2005/137/EC: Commission Decision of 15 October 2003 on the Walloon region’s financial stake in Carsid SA (notified under document number C(2003) 3527) (Text with EEA relevance)
Date: 2003-10-15
Institutions: European Commission
Subjects: State aid, Walloon region (Belgium), control of State aid, iron and steel industry

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COMMISSION

COMMISSION DECISION

of 15 October 2003
on the Walloon region’s financial stake in Carsid SA
(notified under document number C(2003) 3527)

(Only the Dutch and French versions are authentic)

(Text with EEA relevance)

(2005/137/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 regard to Council Regulation (EC) No 659/1999 of 22
March 1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (1),

Having called on interested parties to submit their comments (2),
and having regard to their comments,

Whereas:

(3)

(4)

(5)

I. PROCEDURE

(1)

By letter dated 17 October 2001, Belgium notified the
Commission of the Walloon region’s plan to acquire a
stake in the capital of a new steel company, Carsid SA.
to the Commission by
Further information was sent
letters dated 20 November 2001 and 14 February 2002.

By letter dated 3 April 2002, the Commission informed
Belgium that it had decided to initiate the procedure laid
down in Article 6(5) of Commission Decision No
2496/96/ECSC of 18 December 1996 establishing
industry (3).
Community rules for State aid to the steel

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

The Commission received comments from interested
parties. It forwarded them to Belgium, which was given
the opportunity to react; its comments were received by
letters dated 17 June, 6 September, 22 October and 25
November 2002.

II. THE COMPANIES WITH A HOLDING IN CARSID

its object,
is

The Société wallonne de gestion et de participations
(Sogepa) is a Walloon Region holding company which,
amongst other things,
took over the activities of the
Société wallonne pour la sidérurgie (SWS). In the steel
as part of Wallonia’s general
industry,
economic policy,
creation or
the
to promote
expansion of companies and to promote public industrial
initiatives. At the time of notification, Sogepa had a 25 %
stake in the capital of the Belgian steel producer Cockerill
Sambre.
the capital of Duferco
this Decision), Duferco La
Clabecq (see recital 9 of
Louvière (see recital 11) and Duferco Belgium (see
recital 12).

It also held 25 % of

(1) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act

of Accession.

(2) OJ C 95, 19.4.2002, p. 2.

(3) OJ L 338, 28.12.1996, p. 42.
(4) See footnote 2.

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(6)

(7)

(8)

in turn, became, at

Sogepa’s holding in Cockerill Sambre was exchanged on
17 December 2001 for an 8 % holding in the capital of
Usinor, which,
the beginning of
2002, a 4,25 % stakeholder in the capital of Arcelor
(see recital 7). Sogepa’s holding in Duferco Clabecq was
reduced to 5,91 % following the operation to reduce
capital through absorption of losses carried out on 8
August 2002 and the ensuing capital
increase carried
out by Duferco Investment. Similarly, Sogepa’s direct
holding in Duferco La Louvière virtually disappeared
following the capital reduction through loss absorption
carried out on 8 November 2001 and the ensuing capital
increase carried out by Duferco Belgium.

since 3 January 1997. The SWS
been insolvent
contributed to the capitalisation of Duferco Clabecq
through a cash injection of some EUR 8,6 million and
by providing a subordinated loan of some EUR 13,6
million (75 % guaranteed by the Duferco group). The
Duferco group provided a capital
injection of some
EUR 25,9 million. By Decision of 25 November 1997
the Commission took the view that this measure taken
by the SWS did not constitute State aid. In its Decision,
the Commission noted that the company’s business plan
anticipated a positive operating margin as from the
second year of operation and profitability as from the
fifth year.

(10)

The following table shows some financial
Duferco Clabecq up to 30 September 2001:

indicators of

(in million EUR)

1998

1999

2000

2001

Capital + reserves

34,7

34,7

34,7

34,7

Turnover

229,7

171,3

309,7

292,7

Operating profit or loss

Profit or loss before tax

Total losses

3,0

1,3

– 7,0

– 4,9

– 6,0

– 7,5

– 6,7

– 0,7

– 6,7

– 14,3

– 14,9

Source: Company annual accounts. Financial years running from 1.10 to

30.9.

Usinor Belgium SA is a holding company of the Usinor
group in Belgium. The French Usinor group was, until
the end of 2001, one of the main European steel groups.
Its turnover in 2001 amounted to EUR 14 523 million
worldwide. At the time of the notification, Usinor held
75 % of Cockerill Sambre. At the beginning of 2002, the
Usinor group merged with the Luxembourg group Arbed
and the Spanish group Aceralia, creating the group
Arcelor, the world’s largest steel producer.

Duferco Investment SA (Duferco Investment) is a holding
company of the Duferco group. The Duferco is a private,
Italian-Swiss group specialising in trading in steel
products
(including raw materials), but which also
produces flat and long carbon steel products. In 2001,
the group had a worldwide turnover of USD 3,2 billion.
In Belgium, Duferco Investment controls
two steel
production companies, Duferco Clabecq and Duferco La
Louvière. These two companies pay Duferco Investment,
for the services provided by the group to the Belgian
companies, an annual fee of […] (*) of their turnover,
this annual fee being broken down into an agency fee
([…]) and a management fee ([…]).

