— the scheme will apply only in regions qualifying for
assistance under Article 87(3)(a) and (c) of the EC
Treaty as defined in the regional aid map for the
United Kingdom and the aid intensities will remain
within the limits set in that map. All projects will
fall below the thresholds for assessment under the
Multisectoral Framework on regional aid for large
investment projects,

— eligible costs will be limited to tangible assets,

— no firm operating in any sensitive sector will be

eligible for assistance,

— the rules on cumulation will be respected,

— the British authorities undertook to report annually on

the implementation of this scheme.

(58) For these reasons, the Commission concludes that the
WRAP regional scheme is in line with the regional
guidelines and that it can be considered to be compatible
with the common market.

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3.2.2. Assessment of the WRAP environmental scheme

Existence of aid

(59) This measure is provided through State resources. It gives
a selective economic advantage to certain firms in the
form of a grant. The use of a competitive tender
procedure can ensure that the amount of the subsidy is
limited to the minimum necessary, but
this does not
remove the aid character of the measure. Furthermore,
the waste products that are recycled can be internationally
traded. For instance, the British authorities indicated that
up to 25 % of British waste plastics is exported. Also the
end products that are produced from the recycled waste,
like flat glass, can be internationally traded. For these
reasons, the WRAP Environmental Scheme may have an
effect an competition and trade between Member States
and may constitute a State aid within the meaning of
Article 87(1) of the EC Treaty.

Compatibility of the aid with the EC Treaty

(60) The WRAP environmental scheme does not appear to be
compatible under Article 87(2) of the EC Treaty. Neither
does it appear to fall within the scope of Article 87(3)(a),
(b) or (d) of the EC Treaty, since it is not limited to areas
where the standard of living is abnormally low or where
there is serious underdevelopment, and since it does not
concern projects of common European interest or the
and conservation. The only
promotion of
possible basis of compatibility appears to be Article
87(3)(c) of the EC Treaty. On that point, the Commission
first notes that this aid measure has been notified on the
basis of the environmental guidelines.

culture

recycling activities

that encouraging the devel-
(61) The Commission agrees
opment of waste
and therefore
increasing waste recycling is an environmental objective.
However further investigation is necessary to determine
whether the investment aid provided under this scheme
would fall under
in
particular concerning the following issues:

environmental guidelines,

the

— under point 29 of

the environmental guidelines,
investment aid may be given on the basis of these
guidelines when firms undertake investment in the
absence of mandatory Community standards or
where they have to undertake investment in order to
are more
comply with national
stringent
than Community ones. The Commission
notes that investment aid granted under the present
to enable the United
scheme is actually meant
Kingdom to fulfil
targets for Member
the general
States set by the EC Landfill Directive and the EC
Packaging Directive,

standards

that

— as already stated in its decision of 2 October 2002 on
case C 61/2002 (ex N 196/2002) on the aid granted
to Shotton Paper under the WRAP Environmental
Scheme,
the Commission has generally interpreted
that investment aid approved under the environmental
guidelines
and
pollution caused by the beneficiary in the course of
its production process. The Commission notes that the
objective of
to make
Its environmental
recycling activities less polluting.
benefits are more indirect:
the
operation of these recycling activities will result in a

the present measure is not

is expected that

reducing the

emissions

aims

at

it

greater selective collection of waste,a decrease in waste
disposal
to landfills and a decrease in the use of
primary raw materials, according to the information
provided by the British authorities. As in case C
the
61/2002,
environmental guidelines apply to such cases.

the Commission doubts whether

the

scheme,

to the present

scheme. Point 37 of

(62) Even if the environmental guidelines were found to be
applicable
the Commission
the way in which the
would still have doubts about
United Kingdom proposes to calculate the eligible costs
under
environmental
the
guidelines states that
‘eligible costs must be confined
strictly to the extra investment costs necessary to meet
the environmental objectives’. Under the WRAP environ-
mental scheme, the British authorities have included in
the calculation of the eligible costs the entirety of the
investments linked to the recycling activity. That does
not seem to be in line with the principle laid down in
the environmental guidelines. The British
point 37 of
authorities have indicated that
from
these eligible investment costs any benefits accruing to
the
five-year period.
the aid over
However, they have provided no clear explanation on
the way these benefits will be calculated in practice. For
these reasons, at this stage and based on the information
available, the Commission has doubts whether the defi-
nition of the eligible costs is in conformity with point 37
of the environmental guidelines.

