2007/655/EC: Commission Decision of 5 July 2005 concerning aid to the livestock and olive-growing sectors provided by Italy under Articles 4 and 5 of Law No 290/99, Article 15(16) of Law No 67/88 and Law No 252/91 (notified under document number C(2004) 4769)
Date: 2005-07-05
Institutions: European Commission
Subjects: Italy, State aid, aid to agriculture, control of State aid, livestock farming, olive-growing

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II

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

DECISIONS

COMMISSION

COMMISSION DECISION

of 5 July 2005

concerning aid to the livestock and olive-growing sectors provided by Italy under Articles 4 and 5 of
Law No 290/99, Article 15(16) of Law No 67/88 and Law No 252/91

(notified under document number C(2004) 4769)

(Only the Italian text is authentic)

(2007/655/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

17 August 1999, published in the Italian Official Gazette
No 195 of 20 August 1999.

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

(4)

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

By letter dated 25 October 1999, registered on 5 November
1999, the Italian authorities confirmed that the draft law
had been adopted as Law No 290/99. The letter enclosed
the text of the Law as adopted and supplied some of the
information requested by the Commission in its letter of
28 January 1999.

Whereas:

I.

PROCEDURE

(5)

Based on this information, the aid scheme was entered in
the register of non-notified aid under number NN 155/99.

(1)

(2)

(3)

the

By letter dated 6 August 1998, registered on 12 August
1998,
Italian Permanent Representation to the
European Union notified the Commission, pursuant to
Article 88(3) of the EC Treaty, of a draft law extending time
limits in the agricultural sector. The Law was registered as
aid No N 490/1998.

By letter of 30 November 1998, registered on 4 December
1998, the Italian authorities replied to the Commission's
request for information of 1 October 1998.

By letter of 13 September 1999, the Commission asked the
Italian authorities to provide the information requested in
its letter of 28 January 1999, which it had still not received.
In the same letter, the Commission invited the Italian
authorities to confirm press reports that the draft law had
been enacted by the Italian Parliament as Law No 290 of

(6)

By letter dated 24 February 2000 (2), the Commission
informed Italy of
its decision to initiate the procedure
provided for in Article 88(2) of the EC Treaty in respect of
Articles 4 and 5 of Law No 290/99, Article 15(16) of Law
No 67/88 of 11 March 1988 (the 1988 Finance Act) and
Law No 252/91 of 8 August 1991. By that letter, the
Commission also informed Italy that it raised no objections
to the other Articles (Articles 1, 2, 3, 6, 7 and 8) of Law
No 290/99 in that they did not constitute aid within the
meaning of Article 87(1) of the EC Treaty.

(7)

the Commission enjoined Italy to
In the same letter,
provide, in accordance with Article 10(2) and (3) of Council
Regulation (EC) No 659/1999 (3) all documents, informa-
tion and data needed for assessing the compatibility of the

(1) OJ C 148, 27.5.2000, p. 2.

(2) SG(2000) D/101808.
(3) OJ L 83, 27.3.1999, p. 1.

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(8)

(9)

measures in question within one month of receipt of that
letter.

The Commission decision to initiate the abovementioned
the
procedure was published in the Official
European Communities (4). The Commission invited inter-
ested parties to submit their comments.

Journal of

By letter dated 23 March 2000, the Italian authorities asked
the deadline set by the
for a 30-day extension of
Commission for
the information
requested when the procedure was launched.

the submission of

(10) By letter of 18 May 2000, the Italian authorities submitted
to the Commission their comments on the launch of the
procedure.

(11) By letter dated 13 October 2000, the Italian authorities sent
the information requested by the Commission in its letter
of 17 July 2000.

(17) Additional information was sent by the Italian authorities in
their
registered on
28 February 2003, providing information requested by
the Commission's letter of 8 May 2002.

letter dated 27 February 2003,

(18) Following the outcome of

the meeting held between
Italian authorities on
Commission officials and the
informal discussions on
24 March 2004 and of several
the Italian authorities asked, by letter dated
the topic,
20 May 2004 and registered on 14 June 2004,
for
additional time in order to provide the information still
needed for the assessment of the file.

(19) By letter of 29 October 2004, registered on 3 November
2004, the Italian authorities provided additional informa-
tion. In the same letter they indicated that they would ask to
keep confidential
the interventions
the financial data,
undertaken and the account statements of the companies
concerned.

(12) By letter of 31 January 2001, the Italian authorities asked
for an extension of the deadline set by the Commission for
the submission of the information requested in its letter of
13 December 2000.

(20) By letter dated 24 November 2004,

registered on
3 December 2004, the Italian authorities provided addi-
tional information. They also specified that no request for
confidentiality had been made at that stage.

(13) By letter dated 12 July 2001,

the Italian authorities

provided the information requested.

(21) Additional

information was transmitted by letter dated

4 April 2005, registered on 7 April 2005.

(14) The Commission also received comments from third
parties by letter dated 30 June 2000. It forwarded them
to Italy, which was given the opportunity to express its
views. No specific comments with respect to this letter were
sent by the Italian authorities.

