2003/814/EC: Commission Decision of 23 July 2003 on the State aid C 61/2002 which the United Kingdom is planning to implement for a newsprint reprocessing capacity support under the WRAP programme (notified under document number C(2003) 2010) (Text with EEA relevance)
Date: 2003-07-23
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, paper, waste recycling

L 314/26

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Official Journal of the European Union

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COMMISSION DECISION

of 23 July 2003

on the State aid C 61/2002 which the United Kingdom is planning to implement for a newsprint
reprocessing capacity support under the WRAP programme

(notified under document number C(2003) 2010)

(Only the English text is authentic)

(Text with EEA relevance)

(2003/814/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

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

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

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
their comments,

Whereas:

1. PROCEDURE

(1)

2001

under

and resources

complaint was

number A/40145,

action programme
registered

By letter dated 20 December 2001 and registered on 21
December
the
Commission received a complaint about a planned aid
measure by the United Kingdom government for the
erection of a newsprint reprocessing facility under the
(hereafter
Waste
‘WRAP’). The
the
Commission under number CP 219/01. Following that
complaint, the Commission asked the United Kingdom
for clarification by letter dated 24 January 2002 and
registered under number D/50289. The United Kingdom
replied by letter dated 5 February 2002, and registered
on 7 February 2002 under number A/30923. The
Commission asked further questions by letter dated 14
February 2002, and registered under number D/50655.
The United Kingdom replied by letter dated 7 March
2002, and registered on 11 March 2002 under number
A/31885.

by

(1) OJ C 283, 20.11.2002, p. 7.

By letter dated 20 March 2002, and registered on 20
March 2002, under number A/32132,
the United
Kingdom authorities notified the Commission of an aid
project for a newsprint reprocessing capacity under the
WRAP. The notification was registered under number N
196/02. The Commission informed the United Kingdom
authorities that the notification was considered to be
incomplete, and asked for further information by letter
dated 15 May 2002 and registered under number
D/52364. The United Kingdom submitted the answers
by letter dated 14 June 2002, and registered on 19 June
2002 under number A/34497. By letter dated 26 July
2002, and registered on the same date under number
A/35727, the United Kingdom asked for a meeting, and
agreed to extend the time limit for the Commission to
take a decision until 20 October 2002. A meeting was
held on 29 August 2002 between the Commission and
representatives of the United Kingdom government and
the WRAP programme. The United Kingdom
of
provided
dated
information
6 September 2002 and registered on 9 September 2002
under number A/36527.

further

letter

by

(3)

(4)

(5)

scheme was

By letter dated 16 July and registered on the same day
under number A/7212, the United Kingdom notified the
WRAP scheme. That
registered under
number N 474/02. The Commission took the decision
to approve part of the scheme, and to open the formal
investigation procedure with regard to the remaining
part on 20 March 2003. The procedure was registered
under number C 21/03, and will be the subject of a
separate decision.

By letter dated 4 October 2002,
the Commission
informed the United Kingdom that it had decided to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of the aid measure. The case was
registered under number C 61/02.

By letter dated 24 October 2002, and registered on 14
November 2002 under number A/38393, the United
Kingdom asked for an extension to the deadline for
submitting its comments. By letter dated 15 November

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Official Journal of the European Union

L 314/27

2002, and registered the same day under number
A/38470,
the United Kingdom replied to the letter
informing it of the initiation of the procedure.

(6)

(7)

(8)

(9)

The Commission decision to initiate the procedure was
published in the Official
the European
Communities. The Commission invited interested parties
to submit their comments on the aid.

Journal

of

The Commission received 19 comments from interested
parties within the time limit of one month. It forwarded
them to the United Kingdom, which was given the
opportunity to react, by letter dated 20 January 2003,
and registered under number D/50382. The United
Kingdom's comments were received by letter dated 20
February 2003, and registered on 21 February 2003,
under number A/31417.

On 20 March 2003, Commission officials visited the
UPM-Kymmene Shotton paper mill.

A meeting was held on 8 April 2003 between the
Commission and representatives of the UK government,
of the company involved and of the WRAP programme.
Following that meeting, the Commission sent further
questions to the United Kingdom by letter dated 15
April 2003 and registered under number D/52501.

(10)

The United Kingdom replied by letter dated 12 May
2003, and registered on 14 May 2003 under number
A/33317.

(11) A new meeting was held on 20 May 2003 between the
Commission and representatives of the UK government,
of the company involved and of the WRAP programme.
Following that meeting, the Commission asked further
information by letter D/54603 of 15 July 2003 and the
information by letters
further
United Kingdom sent
dated 23 May 2003 and 17 July 2003, registered under
numbers A/33640, A/33641 and A/35092.

2. DESCRIPTION OF THE MEASURE

2.1. The WRAP Programme

(12)

The aid is given within the framework of the Waste and
the
resources
to
the
information submitted by the United Kingdom,
programme and its executive body (hereinafter ‘WRAP’)

programme. According

action

have been established to promote efficient markets for
recycled materials and products, by stimulating demand
for recycled materials and products. WRAP's members
comprise the charity Wastewatch,
the Environmental
Services Association as well as the Secretary of State for
Environment, Food and Rural Affairs. It is responsible
for administering the aid, and is
funded by the
the period 2001 to 2004. WRAP
government
functions
and
implements government policies, although it has the
form of a private company. The financial support in
itself
is provided through the Waste and Resources
Environmental Body Limited (WREB), a subsidiary of
WRAP, with
of
beneficiaries.

to the government,

as an adjunct

responsibility

selection

the

for

for

(13)

In this case, WRAP wished to address the problem that
too much waste newsprint is being put into landfill
sites. In the UK newsprint sector, there is an established
demand for recycled products, but according to the
United Kingdom, a market failure has led to a shortage
of reprocessing capacity. The United Kingdom identified
the main cause of this market failure to be the lack of
sufficient
reprocessing capacity for waste newsprint,
which has led to difficulties in sourcing waste paper in
the last decade, and attendant price fluctuations (2). For
this reason, an increase in reprocessing capacity has
been hampered by lack of investor confidence. In order
to correct this market failure, WRAP decided to offer
to the private sector to increase newsprint
support
reprocessing capacity which utilises waste newspapers
and magazines as its raw material input.

2.2. The tender process

by

Community

(14) WRAP issued a competitive tender
public

in July 2001,
inspired
procurement
procedures (3), with a view to promoting the creation of
newsprint reprocessing capacity. The tender stipulated
two key conditions: first, the reprocessing facility had to
produce newsprint, and be located within the United
Kingdom. Secondly, the reprocessing facility had to use
an agreed tonnage of waste paper per year recovered

(2) According to the information submitted by the United Kingdom,
each time the recycling capacity increased in the United Kingdom,
the price of mixed waste paper and magazines increased. The
supply responds very slowly to the increasing demand, and causes
upward pressure on prices.

(3) According to the United Kingdom, since the process related to the
award of financial support rather than the procurement of a work,
supply or service, there could be no publication in the Official
Journal. The structure of the process was however inspired by the
Community procurement rules.

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for

from the municipal waste stream as raw material input
for the duration of the life of the facility. The agreed
tonnage had to be in excess of the aggregate amount of
waste paper used by the successful bidder in a previous
calendar year in its newsprint manufacturing facilities in
the agreed
the United Kingdom. WRAP's target
tonnage was to exceed 300 000 tonnes per year, and
the facility was to enter into production in 2003, with
full capacity to be reached as soon as possible thereafter.
Tenderers needed to specify the
support
required to bring forward their proposals, and to
and
demonstrate
environmental
tender
specification stipulated that any costing included in the
to the activities and
tender bids should only refer
investments
required
needed
environmental benefits.

developments
the

technological
benefits.

Furthermore,

level of

achieve

the

to

(15)

Following the tender procedure, a prequalification pack
was sent to five companies, four of which did prequalify
and received a tender invitation document. Applications
were finally received from two companies: Aylesford
Limited,
Newsprint
and UPM Kymmene-Shotton
‘Shotton’). Aylesford Newsprint was
(hereinafter
appointed preferred bidder
in November 2001, but
during the discussion between WRAP and Aylesford
Newsprint, it appeared that Aylesford Newsprint would
not be able to enter
into the level of contractual
commitment which would enable WRAP to achieve its
objectives. WRAP therefore reviewed its position, and
appointed Shotton as preferred bidder. The decision to
appoint Shotton as preferred bidder was taken on 18
January 2002. Discussions
then followed between
WRAP and Shotton, regarding the completion of the
funding arrangements to enable the overall investment
to proceed. The funding is subject to State aid clearance.
A funding agreement was entered into on 21 February
2002.

(16) According to the United Kingdom, the fact that there
has been a competitive tender
the
minimum necessary is paid to secure the environmental
benefits, means
can be no distortion of
competition. That is why the UK authorities consider
that the funding does not constitute State aid. However,
in order to obtain complete legal certainty, the United
Kingdom decided to notify the project.

to ensure that

there

2.3. The beneficiary: Shotton

(17)

Shotton is based in Shotton, Flintshire, in North Wales,
being an area eligible for regional aid under Article
by
87(3)(c)
UPM-Kymmene Corporation, a Finnish company and

Shotton

owned

Treaty.

the

of

is

major player on the paper market. Shotton's present site
has two paper machines, using locally produced pulp
derived from a combination of virgin wood and
recycled waste paper.

2.4. The project

(18)

(19)

The project proposes the adaptation of
the current
production facilities to enable the substitution of waste
paper for virgin pulp. It also proposes the enhancement
of one of
the de-inking lines for the recycled paper
feeding one of the paper machines. According to the
UK authorities,
this project will make it possible to
achieve an increase in waste paper consumption of
approximately 321 000 tonnes per annum over that
achieved in the United Kingdom in 2000. This exceeds
WRAP's objective of achieving a net increase target of
300 000 tonnes per annum in the year 2000. The
adaptations of the facility will be finished in 2003, and
the facility will be fully operational by 2005.

The UK authorities explain that the waste paper used by
Shotton as raw material
in its newsprint production
process will source from local authorities and waste
management companies. UPM-Kymmene aims to enter
into long-term contractual arrangements with local
authorities for the major part of its feedstock. This will
enable the local authorities to implement comprehensive
long-term collection systems where
they do not
currently exist. The excess waste paper collected prior
to commissioning will be diverted to other paper mills
within the UPM-Kymmene group. According to the
United Kingdom,
the local authorities and the waste
management companies will need to build up a waste
paper collection infrastructure.

(20) Apart from the fact that Shotton has to use an agreed
tonnage of waste newspapers and magazines recovered
from the municipal waste stream as the raw material for
the new facility, the support to Shotton is subject to
other environmental obligations set out in the funding
agreement. These comprise:

(a) a reduction of 118 000 tonnes of CO2 emissions;

(b) an

annual

reduction

lorry
of
movements (this means a minimum reduction of
some 325 000 lorry miles per year);

6 500

some

(c) an annual reduction of 53 tonnes of emissions of

volatile organic compounds; and

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Official Journal of the European Union

L 314/29

(d) the recycling of an additional total of 54 600 m3 of

water.

the

reduction of

carbon dioxide

this project will

the United Kingdom argues that

(21) According to the United Kingdom, the main objective of
the current project is to achieve additional newsprint
recycling. But
the
investment project will bring about other environmental
benefits consisting of a reduction in the waste going to
landfills (4),
and
methane emissions from landfills, and the conservation
of 1,9 million tonnes of virgin timber. Furthermore,
they claim that
lead to increasing
demand for a major proportion of the household waste
stream in the region concerned to be recycled. This
demand for waste newspapers and magazines, being 30
to 40 % of household waste by weight, would provide a
the establishment and
stable economic platform for
for household
separated collections
maintenance of
waste for recycling. The simultaneous collection of other
recyclable materials at much higher rates could therefore
also be supported. This leads to the conclusion that the
facility would enable greater proportions of household
waste to be recycled (5). This will bring benefits for the
environment, as less waste will be deposited in the
landfills.

