2005/374/EC: Commission Decision of 20 October 2004 on a State aid measure implemented by Germany for Kvaerner Warnow Werft (notified under document number C(2004) 3921)  (Text with EEA relevance)
Date: 2004-10-20
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, infringement of EU law, sanction (EU), shipbuilding

12.5.2005

EN

Official Journal of the European Union

L 120/21

COMMISSION DECISION

of 20 October 2004

on a State aid measure implemented by Germany for Kvaerner Warnow Werft

(notified under document number C(2004) 3921)

(Only the German text is authentic)

(Text with EEA relevance)

(2005/374/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

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

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

Having regard to Council Directive 90/684/EEC of 21
December 1990 on aid to shipbuilding (1)
in the version of
Directive 92/68/EEC (2),

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

Whereas:

(1)

(2)

I. PROCEDURE

The German press reported on 12 June 1999 that
Kvaerner Warnow Werft GmbH (hereinafter referred to
as KWW) had given a loan of around EUR 205
million (4) to its parent company Kvaerner a.s.

The Commission requested detailed information from
Germany on the origin of
the transferred funds in
order to ensure that these funds did not originate from
restructuring aid paid to the
excess payments of
company in 1993 to 1995, or any other aid elements,
with the letter dated 16 of June 1999. A meeting was
held in Brussels on 22 June 1999 with representatives of
Germany
the matter. The
and KWW to clarify
information from
Commission requested additional
Germany by letters dated 23 June 1999, 12 July 1999
and 8 October 1999. Germany replied by letters of 30
June 1999 and 16 September 1999.

(1) OJ L 380, 31.12.1990, p. 27. Directive as last amended by Directive

94/73/EC (OJ L 351, 31.12.1994, p. 10).

(2) OJ L 219, 4.8.1992, p. 54.
(3) OJ C 134, 13.5.2000, p. 5.
(4) Amounts in EUR are indicative and rounded. Only figures in DEM

represent exact amounts.

By letter dated 29 February 2000,
the Commission
informed Germany that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty
in respect of the aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (5). The Commission invited interested parties to
submit their comments on the aid. Germany replied by
letter dated 31 March 2000. KWW sent its comments by
fax dated 6 June 2000.

The Commission received comments from interested
forwarded them to Germany, which was
parties.
given the opportunity to react;
its comments were
received by letters dated 6 July 2000 and 4 August 2000.

It

II. DETAILED DESCRIPTION OF THE MEASURE

In October 1992, the German Treuhandanstalt (THA)
sold the predecessor of KWW,
the East German
shipyard Neue Warnow Werft GmbH (hereafter WW)
to the Norwegian industrial group Kvaerner a.s.

On 20 July 1992, the Council amended by Directive
92/68/EEC the Directive 90/684/EEC (seventh Directive
in a way that it introduced a
on aid to shipbuilding)
derogation
other
rules
from the
Community yards for the shipyards in East Germany in
order to create the possibility for those yards to undergo
In particular,
urgent and comprehensive restructuring.
this
to
receive high amounts of operating
aid until 31
December 1993.

exception enabled the East German yards

applicable

to

On adoption of this derogation, the Commission gave an
undertaking to the Council that it would use its moni-
toring and investigative powers to ensure that the yards
in East Germany only receive the aid necessary to
restructure.

(4)

(5)

(6)

(7)

(8)

(5) See footnote 3.

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Official Journal of the European Union

12.5.2005

(9)

By letter dated 30 October 1992, Germany informed the
the privatisation of WW via an
Commission about
Acquisition Agreement.
letters Germany
explanatory information on the
supplied additional
the
restructuring
Acquisition Agreement,
intended aid measures.

In various

and

the

(10)

in order to
The Acquisition Agreement provides that
privatise the yard, WW would incorporate KWW and
transfer certain assets and liabilities to it. The restruc-
turing period was to end at the end of 1995.

the

support

privatisation with

(11) According to point 7 of the Acquisition Agreement, THA
should
additional
measures. Its participation was negotiated on the basis
of the projected balance sheet on 1 October 1992. As
part of the funding, the company should dispose of an
aggregate equity of about EUR 53,7 million (DEM 105
the projected balance sheet was to
million). Further,
reflect a special accrual
in the amount of EUR 223,2
million (DEM 436,5 million) meant to finance catch-up
investments and about EUR 230,08 million (DEM 450
million), hereafter ‘loss cover’, meant to finance losses
incurred by KWW during the restructuring period due
to shortfalls in productivity or lacking competitiveness.

The aid measures

(12)

By letter dated 27 November 1992, in order to facilitate
the privatisation and restructuring of the yard, Germany
proposed in total aid measures about EUR 720,5 million
(DEM 1 409,2 million).

(13)

The Commission, by taking into account the monitoring
provision of Directive 90/684/EEC, as well as the fact
that operating aid could only be approved until 31
December 1993, decided to approve the aid measures
the aid
for
amounts
amounts
requested by Germany in November 1992. By its
decision on the
the Commission
approved the following aid:

the yard in five instalments.

In total,
than the

approved were

instalment

lower

first

N 692/D/91 — Communicated to Germany by a letter of 3
March 1993 (SG (93) D/4052)

— EUR 23,3 million (DEM 45,5 million) operating aid,
being EUR 6 million (DEM 11,7 million) to cover
part of the losses on contracts signed after 1 July
1990, EUR 3,1 million (DEM 6,1 million) Wettbewerb-
shilfe and EUR 14,2 million (DEM 27,75 million)
injection of fresh equity capital,

— EUR 42,1 million (DEM 82,4 million) operating aid
in the form of takeover of old liabilities by THA,

— EUR 65,2 million (DEM 127,5 million)

investment

aid,

— EUR 13,8 million (DEM 27,0 million) closure aid.

In total, this decision authorised State aid of EUR 144,4
million (DEM 282,4 million).

Before approving any further instalment, the Commission
requested Germany, by letters dated 2 April 1993, 12
to provide further
July 1993 and 11 October 1993,
information on the expected and incurred losses under
the shipbuilding contracts handled during the restruc-
turing as well as further information on the planned
investments.
In the letter of 11 October 1993 the
Commission also requested Germany to justify, why
contracts, which were
from the 12 shipbuilding
envisaged for the loss cover and Wettbewerbshilfe,
the
losses from the first six shipbuilding contracts would
only amount
losses
including Wettbewerbshilfe.

the envisaged total

to 29,4 % of

In its reply dated 28 May 1993, Germany informed the
Commission that the EUR 230,08 million (DEM 450
million)
for loss cover are the compromise result of
negotiations between the seller and the buyer. Germany
pointed out that the risk or the benefit of additional
losses/savings was to be carried by KWW.

The German authorities also indicated that the loss cover
of EUR 230,08 million (DEM 450 million) does not
include an amount of EUR 17,7 million (DEM 34,6
million) for future losses, which resulted from pending
contracts on cash carriers taken over by THA in the
context of privatisation. It does also not include an aid
amount of EUR 42,1 million (DEM 82,4 million) in the
form of takeover of old current liabilities by THA in the
context of privatisation.

By letter dated 16 November 1993, Germany forwarded
a letter dated 29 October 1993 from KWW explaining
that the loss cover of about EUR 230,08 million (DEM
450 million) relates not
to 12 but 16 shipbuilding
contracts for ships. The letter indicated that the losses
seemed somewhat higher
earlier
presented.

than the

figures

(14)

(15)

(16)

(17)

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(18) At

the end of 1993,
second aid instalment:

the Commission approved the

Monitoring the necessity of aid

N 692/J/91 — Communicated to Germany by letter of 17
January 1994 (SG (94) D/567)

— EUR 315,5 million (DEM 617,1 million) operating
aid of which EUR 58,0 million (DEM 113,5
million) would be paid in cash being EUR 34,2
million (DEM 66,9 million) Wettbewerbshilfe and
EUR 23,8 million (DEM 46,6 million) to cover a
part of the losses on contracts signed after 1 July
1990,

— the decision explains that the operating aid of EUR
315,5 million (DEM 617,1 million) constitutes the
maximum operating aid to be paid to the yard
related to shipbuilding contracts
signed by 31
December 1993.

(19)

The last
following Commission decision:

three instalments were approved with the

(21)

it

In all the Commission decisions approving the several
instalments of aid,
is recalled that on amending
Directive 90/684/EEC with regard to the mentioned
derogation, the Commission gave an undertaking to the
Council that the Commission would use its monitoring
and investigative powers to ensure that the East German
yards only receive the aid necessary for restructuring.