they will deduct

recipients of

a

the opinion that

(63) The British authorities structured the scheme on the basis
of the environmental guidelines, and at this stage, no
other legal basis for compatibility seems to be applicable,
apart from a direct application of Article 87(3)(c) of the
EC Treaty. Under this Article, aid can be considered to be
compatible with the common market when it is meant to
facilitate the development of certain economic activities or
of certain economic areas, where such aid does not
adversely affect trading conditions to an extent contrary
to the common interest. At this stage, the Commission is
of
the direct application of Article
87(3)(c) of the EC Treaty to the WRAP environmental
scheme should be done in the light of the principles on
environmental aid laid down in environmental guidelines.
In particular, the Commission notes that, as underlined in
points 14 to 18 of these guidelines, the best policy in
favour of the environment is the internalisation of costs
and State aid is only a temporary second-best solution.
The British authorities have indicated that they have taken
some measures in the sense of an internalisation of costs,
including a tax on landfill disposal. However, they have
not sufficiently explained why these measures are not
sufficient and need to be complemented by State aid
under the present aid measure in order to encourage
waste collection and recycling. They have not shown
either that
trading
common
conditions
interest. Therefore, at this stage, the Commission doubts
whether
this scheme could be considered compatible
directly on the basis of Article 87(3)(c) of the EC Treaty.

this aid does not adversely affect
to an extent

contrary to the

3.3. Assessment of the WRAP pilot investment fund

(64) The assistance provided under the pilot fund will take the
form of
equity of SMEs. The
in the
Commission has therefore examined this scheme in the

investments

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light of its Communication on State aid and risk capital
(hereafter ‘the communication’) (14).

3.3.1. Existence of aid

(65) The large majority of the capital of the Fund is provided
by WRAP, which is a public funded body. Consequently,
this measure is financed by State resources within the
meaning of Article 87(1) EC. According to the Communi-
cation, the presence of aid must be assessed at three
levels: the private investors in the fund, the fund and
the firms invested in.

(66) As

as

far

are

investors

concerned,

the private

in particular a waiver of

the
Commission notes that they will receive some economic
advantages,
the entrance fee.
[. . .] (*). Furthermore, it is not certain that the conditions
of selection of
these investors will guarantee that all
potentially interested investors will be aware of the possi-
bility to invest in the Fund. It implies that the economic
advantage received by the investors may also be selective.
Finally, investment in risk capital is an activity that is the
object of considerable trade between Member States.
Consequently, this measure affects trade between Member
States. For these reasons, this measure constitutes an aid
within the meaning of Article 87(1) EC to the investors.

(67) As

far as

the fund is concerned, according to the
Communication, a risk capital
fund may have
the
in
character of an independent beneficiary of aid,
particular when it is an existing fund. This is not the
present case. This fund may be an independent
legal
entity but it can be considered as a mere vehicle of aid.

(68) As far as the enterprises invested in are concerned,

to

the

British

authorities,

the
Communication provides that existence of an advantage
to these enterprises depends on whether the terms on
which the pilot fund makes its investments would be
acceptable to a private investor in a market economy.
According
investment
decisions will be profit driven, and it is not excluded
that they will not be, in certain cases, at pari passu. But
even then, the Commission must take into account the
possibility any advantage granted to the investors in the
Fund is passed on to the enterprises invested in. In the
present case, the advantages that will be granted to the
investors (see point 66) will reduce the risks and/or
increase the rewards that
these investors will obtain
from making a particular investment. As a result, the
investors may no longer be considered to be operating
as a normal market operator.
the
Commission notes that there is general
lack of interest
investors in investing in the sectors on
of risk capital
which this fund will be focussed, as clearly appears
from the
authorities.
of
Furthermore, it appears that the pilot fund's investment
decisions will be subject
to non-market constraints in
order to ensure that the environmental objectives of the
Fund are achieved. Amongst these constraints, one can
mention the fact that the pilot fund will only be able to
invest in SMEs concerned with waste recycling, or the fact
that the it will have to consider positively projects which
have been turned down for funding, in part or in full, by
the private sector. On the basis of these elements, the
Commission can conclude that the terms on which the

In this context,

the British

submissions

(14) OJ C 235, 21.8.2001, p. 3.

pilot fund makes its investments would not be acceptable
to a private investor in a market economy. Therefore, the
firms invested in by the fund will get an economic
advantage, which is selective since the interventions of the
Fund are limited to certain types of projects and firms.
Finally, these firms will be specialised in the recycling of
various types of waste products. Some of them, like glass,
plastics and especially paper, are clearly the object of
trade between Member States, which may therefore be
affected by this measure. For these reasons, this measure
also constitutes an aid within the meaning of Article 87(1)
EC to the enterprises invested in by the fund.

