2005/173/EC: Commission Decision of 12 May 2004 on the State aid implemented by Spain for further restructuring aid to the public Spanish shipyards State aid Case C 40/00 (ex NN 61/00) (notified under document number C(2004) 1620) (Text with EEA relevance)
Date: 2004-05-12
Institutions: European Commission
Subjects: Spain, State aid, aid for restructuring, control of State aid, shipbuilding

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COMMISSION

COMMISSION DECISION

of 12 May 2004

on the State aid implemented by Spain for further restructuring aid to the public Spanish shipyards

State aid Case C 40/00 (ex NN 61/00)

(notified under document number C(2004) 1620)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2005/173/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Whereas:

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

(1)

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 1540/98 of
29 June 1998 establishing new rules on aid to shipbuilding (1),

Having regard to Council Regulation (EC) No 1013/97 of
2 June 1997 on aid to certain shipyards under restructuring (2),

(2)

(3)

I. PROCEDURE

Based on Regulation (EC) No 1013/97, the Commission
in a decision of 6 August 1997 (4) authorised restruc-
turing aid for Spanish public shipyards amounting to
approximately EUR 1,9 billion. According to the
Council Regulation the condition for the approval of
the
restructuring
purposes should be provided.

that no more

aid was

aid for

the Commission was
By information from the press,
informed that a number of transactions involving the
public Spanish civil shipyards took place during the
years 1999 and 2000. By letters dated 27 January
2000 and 29 March 2000, the Commission requested
information on this matter. Spain did not
reply to
these letters.

the

concerning

the opening)

By decision of 12 July 2000 the Commission initiated
the procedure laid down in Article 88(2) of the EC Treaty
transaction
(hereafter
whereby the State holding company Sociedad Estatal de
Participationes Industriales (hereafter SEPI) bought
the
two shipyards Juliana and Cadiz and the motor factory
from Astilleros
Manises, each as separate companies,
Españoles SA. The Spanish authorities were informed
of the decision in a letter from the Commission dated
1 August 2000.

Having called on interested parties to submit their comments
pursuant to the provisions cited above (3) and having regard to
their comments,

(1) OJ L 202, 18.7.1998, p. 1.
(2) OJ L 148, 6.6.1997, p. 1.
(3) OJ C 328, 18.11.2000, p. 16 and OJ C 21, 24.1.2002, p. 17 and

OJ C 199, 23.8.2003, p. 9.

(4) OJ C 354, 21.11.1997, p. 2.

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(4)

(5)

(6)

(7)

Spain by letters dated 18 May 2001 and 24 September
2001 submitted its comments on the opening of the
procedure.
the
State holding company SEPI in July 2000 had decided
to merge all the publicly owned shipyards in Spain into
one group.

It also informed the Commission that

by letter dated 16 October 2002 replied to the infor-
mation injunction but did not provide the requested
annual reports.

The Commission decided on 28 November 2001 to
extend the procedure laid down in Article 88(2) of the
EC Treaty (hereafter first extension),
in respect of the
further transactions between, on the one hand, SEPI
and Bazán and, on the other hand, AESA and Bazán to
create the new group IZAR. By letter dated 28 November
2001, the Commission informed Spain of the extension
of the procedure and requested all relevant information
that may help to assess the aid element of the trans-
actions. By letter dated 29 November 2002 the
proper
Commission
that,
evaluations,
the
concerned shipyards and AESA, and any other documen-
tation that would clarify how the companies were
evaluated at the time of the change in ownership.

it needed the annual accounts of

to make

clarified

the

(8)

(9)

Spain by letter dated 31 January 2002 submitted its
comments on the first extension of the procedure. The
Commission reminded Spain,
in a letter dated 28
February 2002, that annual reports for the companies
still had to be provided. Spain provided further infor-
mation by letter dated 29 July 2002, which however
did not include the requested annual reports.

Since Spain did not provide the requested annual reports
the Commission decided on 12 August 2002 to issue an
information injunction pursuant
to Article 10(3) 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 (1) (hereafter the procedural
regulation) to order Spain to submit this information.
Spain was informed of this by letter dated 12 August
2002. The Commission underlined that
it did not
receive the requested information, it would take a final
decision based on the information it had available. Spain

if

(10)

the extension of

The Commission decided on 27 May 2003, to further
extend the procedure laid down in Article 88(2) of the
EC Treaty (hereafter second extension), covering newly
found suspected illegal State aid linked to transactions
between SEPI and AESA and its shipyards. By letter
dated 27 May 2003 the Commission informed Spain
the procedure and requested all
of
relevant
the
suspected aid. By letter dated 10 July 2003, Spain
replied to the second extension. By letters dated 16
October and 11 November 2003,
the Commission
requested further clarifications. Spain replied by letter
dated 25 November 2003 and provided further infor-
mation by letter dated 14 April 2004.

information that may help to assess

the opening,

Following
the Commission received
comments from Denmark by letter of 18 December
2000, and following the first extension, comments
from the UK by letter of 22 February 2002. Following
the second extension, comments were received from
Royal Van Lent Shipyard by letter dated 24 September
2003, from a party requesting anonymity by letter dated
24 September 2003 and from IZAR by letter dated 6
October 2003. These comments were forwarded to Spain
by letters dated 14 February 2001, 6 March 2002 and
13 October 2003. Spain provided its comments by
letters dated 14 March 2001, 4 April 2002 and 10
IZAR on 14 November 2003
November 2003.
brought an action (2) against
the Commission before
the Court of First Instance, requesting an annulment of
the second extension of the procedure.

II. DETAILED DESCRIPTION OF THE AID

The beneficiaries

IZAR Construcciones navales

The concerned companies are Astilleros Españoles SA
(AESA), E.N. Bazán de Construcciones Navales Militares
SA (Bazán),
(IZAR),
Astilleros de Cadiz SRL (Cadiz), Astilleros de Puerto
Real SRL (Puerto Real), Astilleros de Sestao SRL
Juliana
Sevilla
(Sestao) Astilleros de
Constructora Gijonesa SA (Juliana), Manises Diesel
Engine Company SA (Manises), Astilleros y Talleres del
Noroeste (Astano, which later changed name to Fene).

(Sevilla)

SRL

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

(2) OJ C 21, 24.1.2004, p. 41, Case T-381/03.

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Transactions covered by this procedure

(11)

Since 1998, all public Spanish shipyard companies belong to the structures of the Spanish State
holding company SEPI. By 1998 all civil yards, apart from the directly owned Astano, were inde-
pendent companies, owned by the holding AESA, a subsidiary of SEPI. AESA thus did not carry out
any shipbuilding activities on its own, but was a holding company actively managing its shipyard
companies. SEPI also owned Bazán, a company which mainly comprised three military shipyards (not
as independent companies). By the beginning of 1998 the structure of ownership of the public
shipyards was as follows:

(12)

In a first set of transactions (hereafter referred to as transfer 1) on 28 December 1999, SEPI bought
shipyard companies Cadiz, Juliana and the ship motor factory company Manises from AESA for a
price of EUR 15 300 000 (1). The yards Barreras and Astander were privatised and are no longer part
of the present investigation. This led to the following structure:

(13)

(14)

SEPI in July 2000 decided to merge all the publicly owned shipyards into one group. The merger
took place through two main operations. In one operation (hereafter referred to as transfer 2), the
SEPI-owned military shipbuilding group Bazán bought AESA’s three remaining shipyard companies
(Puerto Real, Sestao and Sevilla) for ESP 1 each.