(22)

significant

progress
the

achieving
of

towards
framework

investment aid under point 29 of

The UK authorities argue that the investment in the
newsprint facility will enable the United Kingdom to
make
its
European
obligations within
Community waste management policy, and deliver
tangible environmental benefits. These environmental
benefits bring the United Kingdom to affirm that the aid
qualifies for
the
Community guidelines on State aid for environmental
protection (6) (hereafter ‘environmental aid guidelines’),
when firms undertake investment
in the absence of
mandatory Community standards. According to the UK
specific mandatory
authorities,
requirements for any newsprint manufacturer to use
recycled waste paper as a raw material. As regards the
waste water standards, the new investment in the facility
does not involve any additional expenditure on waste
water treatment. In the case of air emissions, there is

there

are

no

(4) In the region where UPM-Kymmene is

there is an
abundance of low cost landfills, therefore local authorities have not
been motivated to invest in the collection of waste materials for
recycling.

located,

(5) According to the United Kingdom, it is estimated that the demand
this
(steel,

for newsprint of
facility will allow around 596 Kt of other materials
aluminium, glass, newsprint, plastic) to be recycled per year.

the scale created by the development of

only a very small part
emissions
standards. This
installation of equipment
emissions, and amounts to approximately GBP 35 000.

referable to mandatory air
the
for on-line monitoring of

investment

concerns

(23)

The total costs of the project were originally estimated
at GBP 127,9 million. The United Kingdom notified GBP
88,2 million of this amount as eligible costs under the
environmental aid guidelines. The remaining GBP 39,7
million represent enhancements to the production and
quality capabilities of the existing paper machines, and
do not relate to recycling.

(24) According to the United Kingdom, the switch from the
current paper mills to the new paper mills using only
waste paper would result in an increase in Shotton's
total earnings of GBP 824 000 over the five-year period
from the date of full operation.

(25)

(26)

(27)

Following discussions with the Commission in May
2003, the United Kingdom modified its original project,
and submitted information in order to allow the whole
project to be assessed under the Guidelines on national
regional aid (7) (hereinafter ‘the regional aid guidelines’).
The total cost of the modified investment project will be
GBP 125,2 million.

Shotton changed its project with a view to building a
new type of
sludge combustor, which will achieve
higher environmental benefits than the one originally
foreseen. The combustor will produce steam for the
plant's energy needs.
it was
planned that the sludge combustor would function on
the basis of sludge and natural gas. In the new project,
the sludge combustor will use, as well as the sludge, fuel
consisting of renewable low-grade forest residues, and
pretreated household waste, from which the recyclable
elements have already been removed.

In the original project,

for

requests

information

Following
from the
Commission, the United Kingdom indicated in its last
submission that the project will create a total of four
jobs will be
direct
generated in the adjacent assisted areas by Shotton's
commitment
to purchase a higher amount of waste
paper, newly recovered from the domestic waste stream.

jobs. Furthermore, 187 indirect

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

(7) OJ C 74, 10.3.1998, p. 9.

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2.5. The aid measures

4. COMMENTS FROM INTERESTED PARTIES

(28)

Shotton has applied for support of GBP 23 million,
which will be paid out by WREB. The United Kingdom
provided a copy of
the Support agreement between
WREB and Shotton, dated 21 February 2002.

4.1. Introduction

3. REASONS TO INITIATE THE FORMAL
INVESTIGATION PROCEDURE

(29)

First of all, the Commission doubted whether the aid
aid
be
could
guidelines.

assessed under

environmental

the

(30) According

to

to

the

available

the
information
Commission, the use of waste paper for the production
of newsprint seems to be the current state of the art.
Even if there is an environmental benefit in using waste
the Commission
paper instead of virgin wood pulp,
doubted whether the investment could qualify as an
investment within the meaning of point 29 of
the
environmental aid guidelines (8), as Shotton already uses
in its current plant. Furthermore,
the
waste paper
seeks
the
of
state
investment
environment
environmental
as
performance of
the company itself. The Commission
also doubted whether there could be an environmental
justification for requiring the recycling to take place
within the United Kingdom, which was a condition in
the tender, since waste paper is not a hazardous waste.

improve
such and not

the
the

to

(31)

The Commission also indicated that similar projects had
been approved under the regional aid guidelines. In this
case, the aid would be notifiable under the multisectoral
framework (9) as the project is fulfilling the conditions
set out in this framework. But the Commission did not
have sufficient information to allow it to assess the case
under the environmental aid guidelines.

(32)

Furthermore, even if point 29 of the environmental aid
guidelines applied, doubts arose as to the calculation of
the eligible costs and the amount of the benefits for the
undertaking concerned.

(8) Similar projects have already been approved by the Commission on
the basis of the multisectoral framework, but not under the current
environmental guidelines (for example, Hamburger AG (C 72/01),
Commission decision 9 April 2002 (not yet published); Kartogroup
(N
2001
(http://europa.eu.int/comm/secretariat_general/sgb/state_aids/indus-
trie/n184-00.pdf).

Commission

184/2000),

decision

July

18

(33)

The Commission received comments from 19 interested
parties. Two interested parties expressed the desire to
keep their identity confidential. They will be referred to
in this decision as
‘paper producer A’ and ‘paper
producer B’, which is the original complainant. The
from several
Commission also received comments
members of
the UK Parliament as well as from the
European Parliament, which have been duly taken into
account. However, these comments are not discussed in
detail
in this decision since those persons cannot be
considered as interested parties within the meaning of
Article 1(h) of Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for
the
application of Article 93 of the EC Treaty (10).

4.2. Comments from paper producer A

The paper market

(34)

economy. The

two to three years. Shotton might

Producer A is a competitor of Shotton. It indicates, first
of all, that newsprint is a cyclical industry with excess
capacity. The demand for newsprint paper depends on
the demand for advertising, which is itself closely linked
to the performance of
excess
the
newsprint capacity is likely to continue to exist for at
its
least
production already within this period. Newsprint
industry is extremely capital intensive, and investments
in new capacities tend to occur in large and infrequent
the amount and the
lumps. Usually, decisions about
timing of the investment are made taking into account
the existing capacity/demand balance, the investments
already decided by others, and the long-term growth
trend of the market.

start

in appreciable quantities,

(35) As regards the market for fresh fibres and the market
for recycled fibres, neither product is sold on the open
since newsprint
market
producers generally have integrated pulp production
for used
facilities. There is a well-developed market
paper
in
environmental awareness. Recycled fibres have become
an essential raw material for the paper industry, and
they can be reused up to six times, if they are mixed
with fresh fibres. Usually, recycling happens in densely

and recycled fibres

increase

since

the

(9) Multisectoral

framework on regional aid for

large investment

projects (OJ C 107, 7.4.1998, p. 7).

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

(36)

(37)

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populated areas, because of the large supply of paper,
and the short distances for transporting. There is a wide
variety of recycled fibres, and it is estimated that around
40 to 43 million tonnes of recycled paper are collected
in Europe annually, in addition to 350 000 tonnes of
the newsprint
imported recycled paper.
industry as a whole used 16,9 % of the total European
recycled fibre market
raw material. Around 41
million tonnes of recycled paper are used within general
paper production. According to producer A, there is a
trend amongst customers to prefer newsprint made of
recycled fibres if other commercial/technical factors are
equal or similar to newsprint made of fresh fibres.

In 2000,

for

Notion of aid

newsprint market as well as on trade between Member
States, not only in the newsprint market, but also on
markets upstream and downstream to newsprint,
including the market
for recovered papers. Secondly,
Shotton will have a cost advantage in comparison with
its competitors, as it will not have to bear all investment
costs in connection with the de-inked pulp facility. If
Shotton receives the aid, it will be able to accept lower
prices for its product than its competitors, and still have
a positive gross margin on its sales.

(39) As regards a distortion on the geographical market,
although it is apparent from previous cases that the
relevant market would be the EEA market, producer A
holds that the market could be defined more narrowly,
due
to the high transportation costs. However,
according to producer A, statistics show that there are
significant intra-Community cross-border trade flows of
recovered paper. To conclude, producer A states that the
funding would affect intra-Community trade.

Paper producer A asks the Commission to declare the
aid incompatible with the Community rules on State
aid. According to that producer, the grant constitutes
State aid, as it grants an advantage to one selected
the beneficiary would
company, covering the costs
otherwise have to bear. Producer A argues that
the
funding does not meet requirements similar to those a
private investor would have applied.

Existence of a market failure

is necessary, as

Producer A states that the conditions set out in the
tender are not strictly necessary to meet environmental
objectives. More specifically, the requirement that the
plant should be located in the United Kingdom goes
beyond what
significant
cross-border trade in recovered paper. The objectives
pursued by the United Kingdom could be reached with
less negative impact on trade between Member States
and on competition,
inefficiencies.
Producer A suggests WRAP should have tried to
stimulate the collection rates, building a direct incentive
system for the collectors and sorters of waste paper,
rather than favouring one single producer of newsprint.

and with less

there

is

The distortion of competition

(38)

Producer A argues that
the funding could cause a
distortion of competition on the market for newsprint.
The funding would first of all influence the decisions of
investors in the field of newsprint paper. As a result,
there would be a direct effect on competition in the

(40)

Producer A strongly disagrees with the fact that there is
a market failure leading to a shortage of reprocessing
capacity in the United Kingdom. Recovered paper is a
scarce resource, and there would be demand for
recovered paper should supply increase.

Applicability of the environmental aid guidelines

(41)

for

The objectives of WRAP do not only include the
achievement of environmental objectives. They also aim
recycled
to create stable and efficient markets
products and materials. Points 29 and 40 of
the
environmental aid guidelines do not apply, as producer
A claims that the funding does not aim at improving on
standards directly applicable to the beneficiary, or in the
absence of any community standards. The proposed aid
merely aims at satisfying Community standards under
the landfill of waste Directive (11) directly applicable to
the United Kingdom.

(11) Council directive 1999/31/EC of 26 April 1999 on the landfill of

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

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Official Journal of the European Union

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(42)

strong doubts as to whether
Producer A expresses
Shotton could achieve the objectives established by
WRAP within the agreed timetable.

market price has been paid for the service by the
tendering public authority. In this case, WRAP does not
wish to acquire a service or goods so this argument is
not useful to conclude that there is no State aid. The
grant clearly alleviates Shotton of the cost burden it
should normally have to bear.

Definition of the eligible costs under the environmental aid
guidelines

(46)

(43)

In order

investment.

Producer A takes the view that the investment does not
investment only, but is, for a large
concern an initial
to
part, also a replacement
integrate the new de-inking pulp line, Shotton will have
to rebuild fibre line 1, which will most probably be
done by increasing capacity of existing equipment and
enhancing quality on the existing line. Furthermore,
producer A believes that increasing the de-inking pulp
capacity by the amounts stated would require more
combustion and sludge dewatering capacity than already
in place. The new sludge combustion and sludge
dewatering equipment would be built with capacity to
sludge
handle
dewatering needs for the whole mill. This means that
either the existing equipment would be closed down
and fully replaced or,
it would be replaced and the
previous equipment maintained and kept as back-up.
Producer A therefore concludes that the aid would be
used for replacing existing machines, which should not
be considered as eligible costs under the environmental
aid guidelines.

combustion and

sludge

total

the

Applicability of the regional aid guidelines

(44)

Producer A finally states that the regional aid guidelines
and the multisectoral framework are not applicable. It
urges the Commission to take into account the current
and future
excess de-inked pulp capacity in the
newsprint market and the overall size and position of
Shotton.

