2005/301/EC: Commission Decision of 22 September 2004 on the State aid which the United Kingdom is planning to implement for Peugeot Citroën Automobiles UK Ltd (notified under document number C(2004) 3349) (Text with EEA relevance)
Date: 2004-09-22
Institutions: European Commission
Subjects: France, State aid, United Kingdom, control of State aid, investment aid, motor vehicle industry, subsidiary

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COMMISSION

COMMISSION DECISION

of 22 September 2004

on the State aid which the United Kingdom is planning to implement for Peugeot Citroën
Automobiles UK Ltd

(notified under document number C(2004) 3349)

(Only the English text is authentic)

(Text with EEA relevance)

(2005/301/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

their comments. The Commission did not receive any
comments from interested parties.

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

(4)

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

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

Whereas:

comments

to the opening of

After requesting an extension of the deadline to submit
the United Kingdom
comments on 25 July 2003,
submitted its
the
procedure on 5 September 2003. A meeting between
the Commission, the United Kingdom and the beneficiary
took place in Brussels on 17 October 2003, after which
the Commission addressed a new request for information
to the United Kingdom on 20 October 2003. The infor-
mation was provided by the United Kingdom on
19 February and 4 May 2004.

(1)

(2)

(3)

I. PROCEDURE

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

By letter dated 30 April 2003, the Commission informed
the United Kingdom that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty as
it found that doubts were raised as to the compatibility
of the aid with the common market.

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission called on interested parties to submit

(5)

(6)

(7)

(1) OJ C 147, 24.6.2003, p. 2.
(2) See footnote 1.

II. DESCRIPTION OF THE MEASURE AND ITS
RECIPIENT

The planned aid would be granted to PCA UK, a
subsidiary of
the French group PSA Peugeot Citroën
(hereafter PSA). PSA designs, manufactures and sells
motor vehicles. In 2003, PSA sold 3 286 100 vehicles
worldwide, achieving a turnover of EUR 54,238 billion,
and an operating margin of EUR 2,195 billion.

The project

The notified project concerns the investment necessary
for the production of a new model that will replace the
current Peugeot 206 and derivatives.

The current capacity at the Ryton plant is 183 500 vehi-
cles/year. The current 206 model will be phased out
from 2008, with the introduction of a new model that
will use a new platform. Capacity at the plant is foreseen
to remain constant at 183 500 vehicles/year.

(8)

(9)

(10)

(11)

(12)

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The planned start of the notified project is 2005, and the
planned completion date is 2010. According to the
United Kingdom, the project involves the installation of
new (paintshop, metal finish) or transformed (bodyshop
retooling for the different platform, final assembly) lines
for the production of
Infrastructure
the new model.
works will
include improved environmental, working
and safety conditions, and a new car park for finished
vehicles. According to the United Kingdom,
total
to GBP 187,760
required investment will
million in nominal terms.

amount

(15)

Commission expressed doubts on the necessity and
proportionality of the proposed aid.
In order to allay
these doubts, the Commission asked for additional clar-
ifications and documents.

the aid,

Regarding the necessity of
the Commission
doubted that Trnava had been considered as a viable
It
alternative to Ryton for
the
requested additional circumstantial evidence, e.g.
location study,
is actually
to show that
mobile within the meaning of the car framework.

in question.

the project

the project

According to the United Kingdom, the project is mobile,
and PSA is considering the alternative site of Trnava, in
Slovakia,
for the project. PSA announced in January
2003 that Trnava has been chosen as the location for
a greenfield investment. The new Trnava plant will start
production in 2008, and will produce 300 000 small
cars/year of the same type as the new model that will
replace the Peugeot 206. According to the United
considering whether
Kingdom, PSA is
to expand
projected
at Trnava, while phasing out
capacity
production at Ryton.

Legal basis, investment and aid amounts

takes place at

the existing PSA plant

in the West Midlands

in
The project
Ryton,
region. Ryton-on-
Dunsmore is an Article 87(3)(c) area, whose regional
for the 2000 to
ceiling is 10 % net grant equivalent
2006 period.