In the other operation (hereafter referred to as transfer 3), Bazán bought three shipyard companies
(Juliana, Cadiz and Astano) and the ship motor factory Manises directly from SEPI, also this for ESP 1
each. All the companies were then dissolved and merged into Bazán, which changed name to IZAR.
The current structure of the shipyards is thus as follows:

(1) The monetary amounts in this decision are, in general, rounded figures, in euro, recalculated from Spanish pesetas.

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(15)

(16)

(17)

(18)

(19)

The decision to open the formal
procedure

investigation

In the opening of the procedure the Commission stated
that it had doubts whether transfer 1, where SEPI paid a
price, which then was reported to be EUR 60 million to
AESA for
Juliana, Cadiz, and
Manises contained State aid.

the three companies

restructuring aid package for

It was also doubtful whether such aid was compatible
with the common market as it appeared not
to be
compatible with the Commission decision of 1997
approving the last
the
public shipyard group and, therefore, constituting incom-
patible restructuring aid pursuant to the first indent of
the second subparagraph of Article 5(1) of Regulation
(EC) No 1540/98 establishing new rules on aid to ship-
the Shipbuilding Regulation). This
building (hereafter
finding in particular was based on the
following
arguments:

this

‘sale’ did not appear

to be a genuine
Firstly,
injection to allow AESA
operation but rather a capital
and its remaining yards (Puerto Real, Sevilla and Sestao)
to continue in business for the time being.

their

given
continued poor

and
performance
Secondly,
apparently
results, no commercial
investor seemed likely to be prepared to purchase the
yards on these conditions.

previous

The first decision to extend the formal investigation
procedure

to cover

The Commission on 25 November 2001 decided to
extend the procedure
transfer 2 and 3
undertaken to merge all public Spanish yards into one
group. In the extension of the procedure the Commission
noted that there was a proximity of the transactions that
took place in between 1999 and 2000 which ultimately
led to the creation of one group for all public yards. The
procedure therefore needed to be extended to all trans-
actions that lead to the merger in order to fully and
correctly
aid to civil
shipyards contained in the different transactions within
the SEPI group.

the possible State

evaluate

(20)

the Commission underlined that

the
In this context
provision of capital
to public undertakings needs to
take place under market conditions in order to exclude
the existence of State aid. Therefore,
it had doubts
whether the sales price of ESP 1 per yard and for the
motor factory could be considered as the market price,

and whether therefore an economic advantage consti-
tuting State aid had been conferred to IZAR by the
transactions.

(21)

Since the applicable community provisions did not allow
for more rescue or restructuring aid to the public civil
shipyards the Commission had doubts on whether these
transactions would be compatible with the common
market.

(22)

(23)

(24)

(25)

(26)

The second decision to extend the formal investi-
gation procedure

In its further investigations on this case the Commission
found out that SEPI in 1999 provided loans amounting
to EUR 194 400 000 to the three companies Cadiz,
Juliana and Manises it just had bought. Since it appears
that these loans were provided to companies in diffi-
they may be
culties,
considered to be State aid.

the Commission considered that

Furthermore, the Commission noted that it appeared that
on 18 July 2000 AESA received a capital injection from
SEPI of EUR 252 400 000. The Commission considered
that this could be State aid. It appeared that the shipyards
Puerto Real, Sestao and Sevilla at virtually the same time
received capital injections from AESA of a similar total
amount. This capital
injection from AESA to its three
shipyards took place only two days before they were
transferred to Bazán.

Finally,
it appeared that Bazán was compensated for a
loss of EUR 68 200 000 in connection with its buying of
the shipyards Astano, Cadiz,
Juliana and Manises. The
Commission therefore had doubts that SEPI may have
injected this
in
four
into the
amount
connection with their transfer to Bazán.

companies

that

led to the

Based on this new information, directly related to the
the
transfers
Commission decided on 27 May 2003 to extend the
procedure since it had doubts that
these loans and
capital
injections were compatible with the common
market.

creation of

IZAR,

It can finally be noted that, in the second extension of
the procedure, the Commission stressed that in case the
doubts concerning the granting of additional aid as
expressed within this decision initiating the current
procedure are confirmed, aid granted in 1997 for the
further restructuring of public Spanish yards may be
considered to be incompatible and be recovered.

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III. COMMENTS FROM INTERESTED PARTIES

Comments to the opening of the procedure

(27)

The Commission received comments on the opening of
the procedure from Denmark, which was of the opinion
that the transaction between AESA and SEPI should be
considered as illegal capital injection in violation to the
aid package agreed to in 1997 for AESA. Denmark
therefore supported the Commission decision to open
the procedure.

(28) Denmark furthermore claimed that since Bazán received
aid in 1998 on the condition that it would cease with
commercial shipbuilding,
the takeover by Bazán of a
that
number of
condition. Finally Denmark claims that Danish yards
have suffered from competition from Spanish yards
that have received State aid.

shipyards would contradict

civil

Comments to the first extension

(29)

The Commission, received comments from the United
Kingdom (hereafter the UK) on the extension of
the
procedure. The UK shares the Commission’s doubts as
to whether the restructuring of the public shipyards in
Spain is compatible with market principles. It underlines
that a key concern is the treatment of debts of the State-
owned AESA yards, which the UK understands have been
considerable at
the transaction. The UK
the time of
the merging of commercial and naval
considers that
groups into a single entity, IZAR, provides greater oppor-
tunities for the possible circumvention of State aid rules.

their disposal.

(30) According to the UK it is a widely held view in the UK
secure shipbuilding and
industry that Spanish yards
major conversion orders not because of
their own
competitiveness but because of the combination of aid
measures at
there are
concrete examples where Spanish yards have taken
work for which UK yards were also bidding, on terms
that are hard to explain if normal commercial conditions
were applying. It also believes that Spain plays ‘pass the
parcel’ with loss making yards as a device for allowing
is
continued provision of a subsidy to a sector that
avoiding the restructuring that is essential.

It claims

that

Comments to the second extension

(32)

(33)

(34)

recreational
It underlines that

this case and State aid Case C 38/03 (1). It notes that
IZAR is active in the construction, reparation, main-
ships,
tenance and transformation of
in
particular luxury yachts.
the inves-
tigated aid has created a serious distortion in the
market of recreational ships and that IZAR’s facilities in
the military shipyards Cartagena and San Fernando are
used for this purpose. Another joint comment for this
case and Case C 38/03 was received from Royal van Lent
Shipyard BV, which is active in construction of mega
yachts. The company claims that aids granted by the
Spanish government during the past years have been
extremely prejudicial for many of the current competitors
in this market.

The Commission also received comments from IZAR.
IZAR firstly claims that any funds provided from SEPI
is not to be considered as State resources. Concerning a
loan of EUR 194 400 000 from SEPI to AESA, IZAR
claims that this was no new loan but only a matter of
SEPI taking over the claims of a loan that AESA had
given to its shipyards. Concerning the capital
injection
of EUR 252 400 000 from SEPI to AESA, IZAR claims
that this took place in September 2000, at a time when
AESA owned no shipyards, and that it therefore can not
be considered as aid to the shipyards. Concerning loss
covering of EUR 68 200 000 from SEPI to IZAR, IZAR
claims that this never took place, as can be seen in the
annual report of
IZAR finally claims that an
incorrect legal base was used, and that it can not be
question to recover any aid provided to the public
Spanish shipyards in 1997.