(22)

in the light of this
The Commission underlined that,
it could only approve the granting of aid
undertaking,
as far as the necessity is clearly shown and the conditions
laid down in the mentioned Council Directive as coun-
terpart for the aid are being closely adhered to.

(23)

In each decision the Commission reminds Germany that,
in order to obtain further release of the envisaged total
aid under Directive 92/68/EEC the German authorities
must supply the following information:

N 1/95 — Communicated to Germany by letter of 20
February 1995 (SG (95) D/1818)

(a) showing, to the satisfaction of the Commission, the

further necessity of such aid;

— EUR 115,3 million (DEM 225,5 million) investment
aid, from which EUR 10,2 million (DEM 20 million)
was non-cash,

N 637/95 — Communicated to Germany with a letter of 18
October 1995 (SG (95) D/12821)

— EUR 34,2 million (DEM 66,9 million) investment aid;

N 797/95 — Communicated to Germany with a letter of 11
December 1995 (SG (95) D/15969)

— EUR 29,6 million (DEM 58,0 million) investment aid.

(24)

(20)

The total amount of aid approved by these decisions was
about EUR 380,9 million (DEM 745 million) operating
aid (earmarked as EUR 37,3 million (DEM 73 million =
DEM 66,9 million + DEM 6,1 million) for Wettbewerb-
shilfe, EUR 23,8 million (DEM 46,6 million) to cover a
part of the losses on contracts signed after 1 July 1990
and EUR 42,1 million (DEM 82,4 million) in the form of
liabilities), EUR 242,8
an exemption of old current
million (DEM 474,9 million)
investment aid and EUR
13,8 million (DEM 27 million) closure aid. This results
in total aid of about EUR 637,5 million (DEM 1 246,9
million).

(b) showing, to the satisfaction of the Commission, that
the investments are being carried out along the
detailed
the
plan
Commission and will result in the capacity limitation
required;

investment

submitted

to

(c) providing reports to be received by the Commission
to sufficiently demonstrate that any risk of spillover
of aid to other yards is being eliminated (spillover
reports). These reports were to be provided by an
In 1995, at the
independent chartered accountant.
end of the restructuring period the reporting obli-
gations to the Commission came to an end.

Reporting of KWW

for

last

report

spillover

The
the period until 31
December 1995 was submitted to the Commission by
letter dated 9 July 1996. It explains that the losses from
shipbuilding contracts
incurred before 31 December
1995 amounted to about EUR 230,08 million (DEM
taking into account
450 million)
the Wettbewerbshilfe received). According to the German
authorities, at the time of drafting the report the calcu-
lation of final losses was not yet possible since some of
the vessels had not yet been delivered and financial risks
originating from charter guarantees were still pending.

(calculated without

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Official Journal of the European Union

12.5.2005

(25)

the Commission
It was only on 18 June 1999 that
received, following its own request of 16 June 1999,
reports of KWW certified by the
the full annual
auditors
for 1992 to 1997 and the provisional
accounts for 1998. On 30 June 1999, Germany sent
to the Commission a letter from KWW’s auditor (dated
25 April 1997) on the actual use of the restructuring aid
as per end of 1996. The report shows that the actual
losses for the relevant shipbuilding contracts, without
deducting Wettbewerbshilfe, amounted to about EUR 178
million (DEM 348,095 million) until 31 December 1995.
Additional
losses of about EUR 23,1 million (DEM
45,121 million) were encountered in 1996 so that the
total actual losses until 31 December 1996 amounted to
EUR 201,05 million (DEM 393,216 million).

(26) As it appeared that the actual losses were lower than the
losses envisaged (EUR 262 million (DEM 512,5 million)
including Wettbewerbshilfe of EUR 31,9 million (DEM
62,5 million)), the Commission requested Germany by
letter dated 23 June 1999 to explain the transfer of
EUR 204,5 million (DEM 400 million) from KWW to
its mother company.

(27) According to its reply, by letter dated 30 June 1999,
Germany did not recover the difference from KWW.
Germany further explained that
for loss
cover was granted and approved as a lump sum so
that any difference could be kept by KWW.

the amount

(30)

(31)

Opening of procedure

(32)

(28)

In its decision to open the formal investigation procedure
the Commission noted that KWW had received EUR 262
million (DEM 512,5 million) operating aid for
loss
compensation (including the compensation for Wettbe-
werbshilfe of EUR 32 million (DEM 62,5 million) while
the actual losses amounted only to EUR 201,05 million
(DEM 393,216 million). This indicated that KWW had
received about EUR 61 million (DEM 119,284 million)
excessive operating aid for
loss compensation. This
appeared not to be in compliance with the provision
in the Commission decisions, according to which yards
in East Germany shall only receive the aid necessary for
their restructuring. The Commission also noted that in all
of its decisions granting the aid it was clearly stated that
the Commission shall use its investigating and moni-
toring powers to ensure that the yards only receive the
aid necessary for their restructuring. Consequently, since
according to the Commission decisions approving the aid
the yards shall only receive the aid necessary for their
restructuring, and the Commission had committed itself
to monitor the compliance of this provision, only the
compensation of actual
losses can be considered as
being
compatible with the Commission decisions
granting the aid.

(29)

Therefore, the Commission raised doubts whether the
operating aid of the amount of about EUR 61 million

(DEM 119,284 million) was
common market.

compatible with the

III. COMMENTS FROM INTERESTED PARTIES

The Commission received comments dated 9 June 2000
and 13 June 2000 from the Association of Danish Ship-
builders (Foreningen av Jernskibs- og Maskinbyggerier i
Danmark — Skibsvaerftsforeningen). It received further
comments from the Confederation of Danish Industry
(Dansk Industri) dated 9 June 2000 and 28 June 2000.
KWW submitted comments dated 6 June 2000.

Comments from the Association of Danish Ship-
builders

recalls

The Association of Danish Shipbuilders
the
importance for the Commission to constantly monitor
the compliance with existing rules. Since 1992, several
yards needed to be closed or to reduce their workforce in
jobs in this sector has
Denmark and the number of
decreased by half. The subcontractors and suppliers of
the yards have lost a significant number of
jobs.
Limiting the negative effects of the aid on the other
Member States’
therefore as
equally important as before. For
is
reason it
impossible to set less strict requirements at this point
in time on the assessment of the aid and its conditions,
than in the period from 1992 to 1994.

shipbuilding industry is
this

The preparatory documents of Directive 92/68/EEC show
that a very detailed analysis of the need for aid, as estab-
lished by the Commission, was presented to the Council.
As for other yards,
the aid was subdivided into old
liabilities, fresh capital and loss compensation. Although
the Council established a ceiling for the different aid
it did not establish aid amounts for
amounts in total,
each of
the yards. There were no doubts on the
amounts for old liabilities and fresh capital. However,
regarding loss compensation, an amount was discussed,
which the Commission should fix within a certain
the
establishing
framework. When
Commission naturally needed to make sure that the aid
could only be used for
the proposed purpose. The
Commission had also to make sure, using subsequent
monitoring,
the amounts had indeed only been
laid down these
used for these purposes. The Council
conditions for the aid in June and July 1992 with the
participation of Germany. Therefore Germany cannot
refer
agreements with possibly different
contents that it had subsequently made with the buyer
of the yard.

to other

amount

that

this

(33)

reports were requested to avoid that

third
Spillover
parties benefit from the aid. If the aid in question had
been granted independent from the beneficiary’s cost, the
spillover reports would have been unnecessary to prevent
the transfer of excess aid to the current owners of the
enterprise benefiting from State aid.

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L 120/25

(34)

(35)

(36)

The EUR 262 million (DEM 512,5 million) of aid granted
for loss compensation was in fact not used for this
purpose in its totality. This is the logical consequence
of the fact that the losses were in fact lower than this
amount. Therefore the aid must have been used for
the Commission has not
another purpose. Even if
explained what has happened to these amounts,
the
granting of a loan to the mother company implies that
in any case, partly benefited the mother
the aid has,
set by the
company. According to the conditions
Council,
the Commission should have prevented this.
The amount, which was not used for loss compensation
and which was not authorised to be transferred to the
mother company, has to be considered as an injection of
fresh capital, which means that a greater amount than
that accepted by the Council for this particular purpose
was in fact used for it. The use of the aid contravenes not
only the conditions set out by the Commission but also
Directive 92/68/EEC.