3.3.2. Compatibility of the measure with the EC Treaty

(69) According to point VI.5 of

the Communication,

the
Commission requires provision of evidence of market
failure before being prepared to authorise risk capital
measures which fall outside the scope of existing rules.
The Commission is however prepared to believe this is
the case where each tranche of finance for an enterprise
will not exceed EUR 500 000, or EUR 750 000 in
regions qualifying for assistance under Article 87(3)(c)
or EUR 1 million in regions qualifying for assistance
under Article 87(3)(a). These conditions are fulfilled
under the present case, which enables the Commission
to conclude that the WRAP pilot will
focus on areas
where there is a market failure.

(70) Furthermore, point VIII lays down a certain number of

other criteria of appreciation of compatibility:

(71) Types of companies invested in: The fact that the fund will
essentially focus on small firms or medium-sized enter-
prises in their early stages is a positive element. The fund
may occasionally provide finance to medium-sized enter-
prises beyond their early stages, but only when they
expand into recycling for the first time or test a new
process, which may regarded as acceptable under the
Communication.

(72) Limits on the total funding per enterprises. The total funding
available to a single enterprise from all risk capital funds
which contain State aid will be set at EUR 500 000 in
non-assisted areas, EUR 750 000 in regions qualifying for
assistance under Article 87(3)(c), and EUR 1 million in
regions qualifying for assistance under Article 87(3)(a).
This is in conformity with the Communication. The
British authorities also indicated that the total funding
for medium-sized companies beyond their start-up or
at GBP 500 000
early
(approximately EUR 750 000). The
for
investments
type of companies was already
accepted by the Commission in its decision of 20
December 2001,
in case N 722/2000, Coalfields
Enterprise Fund (UK) and can therefore be allowed in
the present case.

stages will

in this

capped

same

limit

be

(73) The measure should be focused on risk capital measure. The
Commission notes that the Funds' investments will take
the form of equity or quasi-equity participation in the
suitable SMEs, which is regarded as a positive indication
that the measure is focussed on a risk capital market
failure.

(74) Decisions

to invest

should be profit driven. Under

the
communication, this is assumed to be met when there
is a significant involvement of market economy investors'
capital. Provision of 50 % of a fund's capital by private

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Official Journal of the European Union

3.6.2003

by

for

that

interest

the Communication

investors is taken to constitute ‘significant involvement’,
or 30 % in assisted areas. The pilot fund will operate all
including in non-assisted areas. A 50 %
over England,
private participation would therefore be
expected.
During the course of the notification process, the British
authorities did market research to assess the likelihood of
the fund. The research
for
finding private investors
demonstrated the total
from private
lack of
investors in investing in a fund targeting the recycling
sector. The United Kingdom therefore proposed that the
pilot fund would be entirely publicly funded. Following
discussions with the Commission, they finally committed
themselves to ensure a 20 % private participation in the
fund. This level of participation is lower than what is
funds
recommended
operating in assisted areas. However, on the basis of the
information provided by the British authorities,
the
there is a serious market
Commission accepts
in the waste
failure in the provision of risk capital
recycling sector. Furthermore, as already stated,
the
Commission accepts
the development of waste
recycling activities could make a positive contribution to
the achievement of environmental objectives. In the same
way that a lower private participation is allowed for the
objective of regional development (the Communication
allows for a lower private participation in risk capital
funds operating in assisted areas),
the Commission
believes that, mutatis mutandis, a lower level of partici-
this Fund, given its
pation could be
contribution to environmental objectives. In this context,
given the specificity of this case and the efforts made by
the British authorities to seek some level of private
participation in the pilot fund, the Commission believes
sufficient
that
involvement of the private sector. Finally, the Commission
also notes that the fund manager's remuneration will be
linked to the performance to the fund. For all
these
the decisions
the Commission concludes that
reasons,
taken by this Fund will be sufficiently profit driven.