The notified aid is granted under the approved Regional
Selective Assistance scheme (3) with the legal basis in
Section 7 of Industrial Development Act 1982.

The proposed aid takes the form of a direct grant, and
would be paid over the 2005 to 2010 period. It amounts
to nominal GBP 19,100 million gross grant equivalent,
with an actualised value of GBP 14,411 million gross
grant equivalent (base year 2002, discount rate 6,01 %).
Eligible investments amount to GPB 187,760 million in
nominal values and to GBP 146,837 million in actualised
values. Therefore, the aid intensity notified by the United
Kingdom is 9,81 % gross grant equivalent.

(13) No other Community aid or financing has been allocated

to the project.

III. GROUNDS FOR INITIATING THE PROCEDURE

(14)

In its decision of 30 April 2003 to initiate the procedure
the
laid down in Article 88(2) of

the Treaty (4),

(3) Commission Decision of 25 April 2001 not to raise objections on

the case N 731/00 (OJ C 211, 28.7.2001, p. 48).

(4) See footnote 1.

(16)

Regarding the proportionality of the aid, the Commission
expressed doubts on:

— the exact calculation of the eligible costs,

— the inclusion of investment in vendor tooling within

the eligible costs,

— the justification for the higher investment costs for
land, buildings, machinery and equipment in Ryton
with respect to Trnava,

— the

justification for

lower operating costs

for

components and materials in Trnava,

— the exact calculation of redundancy costs in Ryton.

(17)

Finally, the Commission expressed doubts on the calcu-
lation of capacity variations put forward by the United
Kingdom in the context of the determination of the ‘top-
up’.

IV. COMMENTS FROM THE UNITED KINGDOM

(18)

The United Kingdom submitted its comments on the
opening of the procedure on 5 September 2003, and
additional information on 19 February and 4 May 2004.

(19) On the necessity of the aid, the United Kingdom reaf-
firmed that the project is mobile. To that end, the United
Kingdom provided documentary evidence showing that
Trnava is a viable technical alternative to Ryton for the
project.

(20)

The United Kingdom also provided additional
infor-
mation on the doubts expressed by the Commission in
the opening of procedure as regards the proportionality
of the aid.

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(21)

(CBA)

analysis

By letter of 5 September 2003, the United Kingdom
submitted a new cost-benefit
that
differed from the one
initially notified in many
important aspects, including higher investment costs in
lower
Trnava
operating
and lower
operating costs in Trnava for energy and water as well
as for
the
changes regarded items for which the Commission did
not express doubts in the opening of procedure.

inward and outward transport. Some of

and equipment, but

for machinery

in Ryton for

labour,

costs

(22) With the letter of 19 February 2004,

the United
Kingdom submitted a new version of the CBA, which
was broadly in line with the one of September 2003,
with some exceptions (for instance, the figures on labour
costs in Ryton and outward transport costs in Trnava
were changed back to the initially notified ones). The
United Kingdom clarified the items on which the
Commission had expressed doubts in the opening of
the procedure and the items that were modified after
the procedure. By letter of 4 May
the opening of
2004,
the United Kingdom communicated to the
Commission that the project may not commence until
the very end of 2004 or the beginning of 2005. The
CBA of February 2004 was amended accordingly, with
2005 as the first year of the investment.

(23)

(24)

land in Trnava,

Regarding the cost of
the United
Kingdom claimed that no cost should be included, as
the project could be carried out within the existing
the project would
confines of
require 30 hectares of land, whose cost is GBP 0,512
million in actualised values.

Indicatively,

the site.

Regarding the investment costs for buildings, machinery
and equipment, the United Kingdom adapted the CBA of
February 2004 to take into account the Commission’s
remarks. While the originally notified CBA only took
into account the costs strictly necessary in Trnava in
order
the modified
version also takes into account the share of the overall
fixed and common costs that can be imputed to the
project. As a consequence, the Trnava alternative results
more expensive than the transformation of the Ryton
plant.

to accommodate

the project,

(25)

Regarding the investment costs for vendor tooling, the
United Kingdom affirmed that
they have not been
considered as eligible costs and they have not been
included in the CBA of February 2004, as they will be
necessary under both scenarios and therefore would not
affect the handicap for Ryton.

