State aid — United Kingdom — Aid C 30/03 (ex N 788/02) — Peugeot Ryton — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2003-06-24
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, motor vehicle industry

C 147/2

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Official Journal of the European Union

24.6.2003

STATE AID — UNITED KINGDOM

Aid C 30/03 (ex N 788/02) — Peugeot Ryton

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

(2003/C 147/02)

(Text with EEA relevance)

By means of the letter dated 30 April 2003 reproduced in the authentic language on the pages following
this summary, the Commission notified the United Kingdom of its decision to initiate the procedure laid
down in Article 88(2) of the EC Treaty concerning the abovementioned aid.

Interested parties may submit their comments on the aid 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 Greffe
Rue de la Loi/Wetstraat, 200
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.

TEXT OF SUMMARY

The authorities of the United Kingdom, notified pursuant to
Article 88(3) of the EC Treaty on 16 December 2002, a plan to
grant regional aid to Peugeot Citroën Automobiles UK Ltd
(hereafter Peugeot). Peugeot
the French
group PSA Peugeot Citroën.

is a subsidiary of

The notified project concerns the investment necessary for the
production of the replacement model of the current Peugeot
206. The project takes place at the existing PSA plant in Ryton,
in the West Midlands region. Ryton-on-Dunsmore is an Article
87(3)(c) area, whose regional ceiling is 10 % NGE for the 2000
to 2006 period.

The planned start of the project in the notification is 2003, and
the planned completion date 2008. According to the auth-
orities of the United Kingdom the project involves the trans-
formation of the existing facilities, and requires investments for
GBP 187,760 million in nominal terms.

the United Kingdom,

the
According to the authorities of
project is mobile, and PSA is considering the alternative site
of Trnava,
in Slovakia. Trnava has been chosen in January
2003 as the location of a greenfield plant that will in 2006
start production of small cars of
the same type as those
destined to Ryton. According to the authorities of the United

Kingdom, PSA is considering whether to expand projected
capacity at Trnava, while phasing out production at Ryton
[. . .] (1).

The notified aid is granted under
the approved Regional
Selective Assistance scheme, amounts to GBP 16,195 million
in actualised value (base year 2002,
gross grant equivalent
discount
to
investments
Eligible
GBP 165,017 million in actualised values. Therefore, the aid
intensity notified by the authorities of the United Kingdom is
9,81 % gross grant equivalent.

rate 6,01 %).

amount

The Commission doubts that the project respects the necessity
and proportionality requirements as detailed in the Community
framework on State aid to the motor vehicle industry.

for necessity,

the Commission doubts

As
that Trnava
constitutes a viable alternative for the project. The authorities
of the United Kingdom have not submitted a location study
comparing the two locations, or
sufficient circumstantial
evidence proving that it is actively pursuing the alternative
location. This information is needed to assess whether the
project is mobile, a prerequisite for necessity.

(1) Business Secret

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As for proportionality, the Commission doubts that the cost
benefit analysis provided to show that the Trnava alternative
would be more convenient for PSA is complete. In particular:

— at this stage, it is not sufficiently proven that investment
costs in Trnava are lower than in Ryton. In particular, no
land costs have been included in the CBA (notwithstanding
the fact that Trnava is a greenfield site), and costs for
substantially
building, machinery
lower than in Ryton,

and equipment

are

5. The planned start of the notified project is 2003, and the
planned completion date 2008. According to the auth-
orities of the United Kingdom, the project involves the
installation of new (paintshop, metal finish) or transformed
final
(bodyshop retooling for
lines for the production of the new [. . .] (*)
assembly)
model.
improved
environmental, working and safety conditions, and a new
car park for finished vehicles. According to the United
to
Kingdom,
GBP 187,760 million in nominal terms.

required investment will amount

Infrastructure works will

the different platform,

include

total

— the reported cost advantage of Trnava for materials and

equipment is not based on documented evidence,

— the reported regional handicap ratio in Ryton has not been
adjusted to take into account
the increase of PSA's
production capacity in Europe during the duration of the
project, as required by the motor vehicle framework.

TEXT OF LETTER

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

1. PROCEDURE

1. By letter dated 16 December 2002 the authorities of the
United Kingdom notified a plan to grant regional aid to
Peugeot Citroën Automobiles UK Ltd (hereafter Peugeot).
The Commission requested further
information on 7
February 2003, which was provided by the authorities of
the United Kingdom by letter dated 7 march 2003 and
registered on 14 March.