IZAR.

IV. COMMENTS FROM SPAIN

Comments following the opening

factory was

In its comments on the opening of the procedure, Spain
clarified that the sum SEPI paid to AESA for the two
considerably
shipyards and the motor
lower than what was mentioned in the opening.
In
companies was
the
price
the
fact,
EUR 15 300 000,
instead of EUR 60 million as stated
in the opening. Price per company was EUR 8 054 000
for Cadiz, EUR 5 235 000 for
and EUR
2 013 000 for Manises.

Juliana,

three

for

Spain furthermore provided the Commission with
arguments why in its view transfer 1 did not contain
State aid. The main argument was that the transactions
were made in order to prepare for a privatisation of the
three companies. Since SEPI is the specialist in privati-
sation, it was necessary to transfer the three companies
to SEPI. However, very soon it became clear that no
interested buyer could be found. This was the reason
for the subsequent transfer of the companies to Bazán.

(31)

The Commission received comments from three parties.
A party requesting anonymity made a joint comment for

(1) OJ C 201, 26.8.2003, p. 3.

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(35)

the transactions was to
Since the alleged purpose of
prepare the three companies for privatisation, Spain
considers that SEPI did not need to act as a market
actor when it bought the companies. It only needed to
pay a reasonable price, and in these circumstances the
book value seemed to be the optimal solution.

(42)

It is also claimed that the price used in an internal trans-
action within a group does not necessarily have to be
market based. However, Spain furthermore claims that in
the transactions under consideration the prices used (ESP
1 each) were fully reasonable and reflected the values of
the concerned shipyards. A market investor would not
have paid more, and the use of a price equal to the book
value would not have been appropriate in this situation.

Comments following the first extension

(36)

Following the first extension of
the procedure, Spain
provided the Commission with the following arguments
why no State aid was involved in transfer 2 and 3, i.e.
why the price of ESP 1 per company was correct.

(43)

(37) According to Spain, SEPI as 100 % shareholder of all
concerned companies behaved as a market actor when
it decided to reorganise all shipbuilding into one group,
with the aim of getting advantages from synergies. There
was also a necessity to increase the capacity for military
production, given the large order book and expected
future increase of this sector.

(38)

Spain also underlined that there was no link between the
first set of transactions involving AESA and SEPI, and the
second set of
transactions leading to the creation of
IZAR. The first aimed at a privatisation of the three
concerned companies, while
second aimed at
creating one large shipbuilding group in Spain.

the

the competitive situation of

Spain argues that as a general principle, the reorgani-
sation of activities within the same group does not
affect
the new emerging
company, or of the companies which are integrated in
this new company. Spain in this respect refers to Court
Italiana (1), C-387/92 Banco
Cases 61/79 Denkavit
Exterior de España (2)
and C-200/97 Ecotrade and
Altiformi (3).

(44) As an ancillary defence, in case the Commission would
consider the price too low and therefore constituting an
aid to Bazán/IZAR, Spain refers
to a Commission
decision (4) of 27 July 1994. In this decision it is stated
that although a price paid for the transfer of a car plant
between two entities of Treuhand was probably too low,
the Commission considered this to be irrelevant as it
concerned an internal transaction within Treuhand.

(39)

Spain claims that the fact that the price for the same
companies (Cadiz, Juliana and Manises) changed within
a short time frame, from EUR 15 300 000 million to
ESP 3, only shows
the two transactions had
different objectives.

that

(45)

Spain further argued that no reasonable market price
exists, and failing this, the Commission has not been
able to determine the suspected State aid, as is required
according to the procedural regulation, the jurisprudence
and the Commission’s own practice.

(40)

The transfer of the shipyard companies to Bazán, with all
their assets and liabilities unaffected, does not imply any
shipyard
advantage
companies.
the
Furthermore, Spain claims that
there were no public
resources provided in the transactions.

any

to

of

(41)

Spain also states that if any advantage could be proven to
have benefited Bazán in transfer 2, the military nature of
Bazán puts doubts as to whether Article 88(2) of the EC
Treaty applies, given the exception provided in Article
296 of the EC Treaty.

(46)

Spain furthermore provided information on the book
value of the concerned yards, and the economic risks
estimated for each of
these yards. The risks were
divided into three elements; economic risk in existing
contracts, economic risk of under-utilisation of capacity
and other economic risks (commercial, labour related and
fiscal). Spain claimed that by using the book value as a
reference, and deducting the estimated risks, the price of
ESP 1 per company reflects the real value, and thus no
advantage to the buyer Bazán/IZAR (See table 1).

(1) [1980] ECR 1205.
(2) [1994] ECR I-877.
(3) [1998] ECR I-7907.
(4) OJ L 385, 31.12.1994, p. 1.

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Table 1

Book values and risks related to the individual transactions in July 2000

Company

Book value

Estimated risks

Estimated net value

(in EUR million)

Companies sold by AESA to Bazán

Puerto Real

Sestao

Sevilla

Companies sold by SEPI to Bazán

Cadiz

Juliana

Manises

Astano

(*) Confidential information.

68,8

91,1

37,8

– 20,9

– 31,6

– 14,7

1,0

[…] (*)

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

(47)

(48)

(49)

(50)

In reaction to the Danish comments Spain considered
that the comments on the aid to Bazán fall outside the
scope of the procedure and thus are irrelevant. Spain
furthermore denied the allegations that the transactions
between AESA and SEPI constituted aid as they did not
contain any unjustified flow of funds. Finally Spain states
that the problems faced by Danish shipyards are not due
to competition from Spanish yards but
from unfair
competition from Korea.

Concerning the comments received from the UK, Spain
expresses surprise over allegations of cross subsidies
between military and civil production since it alleges
that the UK has many yards with mixed civil/military
production. It also denies that Spanish shipyards have
benefited from any measure that has not been authorised
by the European Commission.

Comments following the second extension

Following the second extension of the procedure, Spain
provided the Commission with the following arguments
in its view, no State aid was involved in the
on why,
injections noted by the Commission.
loans and capital

Firstly, Spain claims that SEPI acted as a private investor
in a market economy, that aims at maximising profits,
and that the Commission has not proven that SEPI’s
resources comes from the State or are imputable to the
State.

(52)

(53)

(54)

1999 took over the three companies, they had debts to
AESA of respectively EUR 120 800 000 (Cadiz), EUR
47 200 000 (Juliana) and EUR 24 100 000 (Manises).
What SEPI did was to take over these claims from
AESA. This can not be considered to be a new aid to
the shipyards. Furthermore,
the interest rates charged
were similar to the market rate (MIBOR plus 8 points).

Concerning the capital
injection of EUR 252 400 000
from SEPI to AESA, Spain first states that the capital
was not
injected on 18 July 2000, as stated in the
opening, but in September the same year. At this time,
AESA did not have any activity, since it had already sold
its last shipyards to Bazán. Therefore, no distortion of
competition could be caused by this capital injection. The
capital
injection to AESA was furthermore intended to
organise an orderly closure of AESA. Spain in this respect
refers to Court judgment C-303/88, ENI-Lanerossi (1).