(26)

(27)

cost

component

for components and
Regarding the operating costs
materials, the United Kingdom provided copies of PSA’s
internal planning document dated May 2003 that reports
the
differentials between various
production sites of the group. The principal difference
between component costs at Ryton and Trnava arise
from significantly lower hourly wage rates at Trnava,
that translate in lower costs for locally sourced large
components
fascias,
such as,
seats, door boards and dashboards.

for example, bumpers,

provided

Kingdom also

The United
documents
supporting a decrease in the operating costs foreseen in
Trnava for energy and water, as well as for inward
transport. Regarding the inward transport costs,
the
United Kingdom provided a copy of the update to the
internal planning document for the Trnava site, version
in which the initial cost estimate is
November 2003,
reduced to account
for a higher estimated share of
locally sourced components.

(28) As regards the redundancy costs, the United Kingdom
clarified that they had been taken into account,
in the
CBA of February 2004, as additional costs to the Trnava
solution, similarly to the costs relating to the closure of
the Ryton plant. The United Kingdom also provided
more detail on the calculation of these costs. Conversely,
the United Kingdom did not include any maintenance
investment in Ryton in the CBA, as general maintenance
in both
investment would have to be carried out
scenarios.

(29)

Finally, regarding the ‘top-up’, the United Kingdom reaf-
firmed that the + 2 % factor should be applied to the
regional handicap resulting from the CBA of February
2004, because no increase in production will occur as
a consequence of the aided project.

V. ASSESSMENT OF THE MEASURE

(30)

The measure notified by the United Kingdom in favour
of PCA UK constitutes State aid within the meaning of
Article 87(1) of the Treaty. It would be financed by the
State or
through State resources. Furthermore, as it
constitutes a significant proportion of the funding of
the project, the aid is liable to distort competition in
the Community by giving PCA UK an advantage over
competitors not receiving aid. Lastly, there is extensive
trade between Member States in the automobile market
where PSA is a major player.

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(31) Article 87(2) of the Treaty lists certain types of aid that
are compatible with the Treaty. In view of the nature and
purpose of the aid, and the geographical location of the
firm, subparagraphs (a), (b) and (c) of that Article are not
applicable to the plan in question. Article 87(3) of the
Treaty specifies other
forms of aid, which may be
regarded as compatible with the common market. The
Commission notes that the project is located in the area
of Ryton-on-Dunsmore, which qualifies for assistance
under Article 87(3)(c) of the Treaty with a regional aid
ceiling of 10 % net grant equivalent.

(32)

(33)

The aid in question is intended for PCA UK, which
manufactures and assembles motor vehicles. The firm is
therefore part of the motor vehicle industry within the
meaning of the Community framework for State aid to
industry (5)
car
the motor
framework).

(hereinafter

vehicle

the

The car framework specifies at paragraph 2.2(a) that all
aid which the public authorities plan to grant to an
individual project under authorised aid schemes for a
firm operating in the motor vehicle industry must,
in
accordance with Article 88(3) of the Treaty, be notified
before being granted if either of the following thresholds
is reached: (i) total cost of the project equalling EUR 50
million, (ii) total gross aid for the project, whether State
aid or aid from Community instruments
equalling
EUR 5 million. Both the total cost of the project and
the amount of aid exceed the notification thresholds.
in notifying the regional aid proposed for PCA
Thus,
UK,
complied with the
the United Kingdom has
requirements of Article 88(3) of the Treaty.