4.3. Comments from paper producer B

(47)

Notion of aid

(45)

Producer B claims that the measure constitutes State aid
as it fulfils the conditions of Article 87(1) of the Treaty.
The fact that there was an open tender process does not
change anything in that respect. The argument of an
open tender procedure is only relevant when the tender
procedure serves to fix the consideration for a service,
in order to be sure that the
work, or an acquisition,

for

the flotation process

Producer B argues that the aid lacks any incentive effect,
since it is granted for an investment that is necessary for
Shotton to remain competitive. The use of waste paper
instead of wood pulp will reduce the high production
costs, as a large amount of electricity is needed to
process primary wood into wood pulp, in comparison
to produce
to the costs
recycled fibre pulp. Furthermore, the prices for virgin
timber and fresh wood pulp do not allow it to remain
competitive
long-term, without
processing substantial amounts of waste paper. Shotton
will most probably keep its facilities for virgin pulp,
these being necessary to be able to add fresh fibres to
the pulp. It will also probably only increase its output
by adding waste paper reprocessing facilities. By doing
so, Shotton's position on the market will be improved
in comparison to competitors that do not benefit from
aid to modernise or replace their facilities.

the mid-

to

in

Applicability of the environmental aid guidelines

of

to

the

the

that

have

equipment

incidentally

Producer B considers
the aid should not be
considered as environmental aid, as its purpose is not
the environment, but merely the
the protection of
upgrading
current
to
state-of-the-art. The exceptions under Article 87(3)(c)
should be interpreted restrictively. In this case, the aid
only
positive
happens
environmental effects, which means the environmental
aid guidelines do not apply in this case. As regards the
environmental benefits
carbon
dioxide, recycling of water, etc.), producer B submits
that these advantages are an automatic result of
the
adaptation of old facilities for the increased reprocessing
of
the expected
It also states
advantages in terms of reduction of waste going to
landfills is very doubtful. The market for old newsprint
offers opportunities to sell waste paper rather than
deposit it in landfill, because it has become a required

cited (reduction of

recycled paper.

that

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Official Journal of the European Union

L 314/33

(48)

(49)

the conversion from the
raw material. Furthermore,
existing
the
process
thermo-mechanical
de-inking process of waste paper leads to a higher load
at the landfills in form of de-inking sludge. This sludge
contains
amount of potentially harmful
materials, such as heavy metals, per tonne.

a higher

pulp

to

Producer B submits furthermore that the aid is linked to
compliance with existing Community standards, which
require a minimum amount of waste to be recycled,
rather than sent to landfills. Therefore, the aid may not
the
be granted, as
mandatory standards.

intended solely to fulfil

is

it

the conversion to a production by
also notes that
de-inking waste paper does not require any particular
investments on the actual paper production lines.

(52)

Producer B expects the amount of the benefits of the
investments and the earnings of the first five years to be
higher
than the amount proposed by the United
Kingdom. This assumption is based on the forecast that
the local collection of waste paper will be cheap, and
that the demand for recycled paper will increase.

Applicability of the regional aid guidelines

Furthermore, according to producer B, undertakings
that help fulfilling mandatory Community standards
have to use the ‘best available techniques’ (12). Producer
B states that these ‘best available techniques’ consist of
using waste paper as raw material to produce newsprint
paper.

(53) As regards an eventual assessment of the aid under the
guidelines for national regional aid, producer B states
that the purpose of the aid is not to enhance regional
development as it does not aim to create or to maintain
working places. It does not seem to have any positive
effects for the development of
the Flintshire region.
Therefore, the aid should not be considered as regional
aid.

Definition of the eligible costs under the environmental aid
guidelines

4.4. Comments from UPM — Shotton

the

environmental

(50) According to producer B, the aid granted should be
considered as operating aid and not as investment aid,
as it concerns the mere replacement and updating of old
facilities. Under
aid guidelines,
operating aid may only be granted if it is absolutely
necessary to implement
the Community strategy for
waste and only for the polluters. Producer B also claims
that the operating costs will be reduced for Shotton, as
the aid will allow Shotton to upgrade its plant to the
current state-of-the-art and, to use less fresh wood pulp
or virgin timber.

(51) As regards the intensity of the aid, producer B states
first of all that the costs exposed by Shotton are not all
eligible costs. The modifications of Shotton's paper
the current standard technology.
machines represent
Therefore,
the
investment costs to be eligible for environmental aid.
Producer B states furthermore that the investment costs
to be taken into consideration should be the net eligible
costs. However, the costs of similar projects have been
50 % lower than what
is suggested for the Shotton
plant. The investment costs seem inflated. Producer B

they can not claim all or part of

(12) Footnote 6 of the environmental guidelines.

Introduction

(54)

Shotton first gives a general picture of the facts. The
United Kingdom's capacity to recycle waste paper is
lower than that of other northern European countries.
Paper recycling should be improved to allow the United
Kingdom to respect
its obligations under the landfill
Directive. WRAP considered an indirect approach to
stimulate collecting of waste paper but dismissed it as it
would not have had a sustainable long-term benefit. If
only collection were aided, there would be no guarantee
that
the collected product would find a sustainable
demand. Furthermore, this solution would cost more in
the medium term. Therefore, WRAP has chosen to
stimulate the demand of waste paper.

Notion of aid

fibre

existing

(55) As regards Shotton, the existing plant is still profitable.
The
be
decommissioned, has a further profitable operating life
of at
least 10 years. The remaining existing paper
machines have at least 20 years of operating life. There
is no economic or legal reason why existing profitable

pulp mill, which will

L 314/34

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Official Journal of the European Union

28.11.2003

mills that do not use 100 % waste newspapers should be
decommissioned or adapted to the use of waste paper.
The use of a tender procedure was meant to ensure that
the costs of conversion of a well-functioning plant into
a plant using only recycled fibres were limited to the
minimum necessary.

(59)

it would
Shotton will not be relieved from costs
is perfectly
normally have
to bear, as
profitable in the way it
It has an
estimated further profitable operating life of 10 to 20
years.

the plant
is working now.

(60)

(61)

(62)

(56) As regards the tender procedure, Shotton concludes
from previous Commission decisions, that State aid for
recycling may be granted in three circumstances. One of
those circumstances
is State aid to an undertaking
which is not obliged to recycle under national or
Community standards, but where funds are nevertheless
provided to support the entity performing the recycling.
State aid is allowed to the extent that it is paid over and
above market rates for the job in question. In that case,
the recycling company is performing a service of
general economic interest to the State. The amount of
aid should be determined taking into account whether
the State is paying a market rate or not for the service
provided. In this case, the fact that there was a tender
procedure ensures the market price has been paid.
Therefore, no aid has been granted.

(57)

(58)

objectives

Furthermore,
the competition was open to non-UK
firms. The fact that the company had to be located in
the United Kingdom is justified, as the investment is
aimed at
increasing recycling capacity in the United
Kingdom. All other conditions are essential to meet the
the United
environmental
Kingdom. The condition that
tenderer
should be involved in the manufacture of newsprint is
justified, as newsprint can be made out of 100 % waste
It again serves to achieve the environmental
paper.
objectives of the United Kingdom. The mere collection
of newspaper is not
in itself recycling and is very
different
from using newspaper in an economic and
useful way.

by
the successful

pursued

Distortion of competition and effect on trade

capacity will

Shotton's
the
be
conversion, as will its costs and the quality of the final
product. Therefore, Shotton argues, that there will be no
adverse effect on competition.

unchanged

after

The funding of the project will have no effect on trade,
as Shotton operates on the local market of the United
Kingdom for the purchase of raw materials, as well as
partly for sales of newsprint (50 % will be delivered to
customers within 70 miles of the mill, and Shotton aims
to supply all
its products to customers in the United
Kingdom by 2005). The current raw materials also
come from the United Kingdom. Shotton also argues
that UK exports of waste newsprint and magazines
the United Kingdom,
originate from the south of
outside Shotton's catchment area.

vis-(cid:1)-vis

position

Shotton's

The funding does not distort competition, as it does not
strengthen
other
undertakings. There will be no changes to the capacity
of the plant or to the production costs. Shotton will not
compete for existing supplies of waste newspapers, but
will generate new supplies of recovered newspapers
from UK landfill. The conversion relates to the pulp mill
and the pulp will exclusively be used in Shotton,
without being sold to third parties.

Applicability of the environmental aid guidelines

It will

the environmental benefits

The investment fits perfectly within the environmental
aid guidelines: the project is designed to prevent damage
to our physical surroundings (point 6). There is no
reason to limit
to the
reduction of pollution, but if that were to be the case,
Shotton emphasises that the investment will in any case
reduce pollution.
also correspond to the
objectives of sustainable development set out in point 3
of the environmental aid guidelines, by promoting the
use of waste paper and the collection of other waste
materials. Furthermore, the investment is in line with
point 36 of the environmental aid guidelines, as it is
to adapt production methods with a view to
meant
protecting the environment. According to Shotton,
investment aid should be compatible up to 30 % of the
eligible investment costs, in the absence of mandatory
the case here, as
Community standards, which is
Shotton is under no obligation as regards the purchase

28.11.2003

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Official Journal of the European Union

L 314/35

concerns

argument

the
or use of waste paper. The
investment
is
an
‘state-of-the-art’ makes no sense, according to Shotton,
as the existing plant still has a long life to run. Things
would be different for a new investment. Without the
aid, there would be no incentive for Shotton to change
its production methods.

that
which

activity

Environment Agency,
the
Industries Commission,
Albion Water Limited, London Remade, the Merseyside
Waste Disposal Authority, Viridor Credits and Forum for
the Future.

Definition of the eligible costs

Distortion of competition

(63) As regards the calculation of

the
calculation has been done properly. Shotton maintains
that the costs are investment costs and do not constitute
a replacement investment. Therefore, all costs incurred
should be considered as being eligible.

the eligible costs,

Notion of service of general economic interest

Shotton claims that it will provide a service of general
economic interest, as it will help the United Kingdom to
fulfil its obligations under Community law. The United
Kingdom issued a tender to ensure the supply of this
service. As regards the performance of a service of
general economic interest, Shotton quotes the FFAD (13)
case, where the management of waste was considered to
be a service of general economic interest. In view of the
Ferring
constitutes
compensation for this service which does not involve
State aid. If the cost were to be higher than the market
the aid would nevertheless be
price for this service,
compatible under Article 86(2) of the Treaty.

funding merely

case (14),

the

(66) As regards the effects of the investment on competition,
several parties argued that there would be no effects on
competition as Shotton's capacity would not increase.
There would be no impact on downstream markets for
finished newsprint.

(67)

Concerning the market failure, the Paper Federation of
Great Britain states that recovered paper usage has
increased by 144 % since 1991. Newsprint is the second
largest recovered paper using sector.
Imports account
for 65 % of the market, and the United Kingdom has
in Europe. However,
the largest newsprint market
despite the strong apparent investment potential, only
one newsprint machine has been built in the United
Kingdom during the past decade with a government
grant. This shows, according to the Paper Federation,
that there is a clear market failure. The Paper Federation
also states
the United Kingdom newspaper
publishers and British newsprint manufacturers agreed
with the government on certain targets for the recycled
fibre content of newspapers (for example, 60 % by the
end of 2001). The target for 2001 has been reached but
not by increasing the amount of recovered fibre used by
UK newsprint manufacturers. It was the result of the
increased import of already degraded fibres which have
to be used sooner than virgin fibres.

that

4.5. Comments from the other interested parties

The environmental benefits of the project

Comments were introduced by the Paper Federation of
Great Britain, the Paper Industry Technical Association,
the Department of Paper
Professor John Roberts of
Science of the UMIST (15), the Local Authority Advisory
Committee,
the
Greater Manchester Waste
Authority,
Cleanaway, St Regis Paper Company, the Environmental

the Local Government Association,

Disposal

(68)

(13) Case C-209/98 Entreprenørforeningens Affalds/Miljøsektion (FFAD) v
Københavns Kommune [2000] ECR I-3743, paragraphs 75 and 76.