Juliana and Manises, Spain informs

injections to Astano,
Concerning the suspected capital
the
Cadiz,
annual report for IZAR for year 2000 takes up EUR
68,2 million loss in connection with the acquisition of
the four concerned shipyards. According to Spain, there
was thus no aid involved from SEPI to the shipyards
before they were transferred to Bazán.

that

Spain furthermore provides
extensive argumentation
against the possibility that some of the aid authorised
in 1997 would become
the
Commission would declare that further illegal aid has
been provided to the public Spanish shipyards.

incompatible

in case

(51)

Concerning the loans from SEPI to Cadiz, Juliana and
Manises, Spain states that when SEPI on 22 December

(1) [1991] ECR I-1433.

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(55)

In reaction to the comments provided by third parties,
that was stated by IZAR.
Spain fully agrees with all
Concerning the issue of production of
luxury yachts,
taken up by the other two other commenting parties,
Spain claims firstly that these ships are not covered by
the Shipbuilding Regulation, and that
the comments
therefore should not be taken into account. It further
states that the luxury yachts are built by IZAR without
any State aid, and that IZAR’s worldwide share of this
market is minimal (less than […] percent). It also denies
that some of the claimed investments in the shipyards
San Fernando and Cartagena have taken place.

(60)

(61)

V. ASSESSMENT

Legal base

(56) According to 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 competition by favouring certain undertakings or
in so far as it
the production of certain goods shall,
affects trade between Member States, be incompatible
with the common market. Pursuant to the established
case-law of the European Courts, the criterion of trade
being affected is met if the recipient firm carries out an
economic activity involving trade between Member
States.

to Regulation (EC) No
In August 1997, pursuant
1013/97,
the Commission exceptionally approved a
package of restructuring aids for the Spanish public
merchant shipyards in order
them to return to
viability by the end of 1998. Including aids previously
approved, the total package was ESP 318 billion (EUR
1,9 billion).

for

In giving its agreement, the Council stressed the ‘one
time, last time’ nature of the aid package. The Spanish
government had undertaken the commitment that the
yards would not receive any further aid for restructuring,
rescue,
loss compensation or privatisation. This was
reflected in the conditions attached to the Commission’s
decision approving the aid. It was also underlined in the
first indent of the second subparagraph of Article 5(1) of
the Shipbuilding Regulation. This provision states that no
rescue or restructuring aid may be granted to an under-
taking that has been granted such aid pursuant to Regu-
lation (EC) No 1013/97.

(57) According to Article 87(3)(e) of the EC Treaty, categories
of aid specified by a decision of the Council acting by a
qualified majority on a proposal from the Commission
may be considered compatible with the common market.
The Commission notes that the Council adopted on this
basis on 29 June 1998 the Shipbuilding Regulation,
which was
in force from 1 January 1999 to 31
December 2003. It applies to any illegal aid provided
during this period, in line with the Commission notice
on the determination of
the applicable rules for the
assessment of unlawful State aid (1).

(63)

(58)

Shipbuilding is an economic activity involving trade
between Member States. Therefore, aid to shipbuilding
falls within the scope of Article 87(1) of the EC Treaty.

(59)

seagoing

commercial

The Commission notes that according to the Ship-
‘shipbuilding’ means building of
building Regulation,
The
self-propelled
Commission further notes that Article 2 of
the said
Regulation states that aid granted for shipbuilding, ship
repair and ship conversion may be compatible with the
common market only if it complies with the provisions
of the Regulation. This provision applies not only to aid
granted to undertakings engaged in such activities but
also to related entities.

vessels.

(62) As a consequence, aid in excess of the aid that was
authorised by
initial Commission decision of
August 1997 would have to be considered as incom-
patible with the common market, unless approved
under another legal base.

the

as

related

entities.

The Commission notes that the shipyards Sestao, Puerto
Real, Sevilla, Cadiz, Juliana built or repaired ships at the
time and that consequently were undertakings covered by
the Regulation. Manises and Fene (ex Astano) can be
considered
Commission
The
that AESA and IZAR, as parent
furthermore notes
companies or owners of several shipyards fall within
the scope of Article 1 of the Shipbuilding Regulation.
This corresponds to the line that the Commission has
taken in previous decisions linked to public Spanish
shipyards,
in particular its decision to approve aid in
1997, and its decision (2) in 1999 to declare aid from
SEPI to AESA incompatible.

Assessment of aid in the different transfers

(64) As stated above, this case covers three different transfers
of companies between different holding companies, and
potential aid provided in connection with these transfers.
The assessment will be carried out by examining the
transfers.
relevant
Therefore the issues
the
procedure and the two extensions cannot be treated
separately.

raised in the opening of

in each of

aspects

these

three

(1) OJ C 119, 22.5.2002, p. 22.

(2) OJ L 37, 12.2.2000, p. 22.

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(65)

(66)

(67)

(68)

(69)

1. The role of SEPI

i.e.

that

the State,

In the opening and extensions the Commission presumed
that SEPI acted on behalf of
its
behaviour in the different transactions is imputable to
the state. Spain has contested this, and claimed that
SEPI
functions independently from the State and that
therefore its behaviour is not imputable to the State. In
any way, in Spain’s view, SEPI acted as a market investor
and therefore the funds provided from SEPI in this case
could not be considered as State aid.

The Commission notes that SEPI
is a public holding
company which is directly depending on the Ministry
of Finance. As such it is considered as a public under-
Commission Directive
taking
of
2000/52/EC (1)
Directive
Commission
80/723/EEC (2),
its
financial participation the public authorities can directly
or indirectly exercise a dominant influence on SEPI.

sense
amending
since due

to its ownership or

the

in

The Court has defined when funds are considered to be
State resources. It has e.g. stated that even if the sums
corresponding to the measure in question are not perma-
nently held by the Treasury, the fact that they constantly
remain under public control, and therefore available to
the competent national authorities, is sufficient for them
to be categorised as State resources (Court judgment in
Case C-83/98
and
Commission (3)). This clearly applies to SEPI’s resources.

Ladbroke Racing

France

P

v

The Court has further taken a decision (Court judgment
C-482/99, Stardust marine (4)), outlining the criteria for
imputability to the State of an aid measure taken by a
public undertaking. This may, according to the Court, be
inferred from a set of indicators arising from the circum-
stances of
in which that
measure was taken.

the case and the context

Examples of indicators provided by the Court are the
integration of the public company into the structures
of the public administration, the nature of its activities
and the exercise of the latter on the market in normal
the
conditions of competition with private operators,
legal status of
its
the undertaking (in the sense of
being subject to public law or ordinary company law),
the intensity of the supervision exercised by the public
authorities over the management of the undertaking, or
any other indicator showing,
in the particular case, an
involvement by the public authorities in the adoption of
their not being
the unlikelihood of
a measure or

(70)

(71)

(72)

(73)

the
involved, having regard also to the compass of
measure, its content or the conditions which it contains.

SEPI is a company with a particular legal status, with e.g.
its annual reports not accessible in the public Spanish
registry. The supervision of the company is exercised by
its board of directors constituting to a large extent of
State secretaries and other persons directly linked to
the government. The nature of its activities include priva-
tisation of State owned companies, which is an activity
that is closely linked to public policy. Furthermore, SEPI
has a history of behaviour towards the shipyards which
has been carried out in a manner that can be considered
imputable to the State, such as providing part of the
authorised restructuring aid in 1997 and unlawful aid
in 1998 (5).
in other
to the
circumstances provides State
Spanish coal industry (6).

It can also be noted that SEPI
such as

aid,

It derives from points 66 and 67 above that SEPI’s funds
are State resources. Furthermore, it derives from points
68 to 70 above that the provision of its funds under
investigation in this case,
to shipbuilding companies,
must be considered imputable to the State in so far as
they are provided on terms not
in conformity with
market economy principles.