Finally, the Association of Danish Shipbuilders concludes
that according to the information available, KWW had
received a greater amount of aid than that corresponding
to its actual losses. Apparently, neither the Council nor
the Commission at any stage accepted that operating aid
for loss compensation could be higher than the actual
losses.

if
limits

In addition, the Association of Danish Shipbuilders takes
the Commission approves subsidies
the view that,
within the
the Council of
established by
Ministers in such a way that beneficiaries are guaranteed
a given sum under given conditions, such approval
cannot, provided that these conditions are fulfilled, be
rescinded at a later stage, regardless of whether the
Commission changes its views on the earlier interpre-
tation. On the other hand, neither the Commission nor
the Member States can legitimately approve aid, which
goes beyond what is accepted by the Council of Ministers
or laid down in the Treaty, even if the beneficiary has
acted in good faith.

Comments

from the Confederation of Danish

Industry

the amount of

sation for other purposes than directly to its restruc-
turing,
this difference will have the
effect of an operating aid and thereby aggravate the
already difficult competition conditions between the
European yards.

(39) According to the Confederation of Danish Industry, it is
against the general principles of Community law to allow
the aid recipient to claim for loss compensation in case
its losses remain below the maximum amount of the
promised compensation. However,
the Confederation
would not know whether such use had been authorised
in a non-published protocol or similar paper when
Directive 92/68/EEC was agreed.

(40)

the Commission,

The Confederation of Danish Industry notes that the aid
beneficiary takes the view that
in
approving the restructuring aid, accepted the privatisation
agreement in its entirety and thereby the principle that
the use to which the restructuring aid was to be put was
not subject to any conditions. Subsequently, the Confe-
deration of Danish Industry says that aid approved by the
Commission, in accordance with the mandate conferred
on it by the Council and the Treaty, cannot be altered at
a later stage once the Commission has already approved
an aid measure, even if it changes its attitude later. Such
agreements are binding for the Commission. However,
even where they are in good faith, beneficiaries cannot
derive any rights from the acceptance of an aid measure
if the Commission or a Member State has infringed the
rules laid down by the Council or enshrined in the
Treaty.

Comments from KWW

(41)

It is noted that the individual points raised by KWW in
its comments are in majority identical
to the points
raised by Germany in its comments. The points are
therefore only listed briefly below.

(42)

(37) According to the Confederation of Danish Industry, it is
a natural
legal obligation of the Community to make
sure that the Commission verifies the use of State aid
that it has approved or will approve. Since the beginning
of the 1990s the Danish shipbuilding industry has been
confronted with several
and a
significant decrease of jobs in this sector. The European
shipbuilding and its subcontractors react in a sensitive
way to market interventions, above all to State aid.

closures of

yards

(38)

If KWW uses,
the difference
in this particular case,
between its actual losses and the promised loss compen-

KWW argues that there is no legally valid reason why the
Commission would question the legality of the restruc-
turing aid seven years after approving it. In the privati-
sation agreement between Treuhandanstalt and Kvaerner,
the loss compensation was agreed as a lump sum and
impose any obligation on
these documents did not
Kvaerner to repay the difference in case the contract
related losses would turn out
than
estimated. The Commission was aware of the contents
the
of
Commission decided on the necessity of
the aid in
question and its decisions on approval of the aid do
not
clause on possible
repayment of the difference between the estimated and
real losses.

contain any condition or

these documents. Under

these circumstances

to be

lower

(43)

(44)

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KWW claims that the contested amount of EUR 60,988
million (DEM 119,284 million)
the total
operating aid approved by the Commission in its
decisions of 1993. Therefore it is existing aid of which
the compatibility cannot be subsequently reassessed.

is part of

the loss compensation was intended to be paid, namely
as a lump sum.
the Commission objected to this
approach, it should have opened a procedure and made
a clear condition on a possible repayment
in its
decisions.

If

The next point raised by KWW is that only part of the
contested amounts is aid. Only EUR 29,812 million
(DEM 58,309 million) operating aid was paid in cash.
The positions in the balance sheet also used to cover the
restructuring costs cannot be considered as aid, since
they were assets of
the yard which were sold as a
result of an open and unconditional bidding procedure.

(45)

KWW argues that the Commission decisions approving
the aid are the legal basis for the assessment of the case.
It is the opinion of KWW that it has fully complied with
the Commission decisions approving the aid, since:

(a)

the Commission approved the lump sum of aid being
fully aware that the privatisation contract did not
provide for any possible repayment obligations. The
decisions do not mention a
amount
earmarked to cover losses;

specific

(b) the Commission decided on the necessity of the aid

before releasing the tranches;

(48) As regards points (b) and (c), KWW argues that

the
decisions of
the Commission contain no clauses that
would justify reassessment of the approved aid. The aid
was approved in its totality. Especially as there are no
conditions or indications in the decisions on the fact that
only the loss compensation corresponding to the real
losses would be covered by the decisions approving the
aid. There was no restriction in the decisions that would
justify later control. The only sentence in the decisions to
this effect is the one stating that Commission gave its
commitment to the Council to use its monitoring and
investigating powers to ensure that the yards only receive
the aid necessary for their restructuring.

(49) According to KWW,

that

this sentence is only an intro-
investigating and
duction, which stresses
the
controlling powers were used in the context of
approval of the aid in order to check the necessity of
the aid before releasing the tranches. This sentence was
meant only to justify why the Commission approved the
restructuring aid in several tranches.

the

(c)

the Commission decided on the necessity of the aid
without laying down in its decisions approving the
aid any conditions, which would justify reassessment
of the aid later;

(50)

Consequently, according to KWW the Commission’s
decisions approving the aid could only be understood
in that
the aid was released in accordance with the
provisions of the privatisation agreement, without later
repayment obligations in case the real losses would turn
out the be lower than estimated.

(d) the funds for restructuring were used pursuant to
their objectives. Other restructuring costs than loss
compensation, were higher than the estimated.

(46) As regards point (a), KWW argues that the concept of the
privatisation agreement was to make Kvaerner liable for
any greater losses than those estimated. As a counterpart,
the situation where the losses would be lower than
estimated should benefit Kvaerner. From Kvaerner’s
point of view, compensation of all restructuring costs
without any possibility of repayment was the essential
condition for Kvaerner to take over the yard. In case of
possible repayment obligations, Kvaerner would never
illustrated by
have
the yard. This
paragraph 12 of the privatisation agreement,
in which
it is stated that in case individual payments would be
prohibited under EEC law, Kvaerner has the right
to
rescind the privatisation agreement.

taken over

is

(47) According to KWW, the Commission was aware of the
agreement between Kvaerner and Germany and the way

(51) As regards point (d) KWW argues that the Commission
loss
decisions did not approve aid particularly for
compensation. Only operating aid in general was
approved. In accordance with the concept of the Acqui-
sition Agreement between Kvaerner and THA aid was
meant to cover part of the costs of the restructuring.
The aid was used for the restructuring of the yard and
therefore in accordance to its objectives.

(52) A further argument of KWW is that the Commission has
known since 1996 that the real losses were significantly
lower than the estimated ones. According to Kvaerner,
the facts were presented in a way, which corresponded to
the time of drafting the report. Kvaerner and Germany
submitting the last
were under no obligation, after
spillover report covering the period until
the end of
1995,
to submit any further documentation to the
Commission on the further development of the losses.

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(53)

the Commission should have already
In any case,
noticed, on the basis of the 1995 spillover report, that
the losses were lower than estimated. The difference
between the amount of
losses in the 1995 spillover
(31 December 1995 — EUR 224,861 million
report
(DEM 439,791 million)) and the auditor’s report of 25
April 1997 (31 December 1996 — EUR 201,048
million (DEM 393,216 million)) results from the fact
that
fully
in individual cases risk estimates were not
realised.

(54)

KWW requests that the EUR 31,955 million (DEM 62,5
million) of Wettbewerbshilfe
should not be calculated
within the loss compensation. This would lead to a
smaller difference between estimated and real losses.

IV. COMMENTS FROM GERMANY

(55) Germany explains

that EUR 60,988 million (DEM
119,284 million) subject
to the present procedure is
existing aid forming part of the operating aid approved
by the Commission decisions of 3 March 1993 and 17
January 1994. Therefore it is not understandable that the
Commission initiated the procedure concerning non-
notified aid, meaning new aid. Without an explicit
provision in its decision, the Commission cannot assess
anew the compatibility of aid that it had, years before,
already declared as being compatible with the common
market. This is against the principles of legal security and
legitimate expectations.