(15) On 12 March 2002, on the grounds of the varied and
unrelated nature of
the aid measures provided for by
Article 4 of Law No 290/99 on the one hand and of those
provided for by Article 5 of the same law and by Arti-
cle 15(16) of Law No 67/88 and Law No 252/91 on the
other, the Commission decided to split the case into two
different parts, namely case C/7A/2000 and case C/7B/
2000 concerning respectively Articles 4 and 5 of Law
No 290/99, Article 15(16) of Law No 67/88 and Law
No 252/91.

(16) By letter dated 5 April 2002 (5), the Commission informed
Italy that it had decided to take a final negative decision
with respect to the aid measures provided for by Article 4
of Law No 290/99. By that letter, the Commission also
informed Italy that the decision at issue did not concern,
nor extended its effects to the farming, operating and
improvement loans due on 31 March 1998 for which an
extension was provided for by Article 4 of Law No 290/99.
By the same token, the decision under examination did not
concern Article 5 of Law No 290/99 nor Article 15(16) of
Law No 67/88 and Law No 252/91 which constituted the
legal basis for granting the aid provided for in Article 5 of
Law No 290/99, which is assessed within the framework of
State aid No C/7B/2000.

(4) OJ C 148, 27.5.2000, p. 2.
(5) Commission Decision SG (2002) D/229239 of 5 April 2002.

II.

DESCRIPTION OF THE AID

II.1

Scope

to Articles 1, 2, 3, 6, 7 and 8 of

(22) Law No 290/99, which is divided into eight articles,
provides for an extension of the time limits for various
operations in the agricultural sector. In its Decision of
24 February 2000, the Commission did not raise objections
the
with respect
abovementioned Law in that they did not constitute aid
within the meaning of Article 87(1) of the Treaty. However,
the decision to initiate the procedure provided for by
Article 88(2) concerned Articles 4 and 5 of that Law as well
as Article 15(16) of Laws No 67/88 and No 252/91, which
constituted the legal basis for granting the subsidies referred
to in Article 5 of Law No 290/99.

(23) A final negative decision on Article 4 of Law No 290/99
was adopted by the Commission on 5 April 2002. The
present Decision concerns Article 15(16) of Law No 67/88,
Law No 252/91, Article 4 (only for the farming, operating
and improvement loans due on 31 March 1998) and
Article 5 of Law No 290/99.

II.2

Background

(24) According to the information provided, in the late 1980s,
the livestock sector in Italy suffered from the excessive
fragmentation of production, which resulted in out-of-date
structures, unsuitable to quality production. In order to
modernise the whole system, Law No 87/90, subsequently

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amended by Law No 252/91, provided for aid for
integrated projects, i.e. projects aggregating several under-
takings
in a cluster-like structure. The projects were
included in a programme approved by the Italian inter-
ministerial economic committee (CIPE), on the basis that
only projects undertaken by a group of interconnected
companies capable of ensuring their completion should be
financed. This also meant that each company in the project
was responsible for the completion of the whole project by
guaranteeing (with a special clause) the joint commitment
the
of all
companies were requested to participate financially to the
projects in a substantial way, with new capitalisation and,
for cooperatives, also in the form of a 10-year loan. The
guarantees required by the State (guarantee on the whole
project and capitalisation of the companies) to be eligible
for aid represented a significant financial constraint for the
companies involved.

the aggregated companies. Furthermore, all

(25)

In view of the fact that the resources allocated to the
completion of the integrated projects could not cover the
overall financial needs of the sector, additional resources
under Law No 67/88 were also used for financing these
integrated projects. The interventions were carried out
within the framework of an overall programme of
rationalisation and restructuring of the beef sector which,
in Italy, unlike most other countries in Europe, had only
started in the early 1990s. Other countries in the European
Union, such as France, had launched programmes for the
restructuring and rationalisation of their slaughtering plants
as early as the 1970s (6). The very high number of
inappropriate
slaughtering plants
distribution over the national territory called for a drastic
reorganisation of the sector which, according to the Italian
authorities, could only be carried out with strong public
support on the basis of a programme designed to
modernise the entire sector. In order to survive, Italian
undertakings needed to speed up technological innovation
and organisational restructuring along two lines:

in Italy and their

(a)

the breeding systems with the
rationalisation of
adoption of
improvement methods
designed to achieve standardised productions at
competitive costs;

technological

(b)

diversification of productions of high quality level and
rationalisation of products of constant and uniform
quality.

The task of implementing the law was delegated to a group
of experts, who were required to draw up an urgent action
programme, define the strategic approach and decide
whether the projects submitted could be eligible for aid.