The general principle that applies for financial
trans-
actions between the State and public companies, is the
so called market economy investor principle. Given that
SEPI’s funds are State resources, it is essential that SEPI,
in its economic transactions with its shipbuilding subsi-
the subsidiaries are companies with
diaries (whether
economic
to such
activities or holding companies
companies) acts fully in line with the market economy
investor principle.

The market economy investor principle is explained in
detail in the Commission communication to the Member
States on the Application of Articles 92 and 93 of the
EEC Treaty and of Article 5 of Commission Directive
80/723/EEC to public undertakings in the manufacturing
sector (7). The Court has also, e.g. in Case-40/85 (Boch) (8)
stated that the appropriate ways of establishing whether
the measure is State aid is to apply the criterion to what
extent the undertaking would be able to obtain the sums
in question on the private capital markets at the same
conditions. It continues, ‘in particular, whether in similar
circumstances a private shareholder, having regard to the
forseeability of obtaining a return and leaving aside all
social, regional policy and sectoral considerations, would
have subscribed the capital in question’.

(1) OJ L 193, 29.7.2000, p. 75.
(2) OJ L 195, 29.7.1980, p. 35.
(3) [2000] ECR I-3271, paragraph 50.
(4) [2002] ECR I-4397, paragraphs 55-56.

(5) OJ L 37, 12.2.2000, p. 22.
(6) OJ L 296, 30.10.2002, p. 73.
(7) OJ C 307, 13.11.1993, p. 3.
(8) [1986] ECR 2321.

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(74)

(75)

(76)

(77)

(78)

(79)

The Commission does not exclude that funds provided
by SEPI may be free of aid as long as SEPI’s actions
comply with the market
investor principle. The
Commission will therefore, for each of the transactions
under scrutiny, assess whether SEPI acted according to
the market investor principle.

Spain further claims that transactions within the SEPI
group do not have to correspond to market conditions,
and refers to cases where the Commission had not
required that
intra-group transactions were done on
market terms.

The Commission considers that while it could, in certain
very specific cases, be accepted that within a State-owned
group firms are transferred on non-market terms, this
can not be accepted when State resources are transferred
to companies in competition with other companies in
the common market.

2. Aid contained in transactions linked to transfer 1, between

AESA and SEPI

SEPI on 28 December 1999 bought the three companies
Juliana, Cadiz, and Manises from AESA. There are two
aspects that need to be assessed in order to determine the
existence of State aid in this transfer. One issue is if the
purchase price paid by SEPI to AESA was market price,
and the other issue is if SEPI’s provision of loans to the
companies it bought, complied with the market investor
principle.

(a) T h e p u r c h a s e p r i c e

for

the

the

paid

It can firstly be noted that Spain has informed the
Commission that
three
price
companies was EUR 15 302 000 and not EUR 60
million, as stated in the opening of
the procedure.
Spain had previously claimed that the EUR 15 302 000
that SEPI paid for the three companies corresponded to
book value at the time of the transaction, but at a late
stage of the investigation informed that
this was the
book value at an earlier, unspecified, date in 1999.

Spain further claims that SEPI did not have to pay the
market price since it bought the three shipyards in order
to privatise them. However,
the classification of a
measure as State aid does not depend on its aim but
on its effect. The fact that the shipyards were bought
for a certain alleged purpose (privatisation) is therefore
not a reason to disregard the State aid character of the
transaction. In addition, in view of SEPI being a State-
owned holding,
it needs to be reiterated that financial
transactions between SEPI and companies in competition
with other companies on the common market always
should be based on market principles. Therefore,
if
SEPI would pay a price above market price for a

(80)

(81)

(82)

(83)

(84)

(85)

company, this would be State aid to the seller, in this
case AESA.

The Commission notes that SEPI did not succeed in
privatising the three companies. Instead they were sold
to SEPI’s subsidiary Bazán in July 2000, which is seven
months after the sales transaction, for ESP 1 each.

From the annual reports of the concerned companies it is
apparent that the book value of the three companies at
the end of 1999, three days after the sales transaction,
was EUR – 40 646 000 (Cadiz EUR – 13 745 000,
Juliana EUR – 18 679 000, Manises EUR – 8 222 000).

Furthermore, as explained above, Spain evaluated the
market value of these three companies in July 2000,
when they were transferred to Bazán. Spain argues that,
at that point in time, the market value was the book
included in the
value minus the estimated risks not
balance sheet of
the companies. The risks were e.g.
estimated losses for ships under construction and costs
of under-activity. Although these factors may change
over time, it is reasonable to assume that they did not
change significantly over a seven-month period. For the
three
Spain
estimated the total risks to be EUR 25 300 000 in July
2000.

consideration here,

companies

under

The Commission can thus conclude that SEPI on
EUR 15 302 000 for
28 December 1999 paid
of
had
companies which
three
EUR – 40 646 000 three days
that
seven months later were estimated at EUR 25 300 000.
It can therefore be concluded that SEPI paid more than
the market price for
the companies. Any amount
exceeding the market price has to be considered as
State aid to the seller, AESA.

book
later, plus

value
risks

a

information injunction of

July 2002 the
In the
that
Commission requested copies of all documents
the
could clarify the evaluation of
the companies at
time of
the transfer of ownership. Spain did not
provide any such information for this transaction, and
therefore the Commission has no other option than to
make an estimation of the market value based on the
available information.

The market value in this case would correspond to the
book value minus the financial risks. Because of lack of
information the Commission is not able to calculate the
exact value of the financial risks. In order to exclude an
overestimation of these risks, it therefore takes a prudent
approach and assumes the financial risks to be zero. A
prudent approximation of
the market value would,
therefore,
in the current circumstances, be to use the
best approximation of the book value.

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L 58/39

(86)

(87)

(88)

(89)

(90)

The best available estimation of the book value at the
date of the transaction, i.e. on 28 December 1999, is the
book value on 31 December 1999, which was EUR
– 40,6 million. Based on this, the market value of the
three companies would not exceed this amount.

that AESA sold

Based on available information,
it can therefore be
EUR
concluded
to
15 302 000, three companies worth at the most EUR
– 40 646 000. This equals a gain of at
least EUR
55 948 000 for AESA.

SEPI,

for

In conclusion, SEPIs payment of EUR 15 302 000 for the
three companies Cadiz, Juliana and Manises cannot be
considered to be
in accordance with the market
investor principle. The gain of EUR 55 948 000 made
by AESA should therefore be considered to be State
aid to AESA, which,
following the sale, still owned
three other shipyard companies involved in civil ship
construction. This State aid was illegal, given that it has
not been notified to the Commission and it
is not
compatible with the common market, since it cannot
be authorised as restructuring aid or any other type of
aid.

i.e. SEPI

The 1998 and 1999 annual reports of AESA and the
companies it owned, state that the continuation of all
the operations were dependent on the financial support
of the respective shareholder,
for AESA and
AESA for
the shipyards. From this information the
Commission concludes that the aid provided by SEPI to
AESA in this transaction was transferred to the three
companies still owned by AESA (Sestao, Sevilla and
Puerto Real). The conclusion that State aid to AESA
shipbuilding activities was
implied State aid to its
already made in the Commission’s decision (1) on illegal
State aid provided from SEPI to AESA in 1998, which
subsequently was upheld by the court (2).