(9)

Duferco Clabecq is the company set up by the Duferco
group and the Walloon authorities (through the SWS) to
take over the company Forges de Clabecq (5), which had

(*) Business secret.
(5) At the beginning of 1996, the company found itself

including a BFR 1,5 billion capital

in a very
difficult economic and financial situation which led the Walloon
authorities, through the intermediary of the SWS, to take it over
completely and to embark on a series of measures to save the
increase. On 18
company,
December 1996,
final
Decision against these measures and ordered the recovery of the
aid already paid (Commission Decision 97/271/ECSC of 18
December 1996 — ECSC Steel — Forges de Clabecq (OJ L 106,
24.4.1997, p. 30)). Following this Decision, the competent Belgian
court declared the company insolvent on 3 January 1997.

the Commission adopted a negative

(11) Duferco La Louvière is the company set up by Duferco
Investment and the Walloon authorities (through the
SWS)
in order to acquire the company Hoogovens-
Usines Gustave Boël (6), which had since October 1998
been operating under a court-approved arrangement with
creditors. The SWS contributed to the capitalisation of
Duferco La Louvière through a capital injection of some
EUR 17,8 million and by providing a subordinated loan
of some EUR 27,8 million (75 % guaranteed by the
Duferco group). The Duferco group provided a capital
injection of some EUR 53,5 million. By Decision of 1
July 1999,
this
assistance provided by the SWS did not constitute State
aid.
the
company’s business plan anticipated profitability being
achieved as from the year 2000.

the Commission took the view that

the Commission noted that

In its Decision,

(6) The Hoogovens Staal group acquired control of the company, which
was in difficulty, in April 1997. A recovery plan was drawn up, but
its situation continued to deteriorate.

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(12)

to the

In addition, so as to contribute to the financing of the
additional
investment to be carried out by Duferco La
Louvière, Duferco Investment and Sogepa set up the
holding company Duferco Belgium which was to take
a stake in the capital of Duferco La Louvière. Sogepa
capitalisation of Duferco
would contribute
Belgium through an injection of
some EUR 15,6
million and a subordinated loan of some EUR 24,3
million (75 % guaranteed by the Duferco group). The
Duferco group would contribute through an injection
of some EUR 46,8 million. By 30 September 2001,
25 % of
the capital had been paid up (EUR 15,6
million) and Sogepa had provided the loan in full. On
20 September 2001, Duferco Belgium had agreed to
loans amounting to some EUR 36 million to finance
investments being carried out by Duferco La
the
Louvière.
In the financial year ending 30 September
2001, Duferco Belgium reported a loss of EUR 31 209.

its disagreement with the Commission’s analysis as set
out in its decision to initiate proceedings, with a view
to overcoming the Commission’s objections Sogepa’s
holding would be reduced to EUR 9 million, the other
EUR 11 million originally planned being contributed
(also in cash) by Duferco Investment.

(16) On 27 December 2001, while awaiting a favourable
decision by the Commission, Cockerill Sambre made a
contribution in kind, whose net value was set at EUR 35
cash contribution
million,
amounting to EUR 25 million. Carsid’s initial capital
was consequently set at EUR 60 million.

and Duferco made

a

(13)

The following table shows a number of financial
indi-
cators for Duferco La Louvière up to 30 September
2001:

(17)

(in million EUR)

1999

2000

2001

Capital + reserves

111,6

111,6

111,6

Turnover

216,7

487,7

476,1

Operating profit or loss

Profit or loss before tax

Total losses

– 49,4

46,2

– 7,8

– 1,0

– 35,9

– 36,9

– 43,1

– 41,7

– 79,1

Source: Company annual accounts. Financial years running from 1.10 to

30.9.

Cockerill Sambre’s contribution in kind consisted of
plant broadly corresponding to the integrated production
line at the Charleroi site and the electric production line
at the Marcinelle site. This plant was valued by an inde-
pendent company in October 2001, which put its value
in use at EUR […] million. Cockerill also contributed
stock valued at EUR […] million and liabilities consisting
of provisions (EUR […] million), unpaid wages (EUR […]
million) and debts to suppliers (EUR […] million).

(18) Duferco’s cash contribution was used almost immediately
for the purchase of the Clabecq wide-strip continuous
casting plant. This plant was valued by an independent
company in November 2001, which put its value in use
at EUR 25 million.

III. DETAILED DESCRIPTION OF THE MEASURE

(19)

(14)

Following the announcement by the Chairman of the
Usinor Sacilor
group in February 2001 that he
intended to close down Cockerill Sambre’s hot-rolling
talks were entered into between
line in Charleroi,
Usinor-Cockerill
and
Sogepa primarily with a view to setting up a joint
venture to produce slabs based on Cockerill Sambre’s
existing mill
together with the plant
owned by Duferco Clabecq (continuous casting) (7). The
talks culminated in a memorandum of understanding on
the formation of Carsid, signed on 12 October 2001.

the Duferco

in Charleroi

Sambre,

group

Immediately after the company was set up, Cockerill sold
40 % of its holding in Carsid to Usinor Belgium and
18,33 % to Duferco (at a price of EUR […] million
payable as from […]). Consequently, Carsid’s capital
is
currently divided between Usinor Belgium (40 %) and
Duferco (60 %). Following the planned contributions by
Sogepa and Duferco Investment,
the final holding of
Sogepa in Carsid will be 11,25 %, with the other share-
holders holding 58,75 % (Duferco Investment) and 30 %
(Usinor Belgium SA) of Carsid’s capital.