(6) Over the 1970 to 1990 period France managed to reduce the
number of its slaughtering plants from 1738 to 357. On the other
there were still 8 500 operational
hand,
the already mentioned
slaughtering plants in Italy as against
357 units in France, 270 in Germany and 30 in the Netherlands.

in the early 1990s,

Given the serious crisis of the bovine sector, the actions of
the programme were mainly targeted to this sector and, to a
lesser extent, to the pigmeat and sheepmeat sectors.

II.3

Measures

Law No 67/88 of 11 March 1988

ITL 700 billion for
extension of

(26) Law No 67/88 establishing the credit subsidies referred to
in Article 5 of Law No 290/99 lays down provisions for the
annual and multiannual state budget and constitutes the
Italian 1988 Finance Law. Article 15(16) of this Law allows
that cooperatives and their consortia to raise loans up to a
the construction,
maximum of
slaughtering plants (7).
restructuring or
According to the Law, those taking out the loans may use
them, up to a limit of ITL 100 billion for 1988 and
ITL 50 billion for 1989, to consolidate existing debt on the
aforementioned structures and premises. A maximum
interest subsidy of 10 % is granted on these loans. Arti-
cle 15(16) also applies to the funding of projects to
consolidate and develop agricultural cooperatives and their
consortia engaged in milk or meat production. The Law
was never notified to the Commission as required by
Article 88(3) of the Treaty.

Article 5 of Law No 290/99

(27) Article 5 of the notified Law establishes the circumstances
when credit subsidies on loans contracted under Article 15
(16) of Law No 67/88 can continue to apply even where
some of the conditions initially laid down have not been
met. In particular, Article 5(2) provides that credit subsidies
on loans contracted under the abovementioned Article 15
(16) in respect of joint development or debt-consolidation
measures continue to apply even where the integrated
project approved under Article 1 of Law No 87/90, as
replaced by Article 1 of Law No 252/91, is only completed
in part, provided that the integrated project of the person
who took out the loan is completed. Article 5(3) provides
that credit subsidies on loans contracted for the sole
purpose of debt consolidation remain valid even where the
integrated project fails to be carried out or is carried out
only in part, provided that the person who took out the
loan submits a personal investment project, to be under-
taken using some of the loan. Moreover, paragraph 4 of the
same Article provides that undertakings that have joined
together for an integrated livestock project of national
importance and eligible for funding under Article 1 of Law
No 87/90, as replaced by Article 1 of Law No 252/91,
should maintain their right to and eligibility for credit
subsidies even where the original integrated project is not
completed, provided that they complete their own part of
the project.

(7) The amount of ITL 700 billion is made up of ITL 400 billion for

1988 and ITL 300 billion for 1989.

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Article 4 of Law No 290/99

II.5

Budget

(28) Article 4 provides for measures to facilitate agricultural
credit operations.
it extended by twelve
In particular,
months the repayment period for operating, improvement
and agricultural loans which expired on 31 March 1998.
The beneficiaries were agricultural holdings primarily
engaged in olive growing in Apulia, Calabria and Sicily,
run by owner-occupiers or full-time farmers or olive-
growing cooperatives who had been affected by the serious
crisis on the market for olives and olive oil. Agricultural
holdings and olive-growing cooperatives in other olive-
growing regions can also qualify for these measures under
the same rules and procedures if similarly affected by the
crisis on the market for olives and olive oil. The Article
defines an agricultural holding or an olive-growing
cooperative primarily engaged in olive growing as an entity
that derives at
its gross commercial
production from olives.

least 50 % of

(29) On 3 April 2002 (8), the Commission took a final negative
decision with respect to the aid provided for by Article 4 of
Law No 290/99. As clearly indicated in the decision,
however, the decision did not concern, nor extended its
effects to farming, operating and improvement loans which
expired on 31 March 1998 for which an extension was
provided for by Article 4 of Law No 290/99. These loans
therefore still need to be assessed.

Law No 252/91 of 8 August 1991

(30) The other law referred to in Article 5 as a legal basis for the
granting of various forms of aid is Law No 252/91
amending Law No 87/90 on urgent animal husbandry
measures. It variously assists exceptional animal husbandry
measures in the form of integrated projects of national
importance,
for which it also authorises the relevant
appropriations. The Law also provides for the incorpora-
tion of a joint stock company where 51 % of the shares is
owned by the Ministry for Agricultural and Forestry Policy
which will be entrusted with the following tasks:

(a)

providing guarantees on loans;

(b)

carrying out funding operations;

(c)

to rescuing and
granting financing with respect
restructuring operations and winding-up of compa-
nies;

(d)

buying shares of companies carrying out special
projects.

(32) The total updated budget
projects amounts to:

to carry out

the integrated

Law No 252/91: ITL 97 015 515 581 (about EUR 50 mil-
lion);

Law No 67/88 (development loans): ITL 6 349 660 726
(about EUR 3,280 million);

Law No 67/88 (consolidation loans): ITL 1 968 222 804
(about EUR 1,016 million).

III.