(b) L o a n s

p r o v i d e d

b y

S E P I

t o

t h r e e

s h i p y a r d s i n D e c e m b e r 1 9 9 9

of

its

the

second

extension

procedure,

In
the
Commission noted that SEPI had provided the three
companies Juliana, Cadiz and Manises with loans of
EUR 194 400 000
The
Commission had doubts that this could be State aid to
these companies.

during

1999.

year

the

(91)

Concerning the facts the situation was as follows. The
three shipyards companies (Juliana, Cadiz and Manises)

(1) OJ L 37, 12.2.2000, p. 22.
(2) [2002] ECR I-3243.

took over

the three companies

had accumulated a debt to AESA of EUR 192 100 000.
When SEPI
it also
them with EUR 192 100 000 ‘advance’
provided
payment (Cadiz EUR 120,8 million,
Juliana EUR 47,2
million and Manises EUR 24,1 million) which was used
to repay the loans to AESA. These loans carried an
interest rate of MIBOR plus 8 points. SEPI in turn took
over the claim of EUR 192 100 000 from AESA. The
difference between EUR 192 100 000 and the EUR
the
194 400 000 stated in the second extension of
procedure (EUR 2 100 000) is due to small
loans that
already had been provided by SEPI to the shipyards at an
earlier date.

focus on SEPI’s

From a State aid point of view, the assessment needs to
focus on the transaction by which State resources were
transferred from the State to the beneficiaries. Therefore,
the assessment will
loan of EUR
192 100 000 to the three companies Juliana, Cadiz and
Manises. The difference between this amount and the
EUR 194 400 000 stated in the second extension of
the procedure, EUR 2 100 000, will be assumed not to
be State aid since it has not been established when and
how this amount of money was provided.

The issue to be assessed is, as the Court has established
in Case 40/85 (Boch) whether in similar circumstances a
private shareholder, having regard to the foreseeability of
obtaining a return and leaving aside all social, regional
policy and sectoral considerations would have provided
such loans. Therefore, the question is if a private investor,
even if taking a decision at the level of the whole group
would under normal market economy conditions expect
an acceptable rate of profitability on the capital invested.
The Court
further stated that an appropriate way of
establishing whether a loan is State aid is to apply the
criterion of determining to what extent the undertaking
would be able to obtain the sums in question on the
private capital markets,
the so called private creditor
test (3).

From the annual reports for Juliana, Cadiz and Manises it
is clear that these three companies receiving the loans
were in difficulties. Each of the three companies had
negative book values at the end of 1998, and recorded
losses for 1999. The auditor also stated in the annual
accounts both for year 1998 and 1999 that
the
companies needed support
from their shareholders in
order to be able to continue operation. There were
furthermore no signs
financial
that
situation for the shipyards would improve.

difficult

the

(92)

(93)

(94)

(3) Case C-342/96 Spain v Commission [1999] ECR I-2459, paragraphs
41 and 42, and Case C-256/97 DMT [1999] ECR I-3933, para-
graphs 22 to 24 and the opinion of AG Jacobs in that case, para-
graphs 334 to 336.

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(95)

it can be established that the three
For these reasons,
companies would not have been able to obtain the
loans on the private capital markets. Therefore, these
loans did not comply with the private creditor test. For
the same reasons SEPI could not have expected a
repayment of the loans and the interest. Therefore the
provision of such resources from SEPI to the shipyard
companies did not comply with the market creditor
principle. Therefore the loans constitute State aid to the
three companies. This State aid was illegal, given that it
was not notified to the Commission and it
is not
compatible with the Common market since it cannot
be authorised as restructuring aid or any other type of
aid.

(96) According to Spain,

the loans, amounting to EUR
192 100 000, have on 12 September 2000 been repaid
to SEPI, with interest, by IZAR which at that time had
taken over and dissolved the companies Juliana, Cadiz
illegal
and Manises. This
therefore been
recovered. However,
the Commission intends to use
information in another State aid investigation,
this
to which SEPI’s
C 38/03, which concerns the extent
capital injections to IZAR benefited civil shipbuilding.

aid has

reports of

these shipyards
Bazán/IZAR. The annual
reveal that this capital was provided to the shipyards
through debt cancellations. Spain has confirmed that
AESA ‘adjusted’
its debts to its shipyard companies in
connection with their sale to Bazán to ‘better reflect
the value of the yards’, but did not provide any figures.

(101) Following the debt cancellation AESA sold the companies
for ESP 1 each to Bazán. The sales transaction generated
a book loss of EUR 198 million for AESA. Together with
other losses generated from shipbuilding activities, the
loss for AESA for year 2000 amounted to EUR
total
271 million. Without the capital
injection from SEPI,
AESA would have had a negative own capital of EUR
259 million at the end of 2000 and would have had to
be liquidated according to company law.

(102) The issue to be assessed is, as noted above, whether in
similar circumstances a private shareholder, would have
injected the capital and could expect an acceptable rate of
profitability on the capital invested.

3. Aid contained in transactions linked to transfer 2, between

AESA and IZAR

(97) AESA on 20 July 2000 sold to Bazán its remaining three
shipyard companies, Puerto Real, Sestao and Sevilla (1).

(103)

(98)

(99)

There are two aspects that need to be assessed, and
to extend the
which were raised in the decisions
procedure, in order to determine the existence of State
aid. One is whether the purchase price paid by IZAR to
AESA was market price, and the other is whether SEPI’s
capital injection of EUR 252 425 000 to AESA complied
with the market investor principle.

(a) T h e c a p i t a l

i n j e c t i o n

injection,

shipyards companies

SEPI decided on 18 July 2000 to provide AESA with
two days before
EUR 252 425 000 capital
AESA sold its
(Sestao, Sevilla,
Puerto Real)
to Bazán. This capital was provided in
September 2000. Spain claims that since this capital
was only provided in September 2000, when AESA
already had sold its shipyards, it could not distort compe-
tition for shipbuilding.

(100) According to the annual report of AESA for the year
2000, AESA provided EUR 309 million to its three
to
before
shipyard

they were

companies

sold

(1) It also owned a number of smaller companies, but

their total
nominal capital was only ESP 161 million (EUR 1,0 million)
compared to ESP 9,5 billion (EUR 57,1 million)
for the three
shipyard companies (Puerto Real ESP 4 billion, Sestao ESP 4
billion and Sevilla ESP 1,5 billion).

It is firstly evident that AESA could not generate any
acceptable return on the capital, since it used the funds
to cover costs linked to the cancellation of debts to its
shipyards and the subsequent
loss when selling these
shipyards
In addition, AESA is a pure
to Bazán.
holding company, which is not involved in any other
economic activity. Thus, it is not able to generate own
the actual and
profits.
ultimate beneficiaries of
the shipyards,
under the ownership of Bazán/IZAR would generate an
acceptable rate of return, due to their past performance
and the lack of any restructuring measures foreseen. This
is also confirmed by the annual reports for IZAR which
state that its civil yards made losses in 2000, 2001, and
2002.

It can also be excluded that
the measures,

(104)

It can therefore be concluded that the capital injection by
SEPI to AESA did not comply with the market investor
principle and therefore constitute State aid.

(105)

It has to be stressed in this regard that AESA, by
cancelling debts of its shipyards for EUR 309 million
improved their financial situation by the same amount.
It can also be established that since AESA’s debt cancel-
lation did not involve any cash payment, SEPI’s decision
on 18 July 2000 to inject EUR 252 425 000 to AESA,
although the money was only provided in September
2000, enabled AESA to immediately cancel the debts
without having to declare immediate bankruptcy.