(15)

The Walloon Region’s intervention consists of a stake
held by Sogepa in the new steel company, Carsid SA.
It was originally intended that this stake should be worth
EUR 20 million. However, by letter dated 14 May 2002,
Belgium informed the Commission that, notwithstanding

(7) Letter sent by the Belgian authorities on 31 May 2001 in case

NN 121/2000 Duferco Belgium.

IV. THE OPERATING PRINCIPLES OF CARSID

(20)

Carsid will have two slab production plants: an integrated
casting plant with an annual capacity of 1,8 million
tonnes which will serve Duferco, and an electric plant
whose output will be shared between Cockerill ([…]) and
the Walloon companies belonging to Duferco ([…]).
However, during a transitional period […], most of
Carsid’s output will serve Cockerill Sambre.

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(21) As a result of the operation, the Clabecq blast furnace,
with an annual steel production capacity of around 1,5
million tonnes, will be definitively closed down.

that

the workforce of

contract
essentially vary through use of
through use of
possible,

staff

the electric plant will
layoffs and, where
in the casting plant.

(22)

Carsid will produce exclusively for the companies in the
Duferco group and Arcelor and will not operate on the
open market. Accordingly, Cockerill Sambre and the
Duferco group have signed long-term supply contracts
with Carsid covering the period up to the end of […]
(Cockerill Sambre) and […] (Duferco). However, Cockerill
Sambre has an initial opportunity to terminate the
contract at the end of […]. Furthermore,
if Cockerill
Sambre exercises its right to withdraw from the Carsid
shareholders, both Cockerill Sambre and Duferco can
terminate the contracts on […].

(27)

V. THE SITUATION ON THE STEEL MARKET IN 2001

Following a very good year for the Community steel
industry in 2000, with output reaching a record level
of 163,2 million tonnes of steel, a downward trend in
output became apparent as from the beginning of 2001
and became more marked subsequently.
In a more
general context, in addition to the slowdown in growth
the economic
throughout
situation was increased by the events of 11 September
2001 in the United States.

the world, uncertainty as

(23) Apart from the production plants already mentioned (see
recital 20), Carsid intends to acquire a new plant […] to
improve product quality and plans to carry out main-
tenance investments at other plants and environmental
investment. The cost of transferring Duferco Clabecq’s
continuous
at
to Charleroi
EUR […] million. Usinor Belgium will contribute to
Carsid’s credit requirements with a loan of […] and a
credit line of the same amount, bearing interest at an
annual rate of […].

estimated

casting

is

The procurement of raw materials will be delegated to
the relevant departments of Arcelor and the Duferco
group, against remuneration. Thus, scrap purchases will
be the responsibility of the […] group and purchases of
ore, coal and coke will be the responsibility of the […]
group.

the companies

shareholders agreed that

Carsid’s
for
which the production of slabs is intended will cover
the production costs of the relevant plant. The slabs
will moreover be supplied at production cost + 1 %,
thus ensuring that the company will not make a loss.
As from the […] year, the shareholders have also agreed
to distribute […] of profits as dividends.

(24)

(25)

(26)

(28) As regards more particularly flat carbon steel products,
which are the main products of Duferco Clabecq and
Duferco La Louvière, the situation on the market in the
Community in 2001 was very worrying as a result in
particular of imports (see the figures for 2001 given in
Commission Regulation (EC) No 560/2002 of 27 March
2002 imposing provisional safeguard measures against
imports of certain steel products) (8). At world level, the
situation was hardly any better, as noted by all the parti-
cipants at the high-level OECD meeting held on 17 to 18
September 2001. In addition, the investigations into steel
initiated by the United States in January and July 2001
had added to the uncertainty as to the prospects for the
development of international trade in steel products.

(29)

Belgium is a net exporter of steel products. In 2001,
more than 70 % of its output was exported to the rest
of the Community.

VI. DOUBTS EXPRESSED BY THE COMMISSION IN
INITIATING THE PROCEDURE

(30)

Sogepa’s
The Commission expressed
behaviour, even analysed in the overall context of its
past
to that of a private
investments, was equivalent
investor, for two types of reason:

doubts

that

The fixed costs of the casting plant will be borne by
Duferco, and the fixed costs of the electric plant will
be borne by Cockerill Sambre up to a capacity of […]
tonnes. When the capacity of the electric plant reaches
1 million tonnes, only […] will be borne by Cockerill,
the rest being borne by Duferco. However, if one partner
uses some or all of the capacity intended for the other
party, it will bear the fixed costs in proportion to its use.
Variable costs will be borne by each party in relation to
the output which is allotted to it. It is established in the

— a supposed private shareholder in Carsid would not
be prepared to be alone in providing all the cash for
the company’s new needs since the risks for the
private shareholders and the public shareholder of
Carsid could not be considered equivalent. The
contribution of the private partners served no more
than to move the productive plant within companies
belonging to the group. The State, on the other hand,
was putting up fresh money, with a new risk,

(8) OJ L 85, 28.3.2002, p. 1. Regulation as last amended by Regulation

(EC) No 1287/2002 (OJ L 187, 16.7.2002, p. 25).