(14) Case C-172/00

Ferring Arzneimittel GmbH v

Eurim-Pharm

Arzneimittel [2002] ECR I-6891.

(15) University of Manchester Institute of Science and Technology.

that

The parties in recital 65 mention the fact
the
investment in the Shotton plant will divert 1,6 million
tonnes of waste paper from landfills. This will result in a
reduction of 352 000 tonnes in carbon dioxide and
methane emissions. The switch to the use of waste
paper as a raw material for newsprint will allow savings
of virgin pulp.
Industries
the Shotton
the WRAP funding for
Commission,
investment is a good example of how industries can use
new technologies to meet key environmental challenges
such as using resources more efficiently. The diversion
of 1,6 million tonnes of waste paper from landfills will
result in an increase in the UK recycling rate of 7 %.

the Environmental

For

(64)

(65)

(69)

(70)

(71)

(72)

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Official Journal of the European Union

28.11.2003

of

lead to the closure of

the
The new investment will
existing energy-intensive thermo-mechanical pulp plant.
This will result in the elimination of 53 tonnes/year of
emissions
compounds. These
emissions arise from the wood components, and contain
from the softwoods used. The Shotton
resin acids
project will eliminate the discharge of
these toxic
compounds both as volatiles and in waste water
discharges.

organic

volatile

return on capital employed. Shotton currently takes
advantage of the use of two different materials (virgin
fibre and waste newspaper), which will no longer be
possible after the switch to 100 % waste paper. This
implies a loss of flexibility. Shotton will also lose the
quality advantage derived from the current pulp mix in
terms of strength characteristics of the paper.

The project will also make it possible to reduce the
number of lorry vehicle journeys by 6 500. The internal
water re-use will increase by 500 000 m3/year. This will
enable the strategic value of scarce water resources to
be optimised elsewhere in the region. According to
Albion Water Limited, Shotton's move to 100 % recycled
fibre will allow it
to impose targets on Shotton for
water consumption that will save about 500 000 m3 of
process water a year.

(74)

increased recycling of waste paper,

and the
The
long-term commitment from Shotton to take up this
waste paper, will allow the area to set up an improved
collection infrastructure. The aid to Shotton is deemed
to be necessary in order to be able to invest in the
institution of a widespread kerbside collection scheme,
which will benefit the UK environmental obligations.

5. COMMENTS FROM THE UNITED KINGDOM

Introduction

general

the project
environmental policy of

fits
The United Kingdom considers that
within the
the
Community, more specifically the waste management
policy, and that it should be approved under Article
the Treaty. The project aims at direct
87(3)(c) of
environmental benefits, namely the
a
long-term demand for waste paper. The United
Kingdom stresses that it has the right to choose the best
way to achieve the environmental objectives, on the
basis of the principle of subsidiarity. It is not up to the
Commission to decide how it should achieve a reduction
in waste going to landfills.

creation of

the

The United Kingdom claims that the conditions put in
the tender are not excessive, but constitute the essence
aim to
environmental project, being the
of
encourage recycling of waste newspaper in the United
Kingdom. With this project, WRAP wanted to address
failure in the United Kingdom,
the specific market
in waste
which exists in recycling capacity and not
the
that
in the tender
collection. The requirement
successful bidder be located in the United Kingdom is a
response to the specific market failure in the United
Kingdom. The focusing on newsprint can be explained
it constitutes a large proportion of
by the fact
household waste and that newsprint is the highest grade
of paper which can use waste newspaper
and
magazines. There is no restriction of nationality or
location.

that

(75) As regards the effects on competition,

these will be
reduced to a minimum, as WRAP has ensured that the
steps
recipient of State aid takes a number of
to
minimise
the market.
possible
Furthermore, the United Kingdom intervenes at a point
in the supply chain which will require the least State aid
with the maximal environmental benefits.

impact

any

on

(76)

to use

commitment

The United Kingdom also stresses that the UK situation
is a specific one, as there is a large deficit in recycling
capacity, without any constant demand. Shotton took
the
exclusively waste paper
recovered from landfill. This means there will be no
increased competition for waste paper that already, in
the current situation, is collected for recycling. Even if
the Shotton project is successful, UK recycling levels will
still be well below European averages. The impact on
competition would be greater if the United Kingdom
were to subsidise the collection of waste paper. If more
waste paper were on the market, the prices would go
down without any guarantee that recycling capacity
would be stimulated to stabilise the situation again.

Notion of aid

(73)

a
The United Kingdom stresses
consistently profitable and modern mill, with a high

that Shotton is

(77)

The United Kingdom argues there will be no effect on
the market for virgin pulp, as the wood used by Shotton

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Official Journal of the European Union

L 314/37

comes from the State Forestry Commission and other
private woodland owners. The market
for newsprint
(downstream market) will also not be affected by the
aid, since none of the pulp produced in Shotton will be
sold to third parties, and there will be no changes to the
capacity and life of the plant. The financial benefits will
be minimal and the customers of Shotton are expected
to remain the same. There will be no net increase in
revenue flow for Shotton. Therefore,
its position will
not be strengthened and there is no risk of distortion of
competition.

standards applicable to the firm which means that point
29 of the environmental aid guidelines applies to this
case. The United Kingdom also claims that the aid has
direct environmental effects, namely diversion from
landfill and reduction of pollution. The United Kingdom
also insisted on the efficient use of resources (wood and
water).
a
condition for receiving the aid presented in the tender,
and will be monitored by independent WRAP experts.

environmental

constitute

benefits

The

(78)

(79)

The effect on trade is deemed to be minimal. The
customers are local, all
the raw wood materials are
grown in the north-west of England and in Wales, the
waste paper will be collected within a 70/100 mile
radius of Shotton, and Shotton aims to supply virtually
all its products to customers in the United Kingdom by
2005. Exports of waste paper from the United Kingdom
originate mainly from the south-east of
the United
Kingdom, outside Shotton's primary catchment area.

(81)

Furthermore, the environmental aid guidelines allow aid
to go beyond merely helping the company to do what
the company is already legally obliged to do under
Community law. There is no prohibition on granting aid
to support
to
comply with the Member States' obligation under
Community law.

companies assisting Member States

the

that

current

state-of-the-art,

the investment
In response to the argument
constitutes
the United
Kingdom replies that this is correct, but that the aid was
strictly necessary to meet the environmental objectives
pursued by the United Kingdom. Even if a new plant
directly invested in a mill functioning only with recycled
fibre, there would be no economic justification for the
conversion of an existing mill which still has a long life.
The existing mill will be decommissioned. Without aid,
the
due to the technical risks and the low return,
is
investment would not
an
therefore not
environmental
the
United Kingdom takes the view that the planned aid is
proportionate to the environmental effect achieved, and
that this effect outweighs any distortive effect the aid
may have on competition.

take place. The investment
investment,
but
In the present case,

a
investment.

commercial

Applicability of the environmental aid guidelines

(82)

in order

concluded

long-term agreements with

The United Kingdom shows that the project fits within
the general environmental policy of UPM-Kymmene.
Shotton has a ‘local mill concept’, meaning that
the
waste newspapers will be caught within a radius of 100
miles (and later 70 miles) from Shotton. Newsprint will
be sold within a radius of 70 miles of the mill. Shotton
has
local
authorities,
security and
incentive to invest in the recycling of newspapers and
magazines. These contracts will last for five to ten years,
and prices are generally fixed over a five to seven year
period. Shotton offers to purchase every tonne of waste
paper and is creating a ‘recycling culture’ in the local
community. Shotton assists local authorities to establish
the necessary infrastructure to collect waste newspaper,
initiatives. All this is financed
and has launched local
exclusively by Shotton, without any State aid.

to provide

the

(80) As regards the applicability of the environmental aid
guidelines, the United Kingdom considers that there is
no reason to limit the application of those guidelines to
the pollution caused by the beneficiary, as stated by the
Commission in its decision to open the
formal
investigation procedure. The investment fits in the broad
guidelines.
objectives
environmental
are no mandatory Community
Furthermore,

the
there

aid

of

(83) As regards the compulsory use of

the best available
techniques suggested by paper producer B, the United
Kingdom considers that these do not put an obligation
on newsprint producers to use recycled paper as raw
material otherwise, Shotton would have been infringing
this for a long time. Furthermore, the United Kingdom
recycled paper pulp is not
states
considered to be the ‘best available technique’
in the
pulp and paper industry. There is also no economic
reason to switch to the use of waste paper.

the use of

that

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Calculation of the eligible costs

6. ASSESSMENT OF THE AID

(84) All of the eligible costs are necessarily incurred if all the
identified benefits are to be obtained. As regards the
amount of the benefits during the first five years, the
United Kingdom refers to the explanations on those
benefits given in the notification and subsequent
correspondence, where they showed that the benefits
were related to the switch to the 100 % use of waste
paper. However, the United Kingdom would agree to
appoint an independent technical expert to assess the
net benefits and undertakes to monitor Shotton to
it does not derive any financial benefits
ensure that
from the aided project, other than the benefits indicated
in its former correspondence (16). The United Kingdom
adds that Shotton derives no economies of scale from
the increased use of recycled fibres. The fact that the
from a
seem so
earnings
misunderstanding of
the
existing pulp mills and paper plant. The current use of
virgin fibre by Shotton is extremely cost-effective.

result
efficiency of

low may
current
the

6.1. Existence of aid under Article 87(1)
of the Treaty

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

threatens

(88)

In this case, the measure is funded by resources granted
by the State under the WRAP programme through its
is granted to an
subsidiary WREB. The measure
individual beneficiary, Shotton, for the adaptation and
modification of the existing plant.

(85)

There are also other costs related to the investment
which were not
included in the eligible costs: extra
winding machine, capital outlay of [Æ] (*) on the basis
of a wheel bin scheme and costs of setting up and
running the collection of waste newspaper by a large
number of local authorities. These last costs are deemed
to be far more than the amount of aid over two years.
A further contribution of [Æ] in seed corn will be made
to stimulate collection initiatives.

(86)

a

The United Kingdom also emphasises that the aid is
investment aid and not operating aid. The aid is granted
to
the
thermo-mechanical pulp mill, and to install a mill
capable of using 100 % recycled fibre. Therefore, the
investment is clearly an ‘initial investment’.

decommission

investment

one-off

to

(*) represents business secrets omitted from the text.
(16) In particular, if benefits are made due to the sale of assets, this will
be reported to the United Kingdom, and deducted by the United
Kingdom from the support provided.

(89)

(90)

(91)

The tender procedure

In the present case, the grant has been offered through
an open and competitive tender process. Therefore, the
United Kingdom and Shotton argued that there was no
aid, as the tender procedure ensures that the market
price has been paid.

Even if a tender ensures that the aid is limited to the
minimum,
there is still an advantage granted to the
beneficiary of the tender. On the notion of advantage, it
should be noted that advantages are usually defined as
‘measures which, in various forms, mitigate the charges
which are normally included in the budget of an
undertaking’ (17).
It can not be denied that Shotton
benefits from the aid, as it will receive money for new
equipment, with a
current
equipment.

than the

longer

life

the State

In the case of an open and competitive tender process,
it should still be considered whether the conclusion of
contracts by
commercial
is
transaction whereby the State acts as a market operator.
If not, the contract may contain elements of State aid.
According to settled case-law, Article 87(1) makes no
distinction according to the causes or aims of the aid in
question, but defines it in relation to its effects.

a normal

(17) Case 30/59, Gezamenlijke Steenkoolmijnen in Limburg v High

Authority of the ECSC [1961] ECR, p. 1.