REASONS FOR INITIATING PROCEEDINGS

to the Commission at

(33) Article 5 of Law No 290/99 lays down the conditions
under which the credit subsidies on loans contracted under
specific legislative acts can continue to apply even where
some of the conditions initially laid down have not been
met. At the time the Commission decided to initiate the
procedure provided for by Article 88(2) of the Treaty, no
background information was available on the Laws referred
to by Article 5, which are strictly related to the assessment
of the abovementioned Article. The Italian authorities sent
the texts of these two laws (Law No 252/91 and Law
No 67/88)
its express request.
However, when the Commission decided to initiate the
procedure provided for by Article 88(2) of the Treaty, the
Italian authorities had supplied no further information or
additional data on these laws or on the aid measures they
set up. The Commission was not in a position to decide
whether Article 5 of Law No 290/99 related to aid within
the meaning of Article 87(1) of the EC Treaty because
Italian authorities had not provided clear information on
the issue. However, by enabling certain agricultural under-
takings to continue to benefit from specific aid measures
even in cases of non-compliance with all
the initial
eligibility requirements,
the measure seemed to favour
these undertakings with respect to those which, in the same
situation, were compliant. As a consequence, the measure
provided for by Article 5 led to at least a presumption of aid
which, in the absence of information on the part of the
Italian authorities, could only be clarified by initiating the
procedure provided for by Article 88(2) of the EC Treaty.

II.4

Beneficiaries

(31) Livestock farmers operating in the production, processing

and marketing of meat products.

(8) Letter SG (2002) D/229239).

(34) Moreover, Article 5 of Law No 290/99 could not be
assessed in isolation from the instruments which con-
stituted the legal basis for granting those particular benefits
(credit subsidies and financing) it referred to, namely Arti-
cle 15(16) of Law No 67/88 and Law No 252/91. The texts
of these instruments were sent by the Italian authorities to

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the Commission at its express request. They clearly provide
for State aid within the meaning of Article 87(1) of the EC
In particular, Article 15(16) of Law No 67/88
Treaty.
provides for the granting of soft
loans to agricultural
cooperatives and consortia for which a maximum interest
subsidy of 10 % may be granted. It therefore relieves the
agricultural undertakings concerned of the burden repre-
sented by the payment of the full interest rate in force on
the market at the time the loan is granted, which would
otherwise be paid by any other agricultural undertaking not
entitled to that benefit. The ‘relief’ in question would, in this
case, be equal to the difference between the market interest
rate (9) in force at the time of the loan and the (lower)
interest rate actually paid by the beneficiaries thanks to
State assistance. For its part, Law No 252/91 authorises the
allocations of public funds for the implementation of
different types of projects in the livestock sector and in thus
doing it favours the recipients of these funds with respect to
other agricultural undertakings which are obliged to carry
out similar projects relying solely on their own financial
resources. By definition, the two measures above seemed to
fall within the meaning of Article 87(1) of the EC Treaty.

(35) When the procedure was initiated, the Commission was not
in a position to establish the lawfulness of
these aid
measures. Despite specific and repeated requests in this
respect (10),
Italian authorities did not confirm to the
Commission whether the instruments had been notified in
the EC Treaty and,
accordance with Article 88(3) of
therefore, whether the measures therein contained formed
part of existing aid schemes assessed by the Commission in
the light of Articles 87, 88 and 89 of the EC Treaty or
whether they had ever been notified to the Commission.

(36) From a substantive point of view, the Commission had
doubts as to the compatibility with the common market of
some aspects of the aid schemes provided for by these
legislative acts. On the basis of the information available at
the time, derived from an analysis of the texts sent to the
Commission, some of the measures contained in Arti-
cle 15(16) of Law No 67/88 and Law No 252/91, might
indeed constitute operating aid. In the absence of more
accurate and detailed information refuting this preliminary
approach, this could only induce the Commission to adopt
a negative position with respect to such aid.

(37) The Commission, in its decision to initiate the procedure
under Article 88(2) of the Treaty, enjoined Italy to provide
all the information available on the terms and conditions
(interest rates, guarantees if any, etc.) at which the loans for
which an extension was provided by Article 4 of Law
No 290/99 were originally granted and the overall amount
of the loans granted, as well as to indicate whether the aid
formed part of an existing aid scheme (and if so to indicate
which one). Since the final decision on Article 4 of Law
No 290/99 did not concern or have any effect on the
farming, operating and improvement loans which expired
on 31 March 1998 for which an extension was provided by
the abovementioned Article, these loans still needed to be
assessed to establish whether the aid in question was
granted at market conditions (and if so, the latter should
have been specified) or whether they were part of existing

(9) For the purposes of

that
Commission reference rate for Italy at the time of the loan.

the Commission's assessment,

is the

aid schemes approved by the Commission (also to be
specified).

IV.