(56)

Further, Germany says that not all the amounts that the
Commission dealt with in its decisions approving the aid
in fact were aid. The Commission approved the full
coverage of the restructuring costs.
In this context it
did not examine, to what extent the restructuring was
carried out by using the own resources of the yard. The
prognosis for losses resulting from contracts signed after
1 July 1990 was EUR 230,08 million (DEM 450 million).
To cover this amount, there was not only the amount of
EUR 29,812 million (DEM 58,309 million) operating aid
paid in cash, as
indicated in the paying schedule
(Zahlungsplan) submitted to the Commission, but also
own resources of the yard which appeared as positions
in the balance sheet. These own resources cannot be
considered as aid, since they were assets of the yard,
which were sold as a result of an open and unconditional
bidding procedure.

(57) Germany stresses that

the yard could not have been
restructured without the aid laid down in the privati-
sation contract and approved by the Commission, since
Kvaerner, as the best bidder, was only willing to carry
out the restructuring at its own risk if it received this aid.
In case the Commission doubted the plausibility of the

losses. However,

loss prognosis in the business plan at the time, it should
not have approved the aid as a lump sum but should
have inserted a provision in its approval stating that the
approval only covered aid that corresponded to the
the decisions
actual
does not contain such provisions and this was not
even the intention of
the time.
Under these circumstances the lump sum agreed upon
was indeed meant to be final. The risks and benefits
linked with possible exceeding or undercutting of this
amount were left for KWW as an incentive to restructure
the yard as quickly and efficiently as possible.

the Commission at

the wording of

(58) Germany refers to its letter of 28 May 1993 to the
Commission, which reminds the Commission, that the
losses against a proof of
compensation of the actual
the losses submitted by the company is not provided
for in the privatisation contract. The buyer of the yard
bears the risk for any additional costs. As a counterpart
the buyer can benefit
from the, according to the
experience, minor chances for achieving any savings.
Thereby the operating aid as established in a lump sum
and agreed upon with the buyers is necessary for the
privatisation of the Eastern German yards.

(59) Germany also refers to its letter of 16 October 1993, in
which is written that the continuous monitoring of the
future loss provisions is note envisaged. This would also
correspond to the contractual agreement with the buyer,
according to which KWW bears the full risk of the losses
being higher than those provided for when the contract
was signed.

(60)

Consequently, the Commission approved in 1993 all the
operating aid without any restrictive conditions, being
fully aware of the circumstances. The aid was then imme-
diately paid to the yard as planned, long before it could
be established how high the actual losses would finally
be.

(61) A further point

is

raised by Germany

that
the
to later
the right
Commission did not reserve itself
examine the necessity of
the aid. Neither did the
decision of March 1993 nor the one of January 1994
indicate that the aid was approved only to cover the
actual
losses and that the final assessment would only
be carried out later once the final amount of the actual
losses was known. Neither do the Commission decisions
indicate that the amount of the actual losses should be
demonstrated or that the aid that would subsequently be
proven as being ‘not necessary’, should be paid back. The
Commission should have inserted an express provision in
its decisions in order to be able to legally enforce such
right.

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(62) Germany refers to the approving Commission decisions,
in which it is stated that ‘The Commission can, in the
light of the undertaking given to the Council described
above, only approve the granting of aid for as far as the
necessity is clearly shown …’. Since the Commission
then approved the aid without attaching any conditions
to it, this can only be interpreted as meaning that the
Commission was convinced about the necessity of aid
before approving it.

(63) According to Germany, the decisions cannot be inter-
the Commission would use its
preted in a way that
monitoring and investigating authority for
later
assessment of the necessary amount of aid. Neither did
the Commission reserve itself the right of such control.

a

(64)

their

In the Commission decisions approving the aid it is only
stated that the Commission gave its commitment to the
Council to use its monitoring and investigating powers in
the yards only receive the aid
order to ensure that
restructuring. This statement was
necessary for
to explain why the
put
Commission did not approve all
the aid with one
decision but released it in several tranches. In addition,
this phrase indicated that the Commission took the final
decision, each time, on the necessity of the aid before
releasing a tranche.

in the decisions

in order

(65) Germany also explains that to the contrary of what the
Commission claims in the opening of procedure, its letter
of 28 May 1993 does in no way indicate that Germany
should ensure that the Commission verify the use of the
aid after
In fact,
it had been granted and released.
Germany had in its letter referred to the fact that the
Commission can verify how the aid should be used
before releasing the tranches. Therefore in the letter of
28 May 1993 a reference was made to the document on
the proof of the use of the aid (Verwendungsnachweis)
prepared by the yards at the time. The information given
by KWW on 26 May 1993 on the use of aid was
attached to the letter. The invitation to verify the use
of the aid concerned only this information.

aid, which stipulates

(66) Germany refers to the Commission decision releasing the
the
second tranche of
authorised amount is the highest operating aid that can
be paid to the yard. This would only mean that the yard
should not receive any other operating aid than that
provided for in the privatisation contract,
in particular
no additional aid under the approved schemes.

that

(67) Germany explains

that

the fact of

submitting the
Commission information after the approval of the aid,
in particular the spillover reports, does not result in a
competence for the Commission to verify the necessity of
the aid. The spillover reports were submitted in order to
demonstrate that no spillover of aid took place from the
yard to other undertakings. Contrary to what
the
Commission claims, the meaning and purpose of the
reports was not to show the actual amount of losses.
The information on the use of aid contained in these
reports was only meant to help in presenting in a trans-
parent way, considering the purpose of
the spillover
controls, that no aid was transferred to the investor or
to the other yards.

(68) Germany states that it had fulfilled all its reporting obli-
gations in time. The last spillover report concerning the
period until 31 December 1995 was submitted to the
Commission by letter of 6 July 1996. On the basis of the
information contained in this last report the Commission
was, at the latest from July 1996, aware that the actual
losses were significantly less than EUR 262,037 million
(DEM 512,5 million).

(69) Germany explained the difference between the actual
losses in the 1995 report and the report submitted
later by Arthur Andersen to Germany by letter of 25
July 1997 concerning the situation at 31 December
1996. They are due to the fact that the risk estimations
were not fully realised and that the situation proved to be
different in 1996 due to the time factor. Some risks that
were envisaged did not materialise. Therefore, the actual
losses turned out to be less than those estimated at 31
December 1995.

to be higher

(70) However, Germany explains that contrary to what the
it was
Commission claims in the opening procedure,
the actual
not to be expected in summer 1996 that
losses would turn out
than those
indicated in the last spillover report. The yard’s balance
sheet was carefully drafted taking into consideration the
rules on maintaining sufficient capital. Therefore the
losses were estimated in such a way that greater losses
were not to be expected. For this reason the Commission
was already fully aware of the difference between the
original loss estimation and the actual losses since July
1996. However, it only started asking for information on
the actual losses in summer 1999 and only opened the
procedure in February 2000.

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the

estimated loss

(71) Germany further argues that in case the Commission
the difference
should come to the conclusion that
between the estimated and actual
losses has State aid
relevance, the difference would be smaller than claimed
by the Commission. The Commission claims that the
amount of aid received for loss compensation was EUR
262,037 million (DEM 512,5 million). This amount
consists of
compensation (EUR
230,081 million (DEM 450 million)) and the Wettbewerb-
(EUR 31,955 million (DEM 62,5 million)).
shilfe
However, Wettbewerbshilfe was not meant
loss
compensation but, as usual, for compensating for the
disadvantages suffered by all the German yards due to
their location in Germany and in Europe. This was a
scheme approved by the Commission. Therefore the
amount of
losses can only be compared
with the original
loss estimation of EUR 230,081
million (DEM 450 million). The difference is thereby
only EUR 29,033 million (DEM 56,784 million).

the actual

for

V. ASSESSMENT OF THE AID

Legal basis of the aid

the shipyards

(72) Directive 90/684/EEC in the version as amended by
Directive 92/68/EEC provides for a derogation from the
abolition of operating aid applicable to shipbuilding in
favour of
in the former GDR. This
operating aid should enable these yards to undergo
urgent and comprehensive restructuring and to become
competitive. According to Article 10a(2) of Directive
90/684/EEC, operating aid for
the shipbuilding and
ship conversion activities of the yards situated in the
certain
former GDR may
conditions, compatible with the common market until
include
31 December 1993. These
an
conditions
annual reporting obligation for Germany.
In addition,
the Commission shall ensure that the aid referred to in
trading conditions to an
this Article does not affect
extent contrary to the common interest.

considered,

under

be

prohibition of operating aid applicable to shipbuilding,
was to allow ‘the continued operation of
the yards’
during their restructuring. Aid granted on the basis of
this exceptional derogation had to be strictly limited to
the yards.
this purpose, namely the restructuring of
Therefore, the Commission only approved aid on the
condition that it was necessary for the above, namely
the continued operation during restructuring. This is
clearly stated in the fourth paragraph of the decision
communicated to Germany by letter of 3 March 1993
(SG (93) D/4052) and in the fourth paragraph of the
decision communicated to Germany with the letter of
17 January 1994 (SG (94) D/567) (6).