(34) According to the car framework, the Commission is to
ensure that the aid granted is both necessary for the
realisation of
to the
gravity of the problems it intends to solve. Both tests,
necessity and proportionality, must be satisfied if the
Commission is to authorise State aid in the motor
vehicle industry.

the project and proportional

(35) According to paragraph 3.2(a) of the car framework, in
order to demonstrate the necessity for regional aid, the
aid recipient must clearly prove that it has an econom-
ically viable alternative location for its project. If there
in
were no other
in
existence,
question within the group, the undertaking would be
compelled to carry out
in the sole plant
available, even in the absence of aid. Therefore, no
regional aid may be authorised for a project that is not
geographically mobile.

site, whether new or
investment

capable of

its project

industrial

receiving

the

(5) OJ C 279, 15.9.1997, p. 1. The car framework expired on 31
December 2002, but still applies to State aid notified to the
Commission before
the
Commission to Member States (OJ C 258, 9.9.2000, p. 6).

See Communication of

date.

that

(36)

the layouts of

The Commission has assessed the documentation and
information provided by the United Kingdom, and
concluded that
the Trnava plant and
documents relating to the site selection process and
the plant has the
technical characteristics show that
possibility of hosting the project under scrutiny. Indeed,
the production currently foreseen at the plant is of 55
cars/hour from 2006 onwards. However, the plant could
produce up to 87 cars/hour through the implementation
of a new production line of 32 cars/hour. There is
sufficient land available for such an expansion within
the current plant perimeter, and all infrastructural instal-
lations are already compatible with the higher production
volumes.

(37) Additionally, the Commission notes that, according to
press reports, the Trnava plant is still being considered
by the PSA group as a possible alternative to Ryton for
the project under scrutiny.

(38)

Based on the information referred to in recitals 36 and
37, the Commission concludes that Trnava is effectively a
viable alternative to Ryton for the project under consid-
eration.

(39)

the project
The Commission has also verified that
involves the complete dismantling of the old production
lines, and the installation of completely new machinery
and equipment in an overall production structure that is
from the previous one. The project
clearly different
qualifies therefore as a transformation under the car
framework.

(40)

The Commission therefore concludes that the project is
mobile and can therefore be considered eligible for
regional aid, since the aid is necessary to attract the
investment to the assisted region.

(41) According paragraph 3.2(b) of the car framework, eligible
costs are defined by the regional scheme applicable in the
assisted region concerned. Having analysed the additional
information provided by the United Kingdom on the
calculation of
the eligible costs and on the vendor
tooling investments, the Commission has verified that
the
amounting to GBP 146,837 million in
actualised values can be considered eligible for aid.

costs

(42) According to paragraph 3.2(c) of the car framework the
Commission needs to ensure that the planned aid is in
proportion to the regional problems it is intended to
resolve. For that, a CBA is used.

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

in a different

(44)

(45)

the
the operating handicaps of Ryton,

car
In accordance with paragraph 3.2(c) of
framework,
as
compared to Trnava, are assessed over three years in
the CBA since the project in question is not a greenfield
site. The period covered in the final version of the CBA
submitted by the United Kingdom is 2008 to 2010, that
is three years from the beginning of production in
compliance with paragraph 3.3 of Annex I to the car
the
framework. Using 2002 as
notified CBA indicates a net cost handicap of GBP
18,772 million for the location in Ryton in comparison
with the location in Trnava. The resulting ‘regional
handicap ratio’ (6) of the project is 12,78 %.

the reference year,

The Commission has analysed the additional information
and documents submitted by the United Kingdom after
the decision to initiate the procedure laid down in Article
88(2) of the Treaty. Regarding the costs of land, the
the United Kingdom’s
Commission does not accept
argument that no such cost should be included in the
CBA, as the project could be carried out within the
the Trnava site. The land in
existing confines of
question has been recently purchased by PSA with the
expressed aim to accommodate the project, should the
final choice be for Trnava instead of Ryton.
It must
therefore be included in the costs related to the Trnava
solution, that are consequently increased by GBP 0,512
million.