6. According to the authorities of the United Kingdom, the
project is mobile, and PSA is considering the alternative
site of Trnava, in Slovakia, for the project. PSA announced
in January 2003 that Trnava has been chosen as the
location for a greenfield investment. The new Trnava
plant will start production in 2006, and will produce
300 000 small cars/year of the [. . .] (*) type. According
the United Kingdom, PSA is
to the authorities of
considering whether
to expand projected capacity at
Trnava, while phasing out production at Ryton [. . .] (*).

Legal basis, investment and aid amounts

7. The project takes place at the existing PSA plant in Ryton,
in the West Midlands region. Ryton-on-Dunsmore is an
Article 87(3)(c) area, whose regional ceiling is 10 % NGE
for the 2000 to 2006 period.

8. The notified aid is granted under the approved Regional
Selective Assistance scheme (2) with the legal basis in
section 7 of Industrial Development Act of 1982.

9. The proposed aid takes the form of a direct grant, and
would be paid over the 2003 to 2008 period. It amounts
to nominal GBP 19,1 million gross grant equivalent, with
an actualised value of GBP 16,195 million gross grant
equivalent
rate 6,01 %).
Eligible investments amount to GPB 187,760 in nominal
values, and to GBP 165,017 million in actualised values.
Therefore, the aid intensity notified by the authorities of
the United Kingdom is 9,81 % gross grant equivalent.

year 2002, discount

(base

2. DESCRIPTION OF THE MEASURE AND ITS RECIPIENT

10. According to the notification, no other Community aid or

2. The planned aid would be granted to Peugeot, a subsidiary
of the French group PSA Peugeot Citroën (hereafter PSA).
PSA designs, manufactures and sells motor vehicles.
In
2002 PSA sold 3 267 500 vehicles, achieving a turnover
of EUR 54,436 billion, and an operating margin of
EUR 2,913 billion.

The project

3. The notified project concerns the investment necessary for
the replacement model [. . .] (*) and

the production of
derivatives of the current Peugeot 206.

4. Current capacity at

the Ryton plant

is of 183 500
vehicles/year. The plant produced 190 000 Peugeot 206
in 2001. After introducing a fourth shift
it
plans to reach production of 230 000 vehicles in 2003.
The current 206 model will be phased out in 2006, with
the introduction of a replacement model that will use a
new platform. Capacity at the plant is foreseen to remain
constant at 183 500 vehicles/year.

in 2002,

financing has been allocated to the project.

3. ASSESSMENT OF THE AID

11. In accordance with Article 6(1) of Council Regulation (EC)
No 659/1999 of 22 March 1999, the decision to initiate
proceedings shall summarise the relevant issues of fact and
law, shall
from the
include a preliminary assessment
Commission as to the aid character of
the proposed
measure, and shall set out the doubts as to its compati-
bility with the common market.

represents a significant proportion of

12. The Commission considers, at this stage of the procedure,
that the measure constitutes State aid within the meaning
of Article 87(1) of the EC Treaty. It would be financed by
the State or through State resources; moreover, given that
it
the project
funding,
is likely to distort competition within the
Community, giving an advantage to Peugeot over other
for
receiving aid. Finally,
companies not
trade
characterised by
is
vehicles
motor
between Member States.

the market
extensive

it

(*) Business secret.

(2) Commission Decision of 25 April 2000 not to raise objections on

the case N 731/2000 (OJ C 211 of 28 July 2001, p. 48).

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13. 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, subparagraphs (a), (b) and (c) are not applicable
to the plan in question. 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 the area of Ryton-on-Dunsmore, which
qualifies
for assistance under Article 87(3)(c), with a
maximum regional ceiling of 10 % NGE.

14. The aid in question is intended for Peugeot, which manu-
factures and assembles cars. The firm is therefore part of
the motor vehicle industry within the meaning of
the
Community framework on State aid to the motor vehicle
industry (hereinafter the car framework) (3).

15. The car framework specifies that aid which the public
authorities plan to grant to an individual project under
an authorised aid scheme for a firm operating in the
motor vehicle industry must, in accordance with Article
88(3) of the Treaty, be notified before being granted if
either of
total
the following thresholds is reached:
(i)
(ii) total
cost of the project equalling EUR 50 million,
gross aid for the project, whether State aid or aid from
Community instruments equalling EUR 5 million.

16. Both the total cost of the project and the amount of aid
exceed the notification thresholds. Thus, in notifying the
proposed aid for Peugeot, the authorities of the United
Kingdom have complied with the requirements of Article
88(3) of the Treaty.