(75)

that

this operating

In addition, the decision on the releasing of the second
tranche of aid communicated to Germany by letter of 17
aid
January 1994 underlines
constitutes the maximum operating aid to be paid to
the yard related to contracts signed until 31 December
1993. That makes it evident that the concept of the
decision was made clear to Germany and the beneficiary:
the aid approved is a maximum amount, which is to be
granted only insofar as it is strictly necessary for the
success of the restructuring process.

Loss prognosis and the concept of ‘lump sum’

In its decisions it did not

(76) Germany and KWW claim that the Commission decided
in a final manner on the necessity of the aid before
releasing the tranches.
lay
down any conditions, which would justify a later reas-
sessment of the aid. In addition, being fully aware that
the privatisation contract did not provide for any
Commission
obligations,
possible
approved the lump sum of aid.
the Commission
doubted the plausibility of the loss prognosis submitted
to it at the time, it should have inserted a provision in its
decisions stating that the approval only covered aid that
corresponded to the actual losses.

repayment

the

If

(73)

Based on Directive 90/684/EEC as amended by Directive
92/68/EEC, the Commission adopted, in two decisions in
1993, certain measures in favour of shipyards in the
former GDR. Among these measures were also grants
of operating aid, which were considered compatible
with the common market pursuant to Article 87(3)(e)
of the EC Treaty.

(74)

These Commission decisions approving the aid refer to
the obligation of the Commission to ensure that the
yards in the new Länder only receive aid, which is
necessary for their restructuring. The aim of Directive
92/68/EEC providing a derogation from the general

(77) As explained in the decision to open the procedure (7),
the Commission notes that in cases where aid is granted
for restructuring, which is to be carried out after the
decision on the compatibility of aid is
the
approval has to be based on estimations. Estimations
the operating aid were especially
on the elements of
needed in this case since Article 10a(2)(a) of Directive
90/684/EEC required that this aid was to be paid by
31 December 1993. The above decisions take into
consideration this urgency, when they stress that ‘[it] is
clear to the Commission that a decision is urgently
needed in order not to inhibit the possibilities of the
yard to restructure’.

taken,

(6) The second sentence in the fourth paragraph of the latter decision
reads as follows: ‘However, the Commission can, in the light of the
undertaking to the Council described above, only approve the
granting of aid for as far as the necessity is clearly shown and the
conditions laid down in the Council Directive as counterpart for the
aid are being closely adhered to.’

(7) See footnote 3.

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The Commission had to adopt its decisions concerning
operating aid on the basis of the information submitted
in advance by the German government. That is why
appropriate conditions concerning the necessity had to
be and were in fact inserted expressly into the decisions.
When the decisions were taken, the Commission did not
doubt the plausibility of the loss prognosis, but it had to
ensure, that should the losses not be as high as estimated,
granted loss compensation would become incompatible
aid and consequently has to be recovered.

(83)

That is also why all Commission decisions releasing the
tranches of aid recall that on adoption of this derogation
from the rules on operating aid applicable to other
Community yards, the Commission gave an undertaking
to the Council that the Commission would use its moni-
toring and investigative powers to ensure that the yards
in the new Länder only receive the aid ‘needed in order
not to inhibit the possibilities of the yard to restructure’.
It cannot be put into question that the concept of aid, to
be granted as a lump sum presented by Germany after
the restructuring was finalised, does not correspond to
the provisions either of the Council directives or the
Commission decisions.

the transition of
encourage purchasers to carry out
shipyards into the conditions of a market economy as
quick as possible.

This is precisely the reason why the Commission had to
in its decision of 17 January 1994, the under-
repeat,
takings given by Germany, which were actually already
set out unequivocally in the first decision communicated
to Germany by letter of 3 March 1993. In addition, the
Commission decided to reply in a decision,
in an
attackable legal act, capable of becoming definitive.
Taking into account Germany’s knowledge of State aid
rules and background information of
the
Commission cannot understand the misinterpretation of
the Commission’s authorising decisions in 1993 and
1994 by Germany. These decisions clearly underlined
the Commission would use its investigating and
that
monitoring powers
the yards only
to ensure that
receive the aid necessary for their restructuring.

the case,

i.e.

Misinterpretation of State aid rules

(84)

for aid were taken, Germany
Before the decisions
provided the Commission with a copy of the Acquisition
Agreement between the THA and Kvaerner Warnow
Werft. According to Germany,
fully
informed the Commission about the provisions on aid,
which was granted as a lump sum. Germany does not
explain in which way such an agreement concluded
between the THA and Kvaerner Warnow Werft could
bind a third party, namely the Commission.

this document

Aid amounts received by KWW

In its comments both Germany and KWW argue that the
contested amount of EUR 60,988 million (DEM 119,284
million) is part of the total operating aid approved by the
Commission decisions communicated to Germany in
March 1993 and January 1994 and therefore existing
aid, of which the compatibility cannot be subsequently
reassessed. They further comment
the
amounts the Commission approved as aid were in fact
aid. A part of the restructuring costs was covered by the
yard’s own resources, which appeared as items in the
balance sheet. Only EUR 29,812 million (DEM 58,309
million) operating aid was paid in cash.

that not all

(78)

(79)

(80)

(81)

to cover

Further
to the
to this, Germany refers to its letter
Commission, by which it submitted on 28 May 1993
information concerning the privatisation of
additional
East German shipyards to the Commission. The main
issue of this communication was to explain the need
for operating aid in order
from
contracts and underemployment. Germany also recalled
that according to the Acquisition Agreements a refund of
incurred losses against proof of payment was not
envisaged in order to avoid uneconomic management
It would have been the THA’s
of
objective to assign the financial risk of additional losses
to the purchaser. Therefore, the expected losses for the
shipyards,
be
had
determined, in advance, as exactly as possible.

including Warnow Werft,

the enterprise.

losses

to

(82) Germany further explained that in a countermove it was
agreed that the purchaser would benefit from the unlikely
development of making savings. This mechanism should

(85)

The Commission notes that the total aid includes cash
and non-cash aid. This non-cash aid consists in the
transfer of assets to the new company, a transfer of
certain fixed and current assets, joined with a less than
proportional transfer of financial liabilities. However, the
form of payment of the aid is not decisive as regards the
nature of a payment as aid. The Commission approved,
in its two decisions, a total of EUR 380,9 million (DEM
745 million) of operating aid and a part of this aid was
paid in cash, another part non-cash. Neither Decision has
been challenged by Germany or by the beneficiary.
Consequently,
for the
beneficiary and for the Commission itself. At this stage,
it has also to be stated that according to the decisions the
total amount of aid granted in cash is clearly higher than
the contested amount of EUR 60,988 million (DEM
have
119,284 million).
should
The
contested these decisions within two months
it
if
found that the assessment was wrong, as provided for
in Article 230(5) of the EC Treaty.

they are binding for Germany,

beneficiary

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(86)

(87)

(88)

(89)

reads as
the Privatisation Agreement
Point 7.6.2 of
‘The projected balance sheet was to reflect a
follows:
special accrual in the amount of DEM 435 500 000,00
meant to finance catch-up investments to be effected by
the Company during the restructuring period and a
special accrual
in the amount of DEM 450 000 000,00
meant to finance losses incurred by the companies during the
restructuring period due to shortfalls in productivity of
the
company and for other losses due to the presently lacking
competitiveness of the company.’ From this it follows
that the payment of DEM 450 million to cover losses
was a condition to acquire Warnow Werft, which was
in the projected balance sheet.
taken into account
Therefore,
included
positions, which were not direct elements of the trans-
ferred assets but which KWW received to cover losses
from shipbuilding contracts; such positions constitute
State aid.

projected

balance

sheet

the

The fact that part of the aid was paid non-cash is made
in the Commission decision communicated to
clear
Germany on 17 January 1994, which releases
the
second tranche of operating aid and which reads as
‘… 617,1 m DEM operating aid of which
follows:
113.5 m DEM would be paid in cash being 66.9 m
DEM Wettbewerbshilfe and 46.6 m DEM to cover a part
of the losses on contracts signed after 1.7.1990 ….’ This
indicates that most part of the operating aid approved by
this decision, namely the amount of EUR 257,4 million
(DEM 503,6 million), was approved as non-cash aid.