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— the expected return on the capital

invested by the
State in Carsid could not be considered to match
the expectations of a private investor, since the
return on such investment depended, on the one
hand, on the situation of the firms involved in the
project and, on the other, on developments in the
steel industry at world, European and regional level.

(34)

(31)

(32)

(33)

VII. COMMENTS FROM INTERESTED PARTIES

A. Corus

the Walloon
The steel producer Corus believes that
region’s investment in Carsid through Sogepa involves
State aid. The company bases its opinion on the fact
that a private investor seeking a return on an investment
would not have acquired a stake in Carsid under the
conditions accepted by Sogepa.

In the first place, Corus takes the view that Carsid is not
competitive and will not be competitive in the future.
According to Corus, Carsid has, because of its geogra-
phical location, a number of competitive disadvantages in
terms of input costs: labour, coal price, iron ore price,
scrap price and electricity price. Furthermore, its scale of
operation is too small to allow it to benefit it from
economies of scale (9). Carsid has no offsetting compe-
titive advantage to counteract those penalties: it will sell
commodity products into an over-supplied market, while
other producers are better placed for exports. Production
costs at Charleroi are currently 15 % higher than an
average competitor. Charleroi, with a cost of USD 219
per tonne, is the highest-cost producer in Europe (with
the exception of the small Greek producer Halyvourgiki).
It
is placed at number 207 out of 300 producers
analysed by World Steel Dynamics.

If one adds to this the fact that Carsid will sell its slabs at
a price equal to cost plus 1 %, Duferco and Arcelor will
be put at a competitive disadvantage in selling finished
products manufactured from Carsid’s slabs. A private
investor considering taking an equity stake in Carsid
would, as a consequence, be very concerned that the
continuation of such an arrangement would lead either
to a substantial reduction in the off-take of Duferco and
Arcelor from Carsid, or to a re-negotiation of the transfer
price. This concern would lead a private investor to
increase the risk premium factored into his decision to
invest, such that he would require a higher-than-normal
rate of return.

(9) In the case of Carsid, raw materials have to be transhipped from
deep-sea vessels to barges,
then barged up the river and canal
systems before being off-loaded to the works. This means double
handling and extra freight costs. Since the production of a tonne of
slab requires some 550 kg of coal and 1 550 kg of iron ore, an
extra EUR 5-10 per tonne on material costs adds between EUR 10
and EUR 20 per tonne to slab costs, i.e. 6 % to 12 %. On top of this,
labour cost is higher in Belgium than in most parts of the EU, and
labour productivity, in part due to the size of operation, is poor.
This adds a further EUR 20 per tonne.

(35)

(36)

(37)

(38)

In Corus’ view, there is little prospect of Carsid achieving
a viable level of profit. This was precisely the reason why
Usinor announced publicly in February that
the steel
production in Charleroi had no future. Therefore,
Sogepa’s investment could not be regarded as the act
of a normal investor. The other shareholders had other
motivations — Usinor wished to exit Charleroi without
re-negotiating the commitments it gave when purchasing
Cockerill, and this operation provided a low or no-cost
route to do so, while Duferco would probably more than
recoup the losses incurred by relying on Carsid for slab
supply to its Belgian operations through its profits on the
the end product. Duferco also saw this
trading of
operation as a way to avoid the re-vamping of
the
Clabecq blast furnace, and to move the production to
Charleroi, where it hoped to loose less money than at
Clabecq. However, this would still not generate a profit.
Sogepa could therefore only be investing in order to
preserve jobs.

calculated the net discounted value of

Secondly, Corus considers that
the expected rate of
return on the investment is insufficient to warrant it.
Corus
the
returns which Sogepa is likely to make on its investment.
In Corus’ view, on the most optimistic assumptions,
Sogepa may expect a return of 4,9 %. This clearly was
vastly below the rate a private sector investor would
require. On almost any other assumptions, the return
was negative.

Thirdly, Corus believes that the value of the equipment
contributed is greatly overStated. For Cockerill, this trans-
action primarily allowed it to exit from the Charleroi site
without paying closure costs. Since the equipment could
in the given
not be expected to generate any profit
In any event,
context,
if
its
in question would
auctioned for sale,
not have generated more than scrap value.
It was
Corus’ experience that, at the very best, this scrap value
would cover the environmental costs associated with site
clearance.

true value was zero.
the equipment

Fourthly, Corus considers that, even if the value of the
equipment had been estimated correctly, Sogepa would
have assumed a higher economic risk, compared to the
private shareholders of Carsid, by being the only share-
holder injecting fresh capital
in a more than uncertain
venture. Given that the investment by the two private
shareholders of Carsid was in kind, either directly or by
use of their contribution for the purchase of plant from
companies in the group, Corus doubted that a private
shareholder would be prepared to be alone in providing
all the cash for the company's new needs.