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Official Journal of the European Union

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(92)

there has been an open tender
In the present case,
where the United Kingdom imposed obligations on a
newsprint producer to use a certain amount of waste
paper for the production of newsprint in return for
remuneration. The choice made by the UK authorities to
subsidise the recycling of waste paper is motivated by
the fact
the diversion of waste paper from the
municipal waste stream would lead to a substantial
reduction in waste going to landfills and that this would
help the United Kingdom to achieve its commitments
under the EC landfill Directive (18).

that

(93) On the basis of these considerations, the Commission
considers that the United Kingdom was not acting as a
private market investor but as a public authority driven
by
the
Commission concludes that the measure is imputable to
the State and cannot be considered as a commercial
transaction.

considerations.

environmental

Therefore,

Qualification as a service of general economic interest

(94)

Shotton argued that it is helping the United Kingdom to
achieve its environmental standards and resolving a
specific market failure. In that case, Shotton would be
performing a service of general economic interest to the
State.

(97)

(98)

(99)

(95)

(96)

formal

In its decision to open the
investigation
procedure, the Commission expressed its doubts as to
the tender and qualified them as
the conditions of
the
conditions
excessive.
successful bidder
should be located in the United
Kingdom, and should use a certain amount of waste
paper for the production of newsprint, were considered
to be excessive.

In particular,

that

the

The Commission's doubts were confirmed by paper
producers A and B. The United Kingdom and Shotton
argued in their comments that the conditions set out in
the tender were essential to achieve the environmental
the United Kingdom identified newsprint as
targets:
constituting a large proportion of household waste.
Newsprint is the highest grade of paper which can use
waste newspaper and magazines. The condition for the

(18) Directive 1999/31/EC. See footnote 11.

successful bidder to be located in the United Kingdom
was a response to the specific market failure existing in
that country.

citizens, and should be necessary for

Services of general economic interest should be available
the
to all
citizen (19). This would be the case for a service
consisting in the collection of waste paper. But this is
not the case here, as the tender in itself was not aimed
at the collection of waste paper but at the taking up of
reprocessing into
a certain amount of waste
newsprint.

for

if

it

of

an

realisation

infrastructure, which

The
is
economically not profitable, could constitute a service
of general economic interest if it does not favour one
specific undertaking,
is necessary to provide a
service which the State should normally provide to the
public and is limited to the needs of this service, or if
the market would never be able to realise the service in
the same conditions (20). According to the Commission,
the notion of SGEI when the
there is an abuse of
economic
specific
does
characteristics with regard to other economic activities,
or when the economic activity in question is already
carried out in a satisfactory manner by the market (21).

present

activity

not

In the present case,
the investment aid benefits one
single undertaking, and the service in question, which is
not simply waste paper recycling but the production of
newsprint on the basis of a defined amount of waste
paper,
is not a service which should normally be
provided by the State. Furthermore, it is unlikely that
the market would not be able to provide the service
under the same conditions because there is a clear
market failure. The comments submitted by producers A
and B showed clearly that there was no real market
failure on the market of recycling of waste paper. Waste
the
resource
is
paper
state-of-the art
the production of
newsprint. If there were any market failure, it would be
in the collection of waste paper and in the cyclical
nature of prices. However, the tender was not drafted in
this way: it was targeted to the production of newsprint
and the successful tenderer had to be located in the
United Kingdom.

and constitutes

raw material

scarce

for

a

(19) Services of General Interest, Communication from the Commission

(OJ C 17, 19.1.2001, p. 4, points 9 to 11).

(20) Services of General Interest, Communication from the Commission

(OJ C 17, 19.1.2001, p. 4, point 14).

(21) See also, mutatis mutandis, Case C-205/99 Analir

[2001] ECR

I-1271.

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(100)

It should finally be noted that the United Kingdom itself
did not
service of general
economic interest.

invoke the notion of

(101) Therefore, the Commission concludes that the service in
question does not constitute a service of general
economic interest, and that Article 86(2) of the Treaty
does not apply to this case.

Distortion of competition

(102)

In order to be qualified as aid, in the sense of Article
the measure should distort or
the Treaty,
87(1) of
threaten to distort competition.

(103) The possible distortion of

competition has been
highlighted by paper producers A and B. Producer A
that Shotton will have a cost advantage in
states
comparison with other competitors, as it will not have
to bear all
investment costs in connection with the
de-inked pulp facility. Shotton's position will be
improved in comparison to competitors that do not
benefit from aid to modernise or replace their facilities.

is perfectly profitable as it

(104) The United Kingdom and Shotton argued that Shotton
will not be relieved from costs it should normally have
is
to bear, as the plant
working now, and has an estimated further operating
life of 10 to 20 years. Shotton's capacity will remain
unchanged after the conversion, as will its costs and the
quality of the final product. The benefits deriving from
the aid are minimal and there will be no net increase in
revenue flow for Shotton. Shotton's position will not be
strengthened. Shotton and the United Kingdom argue
that
therefore be no adverse effect on
competition.

there will

(105) The Commission considers that there is a serious risk of
distortion of competition, as the aid will be granted to

one single undertaking which will benefit from aid in
order to modernise its equipment and its production
process. If Shotton had carried out the project without
aid, it would have been in a much worse position than
its competitors. Therefore,
the Commission takes the
view that the aid will relieve Shotton from a cost it
might have to bear to remain competitive, or to adapt
its facilities to different raw materials, which leads to a
strengthening
other
undertakings.

position

vis-(cid:1)-vis

its

of

Effect on trade

(106) Paper producers A and B showed very clearly that there
are significant cross-border trade flows of recovered
paper, and provided the necessary figures to support
this argument.
In fact, a huge amount of the United
Kingdom paper consumption is imported, mainly from
other Member States. Producer A showed that
there
would be a direct effect on trade between Member
States, not only in the newsprint market, but also on
markets upstream and downstream to newsprint.

(107)

In contrast, Shotton and the United Kingdom argued
that the planned aid measure would have no effect on
trade between Member States. Shotton is operating on
the
the local market of
purchase of raw materials, as well as partly for sales of
newsprint. The United Kingdom and Shotton also added
that the UK exports of waste newsprint and magazines
originate from the south of
the United Kingdom,
outside Shotton's catchment area.

the United Kingdom for

(108) As illustrated in the chart below, waste paper is an
internationally traded product. The statistics from the
the European Paper Industry (CEPI)
Confederation of
and provided by producer B have demonstrated that
there is cross-border trade in finished newsprint and in
waste paper (22).

of

Paper

European

(22) http://www.cepi.org/files/Recycling.stats2002-153648A.pdf — The
a
Confederation
non-profit-making organisation, representing 19 member countries
(13 European Union Member States plus Norway and Switzerland
with four Associate Members (Hungary,
the Czech and Slovak
Republics and Poland) and through its member countries, some
1 000 pulp, paper and board-producing companies across Europe,
from small and medium-sized enterprises to multinationals.

Industries

(CEPI)

is

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Official Journal of the European Union

L 314/41

(109) Therefore, the Commission considers that the planned
measure is capable of affecting inter State trade.

to prove that

(110) According to the Commission and to settled case-law,
no ‘actual’ effect on trade is required. In order to assess
whether the measure does affect inter State trade, it is
the measure is ‘capable’ of
sufficient
affecting inter State trade (23).
is not necessary to
show that the beneficiary undertaking itself engages in
cross-border activity. When aid is granted,
this may
maintain or increase domestic production of a product
for undertakings
thus
established in other Member States to export
to the
market of that Member State (24).

the opportunities

reducing

It

(111) On the basis of the assessment above, the Commission
concludes that the measure is to be regarded as State aid
as referred to in Article 87(1) of the Treaty.

exemptions in Article 87(2) of the Treaty could serve as
a basis to consider aid compatible with the common
market. However, the aid,
(a) does not have a social
character and is not granted to individual consumers, (b)
does not make good the damages caused by natural
disasters or exceptional occurrences and (c)
is not
required in order
the economic
disadvantages caused by the division of Germany.

to compensate for

to promotion of

(113) The exemptions in Article 87(3)(a), (b) and (d) of the
the economic
living is
serious
there
to projects of common European
and
the promotion of

Treaty which refer
development of areas where the standard of
abnormally
is
low,
underemployment,
to
interest
conservation, do not apply.

or where

culture

and

6.2. Assessment of the compatibility with Article
87 of the Treaty

(114) The United Kingdom has not attempted to justify the aid
on the grounds enumerated in the foregoing paragraph.

(112) The Commission has assessed whether the exemptions
set out in Article 87(2) and (3) of the Treaty apply. The

(23) Case C-387/92 Banco Exterior de Espana v Ayuntamiento de Valencia

[1994] ECR I-877, paragraph 15.

(24) Case T-55/99 CETM v Commission [2000] ECR II-3207, paragraph

86.

(115) As far as the first part of

the exemption in Article
the Treaty is concerned, namely aid to
87(3)(c) of
facilitate the development of certain economic activities,
the Commission notes
the aid did not have
that
research and development, or
purposes
It
investment by small and medium-sized enterprises.
also seems unlikely that the aid had the purpose to

such as

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Official Journal of the European Union

28.11.2003

rescue and restructure Shotton. Therefore the aid can
not be found compatible with the common market on
this ground.

(116)

It is therefore necessary to examine whether the aid
qualifies for an exemption under Article 87(3)(c) of the
Treaty on any other grounds, in particular, whether the
environmental aid guidelines and the regional aid
guidelines apply to this case.

the

(121) According to the general principles of law, an exception
should be interpreted in a restrictive manner. The
guidelines define
conditions under which the
Commission may consider that aid is compatible with
the common market in accordance with Article 87(3)(c)
of the Treaty, and therefore form an exception to the
general principles laid down in Article 87(1) of
the
Treaty. It should also be recalled that the environmental
aid guidelines are based on the general principle of ‘the
polluter pays’, and that every interpretation of
the
guidelines should strictly comply with this underlying
principle.

6.2.1. Assessment under the environmental aid guidelines

6.2.1.1. A p p l i c a b i l i t y o f t h e e n v i r o n m e n t a l

a i d g u i d e l i n e s

(117)

to deny that

is difficult
the

It
benefits:
environmentally-friendly than putting it into landfill.

there are environmental
is more

of waste

paper

reuse

(118) According to point 29 of

the environmental aid
guidelines,
investment aid may be granted ‘to enable
firms to improve on Community standards applicable,
or when the firms undertake investment in the absence
of Community standards applicable [Æ]’.

(119) The aid is granted to Shotton to improve the United
in general and to help the
Kingdom's environment
United Kingdom to achieve its obligations under the
landfill Directive (25)
packaging
and
Directive (26).
is not granted to improve on the
standards applicable to the firm directly. The first
situation referred to in point 29 of the environmental
aid guidelines, which allows aid to be granted in order
to enable firms to improve on Community standards
applicable therefore does not apply in this case.

under

the

It

(120) The second situation referred to in point 29 of

the
environmental aid guidelines concerns aid for firms to
undertake investments in the absence of Community
standards applicable. The United Kingdom argued that
there were no standards applicable to the firm, but to
the Member State, and that investment aid under the
environmental guidelines could therefore be allowed.

(25) Council directive 1999/31/EC. See footnote 11.
(26) Directive 94/62/EC of the European Parliament and Council of
20 December 1994 on packaging and packaging waste (OJ L 365,
31.12.1994, p. 10).