INFORMATION PROVIDED BY ITALY FOLLOWING

THE INITIATION OF THE PROCEDURE

(38) Following initiation of procedure,

specific requests,

in reply to the
Commission's
the Italian authorities
provided detailed information by letters dated 18 May
2000, 13 October 2000, 5 July 2001, 27 February 2003
and 29 October 2004, which was registered on 3 November
2004. The information provided in these letters must be
read as a whole, since, following in-depth investigation, the
Italian authorities revised some of
the data originally
provided, in particular those related to financial aggregated
data. The information provided is summarised in part III.3,
with references to the relevant letter.

V.

COMMENTS FROM THIRD PARTIES

(39) The Commission only received one letter from third parties.
This letter, dated 30 June 2000, was sent by CONAZO,
writing as the leading company of a group of undertakings
which had benefited from the funds granted by the Italian
authorities on the basis of Laws No 252/91 and No 67/88,
which were subject to the Commission's proceedings.

(40)

In its letter, CONAZO mainly expressed its surprise at the
fact that,
in initiating proceedings, the Commission had
clearly stated that it had not been informed of the existence
of Laws No 252/91 and No 67/88 and of the fact that the
Italian authorities had granted aid on the basis of these
laws.

(41) According to this cooperative, the Commission could not
ignore the drastic reorganisation programme for
the
livestock and slaughtering sectors launched by the Italian
authorities as early as 1986. In the same letter, CONAZO
referred to the wide-ranging restructuring programme
aimed at the two sectors above as drafted by the Italian
interministerial committee for economic planning (CIPE) in
1991. The company also recalled that the drastic actions
undertaken in the slaughtering sector led to a dramatic
reduction in the number of slaughtering plants, which fell
from over 8 500 in the 1980s to the current 3 000.

VI.

ASSESSMENT

(42) According to Article 87(1) of the EC Treaty, aid granted by
a Member State or through State resources in any form
whatsoever which distorts or threatens to distort competi-
tion by favouring certain undertakings or the production of
certain goods, insofar as it affects trade between Member
States, is incompatible with the common market.

(43) Articles 87 and 88 of the Treaty apply to the production of
and trade in products in favour of which the Italian
authorities decided to grant aid. As a matter of
fact,
Article 40 of Council Regulation (EC) No 1254/1999 of
17 May 1999 on the common organisation of the market
in beef and veal (11) provides that, save as otherwise
provided in the Regulation, Articles 87, 88 and 89 of the
Treaty, apply to the production of and trade in beef and

(10) See Commission letter of 28 January 1999.

(11) OJ L 160, 26.6.1999, p. 21.

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veal. A similar provision is contained in Article 21 of
Council Regulation (EEC) No 2759/75 of 29 October 1975
on the common organisation of the market in pigmeat (12)
and in Article 23 of Council Regulation (EC) No 2529/
2001 of 19 December 2001 on the common organisation
of the market in sheepmeat and goatmeat (13).

(47) The Commission therefore concludes that the measure is
covered by the prohibition in Article 87(1) of the EC Treaty.

VI.1(a) Compatibility of the aid

VI.1

Existence of aid

(48) The prohibition in Article 87(1)

is followed by the

exemptions provided for in Article 87(2) and (3).

Aid granted on the basis of Article 15(16) of Laws
No 67/88 and No 252/91

(44) Article 5 of Law No 290/99 lays down the conditions
under which the credit subsidies on loans contracted under
specific legislative acts can continue to apply even where
some of the conditions initially laid down have not been
met. By enabling certain agricultural undertakings to
continue to benefit of specific aid measures even in cases
of non-compliance with all the initial eligibility require-
ments, the measure seemed to favour these undertakings
with respect to those which, in the same situation, were
compliant.

(45) Moreover, that Article cannot be assessed in isolation from
the legislative acts constituting the legal basis for granting
those particular benefits (credit subsidies and financing) it
refers to, namely Article 15(16) of Law No 67/88 and Law
No 252/91. As set out in paragraphs 37 to 39 above, these
two legislative acts clearly provide for State aid within the
meaning of Article 87(1) of the EC Treaty. In particular,
Article 15(16) of Law No 67/88 provides for the granting
of soft loans to agricultural cooperatives and consortia for
which a maximum interest subsidy of 10 % may be granted.
The State therefore relieves the agricultural undertakings
concerned of the burden represented by the payment of the
full interest rate in force on the market at the time the loan
is granted, which would otherwise be paid by any other
agricultural undertaking not entitled to the same benefit. In
this case,
in question equals the difference
between the market interest rate in force at the time of the
loan and the interest rate actually paid by the beneficiaries
thanks to State assistance.

the ‘relief’

(46) Law No 252/91 authorises the allocations of public funds
for the implementation of different types of projects in the
livestock sector and, by so doing, it favours the recipients of
these funds with respect to other agricultural undertakings
which are obliged to carry out similar projects by relying
solely on their own financial resources. According to the
case law of the Court of Justice, an improvement in the
competitive position of an undertaking as a result of state
financial aid leads to possible distortion of competition
compared with other competing undertakings not receiving
such assistance. Moreover, as there is heavy intra-Commu-
nity trade in the livestock sector (14), the measure may
distort competition and affect trade between the Member
States.