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L 58/41

(106) From a State aid perspective the aid was granted by
SEPI’s decision on 18 July 2000 to provide the capital
injection, since this decision was the precondition to
enable AESA to relieve the shipyards of its debts. The
ultimate beneficiary of this aid was the shipyards, since
the effect of the operation was that the shipyards were
relieved of their debts to AESA.

the 1997 Commission decision authorising the

of
restructuring aid.

(b) T h e p u r c h a s e p r i c e

the Commission is only

(107) AESA’s debt cancellation improved the financial situation
concerned shipyards by EUR 309 million.
of
the
However,
the
provision of funds from SEPI, which in this transaction
amounts to EUR 252 425 000. This State aid was illegal,
given that it has not been notified to the Commission
and it is not compatible with the common market, since
it cannot be authorised as restructuring aid or any other
type of aid.

assessing

(108) Even if it can be concluded that the market economy
investor principle has not been complied with, Spain
injection in
also refers to the right to make a capital
order to ensure an orderly closing, as expressed in the
judgment (1). The Commission considers that
Lanerossi
Spain’s argument cannot be accepted for the following
reasons:

(109) Firstly, the Lanerossi judgment is not relevant in this case,
since the three shipyards benefiting from the capital
injection via the debt reduction are still
in operation,
and were never intended to be closed when the aid
was provided.

(110) Furthermore, even if the Spanish argument is assessed
from the point of view of a closure of AESA,
instead
of a closure of its last three shipyards, it can be noted
that procedures to start a closure of AESA only started in
the middle of 2002. Furthermore, the Court stated in the
Lanerossi
judgment that when the injection of capital
disregard any prospects of profitability even in the long
term, such a provision must be regarded as aid. This is
the situation in this case, since SEPI can not be expected
to ever receive any remuneration for the capital
it has
provided to civil
shipbuilding companies via AESA.
Finally, it can be noted that the closing costs of AESA,
according to Spain, consists of social costs linked to the
1994 to 1998 restructuring of the civil shipyards. Any
further aid to cover these costs would imply a violation

(1) See points 21 and 22 of the judgment: ‘It must therefore be accepted
that a parent company may also, for a limited period, bear the losses
of one of its subsidiaries in order to enable the latter to close down
its operations under the best possible conditions. Such decisions
may be motivated not solely by the likelihood of an indirect
material profit but also by other considerations, such as a desire
to protect the group’s image or to redirect its activities.
However, when injections of capital by a public investor disregard
any prospect of profitability, even in the long term, such provision
of capital must be regarded as aid within the meaning of Article 92
of the Treaty, and its compatibility with the common market must
be assessed on the basis solely of the criteria laid down in that
provision.’

(111) The question of whether the purchase price constituted
State aid to IZAR was raised in the first extension of the
procedure, dated 28 November 2001. The reason why
State aid could be provided in this manner is that once
AESA had sold its shipyards to Bazán, it was an empty
shell with virtually no activities.
It could thus be
tempting for the Spanish authorities to ensure that as
many assets as possible were transferred from AESA to
its shipyard companies and thus to the company that
It also
would take over
appears evident
the market
these three companies would be
value of each of
exactly the same, ESP 1, is very small.

the probability that

shipyards, Bazán.

the civil

that

the book values of

(112) During the procedure Spain has provided information
that
the companies were EUR
91 100 000, EUR 37 800 000 and EUR 68 800 000
respectively for Sestao, Sevilla and Puerto Real, totalling
EUR 197 700 000. Furthermore, Spain suggests that the
market value of the three shipyards were, EUR […], EUR
[…] and EUR […], respectively, totalling EUR […].

(113) As already noted above, ESP 1 per yard clearly was not
market prices and in theory implied a net gain for
Bazán/IZAR of EUR […] if the Spanish estimation of
market value is correct.

(114) However, since it has not been established that this gain
for Bazán/IZAR directly involved resources from SEPI or
the State, the Commission does not consider that the
price of ESP 1 per yard can be used to establish
further State aid to the buyer, Bazán/Izar.

4. Aid contained in transactions linked to transfer 3, between

SEPI and Bazán

that

In the first extension of

(115) The four companies Astano, Cadiz, Juliana and Manises
were sold from SEPI to Bazán, on 20 July 2000, for ESP
the procedure the
1 each.
this was market
Commission expressed doubts
therefore State aid could have been
price and that
In the second extension of
provided to Bazán/IZAR.
the procedure
these
companies had a total book value of minus EUR
68 200 000. Since the Commission was not able to
determine whether this sum has been booked in the
annual report of Bazán/IZAR as a loss, the Commission
had doubts that SEPI injected this amount into the four
companies in connection with their transfer to Bazán.

the Commission noted that

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(116) Concerning the book values, Spain has informed the
Commission that the transferred companies indeed had
a total book value of EUR – 68 200 000 at the time of
the transaction. However, it appears that this amount in
fact was booked as a loss in the annual report for year
2000 for Bazán/IZAR, contrary to what was assumed in
the second extension of the procedure (1).

(117) Concerning the price, Spain has provided credible infor-
mation which indicates that market value for each of the
can therefore be
four
and
concluded that
therefore did not imply State aid to Bazán/IZAR.

companies was negative.

the price was not

too low,

It

Recovery of restructuring aid already granted and
approved in 1997

(118) Since the doubts of further illegal State aid to the public
shipyards have been confirmed, the Commission must
assess,
the
procedure, whether
restructuring aid
some of
granted in 1997 will be considered to be incompatible
and be recovered.

second extension of

as noted in the

the

the

aid,

asked to repay the

of Justice ruled in two recent judgments (4) that in so far
as
companies are bought under non-discriminatory
competitive conditions and at the market price, that is
to say at the highest price which a private investor acting
under normal competitive conditions was ready to pay
in
for those companies in the situation they were in,
particular
aid
after having enjoyed State
element was assessed at the market price and included
in the purchase price. Only in such circumstances, the
undertakings to which the tenders were granted cannot
be regarded as having benefited from an advantage in
relation to other market operators. They could not
therefore be
in
question. It is obvious from the description of the facts
in the present case that these conditions are not met. In
addition,
in joined Cases C-328/99 and C-399/00 Italy
and SIM 2 Multimedia SpA v. Commission (5), paragraph
‘the sale of shares in a
38,
company which is the beneficiary of unlawful aid by a
the
shareholder
requirement
case,
Bazán/IZAR, owned by State holding company SEPI,
acquired the shares of companies, also part of the SEPI
group, and eliminated them as legal entities after the
acquisition of the shares. As successor of the previously
legally
share
(in the
companies),
IZAR is now the beneficiary and has to
recover the aid granted to those yards.

third party does not
recovery’.
In

the Court stressed that

aid element

independent

to a
for

form of

present

affect

yards

the

(119) On this issue, the Commission considers that, taking into
consideration the comments made by Spain and IZAR in
the context of this procedure, there are no grounds to
consider part of the restructuring aid authorised in 1997
to be incompatible. The reason is that, according to the
decision (2) authorising the aid, the Commission’s right to
request recovery of the aid authorised in 1997 expired
with the last monitoring report (3), dated 13 October
1999. Therefore,
the aid approved in 1997 became
existing aid once the monitoring period expired.