17. According to the car framework, the Commission shall
ensure that the aid granted is both necessary for the real-
isation of the project and proportional to the gravity of the
problems it intended to solve. Both tests, necessity and
proportionality, must be satisfied if the Commission is to
authorise State aid in the motor vehicle industry.

18. According to point 3(2)(a) of the car framework, in order
the aid
to demonstrate the necessity for regional aid,
recipient must clearly prove that it has an economically
viable alternative location for its project. If there were no
other industrial site, whether new or in existence, capable
of receiving the investment in question within the group,
its
the undertaking would be compelled to carry out
project in the sole plant available, even in the absence of
aid. Consequently, no regional aid may be authorised for a
project that is not geographically mobile.

19. In order to assess mobility of the project, the Commission
requires all available documentary evidence that can
demonstrate the existence of a viable geographical alter-
native for the project. In particular, plant location studies
should be provided wherever possible.

20. The Commission doubts at this stage that Trnava can be
considered as a viable alternative to Ryton for the project
in question. Even though the Commission formulated a
request in this sense in its letter of 7 February 2003, a
location study comparing the two locations has not been
submitted, nor has sufficient circumstantial evidence that

(3) OJ C 279, 15.9.1997.

Trnava is a viable alternative. In their letter of 7 March
2003, the authorities of the United Kingdom affirm that
the Trnava location has been decided on the basis of a
feasibility
the
study. The Commission needs,
assessment of the case, to evaluate the location study for
what regards the investment project under scrutiny.

for

21. Regional aid intended for modernisation and rational-
isation, which is generally not mobile, is not authorised
in the motor vehicle sector. However, an expansion or
transformation, involving a radical change in production
structures on the existing site could be eligible for regional
the authorities of the
aid. The Commission notes that
United Kingdom consider
to be a trans-
the project
involving completely new machinery and
formation,
equipment. The Commission has
the
planned project does not include any elements of modern-
isation, which is not eligible for aid.

to verify that

22. According to point 3(2)(c) of

the car framework the
Commission needs to ensure that the planned aid is in
proportion to the regional problems it
is intended to
resolve. For that, a cost-benefit analysis method (here-
inafter referred to as CBA) is used.

23. A CBA compares, concerning the mobile elements, the
costs that an investor would bear in order to carry out
the project in the region in question with those it would
location.
bear
Through this comparison,
the Commission determines
the specific handicaps of the assisted region concerned.
The Commission authorises regional aid within the limit
of these regional handicaps.

for an identical project

in a different

24. In accordance with point 3(2)(c) of the car framework,
operating handicaps of Ryton as compared to Trnava are
assessed over three years in the CBA since the project in
question is not a greenfield site. The period covered by the
submitted CBA is 2006 to 2008, that is three years from
the beginning of production in compliance with point 3(3)
of Annex I to the car framework. Using 2002 as the
the notified CBA indicates a net cost
reference year,
the location in
handicap of GBP 17,568 million for
Ryton in comparison with the
location in Trnava.
Consequently, the ‘regional handicap ratio’ of the project
would be 10,65 %.

25. The Commission has assessed the information contained in
the CBA provided and it notes that further explanations
are necessary before it can reach a final decision. This
relates in particular to the calculation of eligible costs;
the difference in investment costs for land, buildings,
machinery and equipment;
for vendor
tooling; the operating costs for components and materials;
and the incidence of redundancy costs.

the investment

26. According to point 3(2)(b) of the car framework, eligible
costs are defined by the regional scheme applicable in the
assisted region concerned. In this case, the authorities of
the United Kingdom have
eligible
investments amount to GBP 174,934 million in actualised
values. In order to compare the handicap intensity and the
aid intensity to the regional ceiling, the Commission needs
to know the depreciation methods used for the eligible
investments respectively in land, buildings and machinery,
and the taxation levels to which the beneficiary is subject.

considered that

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27. Regarding

the

specifically

comparison between the
investment costs of land, the Commission notes that the
authorities of the United Kingdom estimate such costs to
be zero in Trnava, since within the overall Trnava project,
the land purchased will be large enough to allow the
extension to accommodate the production of
the 206
replacement. The Commission doubts however that no
land costs should be taken into account. PSA undoubtedly
has to purchase the land for the greenfield Trnava site, and
land that will be used for the 206
the proportion of
replacement should be counted as a cost of that project.

in Slovakia

the authorities of

they are due to general

28. Regarding the higher investment costs for buildings in
the United
Ryton than in Trnava,
lower
Kingdom affirm that
construction costs
than in the United
Kingdom, and to the fact that in Trnava the investments
will be limited to only extension of the buildings planned.
In Ryton, some buildings can be used for the projects, but
including a new
many new buildings are necessary,
this stage,
paintshop. The Commission doubts that, at
the cost differential has been sufficiently justified.
In
order to verify this point, the Commission needs detailed
information on which buildings are considered additional
for the 206 replacement project in Trnava, and which
buildings would be built in any event.