KWW cannot pretend that it never attacked the decisions
in the parts concerning non-cash aid because the
Commission provided a positive decision. Qualifying
the transfer of assets as State aid weighted on KWW in
a way that an application against
the decision was
if KWW had not agreed to this. The
admissible
Commission
and
the measures
examined the compatibility with the common market.
the Commission was able to impose
It meant
conditions respectively to accept Germany’s undertakings
directly affecting the beneficiary’s operations. In such a
situation, an application for
the
decision is considered to be admissible (8).

the annulment of

classified

that

aid

as

The Commission carried out an in-depth analysis of the
aid amounts, which KWW received after the approval of
the aid based on all information available. Following the
screening of
the
from the
takeover balance
spillover
the privatisation procedure
auditor Arthur Anderson,
the
and the privatisation contract,

the pre-privatisation balance sheet,

it appears

reports

sheet,

that

(8) Case T-296/97 Alitalia v Commission [2000] ECR II-3871, paragraph

74.

(90)

(91)

(92)

(93)

shipyard did not receive operating aid equivalent to the
waiver of old current
liabilities of EUR 42,1 million
(DEM 82,400 million) as authorised in the Commission
decision of 3 March 1993.

include

Indeed, such a waiver would only constitute payment of
the beneficiary accordingly kept at his
State aid if
disposal assets freed of financial
liabilities (or received
these assets if a new company were created as in the
current case). However, KWW’s takeover balance sheet
transferred free of
such assets
does not
liabilities corresponding to this waiver, which
financial
would represent
this operating aid. Since the loan
waived just before privatisation was a liability of WW
(a public owned company), the State, as the previous
the only beneficiary and did not
shareholder, was
transfer the advantage to the new company. It appears
that the shipyard did not benefit from this operating aid
that the Commission formerly approved.

Finally, according to the spillover report, shipbuilding
contracts for special ships called ‘cash carriers’ were not
transferred to KWW. Although a loss compensation for
those contracts was included in the operating aid of EUR
315,5 million (DEM 617,1 million) as approved by the
Commission on 17 January 1994, KWW was not in
charge to carry out the contracts. Accordingly KWW
could not receive a compensation for envisaged losses
resulting from those contracts. There is therefore no
reason to compensate KWW for not having received
this aid of EUR 17,7 million (DEM 34,6 million). As
mentioned in recitals 12 to 20, this last amount was
not included in the loss cover of EUR 230,08 million
(DEM 450 million) indicated in the spillover report.

KWW received EUR 8 million (DEM 15,6 million) less
investment
Land Mecklenburg-
Vorpommern.

from the

aid

‘Wettbewerbshilfe’

if

that

the
KWW and Germany further comment
Commission came to the conclusion that the difference
between the actual and estimated losses was of State aid
then in any case the difference would be
relevance,
than claimed by the Commission. The EUR
smaller
31,955 million (DEM 62,5 million) Wettbewerbshilfe was
not meant
for
compensating for the disadvantages suffered by all the
German yards due to their location in Germany and in
Europe.

for loss compensation but, as usual,

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(94)

the
The Commission notes that as explained earlier,
privatisation contract and explanatory notes on the priva-
tisation of Warnow Werft contained detailed aid budgets
for the restructuring of the yard. As explained earlier,
these documents lay down the total amount of aid for
loss compensation during the restructuring at EUR
285,096 million (DEM 557,6 million). This amount
included EUR 230,091 million (DEM 450 million) loss
compensation, EUR 37,32 million (DEM 73 million)
Wettbewerbshilfe and EUR 17,69 million (DEM 34,6
million)
losses, which resulted from a pending
contract taken over by Treuhandanstalt.

for

(95) As regards Wettbewerbshilfe, KWW received only EUR
31,955 million (DEM 62,5 million)
the
approved EUR 37,3 million (DEM 73 million). The
amount of Wettbewerbshilfe was approved in order to
cover losses during restructuring. For this reason the
Commission has included the compensation for Wettbe-
werbshilfe not paid of EUR 31,955 million (DEM 62,5
million) in the total aid approved for loss compensation.

instead of

(96)

Even if one could follow the arguments of KWW they
could not have any influence on the assessment of the
Commission. It is not disputed that KWW received aid
classified as Wettbewerbshilfe. Whether it is earmarked for
loss compensation or not, Wettbewerbshilfe constituted an
income and diminished losses. Consequently, the need
for operating aid to compensate losses was lower. The
argument of KWW to completely disregard Wettbewerb-
shilfe is not supported by any serious argument and must
be dismissed.

Monitoring and investigative powers

(97) Germany also questions the monitoring powers of the
Commission to establish whether the aid was used for
the purposes for which it was granted. The Commission
notes that it is clearly stated in the Commission decisions
approving
the
Commission would use its investigating and monitoring
powers to ensure that the yards in the new Länder only
receive the aid necessary for their restructuring.

compensation

that

loss

aid

for

this, the Commission’s commitment to the Council can
only be understood as a requirement to monitor that the
aid is limited to that strictly necessary for restructuring.

10a(2)(d)

(99) As regards the monitoring obligations, it is noted that in
accordance with Article
of Directive
90/684/EEC, Germany was to provide evidence to the
Commission, in the form of annual reports by an inde-
pendent chartered accountant,
that aid payments are
strictly limited to the activities of yards situated in the
former GDR. These spillover reports were submitted to
the Commission until the end of restructuring period
(end of 1995) to monitor whether the aid had been
used exclusively for KWW. Further to this information,
the reports included information on the use of aid.

the aid. The spillover

(100) Germany argues that the fact that Germany submitted to
the Commission information after the approval of the
aid,
in particular the spillover reports, does in no way
constitute a competence for the Commission to verify
the necessity of
reports were
submitted in order to demonstrate that no spillover of
aid took place from the yard to other undertakings.
However, the meaning and purpose of the reports was
not to show the actual amount of
losses. The infor-
mation on the use of aid included in these reports was
only meant to help the transparent presentation, with
regard to the purpose of the spillover controls, that no
aid was transferred to the investor or to the other yards.

(101) Germany disregards

the

fact

that both approving
decisions set out undertakings for granting of operating
aid to cover losses, which should exclude overcompen-
sation. In the light of these provisions further discussion
on the monitoring powers of the Commission appear to
be unnecessary, given that it cannot be seriously ques-
tioned that
the Commission is empowered and even
obliged to draw consequences from the non-compliance
with crucial conditions of an approving State aid
decision.
In such cases, the Commission has to insist
on the recovery of such aid, which has to be seen as
incompatible and illegal, i.e. granted without Commission
approval.

(98)

The Commission does not agree with Germany that the
sentence in the Commission decisions referring to the
monitoring and investigating powers of the Commission
only relates to the time at which the estimations were
assessed and the aid tranches released. In this context
both the specific circumstances of the case, above all
the wording of Directive 92/68/EEC according to which
the operating aid needed to be paid out before end 1993,
and the fact that the same Directive imposed reporting
obligations on Germany, should be recalled. Considering

(102) The Commission agrees with Germany on the point that
the purpose of the spillover reports was to demonstrate
that no aid for the restructuring of the yard was trans-
ferred or was spilled over to other undertakings, like the
mother company of the yard. However, the monitoring
of the use of the aid according to the approving decisions
included a monitoring for the purposes it was earmarked
for in order to ensure that all aid has been strictly used
for the restructuring of the yard.

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(103) The orderly use of aid for the purposes it was granted for
was an essential part of the monitoring. This is also
illustrated by the structure and contents of the spillover
reports, in which the explanation on the use of the aid
It was considered as
received is an important part.
important to include this information in the reports to
provide to the Commission all information necessary to
monitor the orderly use of the aid in compliance with
the authorising decisions and the commitment to the
Council.

The use of aid according to its purposes

to their objectives

(107) KWW argues that the funds for restructuring were used
since the Commission
pursuant
decisions did not approve aid particularly for
loss
compensation; only operating aid in general was
approved. The aid would have been used for the restruc-
turing of the yard and therefore in accordance with its
objectives.

Timing of the Commission’s investigation

the time when the last

(104) A further common argument made by both KWW and
Germany is that the Commission has been aware since
report was
1996,
submitted to the Commission,
losses
were significantly lower than the estimated ones. Never-
theless, the Commission only started investigating the
matter in 1999.

the actual

spillover

that

the report contains a table of

(105) The Commission notes that, as explained in the decision
opening the procedure, the last spillover report submitted
covers the period until 31 December 1995. Annex 2,
page 1 of
the aid
received by 31 December 1995. According to this
table, the aid used for loss compensation by that date
is
indicated as being EUR 256,817 million (DEM
502,291 million) whereas the aid received was EUR
262,0 million (DEM 512,5 million). Since
it was
the missing EUR 5 million could have
possible that
been necessary after the date of 31 December 1995
because not all the losses from the contracts signed by
31 December 1993 had been realised by that date, the
Commission saw no reason to interfere.