Fifthly, Corus argues that, since the steel sector is char-
aid is
acterised by
structural over-capacity,
presumed to be present where a public
is
acquired in a company operating in that sector.

stake

State

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(39)

the

the Carsid operation is
Sixthly, according to Corus,
feasible only because of
special pre-retirement
programme for Charleroi and Clabecq. In Corus’ view,
a derogation from the legal minimum age for pre-
(58 years) would require a discretionary
retirement
administrative decision, in the absence of which all the
workers based in Charleroi would have to be taken over
by Carsid, or their employer would have to carry the full
burden of their pre-retirement. Corus therefore considers
that the participation of the public authorities in the pre-
retirement programme involves State aid.

(40)

Seventhly, Corus considers that the overall context does
not justify Sogepa’s investment. An historical analysis of
previous support by Sogepa reinforced the view that no
private investor would undertake any further investment.
A private investor in the position of Sogepa would have
severed all
links with Duferco/Cockerill entities rather
than investing fresh capital in Carsid.

B. The United Kingdom

(41)

In the United Kingdom’s view,
since the company,
although independent, does not operate on the free
market,
it is unlikely that a private investor seeking a
return on investment would have injected funds in
Carsid under the conditions set for the stake.

VIII. COMMENTS FROM BELGIUM

(42)

(43)

The Belgian authorities begin by pointing out that the
Walloon public authorities have, for decades, pursued a
policy of investment in the steel industry in Wallonia and
that, consequently, Sogepa cannot be considered to be an
independent private investor since it has holdings in
Duferco Clabecq, Duferco La Louvière and Arcelor. The
Belgian authorities consider that Sogepa’s behaviour is
that of a private holding company or of a private
group of companies pursuing a sectoral policy and
guided by longer-term profitability prospects, since it is
carrying out
in an
industrial project of two groups in which it has stakes
(indirect profit) and whose profitability is assured (direct
profit).

investment as a shareholder

its

is

contest

the only shareholder

the Commission’s
The Belgian authorities
to
assertion that Sogepa
contribute
fresh cash since 27 December 2001,
Duferco Investment having carried out an increase in
Carsid’s
EUR 25 million.
Although the sale of Duferco Clabecq’s continuous
casting was carried out as part of
the contributions
made by the two private partners of Carsid, that sale
was justified by the fact that Carsid had to produce for
the Duferco group slabs of a specific size which neces-

amounting

capital

to

sitated the purchase of a continuous casting plant that
met the criteria of the plant situated at Clabecq.

(44) As regards the equivalence of

shareholders,

the risks incurred by
Sogepa, the Belgian authorities consider that Sogepa is
incurring a risk in line with its contribution. All of
Carsid’s
contribute
equipment or fresh cash, are incurring the same risk
under Belgian law. The Commission cannot oblige
Sogepa to make a contribution in kind or the private
increase in cash,
partners to carry out a new capital
notwithstanding the contributions
they have already
made amounting to EUR 60 million.

whether

they

the

Belgian Commercial Code

(45) As regards the value of the equipment contributed, the
they were valued by
Belgian authorities consider that
independent expert assessments. As regards more parti-
cularly the contribution of Cockerill Sambre, Article 444
of
the
appointment of an auditor. As far as the value of the
equipment
is
concerned, apart from the fact that the value established
in the expert assessment was accepted by Arcelor, a new
continuous casting plant similar
to that of Duferco
Clabecq would currently cost EUR 60 million and its
construction would take 18 to 24 months, whereas
that of Duferco Clabecq can be transferred and set up
in 12 months.

from Duferco

purchased

requires

Clabecq

(46) As regards Carsid’s competitiveness, the Belgian autho-
rities take the view that Carsid offers many advantages,
including a reduction in costs (10),
flexibility in the
transfer of production between the casting plant and
the electric plant making it easier to adjust to demand,
and the creation of a captive regional market for the
rolling mills of Duferco and Arcelor. Notwithstanding
the advantages of sites situated by the sea as outlined
by Corus, Carsid, which is situated near its industrial
partners, produces slabs at a price of EUR […] per
tonne, which is well below the figure of USD 219
cited by Corus.

(47) As regards Carsid’s production costs, according to a study
by CRU International Limited, the costs at Marcinelle
were USD 176,6 in 2000, which would mean that
they were only 3 % higher than the European average
and that they were 4 % below the world average. That
study was based on output of 1 650 000 tonnes,
whereas Carsid’s current output
is 1 800 000 tonnes.
The increase in output and the improvement in produc-
tivity explained the reduction in the cost of producing
slabs, which is at present some EUR […] per tonne, i.e.
well below the market price of slab, which in Europe is
around EUR 225 per tonne (transport included).

(10) A single maintenance team for the two production lines, a single
stock of replacement parts, economies in research and devel-
opments,
the development of processes and
logistical synergies.

simplification of

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(48)

Thanks to the supply of slab, Duferco Clabecq and
Duferco La Louvière produce coils and sheet at more
competitive prices, equivalent to the European average.
The use of slab produced by Carsid would result in an
improvement in the gross margin of some EUR […]
million a year
for Duferco la Louvière and some
EUR […] million a year for Duferco Clabecq.