(122) Therefore, this case, which concerns State aid intended
to promote recycling and which relieves polluters from
charges they should normally bear, does not qualify for
an application of the second part of point 29. It must
be noted that the aid is not intended to reduce the
quantity of waste paper that results from Shotton's sales.
It rather encourages Shotton to take up waste paper
that may originate from products sold by any paper
producer. The Commission considers that point 29 of
the environmental aid guidelines concerns cases where
an
own
environmental record and to reduce its own pollution.
In such cases, aid can be allowed as an incentive to
improve the environmental situation of the company.
Otherwise, the rules could be easily circumvented by
granting aid not to the polluters, but to the companies
taking care of the pollution.

undertaking

improve

invests

its

to

(123) This interpretation is confirmed by point 18(b) of the
environmental aid guidelines, which states that aid ‘may
act as an incentive to firms to improve on standards or
to undertake further
investment designed to reduce
pollution from their plants’.

(124)

the interpretation suggested by the UK
Furthermore,
authorities might result in Member States subsidising
large investments, with high intensities,
those
sectors where use of secondary raw materials is possible.
Such aid could be granted in non-assisted areas or, in
any event, without having to comply with regional aid
rules and might have serious consequences on the
relevant markets.

in all

(125)

In addition, in this case, the incentive effect of the aid is
not clear. The Commission considers that the aid lacks

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Official Journal of the European Union

L 314/43

it

as

effect,

required incentive

an
the
investment which is the current state-of-the-art. That
view is confirmed by comments from paper producers
A and B. The use of recovered paper for the production
of newsprint is common practice, and the necessity of
the measure is doubtful (27).

concerns

In this respect, Shotton has changed its initial project,
and will build a totally new type of sludge combustor.
This combustor will function on the basis of sludge,
residues and pretreated household
low-grade forest
waste,
first
instead of non-renewable gas as was
foreseen (28). The combustor will produce steam and
electricity for the plant's energy needs. The building of
the sludge combustor has not yet started, which means
that the aid will have a clear incentive effect in this case.

(126) The Commission observed, furthermore, when visiting
the Shotton plant, that the whole investment project,
with the exception of the sludge combustor, had already
started and was well-advanced. This confirmed the
Commission's opinion that the aid lacked any incentive
effect, as required by the environmental aid guidelines.

(127) The Commission considers that no other provisions of
the environmental aid guidelines apply to this case.
Operating aid to promote waste management may be
authorised if
is shown to be absolutely necessary
under the conditions specified in points 42 to 46 of the
the measure in question, which
guidelines. However,
those
constitutes
conditions.

aid, does not

investment

fulfil

it

(128) The Commission concludes

the
environmental guidelines are not applicable to the
the
investment as a whole insofar as
recycling of waste paper.

it concerns

in this

case

that

(129) However,

the

environmental

guidelines might be
applicable to some parts of the investment, which are
not related to the recycling of waste paper, but aim at
the reduction of Shotton's own pollution.

the pollution containing sludge

(130) According to the information submitted by the United
Kingdom, the investment cost relating to the treatment
of
coming from
de-inking of waste paper is eligible for environmental
aid. The conversion to the use of 100 % recycled fibre as
a raw material
implies an increase in the quantity of
sludge produced per year from [Æ] to 200 000 tonnes.

(27) According to the president of

the British Recovered Paper
Association, Ron Humphries, ‘recovered paper exports will have to
grow if the UK is to cope with increased levels of the material’ (see
website http://www.letsrecycle.com/paper/news.jsp?story= 2142).

land. This option would be
relevant

(131) The combustion of the sludge is not necessary for the
production process, since Shotton could otherwise use
62 500 tonnes of sludge for the production of steam in
the existing combustor, use 10 000 tonnes for animal
bedding and spread the remainder, 127 500 tonnes, on
fully in
agricultural
legislation (29). The
accordance with the
combustor will not use natural gas but
renewable
sources, namely forest residues (which are not currently
being used for anything else) and pretreated household
waste (from which the recyclable elements have already
landspreading would
been removed). Furthermore,
become more costly,
the
sludge may actually end up in landfill. Taking into
account
the large quantities of sludge
produced, the little nutritional value of the sludge in
high
case
cadmium:phosphorus ratio (31), recovery of the calorific
value
from the
environmental point of view (32). This is confirmed by
an analysis carried out by the Environmental Agency for
England and Wales, based on the Integrated Pollution
Prevention and Control regulatory system which itself is
reference
based on the Best Available Technique
European
document
Commission (33).

through combustion is preferable

is possible that part of

landspreading (30)

in particular

produced

(BREF)

very

and

the

the

by

of

it

if

(132) The Commission concludes therefore that point 29 of
the environmental aid guidelines applies to the sludge
combustor investment.

(28) The use of pretreated household waste implies that the investment
falls within the scope of Directive 2000/76/EC of the European
Parliament and of the Council of 4.12.2000 on the incineration of
waste (OJ L 332, 28.12.2000, p. 91).

(29) UK Waste Management Licensing Regulation 1994, S.I. Nr. 1056.
(30) The nitrogen content is estimated at 3 920 mg/kg, the phosphorus

at 228,2 mg/kg.

(31) The concentration of cadmium is estimated at 1,54 mg/kg, thus
the cadium: phosphorus ratio is more than 100 times higher than
the corresponding average ratio for urban sewage sludge produced
in the UK.

(32) The combustion process allows the hazardous substances in the
sludge, such as cadmium (1,54 mg/kg), mercury (0,7 mg/kg) and
lead (12,3 mg/kg) to be separated and treated in accordance with
the Community provisions on waste. Without combustion, most
of these substances would end up spread on land without a clear
agronomic benefit.

(33) IPPC reference document on Best Available Techniques in the pulp
see website

European Commission,

industry,

paper
and
http://eippcb.jrb.es.

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6.2.1.2. A p p l i c a t i o n o f t h e e n v i r o n m e n t a l
a i d g u i d e l i n e s t o t h e i t e m ‘ s l u d g e
c o m b u s t o r ’

(133) According to point 29 of

the environmental aid
guidelines, investment aid may be authorised up to not
the eligible investment costs. As
more than 30 % of
Shotton is situated in a region eligible for regional aid
under Article 87(3)(c) of the Treaty, a bonus of
five
percentage points can be added, on the basis of point
34(a) of the environmental aid guidelines.

(134) According to point 36 of

the environmental aid
guidelines,
‘the investments concerned are investments
in land which are strictly necessary in order to meet
environmental objectives, investments in buildings, plant
eliminate
intended to reduce or
and equipment
pollution and nuisances, and investments
to adapt
production methods with a view to protecting the
environment.’

(135) According to point 37 of the guidelines, the eligible
costs must be confined strictly to the extra costs
necessary to meet the environmental objectives. They
must be calculated net of the benefits accruing from any
increase in capacity, cost savings engendered during the
the investment and
first
the life of
five-year
additional ancillary production during that
period.

five years of

(136) The Commission considers that the costs presented by
the United Kingdom concerning the sludge combustor
are indeed investment costs, and not operating costs, as
they concern investments in equipment.

(137) The cost for building a totally new sludge combustor is
higher than was foreseen in the notification, GBP 42,50
million instead of GBP 26,2 million. As explained
above, with the conversion to the use of 100 % recycled
fibre, nearly twice as much sludge will be produced by
the newsprint plant, i.e. around 200 000 tonnes/year in
total. The original sludge combustor notified would
have had a capacity of around 200 000 tonnes/year, and
was estimated to cost around GBP 26,2 million. But,
since the original notification, Shotton has had an
the environmental
opportunity to consider whether
replacing
be
benefits
can
sludge
gas
non-renewable
renewable
combustor with a

enhanced
fuel within the
consisting of

further
a
as
fuel

by

residues and pretreated household
low-grade forest
waste. As sludge derived from recycled fibre has a very
much lower calorific value than sludge from virgin pulp
and recycled pulp mix, in order to burn some 200 000
tonnes/year of sludge, a large quantity of solid fuel is
required (34). As a result, the overall physical size of the
sludge combustor and associated infrastructure will
increase.

(138) As

the

used,

regards

new techniques

Shotton
commissioned a formal study on this topic. Several
options were presented to Shotton, one of these being
the replacement of natural gas as the primary fuel to
combust the paper/de-ink sludge, by a combination of
fuel
local
community waste streams.

forests and from the adjacent

from local

this modification by the
(139) The Commission notes that
United Kingdom authorities
is consistent with the
comments made by paper producer A, which indicated
the increase of de-inked pulp capacity would
that
require more
dewatering
capacity than already in place. The new sludge
combustion and sludge dewatering equipment would
most likely be built with capacity to handle the total
sludge combustion and sludge dewatering need for the
whole mill.

combustion and

sludge

(140) The costs related to the sludge combustor are distributed

as follows:

Category

Cost (GBP
million)

Description

Sludge combus-
tor

Sludge handling/
storage

[Æ]

[Æ]

Equipment in which the
combustion takes place.

Contained storage of sludge to
prevent contamination of fuel
or run-off to groundwater and
conveyor transport from storage
combustor. This amount
concerns only the cost that
would not have been necessary
if all sludge would have been
spread on land and used for
animal bedding, or if the
existing combustor would
continue to be used.

Biofuel/RDF (35)
infrastructure

[Æ]

Pre-preparation of fuel to ensure
homogenous quality and ease of
transport.

(34) About 150 K tonnes/year of forest residues and around 175 K

tonnes/year of pretreated household waste.

(35) Refuse derived fuel.

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L 314/45

Category

Cost (GBP
million)

Description

Ash handling

[Æ]

Ash storage and conditioning to
enable dust free loading and
transport of ash.

Site preparation

[Æ]

Sludge dewater-
ing

[Æ]

Total

42,50

Investigation of ground
conditions and subsequent
preparation of the site to
accommodate the construction
of the combustor.

Increasing sludge dryness to
increase calorific value prior to
combustion. In case of
landspreading such dewatering
is not necessary.

(141)

the

extra

cost necessary

For calculating the eligible cost under point 29 of the
environmental aid guidelines the Commission can take
into account only
for
combustion of
the sludge by the most economical
means. The additional costs of the increased capacity for
the incineration of pretreated household waste, where
forest residues and sludge serve as additional fuel, are
not strictly necessary for the combustion of the sludge.
The Commission therefore, as a first step, assessed the
a hypothetical, most
eligible
economical,
that deals only with
sludge combustion to the situation where the existing
combustor would continue to be used for
steam
production, where a small part of the sludge would be
used for animal bedding and where the remainder
would be spread on land. The hypothetical combustor
assumed to correspond to a gas-fuelled
can be
combustor
an
as was
investment cost of GBP 26,2 million.

comparing
sludge combustor

foreseen, with

originally

cost by

sludge for animal bedding. The cost of animal
bedding amounts to GBP [Æ] per tonne. The cost of
landspreading is estimated at GBP [Æ] per tonne.
for 10 000 tonnes of animal
The avoided cost
bedding and 127 500 tonnes of
landspreading per
year amounts to GBP [Æ] per year. For five years,
taking the net present value in the first year (36),
this amounts to GBP [Æ];

(b) the combustor as originally foreseen would have
the
supplied 45 kg steam per second, whereas
existing combustor would produce only 27 kg
steam per second. So, in case the existing combustor
would continue to be used, Shotton would have buy
an additional of 18 kg steam per second from third
tonne.
parties
Consequently, the annual benefit amounts to GBP
[Æ]. For five years, discounted to the first year, this
amounts to GBP [Æ];

a price of GBP

[Æ] per

at

(c)

the combustor as originally foreseen would have to
be fuelled by natural gas. Combustion of 200 000
tonnes of sludge would have required [Æ] British
thermal units (BTU)/h of natural gas at a price of
GBP [Æ] per BTU. The annual cost would amount
to GBP [Æ]. For five years, discounted to the first
to GBP [Æ]. Since the
year,
calculation should be based on net benefits,
this
item must be deducted from the five year benefits;

this would amount

(d) the existing combustor would have to be fuelled by
35 000 tonnes of bark per year. Because of the shift
away from the use of virgin fibre, Shotton would
have to buy the bark from third parties. The cost
[Æ]. The annual cost
per tonne is estimated at
to GBP [Æ].
would amount
years,
discounted to the first year, this would amount to
GBP [Æ].

five

For

(142)

In accordance with point 37 of the environmental aid
guidelines, the eligible cost has to be calculated net of
the benefits accruing from any increase in capacity, cost
savings engendered during the first five years of the life
of the investment and additional ancillary production
during that five-year period.
In this first step of the
assessment, the ‘five-year benefits’ concern the following:

(143) Based on these assumptions, the Commission calculated
therefore, as a first step, the maximum aid allowable
the environmental aid guidelines
under point 29 of
in the following
applied to the sludge combustor
manner: 35 % (GBP 26,2 million — [Æ] — [Æ] + [Æ]
— [Æ]) = GBP 9 305 000.