(12) OJ L 282, 1.11.1975, p. 1.
(13) OJ L 341, 22.12.2001, p. 3.
(14) In 2000, 1 154 000 t of bovine animals and calves were slaughtered
in Italy. In the same period in EU 7 401 000 t of animals were
slaughtered.

(49) The exemptions listed in Article 87(2) are manifestly
inapplicable given the nature of the aid measure in question
and its objectives. Indeed, Italy did not argue that Arti-
cle 87(2) was applicable.

(50) Article 87(3) specifies the circumstances under which State
aid may be considered to be compatible with the common
market. Compatibility with the common market must be
assessed from the Community's point of view and not from
an individual Member State's.

(51) Article 87(3)(a) is manifestly inapplicable since the aid is
not intended to promote the development of areas where
the standard of living is abnormally low or where there is
serious underemployment.

(52) As regards Article 87(3)(b), the aid in question is not
intended to promote the execution of an important project
of common European interest or to remedy a serious
disturbance in Italy's economy.

(53) This aid is not intended to achieve or suitable for achieving

the objectives referred to in Article 87(3)(d).

(54) Under Article 87(3)(c) of

the Treaty, aid designed to
facilitate the development of certain economic activities or
of certain economic areas may be considered compatible
with the common market provided that
it does not
adversely affect trade to an extent contrary to the common
interest. The notified aid scheme must therefore be assessed
within the framework of that article and of the specific
provisions applicable to the case being examined.

(55) All the integrated projects which benefited from the aid
provided for by Law No 67/88 and Law No 252/91 were
approved by 31 December 1992 (15). The relevant financial
commitments were approved by the same date. The aid
under discussion was never notified to the Commission and
is therefore unlawful within the meaning of Article 1(f) of
Regulation (EC) No 659/1999. According to point 23.3 of
the Community Guidelines for State aid in the agriculture
sector (16), unlawful aid within the meaning of Article 1(f)

(15) See letter of the Italian authorities of 18 May 2000.
(16) OJ C 232, 12.8.2000, pp. 17 to 41.

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of Regulation (EC) No 659/1999 must be assessed in
accordance with the rules and guidelines in force at the time
the aid is granted.

(56) According to the Italian authorities all the aid granted was
connected to investments undertaken within the frame-
the five integrated projects approved (17). The
work of
investments were undertaken both at the level of primary
production (stockbreeding) and at the level of processing
and marketing of agricultural products.

the strengthening of slaughtering plants,

(57) The investments which were considered eligible for aid
substantially concerned: technological and health moder-
nisation,
the
disposal and use of sub-products, meat processing and
packaging lines, the adaptation of areas and equipment for a
better presentation of the products and implementation or
the logistics, the purchase of production facilities and of
processing and marketing facilities to improve production
technology,
the
development of quality processes. Investments in intangible
assets such as marketing and patents were also taken into
account in the assessment of the overall projects but were
never financed.

the purchase of

to favour

facilities

(58) The following expenses were not eligible for aid:

— promotional and advertising activities,

— intangible investments such as trademarks,

— design and building costs,

— legal, administrative and tax costs.

VI.1.(a) 1.

I n v e s t m e n t s c o n n e c t e d t o t h e p r o -
c e s s i n g a n d m a r k e t i n g o f a g r i c u l -
t u r a l p r o d u c t s

(59) At the time the projects and the relevant commitments
were approved, the Commission considered compatible
with the common market all investments where the aid
rates did not exceed the maximum aid rates normally
admitted by the Commission for the sector, namely 55 %
(75 % in Objective 1 regions)
in the case of projects
complying with the sectoral programmes or the general
criteria laid down in Regulation (EEC) No 866/90 (18) and
the other
35 % (50 % in Objective 1 regions)

for all

(17) Out of the 13 integrated projects originally submitted, only eight

were approved and only five were eventually completed.

(18) Council Regulation (EEC) No 866/90 of 29 March 1990 on
improving the processing and marketing conditions for agricultural
products (OJ L 91, 6.4.1990, pp. 1 to 6).

projects, provided that these were not excluded from the
selection criteria laid down in the Annex to the Commis-
sion Decision of 7 June 1990 concerning investments
which could be
financed within the framework of
Regulations (EEC) No 866/90 and (EEC) No 867/90, used
with the requisite adjustments pursuant to Article 87 of the
Treaty.

(60)

It is therefore to be seen whether the investments benefiting
from the aid actually met the requirements of Regulation
(EEC) No 866/90 as well as the sectoral restrictions
provided for by the Commission Decision of 7 June 1990.
Point 2.10 of the Annex to the abovementioned Decision,
which explicitly concerns meat and eggs, establishes
priority investments, that is investments which are seen
as particularly positive by the Commission since they are
considered to favour more than others the development of
a specific sector.