this 20 % participation constitutes a

allowed for

that

(75) The level of distortion of competition between investors should
be minimised. This is guaranteed by the fact
the
selection of the private investors and the determination
of the preferential terms they will get will be done by
open tender.

that

(76) Sectoral focus. This fund will focus on specific sectors, i.e.
sectors specialised in the recycling of various types of
waste. Nevertheless, these sectors appear to be sufficiently
diversified, since they involve very different
types of
products (glass, paper, wood, plastics, etc.). In any case,
a sectoral focus is allowed under the Communication if it
has a public policy logic. This is the case of this fund
which fulfils an environmental objective.

(77) Rules on cumulation. The commitments in terms of cumu-
lation made by the British authorities on that case are
identical to those already accepted by the Commission,
for example in case N 606/2002 Community Devel-
opment Venture Capital Fund, and can therefore be
regarded as satisfactory.

(78) For these reasons, the Commission can conclude that this
considered

aid measure
the
compatible under Article 87(3)(c) of the EC Treaty.

to the

criteria

fulfils

3.4. Assessment of the WRAP lease guarantee fund

3.4.1. Existence of aid within the meaning of Article 87(1) EC

(79) The lease guarantee fund will be entirely funded by
WRAP. This measure can therefore be considered as
being financed by State resources within the meaning of
Article 87(1) of the EC Treaty.

(80) The Commission notes that the guarantee fund provides
guarantees that cover leases of machinery and equipment
for the purpose of reprocessing recyclable materials or
manufacturing products from those materials. It enables
firms that want to acquire this equipment to obtain a
that are more favourable than
lease on conditions
normally available on the market. Since the lessees do
not pay any premium for this guarantee,
they clearly
get an economic advantage from this measure. This
economic
firms
operating in the sectors of waste recycling will benefit
from the application of
the
products manufactured by these companies may be inter-
nationally traded, so this aid measure may therefore have
an effect on competition and trade between Member
States. For these reasons, the Commission can conclude
that
this aid measure constitutes an aid within the
meaning to Article 87(1) EC to the lessees.

this Fund. Furthermore,

since only

advantage

specific,

is

(81) The Commission notes that the lease guarantees are given
ex ante, and not ex post. It therefore concludes that the aid
beneficiary is the lessee, not the lessor.

3.4.2. Compatibility of the aid measure with the EC Treaty

(82) Having established that this aid measure constitutes aid
within the meaning of Article 87(1) of the EC Treaty, the
Commission needs to consider whether this scheme can
be found to be compatible with the common market.

(83) Since State aid provided by this fund is under the form of
guarantees, it must first be analysed on the basis of the
Commission notice on State aid in the form of guarantees
(hereafter ‘the notice’) (15). The Commission notes that the
fund's lease guarantee will not exceed 80 % of the lessee's
exposure and is expected to be much lower than that,
which is in conformity with point 3.4 of the notice.
The Commission also notes that the WRAP lease guar-
specific contractual
antees will only be mobilised if
conditions
lessee becomes
i.e.
bankrupt or if the asset realises less than the residual
value being guaranteed. This again is in conformity with
point 5.3 of the notice.

satisfied,

the

are

if

(84) Furthermore, point 3.2 of the notice states that the cash
grant equivalent of the loan guarantee can be taken to be
the difference between the outstanding sum guaranteed,
multiplied by the risk factor and any premium paid. The
Commission notes that the British authorities have based
the calculation of the grant equivalent of the specific type
of guarantees granted under this scheme on this method
and have applied a relatively high default rate (30 %). For
these reasons, the Commission considers that the calcu-
lation of the grant equivalent, and consequently the calcu-
lation of the aid intensity of this guarantee are correct.

(15) OJ C 71, 11.3.2000, p. 16.

3.6.2003

EN

Official Journal of the European Union

C 129/17

The SME section of the guarantee fund

the
(85) When Regulation (EC) No 70/2001 is applicable,
British authorities have undertaken to ensure that
the
conditions laid down in this regulation will be respected.
It is understood that the large majority of projects that
will benefit from the assistance of the guarantee fund will
concern SMEs and the regional and environmental section
of the Guarantee assessed below will be ancillary.