(a)

landspreading of sludge is no longer necessary, and
there will be no more costs related to the use of

(36) The reference rate for the UK at the moment of the assessment is

5,42 %.

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Official Journal of the European Union

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(144) As a second step, the Commission calculated the eligible
cost when comparing the sludge combuster as foreseen
presently to the situation where the existing combustor
would continue to be used. This involves a much higher
investment cost of GBP 42,5 million. It involves as well
the following costs and benefits over 5 years:

(a)

landspreading of sludge is no longer necessary and
there will no more be costs related to the use of
sludge for animal bedding;

(b) Shotton will receive a ‘gate fee’ for the use of refuse

derived fuel (pretreated household waste);

(c)

the combustor supplies electricity which otherwise
from third parties or
would have to be bought
produced by own installations;

(d) the

combustor

supplies more
This

combustor.

existing
otherwise would have to be bought
parties or produced by own installations;

additional

steam than the
quantity
from third

(e) Shotton is expected to benefit

obligation certificates due to the use of
energy’;

from renewable
‘green

(f)

the existing, old combustor would have to be fuelled
by bark. This is not directly available anymore, since
the plant switches from virgin fibre to waste paper
as a raw material. Therefore, this bark would have
to be acquired from third parties;

(g) the disposal of the toxic ashes implies an additional

cost;

(h) the new combustor is fuelled by forest residues

which implies an additional cost.

The table below provides a detailed calculation of the
five-year benefits.

Unit/tonnes
per annum

Proceeds or
cost
GBP/tonne
or unit

Benefit
(cost) per
annum
(GBP)

Avoided cost of
landspreading of sludge

127 500

[Æ]

Avoided cost of animal
bedding

10 000

[Æ]

Benefit of refuse
derived fuel

[Æ]

[Æ] (37)

Benefit of electricity

[Æ]

[Æ]

Net benefit of
additional steam

[Æ]

[Æ]

Benefit of renewable
obligation certificates

[Æ]

Avoided cost of bark

35 000

Cost of ash disposal

Cost of forest residues

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

Total net derived benefit
per annum

Total net
derived benefit
for five years (38)

3 256 327

14 686 035

(145) Based on these

facts,

the Commission calculated
therefore, as a second step, the maximum aid allowable
the environmental aid guidelines
under point 29 of
applied to the sludge combustor
in the following
manner: 35 % (cid:2) (GBP 42,5 million — GBP 14 686 035)
= GBP 9 735 000.

(146) The Commission notes

that

combustion of

forest
residues
and urban waste has no link with the
newsprint production process and that, therefore, only
the
sludge
provides
that can be taken into account
environment
for the
the environmental guidelines. When an
purposes of
environmental benefit can be obtained in different ways,
aid can be granted only for the option that involves

combustion

benefit

for

a

relatively uncertain because of

(37) The ‘gate fee’ Shotton may expect for taking up refuse derived fuel
is
character.
However, based on actual information from Shotton, as confirmed
by the UK authorities, this ‘gate fee’ will in all likelihood be well
below GBP [...] per tonne. One estimate arrives even at a value as
low as [...] per tonne.

innovative

the

(38) Net present value at the first year.

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L 314/47

the

combustor

In this case,

it is clear from the
lowest eligible cost.
as originally foreseen,
above
that
combusting only the
and fuelled by gas,
sludge
constitutes the option that involves lowest eligible cost.
the
The Commission consequently concludes
the
of
maximum amount
environmental aid guidelines is GBP 9 305 000.

that
under

allowable

aid

(147) The gate

to receive
in all

for
the
fee Shotton expects
pretreated household waste will
likelihood be
below GBP [Æ] per tonne. However, the Commission
must take into account the uncertainty to this figure
due to the innovative character of the treatment process,
the unknown developments in the landfill tax and other
factors that influence this price. If in reality it turns out
to be higher (39), Shotton would obtain more benefits
that should be deducted from the investment cost. If the
gate fee would increase beyond GBP [Æ] on the average
over the five year period, the minimum eligible cost
would be the one calculated on the basis of the new
combustor. Therefore the aid amount, as approved in
this decision, would be too high, since the proper
calculation should have been based on the cost of the
new combustor and not
the hypothetical one as
foreseen above. For this reason the Commission can
approve the aid only under the condition, should the
gate fee for pretreated household waste turn out to be
higher than GBP [Æ] per tonne, the UK authorities
have to calculate the proper aid amount again and have
to ensure that the aid does not surpass the level of 35 %
of
the eligible cost as calculated in the second step
described above, taking into account the actual figure
given a written
for
Shotton has
the
undertaking
necessary
information to WRAP and repay with interest to the UK
authorities any aid paid in excess if this situation occurs.

it will

provide

gate

that

fee.

the

6.2.2. Applicability of the regional aid guidelines

It does not
to create or to maintain working places.
seem to have any positive effects for the development of
the region. Furthermore, on basis of the costs presented,
the planned aid for Shotton should not be qualified as
investment aid, but as operating aid, as it concerns the
mere replacement and updating of old facilities.

establishment

(150) The investment project in this case aims at introducing
a completely new production process for pulp to be
used as raw material. According to point 4(4) of the
investment could be
regional aid guidelines, an initial
‘the extension of an existing establishment, or
the
starting up of an activity involving a fundamental
change in the product or production process of an
rationalisation,
(through
existing
diversification
the
or modernisation)’.
Commission considers that the investment is eligible for
aid under the regional aid guidelines. However, since the
including
related to the
eligible
additional costs linked to the combustion of
forestry
residues and urban waste, have already been taken into
account under the environmental guidelines and, as the
following calculations will show, they benefit from a
higher aid intensity under these guidelines, they cannot
qualify for further aid under the regional aid guidelines.

combustor,

Therefore,

costs

(151) As regards the incentive effect of the aid, point 4(2) of
the regional aid guidelines requires that the application
for aid must be submitted before the work is started on
the projects. It appears from the information submitted
by the United Kingdom that Shotton did not start the
works before being appointed as preferred bidder
following
the
Commission takes the view that the aid at stake has an
incentive effect as
the regional aid
required under
guidelines.

procedure.

Therefore,

tender

the

(148) Point 4(1) of the regional aid guidelines provides that
aid can be granted for a productive investment (initial
investment) or
job creation which is linked to the
investment.

(149) Producers A and B argued that

the regional aid
guidelines do not apply, as the investment does not aim

(hereafter

(152) Under the multisectoral framework on regional aid for
large investment projects (40)
‘multisectoral
framework’), point 2(1)(i), projects are notifiable when
the total project cost is at least EUR 50 million, and the
cumulative aid intensity expressed as a percentage of the
eligible investment costs is at least 50 % of the regional
aid ceiling for large companies in the area concerned
and aid per job created or safeguarded amounts to at
In this case the total project cost
least EUR 40 000.

(39) In real terms, i.e. taking into account general inflation.

(40) See footnote 9.

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amounts to GBP 125,21 million (EUR 175 million), the
cumulative aid intensity is 18 % whereas the regional aid
ceiling is 15 % and the aid per job is around GBP 5,75
million. Hence,
the
multisectoral framework.

aid is notifiable under

the

(153) Following

the Commission's

the United
Kingdom provided information in order to allow the
Commission to assess the case under the multisectoral
framework.

request,

(154) The United Kingdom first of all presented a new

breakdown of the costs:

Rebuild of recycled fibre mill line 1

RCF 3 new build

Paper machine (PM) 1 conversion

PM 2 conversion

PM 2 finishing

Contingencies

RCF warehouse

Power distribution

PM 1 white water

Land and site works

Package boiler

PM 1 modifications

PM 2 modifications

Mill infrastructure improvements

Effluent treatment improvements

Mill site safety and efficiency investments

RCF local authority initiatives

Commissioning costs

(in GBP)

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

[Æ]

Sludge treatment and related investment (41)

42 500 000

Total

125 210 000

(155) Compared to the

initial

costs presented in the
notification, the United Kingdom was able to reduce the
overall amount of the costs for several reasons, such as
the strong purchasing power of UPM-Kymmene,
the
current depressed state of the European market for the
manufacture of manufacturing equipment, and greater
knowledge of the advancing recycling technology.

(156) The Commission notes that the reduction in the costs is
consistent with the comments made by paper producer
B, which stated that the costs presented in the original
notification were inflated. Paper producer B added that
it had been able to carry out a similar investment with
less costs.

(157) However, the Commission does not consider that all the
costs presented by the United Kingdom are eligible for
regional aid. Point 4(5) of the regional aid guidelines
states that eligible costs consist in land, buildings, or
plant/machinery. According to point 4(6),
eligible
expenditure may also include certain categories of
intangible investment up to a limit of 25 % of
the
standard base in the case of large firms.

(158) On the basis of the foregoing, the Commission takes the
view that the ‘local authority initiatives’, involving the
education of people to favour recycling at a cost of GBP
2 100 000,
intangible
investment and therefore is not eligible for regional aid.

considered

cannot

be

as

(159) Therefore,

the total eligible costs amount

to GBP

123 110 000.

6.2.3. Multisectoral framework assessment

(160) Under the multisectoral framework, the Commission, in
order to determine the maximum allowable aid intensity
for a proposal
to identify the
to award aid, has
maximum aid intensity (regional aid ceiling) which a
company could obtain in the assisted area concerned
within the context of the authorised regional aid system
applicable at the moment of the notification.

(41) See point 6(2) for a detailed breakdown of the costs related to the

sludge treatment.

(161) Taking into account that Shotton has to be considered a
large undertaking, the maximum allowable aid intensity
(R) in this case is 15 % gross.

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(162) A range of adjustment factors then have to be applied
to the percentage figure of 15 %,
in accordance with
three specific assessment factors, in order to calculate a
maximum allowable aid intensity for the project
in
question. Those three factors are the competition factor
(T), the capital-labour factor (I) and the regional impact
factor (M).

6.2.3.1. T h e r e l e v a n t m a r k e t a n d i t s

e v o l u t i o n

will consider whether the investment takes place in a
declining market. A market is deemed to be declining if,
over the last five years, the average annual growth rate
of apparent consumption of the product is more than
10 % below the annual average of EEA manufacturing
industry as a whole, unless there is a strong upward
trend in the relative growth rate of demand for the
product. The market
is deemed to be absolutely
declining if the average annual growth rate of apparent
consumption over the last five years is negative.

(163) The market

concerned by the

investment

is

the

production of newsprint.