(49) According to the Belgian authorities, there is no reason
to fear that the Carsid installations will not be fully used,
since both Arcelor and Duferco have signed long-term
contracts
supply contracts
provide that any party not using its rights must bear
the fixed costs associated with the plant serving them.

running until

[…]. The

(50) As regards the return on the investment, in their letter of
7 May 2002, the Belgian authorities estimated the return
on the equity invested in Carsid for the period […] at an
average of […] a year after tax ([…] a year before tax).

(51)

In response to the calculation carried out by Corus (see
recital 35 of this Decision) of the net discounted value of
the returns expected from Carsid, the Belgian authorities
used the same methodology as Corus, but with a number
of corrections as regards in particular the residual value
of Carsid’s installations and the hypothesis of continued
operations. Carsid’s internal rate of return would be
[…] (11), which, according to the Belgian authorities
would be acceptable for a similar investment (applying
a long-term interest rate of 5 %, which must be increased
by 3 % to take account of the risk inherent in the steel
industry). According to other calculations presented
subsequently, Carsid’s internal rate of return was put at
[…] applying the normal hypothesis of the continuity of
the plant beyond […] (12), or […] if one assumes liqui-
dation of the company (13).

(52) At all events, the Belgian authorities consider that profit-
ability may be presumed to have been demonstrated
where the public intervention is accompanied by conco-
mitant and significant private backing and that
the
for the judgment
Commission cannot substitute itself

(11) The Belgian authorities used Carsid's forecast cash flows and
considered at the end of the […] a terminal value of EUR […]
million which is the result of a residual plant value of […] of the
initial accounting value, i.e. EUR […] million, to which they have
added the value of three months' worth of stock.

(12) The company used part of Carsid's

forecast cash flows and
considered at the end of the […] a terminal value of EUR […]
million which is arrived at by adding the capital subscribed, non-
distributed profits, depreciations and provisions
in excess of
investment requirements and […] of the initial accounting value
of the installations.

(13) The Belgian authorities subtracted the cost of dismissals from the

terminal value as determined in footnote 12.

the investor, but must establish with reasonable
of
certainty that the programme financed by the State will
be acceptable to a market economy investor.

(53) As far as the situation in the steel industry is concerned,
the Belgian authorities take the view that, though the
industry went through a fairly serious cyclical crisis in
2001, this was part of the cycle peculiar to the steel
industry, but that, following the measures adopted by
the United States,
considerable
increase in prices in Europe and in Asia that seemed to
be durable despite the economic situation and rather
weak demand. Furthermore, the slab market was not a
market suffering from structural over-capacity in Europe.
On the contrary, Europe was a net importer of slab, and
this situation was not expected to differ in the years
ahead.

there had been a

(54) As regards the past performance of Duferco Clabecq and
Duferco La Louvière,
the Belgian authorities maintain
that it was causes external to the Duferco group (raw
materials market, exchange rates and product market)
and the effects of the reduction in output and of the
need for restructuring that affected their results to a
significant extent and did not allow the companies to
achieve the forecasts set out in the initial business plants.

(55) As regards, finally, the pre-retirement programme, the
Belgian authorities maintain that these arrangements do
involve any transfer of public resources to the
not
employer and,
in addition, that the Belgian authorities
do not have any discretion as regards the inclusion of
these
workers
arrangements, since, if the criteria stipulated by the law
are met, the applicant company is recognised as being in
difficulty or as undergoing restructuring and the workers
are accordingly eligible for the scheme.

firm in the benefits of

from a

IX. ASSESSMENT OF THE MEASURE

(56) Although the procedure was initiated under the ECSC
Treaty, since it was not possible in practice to adopt a
final decision before 23 July 2002 (Belgium’s reaction to
the comments from interested parties arrived only on 17
information was provided
June 2002, and additional
this Decision),
subsequently,
the
Commission made it clear,
in its notice on certain
aspects of the treatment of competition cases resulting
from the expiry of the ECSC Treaty (14), that it would in
such cases adopt a final decision under Article 88(2) of
the EC Treaty (point 43 of the notice).

recital 4 of

see

(14) OJ C 152, 26.6.2002, p. 5.

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(57) At all events, the doubts expressed by the Commission
when it initiated the procedure related to the description
of the measure planned by Belgium as State aid. As has
been made clear in Community case law,
the clarifi-
cations made by the Community judicature to the
concept of State aid referred to in Article 87 of the EC
Treaty are relevant when applying the corresponding
provisions of the ECSC Treaty, to the extent that they
are not incompatible with that Treaty (15).

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

undertakings

by

or

A. Existence of State aid

(59)

It is not disputed that the funds provided by Sogepa
its
constitute State resources nor
to the
mission,
Walloon Region.

that, by virtue of

attributable

Sogepa's

actions

are

(63) With regard firstly to the contribution of EUR 25 million
by Duferco Investment, the Commission notes that the
amount was immediately transferred to Duferco Clabecq
for the purchase of the continuous casting plant (Carsid
will still have to spend EUR […] million for its transfer
from Clabecq) and its associated installations. Even if,
from the formal point of view, these are two separate
companies with two different sets of shareholders, the
from the economic
Commission takes the view that,
the Duferco group
they form part of
point of view,
and that, accordingly, the group is not taking on any
new risk. This is all the more so as, from 8 August
2002, Duferco Investment has held 94,09 % of Duferco
Clabecq’s capital (see recital 6).