(106) The Commission had no indication at the time of the last
spillover report that the difference between the actual
and the estimated losses was in fact significantly higher
than the one indicated in the last spillover report: EUR
60,988 million (DEM 119,284 million) instead of EUR 5
million. Since neither Germany nor KWW informed the
Commission about this change of circumstances in 1997
when they received the auditors’ report confirming the
final figures, the Commission was not aware of the real
situation. The Commission only became aware of this in
July 1999 when,
the
Commission received by the letter dated 30 June 1999
from Germany, the auditor’s statement of 25 April 1997.
Since this statement was addressed only to Germany but
was
the
to
Commission was not aware of the real situation before
In this regard, the Commission wishes to
July 1999.
stress that Germany presented no evidence that
the
Commission was informed as alleged by Germany.

following its own request,

the Commission,

submitted

never

loss

compensation. The

(108) The Commission notes that the Commission decisions
communicated to Germany in March 1993 and January
1994 both mention amounts that were approved as
being designated for
first
decision expressly approves EUR 6 million (DEM 11,7
million) operating aid to cover part of the losses on
contracts signed after 1 July 1990, and the second
decision expressly approves EUR 23,82 million (DEM
46,6 million) to cover part of the losses on contracts
signed after 1 July 1990. These amounts are determined
to compensate particular losses, whilst the use of all
other operating aid was not specified to cover losses
mentioned expressly, but this cannot mean that it was
intended for other purposes.
In the notification by
Germany the purpose of granting these amounts was
clearly defined as loss compensation.

(109) The Commission notes that the Privatisation Agreement
and its explanatory documents included detailed listings
of different categories of aid. The amount earmarked for
loss compensation in this document for the restructuring
period is EUR 285 million (DEM 557 million). The same
classification of aid into different categories is maintained
in the spillover reports, which formed the basis of the
Commission’s monitoring of
the aid for
different purposes of the restructuring, as approved by
the Commission.
to
Germany in March 1993 and January 1994 approved
operating aid, which was specifically earmarked for loss
compensation during the restructuring.

communicated

the use of

decisions

Its

(110) The Commission takes into account that a cash effective
utilisation of accruals for charter guarantees of EUR
[…] (*) (DEM […]) and equity guarantees of EUR […]
(DEM […]), together EUR […] (DEM […]) — were not
considered in the spillover report. These expenses, which
were not
shipbuilding
contracts, were realised only after the end of 1995.
However, even if
these costs of guarantees are taken
into account,
losses during restructuring were substan-
tially lower than the aid approved to cover them.

attributed to the

correctly

(*) Business secret.

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(111) Although the Commission can accept

company

to take into
account the costs caused by charter and equity guar-
antees because they are by nature linked to specific
contracts and take place by definition after the ships
the same reasoning can not apply to
are delivered,
restructuring cost
after
the
incurred by
December 1995.
Indeed the privatisation contract
clearly specified that the company had, as a minimum,
to employ a precise number of workers until the end of
1995. If this undertaking was not respected and fewer
workers were employed, severe fines were envisaged. All
the closure aid and aid to cover losses authorised by the
Commission could only cover the restructuring period
finishing in December 1995. Therefore,
it was clear
if KWW wanted to lay off
from the beginning that
certain surplus workers,
it would need to wait for the
end of 1995 and that these costs would not be covered
by closure or operating aid. This timing was very clear
is not
from the date of
possible to change this logic and reattribute the restruc-
incurred after December 1995 to the
turing costs
contracts
this
restructuring that took place after 1995 by its nature
losses on contracts executed
did not
before that date. Thirdly, the provision of the privati-
sation contract
forcing the company to employ a
certain number of workers constitute an exogenous and
separate undertaking that can not be linked to certain
contracts.

the privatisation. Firstly,

that date. Secondly,

executed before

lead to lower

it

(112) As regards the allegation of KWW that the aid was used
the yard and therefore in
for
the restructuring of
the Commission notes
accordance with its objectives,
losses during the restructuring
that since the actual
these
were lower than the aid paid to cover them,
surplus
funds may have been used for a different
purpose. However, according to the information in the
Commission’s possession, all other categories of aid for
which aid for restructuring was approved were exhausted
since all aid approved for these purposes was accordingly
used in full. Since the amounts and categories were
strictly limited by the Commission decisions, no room
was left to use additional aid for restructuring purposes.

(113)

In the absence of further explanations by KWW or by
Germany on the actual use of the remaining EUR 55,423
million (DEM 108,399 million) and according to the
information
Commission
concludes that the aid of EUR 55,423 million (DEM
108,399 million) was not used for the purposes for
which it was approved by the Commission.

possession,

the

its

in

Resulting excess aid

(114) According to the Commission decisions approving the
aid, the yards shall only receive the aid necessary for

their restructuring, and the Commission had committed
itself to monitor the compliance of this provision. For
this reason, only the compensation of actual losses can
be considered as being compatible with the Commission
decisions approving the aid.

(115) The Commission notes that only the aid that has been
granted in accordance with those decisions approving the
aid and that fulfil the conditions under which the aid was
granted,
including the purpose for which the aid was
supposed to be used, can be considered compatible
with the Commission decisions and thereby with the
common market. Therefore, the aid, which fails to fulfil
these conditions automatically falls outside the scope of
the approving decisions and is rendered incompatible.

its

(116) Considering the above, the Commission concludes that
the total of the aid approved by the Commission for
KWW for
restructuring was EUR 637,5 million
(DEM 1 246,9 million). Regarding the operating aid,
the Commission takes note that KWW has not received
EUR 42,1 million (DEM 82,4 million) corresponding to
the waiver of old current liabilities and that KWW has
received EUR 5,4 million (DEM 10,5 million) less Wett-
bewerbshilfe than approved.

(117) Since KWW did not carry out the contracts for the cash
carriers it could apparently not receive a compensation
for losses resulting from those contracts. As explained,
we therefore do not take into account the non-payment
of this aid.

(118) The Commission notes that according to the auditor’s
report on aid received by KWW by 31 December
1995, KWW had received EUR 230,08 million (DEM
450 million) directly for loss compensation and EUR
31,95 million (DEM 62,5 million) as compensation for
not having received Wettbewerbshilfe, resulting in a total
of EUR 262 million (DEM 512,5 million) for compen-
sation of losses during the restructuring period.

(119) The Commission further notes

that

the documents
submitted by Germany by letter of 30 June 1999,
including the statement of
the auditor of 25 April
1997,
the losses to be covered by the
indicate that
approved aid amounted only to EUR 201,048 million
(DEM 393,216 million) at 31 December 1996. Taking
into account aforementioned additional
from
certain guarantees, this amount should be increased by
EUR […] (DEM […]) to EUR 206,613 million (DEM
404,101 million).

losses

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L 120/35

(120) Considering the aforementioned points, the Commission
notes that
information in its possession shows that
KWW had received EUR 262,037 million (DEM 512,5
million) aid for loss compensation during restructuring,
losses during the restructuring only
whereas the actual
amounted to EUR 206,613 million (DEM 404,101
million). This indicates that KWW had received EUR
55,423 million (DEM 108,399 million)
excessive
operating aid for loss compensation.

shipbuilding contracts

and early 1999 and substantial down payments on
account of very large
(such
payments between mid-1998 and June 1999 amounted
to EUR […]). The temporary nature of the cash peak in
June 1999 and the correlation with down payments is
also shown by the fact that at the end of 1999, the total
cash concentration showed only EUR […] in favour of
KWW, compared with down payments on account of
new orders which, at that time, amounted to EUR […].

(121) However,

into account

the Commission takes

that
Kvaerner has not received EUR 42,1 million (DEM 82,4
million) operating aid for restructuring earlier approved
by the Commission, which it considers deductible from
loss compensation. Compensating
the excess aid for
excess aid for
losses by non-received operating aid
appears in line with the Commission’s commitment of
the authorising decisions to ensure that the beneficiary
only receives the aid necessary to restructure. Following
this reasoning, only the aid amount of EUR 13 293 077
(DEM 25 999 000) should be recovered.

Explanation of the alleged DEM 400 million (EUR
205 million) loan granted by KWW to Kvaerner a.s.