The regional section of the guarantee fund

(86) When the beneficiaries are large firms in areas covered by
Article 87(3)(a) or Article 87(3)(c) of the EC Treaty, the
Commission notes
the British authorities have
structured the scheme on the basis of regional guidelines
and in particular that:

that

— these guarantees will cover leases of machinery and/or
equipment that have a duration of least five year and
can therefore be considered as investment aid. The
British
initial
undertook
investment will be aided,

authorities

only

that

— the British authorities undertook to respect all the
conditions laid down in regional guidelines concerning
aid
the
requirement that the investment should be maintained
for at least five years in the region concerned,

cumulation,

intensities,

eligible

costs,

3.5. Assessment of
Association

the support

to the Composting

(90) The Composting Association will receive GBP 95,000 in
order to develop a quality standard for compost products
and accreditation process, and to encourage the industry
to make a wide implementation of the standard. This
standard will be made generally available by WRAP
which will assume the intellectual property rights to all
further work carried out by the Composting Association
on the standard and accreditation process. In this circum-
stances, the Commission considers that the development
of
the publicly available standard and accreditation
process does not constitute an economic activity that is
likely to fall within the scope of Article 87(1) of the EC
Treaty and therefore,
the aid provided to Composting
Association does not constitute aid within the meaning
of that article.

3.6. Assessment of the Business Development Service,
to

and Advice

Initiative

Exemplar Companies
Composting Firms Initiative

(91) The British authorities have agreed to provide aid under
these three programs on the basis of Commission Regu-
lation (EC) No 69/2001 on de minimis aid. Therefore, this
assistance does not constitute State aid within the
meaning of Article 87(1) of the EC Treaty.

— furthermore,

that
operating in sensitive sectors will be excluded.

the Commission notes

firms

IV. CONCLUSION

(87) The Commission can conclude the regional section of the
in conformity with the regional

fund is

guarantee
guidelines

The environmental section of the guarantee fund

instance when it

(88) When the aid does not fall under either Commission
Regulation (EC) No 70/2001 or the regional guidelines
(for
is provided to large firms in
non-assisted areas),
the British authorities propose to
grant the aid on the basis of the Guidelines on State aid
for environmental protection. The Commission notes that
the types of investments targeted by this Fund are similar
to the ones targeted by the WRAP environmental scheme.
Under point 3.2.2 of this decision, the Commission has
already explained why it has doubts concerning the appli-
cability of the environmental guidelines to this type of
investment aid. For the same reasons, at this stage, the
these
Commission has doubts on the applicability of
guidelines
the
British authorities have not provided any information
on the compatibility of the aid measure with the environ-
mental guidelines, and in particular on the conformity of
the eligible costs of this measure with point 37 of the
environmental guidelines. Therefore, the Commission also
expresses doubts on the compatibility of the measure with
these guidelines if they are found to be applicable.

fund. Furthermore,

to the guarantee

(89) To conclude, the Commission can conclude that this aid
measure fulfils the criteria to be considered compatible
under Article 87(3) of the EC Treaty, except when it is
applied on the basis of the environmental guidelines.

(92) In the

light of
Commission decides that:

the

foregoing

considerations,

the

— the support

to the Composting Association,

the
Business Development Service, Exemplar Companies
Initiative
to Composting Firms
and the Advice
Initiative do not constitute State aid,

scheme,

regional

fund and the part of

the WRAP pilot
— the WRAP
the WRAP lease
investment
guarantee fund that
is notified on the basis of
Commission Regulation (EC) No 70/2001 or on the
basis of the Guidelines on national regional aid are
compatible with the EC Treaty.

(93) With respect to WRAP environmental scheme and the
part of the lease guarantee fund that is notified on the
basis of the Guidelines on State aid for environmental
protection, the Commission, acting under the procedure
laid down in Article 88(2) of the EC Treaty, requests the
United Kingdom to submit its comments and to provide
all such information as may help to assess the measure,
within one month of the date of receipt of this letter. It
requests the United Kingdom authorities to forward a
copy of this letter to the potential recipients of the aid
measure immediately.

(94) The Commission wishes to remind the United Kingdom
that Article 88(2) of the EC Treaty has suspensory effect,
and would like to draw attention to Article 14 of Council
Regulation (EC) No 659/1999, which provides that all
unlawful aid that is found to be incompatible with the
common market may be recovered from the recipient.’