(64) As regards Usinor’s contribution, the Commission notes
that,
in view notably of its declared decision to close
down the installations contributed to Carsid, Usinor is
not taking on any new risk. On the contrary, Usinor will
receive EUR […] million from Duferco Investment as the
price for the sale of part of its holding (see recital 19).
The terms of the agreement on the setting up of Carsid
(see,
in particular, recital 26) reduce the possibility of
Usinor incurring losses, even if it decided not to use
the electric plant.

(60) As far as the existence of aid elements is concerned, it
must be determined whether the public resources made
available to Carsid may be considered to be a genuine
contribution of
in accordance with the
risk capital
normal practice of a market economy investor.

(65) However, in view of the reduction in the contribution of
Sogepa and the increase in the contribution of Duferco
Investment
to maintain the EUR 20 million in cash
initially planned (see recital 15), the Commission notes
that one of the private partners is taking on a new risk.

(61)

(62)

In its decision to initiate the procedure, in view of the
fact that the investment carried out by the two private
shareholders of Carsid is made in kind, either directly or
through the direct use of their stake in the purchase of
capital goods from group companies, the Commission
expressed doubts that any hypothetical private share-
holder in Carsid would be prepared to agree to be the
only one to make all his contribution in cash in order to
provide for the new requirements of the company.

in its decision to initiate the procedure,

(66) As regards the expected return on the capital invested by
Sogepa,
the
Commission expressed doubts on whether that contri-
bution was in line with the principle of a market
economy investor, notably because of the situation on
the steel market and the situation of the companies in
the Duferco group and even Cockerill Sambre.

The Commission notes firstly that, in accounting terms
the Belgian legislation, a
and within the meaning of
capital contribution in the form of physical assets has a
value equivalent to a capital contribution in the form of
cash. However, this does not affect the analysis which it
in initiating the procedure, according to
carried out
which Duferco Investment
and Usinor were not
incurring any new risks.

(15) Joined Cases T-129/95, T-2/96 and T-97/96 [1999] ECR II-17,

paragraph 100.

(67)

The Belgian authorities’ argument that a return on the
investment may be presumed to be demonstrated where
the public intervention is accompanied by concomitant
and significant private backing cannot be accepted. For
the reasons set out in recital 64 of this Decision, it is
clear that Usinor’s decision to take a stake in Carsid is
not directly linked to the profitability of Carsid (it could
be concluded, on the contrary,
the installations
contributed were not sufficiently profitable for Usinor).
Through this operation, Usinor is also avoiding a costly
social security plan.

that

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(68) On the other hand, the fact that the Duferco group is
ready to take on a risk amounting to EUR 11 million is
not a decisive factor either in assessing whether Sogepa is
acting in the same way as a normal market economy
investor, for the reasons set out below.

(69)

(70)

In the first place, Duferco will gain a direct benefit from
Carsid which Sogepa will not gain, namely the fee on the
purchases of raw materials used in the integrated plant.
From this point of view, the direct profitability of the
investment for Duferco is greater than for Sogepa.

Secondly, because of the agency and management fees
from Duferco Clabecq and
which Duferco receives
Duferco La Louvière ([…] of
the indirect
return on the investment continues to be higher for
Duferco than for Sogepa. Even if the fees were in line
the Belgian authorities
as
with market practices,
claim (16), Duferco
from those
a
obtains
companies which Sogepa does not obtain.

turnover),

profit

(71) As regards the return on the capital invested in Carsid,
the Commission considers that it is not equivalent to that
which an investor operating under normal market
economy conditions would expect. According to the
Commission’s estimates on the basis of Carsid’s forecast
cash flow, under the most optimistic hypothesis and the
favourable one for Carsid (100 % capacity utili-
most
sation,
continuous
as
operation after […]), the internal rate of return on the
investment is […], which is well below the minimum
rate required in view of
the risk and, at all events,
below the rate indicated by the Belgian authorities for
an investment in the steel industry […]. Furthermore, in
view of the sensitivity of Carsid’s performance to the
quantities produced, which in their turn depend on the
market situation, this rate will be lower.

from […],

constant

costs

(72)

In point of fact the rate of […] referred to in recital 71 is
higher than that resulting from the calculation which had
been carried out by the Belgian authorities in their letter
of 7 May 2002 (see recital 50) using a different metho-
dology. The Commission cannot accept the calculations
subsequently carried out by the Belgian authorities (see
recital 51)
since they significantly over-estimate the
terminal value of the investment. The terminal values
used by the Belgian authorities resulting respectively in
internal rates of return of […] are obtained by applying

(16) According to the Belgian authorities, before the arrival of Duferco,
the fees provided for in the agency contracts concluded both by
Clabecq and by La Louvière were between […]. As regards the
management fees, the studies carried out at international level by
consultants and reputable business banks show that management
fees are between 2,5 % and 5 % of turnover for a period of five to
ten years from the date on which the companies being restructured
are taken over.

the company,

double counting for the items depreciations, provisions,
investment and residual asset values including stocks;
these are already taken into account
in the forecast
cash flows. Furthermore, the Belgian authorities’ calcu-
lation does not take account of the fact that, assuming
the plant could not be
liquidation of
realised to the tune of […] of
the initial accounting
value, as the Belgian authorities estimate.
In point of
fact,
the investment assuming
continuity of operation is generally measured by the
earning power of
company and consequently
calculated by discounting, at the appropriate rate, the
last forecast cash flow of the company in perpetuity.

the terminal value of

the

for

(73) As far as Sogepa’s taking into account of Carsid’s indirect
profits
the companies which will use the slab
produced there is concerned, the Commission considers
that Sogepa’s position as a minority shareholder in those
companies does not
justify the commitment of new
capital.