(61) With respect

to priority investments,

the Commission
looks favourably on the creation of cutting facilities linked
to slaughterhouses, particularly in production areas where
such facilities do not exist. On the other hand, the same
point excludes all investments resulting in an increase in the
slaughter capacity for pigs, cattle, sheep or poultry, unless
equivalent capacity is no longer used by the same or
another undertaking or, in the case of pigs, cattle, sheep and
poultry other than chickens, the production level in the
region indicates a shortfall in production capacity.

(62) As indicated by the Italian authorities, only some of the
investments undertaken by them concerned the creation of
cutting facilities. Since the Italian authorities were unable to
specify exactly the part of the investments which went into
the cutting facilities, it is necessary to determine whether
the investments in question belonged to the type of
investments explicitly excluded under point 2.10, namely
whether they resulted in an increase in the slaughter
capacity unless equivalent capacity was made available by
the same or another undertaking (19).

(19) In order to show compliance with the abovementioned requirement,
at first the Italian authorities provided a study prepared by the Italian
institute for studies, research and information on the agricultural
market (ISMEA) of September 2000, which contained a general
overview of
the changes which characterised the slaughtering
industry in Italy over the 1990s. The conclusion of the study was
that over the 1990 to 1998 period, slaughtering capacity fell by 3 %
in Italy. According to the Italian authorities this contraction proved
that the investments undertaken on the basis of the laws under
assessment complied with the abovementioned sectoral restrictions.
The Commission objected that
the contraction in slaughtering
capacity described in the ISMEA study was the result of the trend in
the meat sector over those years throughout Europe. Indeed, the
reduction in the number of slaughtering facilities and in the
slaughtering capacity which characterised the sector in Italy over the
1990s (mainly as a result of the need to adjust to new hygiene
standards) had already characterised the slaughtering sectors of other
countries over the 1970s (for example, France). As highlighted in the
document, Italy started to reorganise its sector only later, during the
1980s and 1990s. The 3 % reduction claimed by the Italian
authorities did not therefore prove compliance with Decision 90/
342/EEC. The Italian authorities were therefore invited to provide the
specific data of changes in slaughtering capacity brought about by
the investments undertaken in each of the plants taking part in the
integrated projects.

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(63)

In their letter of 12 July 2001, the Italian authorities
stressed that investments in the slaughtering, processing
and marketing of agricultural products were carried out
within the framework of seven projects. They provided data
showing, for each plant taking part in the project, that the

overall ex-post slaughtering capacity is on the whole lower
that the ex-ante one by 30 heads/hour. The requirement of
point 2.10 of
the Annex to Decision 90/342/EEC is
therefore observed.

(64) The aid rates, expressed as gross grant equivalent of aid, following the method described in the Guidelines
on Regional aid (20) and including all forms of public aid accorded under Laws No 252/91 and No 67/88
(Law No 290/1999 did not modify the aid rates, the volume of aid, nor the beneficiaries of aid under Law
No 252/91 and No 67/88) did not exceed the 75 % aid rate (for investments located in Objective 1
regions) and the 55 % aid rate which was authorised at the time for investments connected to the
processing and marketing of agricultural products for areas located outside Objective 1. Regardless of
investments under examination therefore complied with the maximum aid rates
their location, all
authorised by Community legislation in force at the time, as shown in Table 1 below.

Table 1

Investments in the processing and marketing sector

Eligible costs (ITL)

Total contribution
(ITL)

%

CONAZO

Investments in less favoured
areas

4 972 623 097

3 729 467 323

75,00

Investments in other areas

48 753 248 149

26 480 183 539

54,31

FIORUCCI

Investments

39 831 488 798

14 170 000 000

35,57

GUARDAMIGLIO

Investments

15 296 548 104

5 477 000 000

35,81

INALCA

Investments

139 597 581 320

42 502 000 000

30,45

PRUNOTTO

Investments

4 243 327 136

1 930 000 000

45,48

CAMALLEVAMENTI

Investments

4 667 623 201

2 567 192 000

55,00

C.L.S.M.

Investments

6 067 000 000

3 260 533 100

53,74

(65)

In accordance with Article 11 of Regulation (EEC) No 866/
90, the measures at issue are aimed at rationalising or
developing the preparation, preservation, treatment and
processing of agricultural products or recycling of by-
products or manufacturing waste, at improving marketing
channels, including the transparency of price formation, at
applying new processing techniques, including the devel-
opment of new products and by-products, or opening up
new markets and innovative investments and at improving
product quality.

(66) Pursuant to Article 11(3) of Regulation (EEC) No 866/90,

eligible expenses are limited to:

— the acquisition of

immovable property, with the

exception of land purchase,

— general costs,

such as architects', engineers' and
consultants' fees and feasibility studies, up to a ceiling
of 12 % of the costs referred to before.

(67) As explained further below in the document (see points 80
to 98),
the financial balance needs should have been
excluded from the eligible expenses, which have been
recalculated solely on the basis of expenses directly linked
to investments and eligible costs. Furthermore, the CIPE
programme explicitly aimed at ensuring coherence and
compliance with CMO rules.