(122) Finally, although the Commission has not opened the
procedure on this point, KWW has given the following
explanation for the cash movement of around DEM 400
million (EUR 205 million) which was reported by the
German press on 12 June 1999 and was at the origin
of the Commission request for information (see recital 1).

(123) The Kvaerner group had introduced a system of cash
pooling, under which all
incoming cash from the
different companies was consolidated, and out of which
all cash payments
liabilities or
otherwise) have been made. KWW became part of that
cash pooling in 1998. Contributions from KWW to the
cash pool took the form of repayable loans from KWW
to its parent, Kvaerner a.s.

to be effected (for

(124)

It should be noted that […]

(125) The cash pooling showed a peak for KWW of EUR
172,877 million in June 1999 (a higher,
incorrect
figure of EUR 200 million was somehow leaked to the
press), of which EUR […] served as collateral for the
the
guarantees. Liabilities of KWW were paid out of
cash
thus
reducing the amount in the cash concentration by EUR
[…], leaving some EUR […] as ‘free’ cash.

concentration

immediately

thereafter,

(127) These elements show that the cash movement reported
by the German press in 1999 does not seem to result
from excess aid granted during the restructuring period
that ended in 1995.

VI. DURATION OF THE PROCEDURE

(128) As explained in the opening decision of the Commission,
the German press
reported on 12 June 1999 that
Kvaerner Warnow Werft had given a loan of around
DEM 400 million to its parent company Kvaerner a.s.
With a letter dated 16 June 1999 the Commission
requested detailed information from Germany of
the
origin of the transferred funds in order to ensure that
these funds did not contain residues of restructuring aid
paid to the company in 1993 to 1995, or any other aid
elements. Germany finally delivered all necessary infor-
mation by letter dated 16 September 1999. Further
information on the preliminary procedure is included
in points I.1 and I.2 of the opening decision.

(129) By means of a letter dated 29 February 2000,

in

the

that

regard,

provision

the
Commission notified Germany of its decision to initiate
the procedure laid down in Article 88(2) of the EC Treaty
concerning the aforementioned aid (9). As the Court of
Justice of
the European Communities held in Joined
Cases C-74/00 P and C-75/00 P (10) ‘in the absence of
any
fundamental
requirement of legal certainty has the effect of preventing
the Commission from indefinitely delaying the exercise
of its powers’. For the present procedure, this does not
seem to be relevant, since Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (11)
includes a provision on duration of the investigation.
Pursuant to Article 7(6) and (7) ‘[t]he Commission shall
as far as possible endeavour to adopt a decision within a
period of 18 months from the opening of the procedure.
(…) Once the time limit referred to in paragraph 6 has
expired, and should the Member State concerned so
request, the Commission shall, within two months, take
a decision on the basis of the information available to it.’
The Commission states that Germany did not ask for the
application of this provision.

(126) Total cash available in June 1999 stemmed from the
positive cash flow generated from 1996 to 1998,
payments made by shipowners for deliveries in 1998

(9) See footnote 3.
(10) Falck SpA and Acciaierie di Bolzano SpA v Commission [2002] ECR
I-7869, paragraph 140, referring to Case 59/62 Geigy v Commission
[1972] ECR 787, paragraph 21.

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

Act of Accession.

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(130)

In addition, both Germany by letter of 4 June 2003 and
the mother company of the beneficiary, supported by a
letter from the Norwegian Minister of Industry and Trade
of 5 January 2004, asked the Commission to delay the
in Case
decision until
C-181/02 P (12). KWW cannot,
for that reason, claim
that ‘the fundamental requirement of legal certainty’ has
been infringed, given that it also continued negotiations
with the Commission and even presented new but not
pertinent documents in May 2004.

the Court gives its judgment

VII. CONCLUSION

the

but

and

also

unique

(131) The Commission emphasises that, not only were the
decisions authorising aid to Kvaerner Warnow Werft
accompanying
specific
framework conditions arising from the German reunifi-
cation. First of all, the decisions were taken on a specific
legal basis, that is Article 10a of Directive 90/684/EEC,
authorising exceptionally large amounts of aid; at the
same time the Council set out a short deadline to pay
out the aid (until 31 December 1993). Since the aid
amounts envisaged were based only on rough esti-
mations the authorising decisions underlined that
the
Commission would ensure that the yards in the new
to
Länder would only
restructure. Such specific provision for an ex post moni-
toring on the compatibility of aid amounts, which are
unusual and exceptional, became operational via the
spillover reports, which not only ensured that no other
enterprises such as KWW would benefit from the aid but
also provided for specific reporting on aid amounts
received by Kvaerner and its losses from certain ship-
building contracts, for which compensation by State aid
was authorised.

aid necessary

receive

the

for

necessary

restructuring would

(132) Since the authorising decisions made clear that only the
aid
constitute
compatible aid and that a specific monitoring was estab-
lished to control the development of losses from ship-
building contracts, the beneficiary cannot claim that it
had legitimate expectations to keep any excess aid. The
the
Commission never
wording of
to the
Council and the specific monitoring that was carried
out, aid for loss compensation could be considered as
a lump sum. KWW was aware that for such large aid
amounts which were based on rough cost estimations
and calculated at short notice, a lump sum system
could not be in line with strict State aid control.

communicated that, despite

its undertakings

the decisions,

Commission decisions communicated to Germany by
letters of 3 March 1993 and 17 January 1994,
according to which the yards in the new Länder shall
only receive the aid necessary for their restructuring.
Since only the aid that complies with the Commission
decisions taken in accordance with Directive 90/684/EEC
can be considered compatible with the common market
pursuant
the
that EUR 13 293 077 (DEM
Commission concludes
incompatible with the common
25 999 000) aid is
market pursuant to Article 87(1) of the EC Treaty.

to Article 87(3)(e) of

the EC Treaty,

(134) According to article 14(1) of Regulation (EC) No
659/1999 concerning negative decisions in cases of
unlawful aid, the Commission decides that the Member
State concerned shall
take all necessary measures to
recover the aid from the beneficiary. The aid to be
recovered shall include interest from the date on which
it was at the disposal of the beneficiary until the date of
its recovery,

HAS ADOPTED THIS DECISION:

Article 1

State aid granted by Germany for the benefit of Kvaerner
Warnow Werft GmbH amounting to EUR 13 293 077 (DEM
25 999 000) is incompatible with the common market.

Article 2

1.
Germany shall take all necessary measures to recover from
the beneficiary the aid referred to in Article 1, which was
unlawfully available to the beneficiary.

Recovery

shall be

2.
and in
accordance with the procedures of national law provided that
they allow the immediate and effective execution of
this
decision.

effected without delay

The sums to be recovered shall bear interest throughout
3.
the period running from the date on which they were first put
at the disposal of the beneficiary until their actual recovery.

(133) The Commission finds

that EUR 13 293 077 (DEM
25 999 000) operating aid granted by Germany to
the
KWW did not comply with the provision of

(12) Commission v Kvaerner Warnow Werft (not yet published in the ECR).

4.
The interest rate to be applied will be the reference rate
used for calculating the grant equivalent of regional aid and that
is applicable on the date on which the aid was first put at the
disposal of the beneficiary.

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The interest rate referred to in paragraph 4 will be applied
5.
on a compound basis throughout the entire period referred to
in paragraph 3.

However, if more than five years have elapsed between the date
on which the aid was first put at the disposal of the beneficiary
and the date of recovery, the interest rate shall be recalculated at
five yearly intervals, taking as a basis the reference rate in force
at the time when the rate is recalculated.

Article 3

Germany shall inform the Commission, within two months of
the measures planned and
notification of
information must
already taken to comply with it. This

this decision, of

include the information required by the form attached in the
Annex.

Article 4

This decision is addressed to the Federal Republic of Germany.

Done at Brussels, 20 October 2004.

For the Commission

Mario MONTI
Member of the Commission

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ANNEX

Information regarding the implementation of Commission Decision 2005/374/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) of
payment (*)

Amount of
aid (**)

Currency

Identity of beneficiary

(*) Date(s) on which (individual instalments of) the aid has been put at the disposal of the beneficiary (in so far as a measure

consists of several instalments and reimbursements use separate rows).

(**) Amount of aid put at the disposal of the beneficiary (in gross aid equivalents).

C o m m e n t s :

1.2. Please explain in detail how the interest 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 have already been taken and what measures are planned to effect an
immediate and effective recovery of the aid. Please also explain what alternative measures are available under
national law to effect recovery? Please also indicate where relevant the legal basis for the measures taken/planned.

2.2. By what date 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) (*)

Amount of aid
repaid

Currency

Identify of beneficiary

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

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

above.