(74)

(75)

(76)

In the first place, the Carsid production which Arcelor
would use represents only a very small percentage of the
overall output of the Arcelor group. Consequently, the
setting up of Carsid could have only a negligible impact
on Arcelor’s competitiveness and hence on Sogepa’s
profits.

Secondly, as far as Duferco Clabecq and Duferco La
Louvière are concerned, the figures put forward for the
improvement in the gross margin of those companies
(see recital 48) are far from certain. The figures are
based on the assumption of maximum capacity utili-
sation both by Duferco Clabecq and Duferco La
Louvière and by Carsid. However, on markets with
structural over-capacity at world level
the
markets in flat products, maximum capacity utilisation
occurs only exceptionally.

such as

term,

in the short

the steel market
least

In addition, Sogepa holds only a minority stake in
Duferco Clabecq and Duferco La Louvière, both of
which had, when Carsid was set up, combined losses
amounting to EUR 94 million and which, given the
State of
(see recital 28), could not
for any significant
hope, at
improvement in their situation. The Commission notes
moreover
that Duferco Clabecq was described as a
company in difficulty or undergoing restructuring for
the purposes of Belgian legislation regarding early
retirement (17). In these circumstances, the Commission
considers that a minority investor which had lost a
large part of the value of its initial investment without
having obtained any advantages similar to the other
partners, against a background of a crisis situation on
the market, would not be prepared to commit new
funds.

(17) In this Decision, the Commission is not taking up any position on

that scheme.

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(77)

(78)

(79)

In view of the above, the Commission considers that a
minority
investor operating under normal market
conditions would not be prepared to contribute funds
to an operation which can be expected to produce a
proper return and where the other partners would be
the main beneficiaries. The involvement of the Walloon
Region in Carsid under the conditions described in this
Decision would confer an advantage on Carsid. In view
industry is subject to keen
of the fact
intra-Community trade in steel
competition and that
products is very substantial, the aid would be liable to
distort competition and to affect intra-Community trade.
It would thus constitute State aid within the meaning of
Article 87 of the Treaty.

that the steel

(80)

the expiry of

the ECSC
The Commission notes that
Treaty does not affect the assessment of the compatibility
of the notified measure with the common market since
the changes in substantive law that have taken place as a
consequence of the expiry of the ECSC Treaty (see in
particular point 19 of the notice referred to in recital
56) have not affected the ban on regional investment aid.

XI. CONCLUSION

(81)

In conclusion,
the Commission takes the view that
Sogepa’s stake in the capital of Carsid constitutes State
aid that is incompatible with the common market,

X. COMPATIBILITY WITH THE COMMON MARKET

HAS ADOPTED THIS DECISION:

Similarly,

occurrences.

The aid is not compatible with the common market
under the derogations provided for in Article 87(2) of
the Treaty since it is not aid having a social character
granted to individual consumers and is not intended to
make good the damage caused by natural disasters or
exceptional
be
considered compatible with the common market under
the provisions of Article 87(3)(b) and (d).
is not
intended to promote the execution of an important
project of common European interest or to remedy a
serious disturbance in the economy of a Member State,
intended to promote culture and heritage
nor
conservation. Consequently,
the Commission must
examine the compatibility of the aid in the light of the
derogation provided for in Article 87(3)(a) and (c).

cannot

is it

It

it

Carsid, Arcelor, Duferco Clabecq and Duferco La
industry as defined in
Louvière form part of the steel
Annex B to the multisectoral
framework on regional
aid for large investment projects (18). Under point 27 of
the framework, regional aid for the steel industry is not
compatible with the common market.
Insofar as the
Belgian authorities were to argue that the aid is restruc-
turing aid, point 1 of the Commission communication
on rescue and restructuring aid and closure aid for the
steel sector (19) makes it clear that rescue and restruc-
turing aid for firms in difficulty in the steel industry is
incompatible with the common market.

Article 1

The financial holding of the Société wallonne de gestion et de
participations (Sogepa) amounting to EUR 9 million in the
company Carsid SA, as proposed by Belgium, constitutes State
aid that is incompatible with the common market. The measure
may accordingly not be implemented.

Article 2

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

Article 3

This Decision is addressed to the Kingdom of Belgium.

Done at Brussels, 15 October 2003.

For the Commission

Mario MONTI
Member of the Commission

(18) OJ C 70, 19.3.2002, p. 8.
(19) OJ C 70, 19.3.2002, p. 21.