(169) The United Kingdom submitted the following data
concerning the apparent consumption of newsprint in
the EEA for the period 1996 to 2001 (42):

(164) According to the multisectoral framework, the relevant
geographic market
comprises usually the EEA or,
alternatively, any significant part of it if the conditions
of
sufficiently
distinguished from other areas in the EEA.

competition in that

can be

area

the Commission considers

(165) Based on the statistics available from CEPI (see recital
the relevant
108),
geographic market is the EEA. Furthermore, the United
Kingdom did not provide any information indicating
that the relevant geographic market would be different
from the EEA. The relevant geographic market
is
therefore considered to be the EEA.

that

(166)

share of newsprint

In 2001, UPM-Kymmene's
sales
within the EEA was 10,5 %, of which Shotton
contributed 4,8 %. The United Kingdom submitted data
from Amec Consultancy forecasting that
the annual
growth of EEA newsprint consumption is expected to
be 1,6 % during the five-year period 2002 to 2007.

6.2.3.2. T h e c o m p e t i t i o n f a c t o r ( T )

(167) The authorisation of aid to companies operating in
sectors which are in structural overcapacity poses
particular risks for the distortion of competition. Any
capacity expansion, which is not compensated by
capacity reductions
the
problem of
sector or
subsector will be established at
the lowest available
segmentation of the NACE classification.

structural overcapacity. The

elsewhere, will

exacerbate

(168) As newsprint

represents only a small share in the
relevant NACE code (21.12 ‘Manufacture of paper and
cardboard’), the Commission based its assessment on the
apparent consumption in the EEA for the period 1996
the multisectoral
to 2001, pursuant to point 3(4) of
in the absence of
framework. That point states that,
sufficient data on capacity utilisation, the Commission

(EUR million)

Total value

1996

1997

1998

1999

2000

2001

5 070

4 060

4 615

4 771

4 905

5 611

(170) Those figures show an average annual growth of 2,05 %.
The average annual growth rate of the manufacturing
industry as a whole in the same period was 5,23 %.

(171) On the basis of the data on annual consumption set out
above, the sector concerned can be considered to be in
relative decline, as
the average annual growth of
newsprint is more than 10 % below the annual average
of EEA manufacturing industry as a whole, and as there
is no strong upward trend in the product.

(172) The United Kingdom argued that the competition factor
should be set at 1, due to the fact that there was no
capacity increase as a result of the investment. However,
completely
the
modernised, and that the plant will be able to run at
higher speed in the future means that the Commission
cannot conclude that there is no risk of distortion of

equipment will be

that

fact

the

(42) Sources: Cepiprint and Pulp and Paper International.

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Official Journal of the European Union

28.11.2003

the fact

that Shotton will
competition. Furthermore,
have a plant with a longer economic life than the
current one and, due to the subsidies, with production
costs lower than those of its competitors using similar
technology but not benefiting from aid, may lead to
distortion of competition.

(178) The UK authorities estimated that 187 jobs would be
created in the adjacent NUTS III level assisted areas of St
Helens, Merseyside, Wigan and Wirral. These jobs will
be generated as a result of Shotton's commitment to
purchase a further 321 000 tonnes of waste newspaper
and magazines newly recovered from the domestic
waste stream. The United Kingdom provided a list of the
suppliers.

(173) Hence, the Commission concludes that the competition

factor should be set at 0,75.

6.2.3.3. T h e c a p i t a l - l a b o u r f a c t o r ( I )

(174) The multisectoral framework lays down a capital-labour
factor which aims at adjusting the maximum intensity
with a view to favouring those projects that effectively
and better contribute to the reduction of unemployment
through the creation of a relatively more important
number of new jobs respectively safeguarded jobs. This
criterion also takes into account possible distorting
effects of the aid on the price of the final product.

jobs. Two of

(175) According to the United Kingdom, the project creates
four
relate principally to
those jobs
encouraging recycling and facilitating the procurement
in the local
of waste newspapers and magazines
communities. The other two jobs will be created in the
recycled fibre warehouse.

(176)

Investment costs amount to GBP 125,21 million (EUR
177,56 million) (43). The adjustment
for an
investment of EUR 177,57 million, which results in the
creation of four jobs, is the one corresponding to the
ratio of EUR 44,39 million/job, and should hence be set
at 0,6.

factor

(179) The agreements between Shotton and the current wood
suppliers will not be breached due to the switch to the
use of waste paper instead of wood, but will continue
for at least five years. The project will therefore not
directly result in job losses in those companies.

(180) Based on these figures, the Commission considers that
job creation, and

there is a high degree of
therefore, the regional impact factor is set at 1,2.

indirect

6.2.3.5. E x p o s t m o n i t o r i n g

(181) The United Kingdom undertook to insert the following
conditions in the contract between WRAP and Shotton,
in order to comply with the requirement of point 6(4)
of the multisectoral framework: first of all, a provision
was inserted requiring reimbursement if Shotton failed
to comply with the decision granting the aid, and
secondly, the final 25 % will be paid only when Shotton
has satisfied WRAP that the execution of the project is
in compliance with the Commission' s decision.

6.2.3.4. T h e r e g i o n a l i m p a c t f a c t o r ( M )

(182) The United Kingdom also undertook to submit a copy
of the contract to the Commission, as well as an annual
report on the project.

(177) The regional

takes

factor

impact

into account

the
beneficial effects of a new aided investment on the
economies of
the assisted regions. The Commission
considers that job creation can be used as an indicator
of a project's contribution to the development of a
region. A capital
intensive investment may create a
significant number of indirect jobs in the assisted region
concerned and any adjacent assisted region. Job creation
in this context refers to jobs created directly by the
project together with jobs created by first-tier suppliers
and customers in response to the aided investment.

(43) Exchange rate on 18 July 2003.

6.2.3.6. C o n c l u s i o n

(183)

In view of the foregoing, the maximum allowable aid
intensity (R (cid:2) T (cid:2) I (cid:2) M) should be calculated as follows:
15 % (cid:2) 0,6 (cid:2) 0,75 (cid:2) 1,2 = 8,1 %.
the
maximum amount which the United Kingdom is
to Shotton under the multisectoral
allowed to grant
GBP
8,1 % (cid:2) GBP
framework
9 972 000.

123 110 000 =

Therefore,

is

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6.3. Cumulation of the different types of aid

proportionate and necessary for the achievement of the
benefits
lead to an undue
distortion of competition.

sought, and does not

(184) Point 74 of the guidelines provides that ‘aid authorised
under the guidelines may not be combined with other
forms of State aid [Æ] if such overlapping produces an
aid intensity higher
laid down in the
than that
guidelines. In the case of aid serving different purposes,
the most
and involving the
favourable aid ceiling will apply’.

eligible

costs,

same

(185)

In this case,
the sludge combustor qualifies for an
exemption under both the environmental guidelines,
and the regional aid guidelines. Therefore, on the basis
of point 74 of the environmental aid guidelines, the
sludge combustor may benefit from the most favourable
aid ceiling, which is achieved by the application of the
environmental aid guidelines.

state-of-the-art
to achieve

recycling plant
the

(188) As regards the criterion of proportionality, the financing
seems
of
a whole
amount of waste
disproportionate
recycling targeted. In particular, the conditions of the
tender were not directly targeted to the diversion of
waste from landfills, but to the production of newsprint
It has been sufficiently
made out of waste paper.
the
demonstrated by paper producers A and B that
a
production of newsprint
state-of-the-art
the
technique,
newsprint producers have switched or will switch at
some time in the future.

from waste paper
to which most of

is

(186) This leads to the following calculation:

(189) Therefore, the Commission considers that the aid does
not seem proportionate to achieve the amount of waste
recycling targeted.

Calculation

Explanation

8,1 % (cid:2) (GBP
123 110 000 — GBP
26 200 000) = GBP
7 850 000

Application of the maximum
intensity calculated on basis of the
multisectoral framework to the
whole project minus the sludge
combustor, which is entitled to
benefit from a higher intensity under
the environmental aid guidelines.

35 % (cid:2)
(GBP 26 200 000 —
[Æ] — [Æ] + [Æ] —
[Æ]) = GBP 9 305 000

Application of the maximum
intensity under point 29 of the
environmental aid guidelines to the
sludge combustor, after deduction of
the five year benefits.

TOTAL: GBP
7 850 000 + GBP
9 305 000 =
GBP 17 155 000

Application of point 74 of the
environmental aid guidelines.

6.4. Direct application of Article 87(3)(c) of the
Treaty

(187)

It follows from the foregoing that neither under the
environmental aid guidelines, nor under the regional aid
guidelines not all of the notified aid of GBP 23 million
can be approved. The Commission has assessed whether
the aid could be exempted directly under Article
the
87(3)(c) of
aid is
Commission has

In order
to consider whether

to assess this,

the Treaty.

the

In most Member States,

(190) As regards the criterion of necessity, aid represents only
a ‘temporary second best solution’ (44), and should only
be applied when it is not possible for all costs to be
internalised by firms.
the
collection of waste paper is well-organised, due partly to
the landfill taxes in those countries and to the obligation
on municipalities to collect paper separately. There is no
real necessity to subsidise the production of newsprint
by securing end-markets. Therefore,
the Commission
considers that the aid in question is not necessary to
achieve the environmental
targets set by the United
Kingdom. Furthermore, the obligation on Shotton to use
a certain amount of waste paper will last only for five
years.

(191)

Finally,
the aid
the Commission examined whether
would not lead to an undue distortion of competition. It
is concluded that such a high amount of aid, granted to
one single undertaking, which is a major player in the
market of newsprint, will cause an undue distortion of
competition. It has been clearly emphasised by paper
producers A and B that waste paper is a common
traded raw material and a scarce resource.

(192)

It is therefore concluded that the notified project cannot
be exempted directly under Article 87(3)(c) of
the
Treaty.

(44) Paragraph 18(a) of the environmental aid guidelines.

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7. CONCLUSION

(193)

It is concluded that GBP 17 155 000 out of the GBP 23
million which the United Kingdom intends to grant to
Shotton is compatible with the common market. The
remaining GBP 5 845 000 is incompatible with the
common market.

of

be

the proper
sure
(194) The Commission must
the project
for which the aid is
implementation of
granted. Therefore,
it requests the United Kingdom to
submit an annual report on the implementation of the
investment project for the period up to and including
five years of operation. This report should
the first
describe the general progress of
the investment and
comment in particular on the actual costs and benefits
derived from the construction and operation of
the
combustor,
including costs and fees relating to other
waste burned in the same installation.

HAS ADOPTED THIS DECISION:

Article 1

in the new combustor and the
between the investment
continued use of the existing combustor, using the actual gate
the benefits derived from this
fee for
investment over five years. Any aid paid in excess of
the
reduced aid amount shall be recovered with interest.

the calculation of

The remainder of

2.
the aid referred to in the first
paragraph of paragraph 1, amounting to GBP 5 845 000 is
incompatible with the common market.

That part of the aid may accordingly not be implemented.

Article 2

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

Article 3

The United Kingdom shall submit an annual report on the
implementation of the investment project for the period up to
and including the first five years of operation of the sludge
combustor.

1.
The State aid which the United Kingdom is planning to
implement for UPM Kymmene-Shotton, amounting to GBP 23
million,
is compatible with the common market, up to a
maximum amount of GBP 17 155 000.

Article 4

This Decision is addressed to the United Kingdom.

If during the first five years of operation of the new combustor
the gate fee for pre-treated household waste is higher than
GBP [Æ] per tonne on average, so that the eligible costs of the
actual combustor are lower than those taken into account in
this decision, the United Kingdom shall reduce the aid amount
in such a way that the aid level does not surpass 35 % of
eligible costs as calculated on the basis of a comparison

Done at Brussels, 23 July 2003.

For the Commission

Mario MONTI

Member of the Commission