(47)

(48)

(49)

(50)

show that

for components and
Regarding the operating costs
the
provided
after
materials,
documents
internal
opening of procedure
the Ryton plant
suffers a cost disadvantage for the sourcing of selected
components that are locally sourced and for which added
value from local manpower is relevant. Conversely, no
cost differences have been recorded in the CBA for
components
are
sourced worldwide from the same supplier. Having
the Commission
analysed
concludes that the figures relative to this item can be
accepted for the purposes of the CBA.

new information,

engines or

gearboxes)

(e.g.

that

the

Similarly, the new information provided is sufficient to
demonstrate that the updates in the CBA of February
2004 as regards energy and water,
inward transport
costs as well as redundancy costs is based on docu-
mentary evidence and reflects acceptable estimates of
the evolution of such costs during the period covered
by the CBA.

The CBA resulting from the Commission analysis differs
only marginally from the one submitted by the United
Kingdom after the opening of proceedings, while the
differences with the one initially notified are more
important. According to the Commission,
the CBA
indicates a net cost handicap for Ryton of GBP 18,260
million at 2002 values (7)
(compared to GBP 18,772
to the United Kingdom). The
million according
resulting regional handicap ratio of
is
12,44 % (8)
(compared to 12,78 % according to the
United Kingdom).

the project

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

(46) As regards the investment costs for buildings, machinery
and equipment, and vendor tooling, the Commission can
accept
the figures presented in the CBA of February
2004, that show that the Ryton transformation would
require
lower
investment than the extension of Trnava.

actualised GBP 4,522 million

an

(6) Net cost handicap
Eligible investment

¼ 18; 772
146; 837

¼ 12; 78 % ðsee recital 11 aboveÞ:

(7) Original net cost handicap as presented by UK (GBP 18,772 million)
— costs of land in Trnava (GBP 0,512 million) (see recital 44 above)
= GBP 18,260 million.
(8) New net cost handicap

¼ GBP 18; 26 million
GBP 146; 837 million

¼ 12; 44 %:

Eligible investment

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(51)

for

things projects

The Commission does not accept the argument by the
United Kingdom that the change in capacity should be
calculated only looking at the project under scrutiny and
not at PSA’s European production capacity. According to
the car framework, the CBA compares identical projects,
which means among other
the
production of the same number of vehicles. Therefore
it is true but irrelevant that the project under scrutiny
would not influence PSA’s overall production capacity.
However, as it is clearly stated in paragraph 3.2(d) of
the car framework, the aim of the top-up analysis is to
capture the effects on competition of
the investment
project looking at variations in production capacity in
the group concerned. To this end, the Commission has
production
European
total
compared
consistently
in question
capacity of
the motor vehicle producer
before
to the
and
documents provided, PSA’s capacity will be considerably
expanded with the new facilities in operation at Kolin
(200 000 cars/year for PSA) and in Trnava (300 000
units), while no corresponding capacity cuts at other
European
the
regional handicap ratio resulting from the CBA will be
reduced by 2 % (high impact on competition for an
investment project in an 87(3)(c) region, resulting in a
final ratio of 10,44 %.

the project. According

foreseen. Consequently,

plants

after

are

regional aid ceiling (10 % net grant equivalent). The
regional aid that
the United Kingdom plans to grant
for PCA UK therefore fulfils the criteria to be considered
compatible with the common market under Article
87(3)(c) of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which the United Kingdom is planning to
implement for Peugeot Citroën Automobiles UK Ltd in Ryton,
amounting to nominal GBP 19,100 million gross grant
equivalent, with an actualised value of GBP 14,411 million
gross grant equivalent (base year 2002, discount rate 6,01 %)
for an eligible investments of GPB 187,760 million in nominal
values (GBP 146,837 million in actualised values) is compatible
with the common market within the meaning of Article
87(3)(c) of the Treaty.

Article 2

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 22 September 2004.

VI. CONCLUSION

(52)

The aid intensity of
(9,81 % gross grant
the project
equivalent) is less than both the disadvantage identified
by the cost-benefit/top up analysis (10,44 %) and the

For the Commission

Mario MONTI
Member of the Commission