29. Similarly, the authorities of the United Kingdom affirm
that investment costs for machinery and equipment are
lower in Trnava, because the project there would consist
of an extension, whereas in Ryton it is a transformation.
The information supplied, however, does not allow to
understand why in Ryton the investment
in the body
shop will be three times higher than in Trnava, and the
investment in the assembly line twice as high. Given that
all machinery and tools will be new in both cases, the
Commission finds that the cost differential has not, at
stage, been sufficiently justified. More detailed
this
including a clarifi-
information is needed on this issue,
cation on the how the additional production in Trnava
could be integrated within the facilities already foreseen
at the plant.

30. Regarding investment costs for vendor tooling, the auth-
orities of the United Kingdom affirm that, for the two
alternatives, PSA would invest in some of the suppliers
tooling, and that the initial amount of investment will be
approximately the same for Ryton as for the alternative
solution. The Commission needs to know whether this
investment has been counted within the eligible costs. In
the affirmative case, the exact amount of the investments
in vendor
the
investments, and the names of the suppliers involved are
needed to determine the eligible costs.

tooling, as well as

location of

the

31. Regarding the operating costs

for

components

and
materials, the authorities of the United Kingdom affirm
that
the alternative solution in Trnava would allow
savings for this item, since automotive parts bought in
CEECs countries are cheaper than parts bought in the
United Kingdom with the same definition.
In order to
verify this point,
the Commission needs a detailed
description of the components and materials the auth-
orities of the United Kingdom refer to, as well as docu-
mental evidence of the existing price differences between
the United Kingdom and the CEECs.

32. As regards the redundancy costs, the Commission notes
that according to the information provided, the choice of
Ryton for the realisation of the project would safeguard a
considerable number of
the
Commission believes that redundancy costs should be
incorporated in the CBA analysis as additional costs for
the alternative location in Trnava. Such costs should reflect
the normal practice as regards major workforce layoffs.

reason,

jobs.

this

For

33. The authorities of

the United Kingdom affirm that
redundancy costs have been included in the CBA as part
of
the ‘transitory costs’ voice, and have provided a
breakdown of such costs. The Commission is however
not in the position, at this stage, to verify the credibility
of the figures provided. To this end, the Commission needs
a detailed account of the redundancy costs that would
arise in the event of the closure of the Ryton plant. The
account
an itemised estimation of
redundancy costs for the different categories of workers
at Ryton.

should include

34. Finally,

the Commission in its analysis considers the
question of a ‘top-up’, which takes into account
the
expansion or reduction in capacity for the motor vehicle
producer in question during the investment period. An
increase in the regional handicap ratio resulting from the
CBA is authorised on condition that the beneficiary of the
aid does not increase the capacity problems facing the
motor vehicle industry. Conversely, the regional handicap
ratio resulting from the CBA is reduced if the aid bene-
ficiary potentially aggravates the overcapacity problem of
the industry.

the location choice of

35. The authorities of the United Kingdom affirm in the notifi-
cation that
the project under
influence PSA's overall production
scrutiny will not
capacity. While this statement is true, the Commission
notes that the top-up is calculating comparing European
production capacity of the producer in question before
and after the project. According to the documentation
provided, PSA's capacity will be considerably expanded
with the new facilities in operation at Kolin (200 000
cars/year for PSA) and in Trnava (300 000 units), while
no corresponding capacity cuts at other European plants
are foreseen. Consequently, the ‘regional handicap ratio’
resulting from the CBA will be reduced by 2 %. Only aid
intensities up to the regional handicap ratio adjusted by
the top up will be deemed compatible with the common
market.

4. CONCLUSION

36. In the

the

light of

foregoing

considerations,

the
Commission, acting under the procedure laid down in
the United
Article 88(2) of
requests
Kingdom to submit
its comments and to provide all
such information as may help to assess the aid, within
one month of the date of receipt of this letter.

the EC Treaty,

37. The Commission requests your authorities to forward a
copy of this letter to the potential recipient of the aid
immediately.

38. The Commission wishes to remind The United Kingdom
that Article 88(3) of the EC Treaty has suspensory effect,
and would draw your attention to Article 14 of Council
Regulation (EC) No 659/1999, which provides that all
unlawful aid may be recovered from the recipient.’