Aid recovery following change of ownership

(120) The shipyard companies benefiting from the illegal aid
established above are now owned by IZAR, and this
illegal aid should therefore be recovered from IZAR.
The change of ownership of the yards, from AESA or
SEPI to IZAR does not mean that the recovery of the aid
could fall on the previous owner of
the concerned
companies. The reason is that the companies were trans-
ferred to IZAR, not on market terms in open and trans-
parent tendering procedures, but in the form of a reor-
ganisation of companies within the same SEPI group,
with the use of a symbolic price. The European Court

(1) However, this information will be used in the other procedure open
against IZAR,
in order to determine whether some of the capital
injections provided to IZAR in year 2000 were used for civil
purposes.

(2) OJ C 354, 21.11.1997, p. 2. Cf. the penultimate paragraph on

page 7.

(3) COM(1999) 480 final.

Article 296

(121)

In so far as the capital
injection into the yards is
considered as aid to Bazán Spain claims that this aid
would fall under Article 296 and thus outside the
scope of the State aid rules, since Bazán was a military
company at the time of the acquisition of the yards.

(122) Article 296(1)(b) stipulates that: ‘any Member State may
take such measures as it considers necessary for the
protection of the essential interests of its security which
are connected with the production of or trade in arms,
munitions and war material; such measures shall not
the conditions of competition in the
adversely affect
common market
regarding products which are not
intended for specifically military purposes.’ Already in
its decision (6) concerning restructuring aid to KSG the
Commission stated that ‘[c]onversely, where a measure
caught by the definition of State aid within the meaning
of Article 87(1) affects military production as well as
commercial or dual-use production,
it cannot be fully
justified on the basis of Article 296. The Commission
does not share the viewpoint … to the effect that, by
virtue of
the whole measure is
caught by Article 296, even if there is a clear effect on
competition in non-military sectors. That interpretation
clearly conflicts with the wording of the Article.’

the military aspects,

(4) Case C-390/98, H.J. Banks [2001] ECR I-6117, paragraph 77 and
C– 277/00 Germany v Commission [2004] not yet published in the
ECR, paragraph 80.
(5) [2003] ECR I-4035.
(6) OJ L 14, 21.1.2003, p. 56.

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(123) This decision further states that if it is ‘clear that the
measures have indeed affected the conditions of compe-
tition as regards commercial products. Therefore,
in
accordance with its standard practice, the Commission
must assess the measures in the light of the State aid
rules in so far as they distort, or threaten to distort,
competition in markets
that are not
caught by Article 296.’

for products

(124) The Commission notes that Bazán, which now operates
under the name of IZAR, today is active in military and
civil shipbuilding. The aid provided to the shipyards
bought by Bazán was directly and exclusively linked to
the production of civil ships. With reference to its
findings in the present case and the decision on KSG,
the Commission further notes that the production of civil
ships falls under Article 87 of the Treaty and cannot be
exempted on ground of Article 296 just because the
company that bought the shipyards, Bazán, at the time
involved in military
the
of
production.

acquisition only was

(125) The opening decision in Case C 38/03 (ex NN 10/03)
lists in paragraphs 44 seq. a number of criteria, which
have to be fulfilled for the applicability of Article 296 of
the EC Treaty. Although these requirements are well
known to them, the Spanish authorities did not submit
to the Commission any evidence that
the measures
described above aimed at promoting the production of
military goods or activities.

(126)

It cannot seriously be disputed that the civil shipyards
needed massive capital injections in order to survive. The
mere fact that they were sold to a shipbuilding company,
which is involved in naval construction, does not alter
the nature of these shipyards. In particular, the shipyards
do not become military yards through the fact that they
are owned by a company which is also involved in naval
activities. In particular, providing information on these
shipyards cannot be contrary to the essential
interests
of Spain. In the present case, Spain did not simply fail
to give any credible explanation,
in which way its
essential security interests could be affected, but denied
to provide any kind of substantial information.

breach of Article 88(3) of the Treaty. This has been
provided in the form of:

1. SEPI’s purchase from AESA of the three companies
Cadiz, Juliana and Manises, on 28 December 1999, at
EUR 55 948 000 above market price, which ulti-
AESA’s
mately
shipyard
remaining
companies Sestao, Sevilla and Puerto Real.

benefited

2. Loans of EUR 192 100 000 from SEPI

to three
companies in difficulties, Cadiz, Juliana and Manises,
on 28 December 1999.

3. Capital injection of EUR 252 425 000 from SEPI to
AESA, in September 2000, which ultimately benefited
the three companies Sestao, Sevilla and Puerto Real.

The aid is not compatible with the common market,
since it cannot be authorised as restructuring aid or
any other type of aid.

The aid should be recovered in their totality from the
current owners of these shipyards,
IZAR, which took
over the companies from AESA respectively SEPI.

The loans under point 2 above, amounting to EUR
192 100 000, have in September 2000 been repaid,
It can therefore be
with interest, by IZAR to SEPI.
considered that that amount of the illegal and incom-
patible aid has been recovered,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Spain has implemented for the public
Spanish shipyards, currently owned by IZAR, amounting to
EUR 500 473 000 is incompatible with the common market.

VI. CONCLUSION

The Commission concludes that Spain has unlawfully
implemented aid to the sum of EUR 500 473 000 in

1.
Spain shall take all necessary measures to recover from the
public Spanish shipyards the aid referred to in Article 1, and
unlawfully made available to the beneficiaries, except the EUR
192 100 000 already recovered.

Article 2

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sums

Recovery

shall be

effected without delay

and in
2.
accordance with the procedures of national law provided that
the
they allow the immediate and effective execution of
decision. The
interest
throughout the period running from the date on which they
were first put at the disposal of the beneficiaries until their
actual recovery. The interest rate to be applied will be the
reference rate used for calculating the grant equivalent of
regional aid.

recovered shall bear

to be

already taken to comply with it. It will provide this information
using the questionnaire attached in Annex of this Decision.

Article 4

This Decision is addressed to the Kingdom of Spain.

3.
The interest rate referred to in paragraph 2 will be applied
on a compound basis throughout the entire period referred to
in paragraph 2.

Done at Brussels, 12 May 2004.

Article 3

Spain shall
notification of

inform the Commission, within two months of
the measures planned and

this Decision, of

For the Commission

Mario MONTI
Member of the Commission

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ANNEX

Information regarding the implementation of Commission Decision 2005/173/EC

1. Calculation of the amount to be recovered

1.1. Please provide the following details on the amount of unlawful State aid that has been put at the disposal of the

beneficiary:

Date(s) (1)

Amount of aid (2)

Currency

(1) Date(s) on which (individual instalments of) the aid has been put at the disposal of the beneficiary.
(2) Amount of aid put at the disposal of the beneficiary (in gross aid equivalents).

Comments:

1.2. Please explain in detail how the interests to be paid on the amount of aid to be recovered will be calculated?

2. Measures planned and already taken to recover the aid

2.1. Please describe in detail what measures are planned and what measures have already been taken to effect an
immediate and effective recovery of the aid. Please also indicate where relevant the legal basis for the measures
taken/planned.

2.2. What is the timetable for the recovery process? When will the recovery of the aid be completed?

3. Recovery already effected

3.1. Please provide the following details on the amounts of aid that have been recovered from the beneficiary:

Date(s)

(1)

Amount of aid repaid

Currency

(1) Date(s) on which the aid has been repaid.

3.2. Please attach proof of the repayment of the aid amounts specified in the table under point 3.1.