— the purchase of new machinery and equipment,
including computer software and programmes,

(68)

(20) OJ C 74, 10.3.1998, p. 9, as amended (OJ C 258, 9.9.2000, p. 5).

In view of the foregoing considerations, the aid granted by
the Italian authorities to carry out the investments planned
within the framework of the integrated projects described
above was compatible with the common market according

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to Article 87(3)(c) of the EC Treaty. This only applies to aid
granted in connection with the actual implementation of
the investments with the exclusion of any aid granted for

the financial recovery of the companies considered and of
the aid linked to consolidation loans which are assessed in
the following sections.

VI.1.(a) 2. I n v e s t m e n t s o n f a r m s

(69) As already explained, the aid scheme also provided for aid in favour of investments at the level of primary
production carried out by groups of companies in line with the rationale of the overall project.

(70) Aid was granted to the companies CONAZO, GEA and Val di Cesola (21). The eligible expenses and the

total aid received are shown in Table 2.

Table 2

Investments in the production sector

CONAZO

G E A

Val di Cesola

Total eligible expenses (ITL)

Total contribution (ITL)

7 652 930 000

2 368 708 000

553 923 850

2 678 525 500

558 831 181

278 830 197

%

35,00

23,59

50,34

(72) The types of aid measures which Member States were
authorised to grant were therefore clearly defined by the
provisions of Article 35 which limited the scope of
to purely
intervention of Member States with respect
State-funded aid. In practice, Member States had to notify
the Commission of any decision to grant aid for the
initiatives covered by the Regulation either in the frame-
work of the procedure provided for by the Regulation with
a view to obtaining Community part-financing or on the
basis of Articles 87 and 88 of the Treaty with respect to
State aid. The Italian authorities did not notify the
Commission of the aid in question in the framework of
the procedure provided for by Regulation (EEC) No 2328/
91 with a view to obtaining Community part-financing or
pursuant to Article 12(2), (3) and (4) of that Regulation.
The aid measure should therefore be assessed on the basis
of Articles 87, 88 and 89 of the Treaty within the limits
and on the conditions set out in the Regulation.

(71) Upon the date of approval of the various projects and
consequent allocation of the relevant resources, aid for
investments on farms was assessed on the basis of the
provisions of Council Regulation (EC) No 2328/91 on
improving the efficiency of agricultural structures (22). The
Regulation, which established a part-financed system
designed to improve the efficiency of agricultural holdings,
applied to individual farms. It established a framework for
common action authorising or requiring Member States to
put in action a certain number of aid schemes which were
partially financed at Community level. At the same time,
the Regulation established a framework regulating the
granting of certain types of nationally funded aid from
Member States. Article 35 of Regulation (EEC) No 2328/91
defined the conditions under which Member States were
authorised to provide State aid in order to achieve the same
objectives as set in the Regulation. In particular, Article 35
stated that the regulation was without prejudice to the right
of Member States to adopt additional aid measures in the
areas covered by the Regulation with the exception of those
covered by Articles 2, 6 to 9, 11, 12(2), (3) and (4), and 17
on terms differing from, or in amounts exceeding, the
laid down in the Regulation, provided that
ceilings
Articles 92, 93 and 94 of the Treaty were not infringed.
Article 35(2) provides that Articles 92, 93 and 94 of the
Treaty, with the exception of Article 92(2), did not apply to
the aid measures governed by Articles 2, 6 to 9, 11, 12(2),
(3) and (4), and 17.

(21) Gea and Val di Cesola were part of the original project Centro Carni
Sud, that was not completed and therefore not admitted to financing.
The two projects undertaken by Gea and Val di Cesola, however,
were fully completed and financed.

(22) OJ L 218, 6.8.1991, p. 1.

(73) Article 12 of Regulation (EEC) No 2328/91 specifies the
types of investments which Member States are authorised
to fund exclusively out of their own resources. As stated
under Article 35, Articles 87 to 89 of the Treaty do not
apply to Article 12(2),
(3) and (4). The aid measures
therefore can only be assessed on the basis of Article 12(1)
and (5) of Regulation (EEC) No 2328/91.

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(74) The measures provided for by Article 12(1) are additional
aid which, under strictly defined conditions, may be granted
by Member States on top of the Community part-financed
system of aid granted under Regulation (EEC) No 2328/91.
These additional aid measures may only be granted to
holdings which satisfy all the conditions for eligibility to
Community aid as laid down in the Regulation (Articles 5
to 9) and only to integrate previously approved part-
financed aid measures. Since this paragraph only concerns
aid intended to supplement part-financed aid measures
previously approved, these aid measures do not fall within
its scope.

animal health and well-being standards set in Directive 91/
629/EEC (23) and in Directive 91/630/EEC (24).
In their
letter of 24 November 2004, registered on 3 December
2004, the Italian authorities provided the list of invest-
ments as proof that these were aimed at improving animals'
health and well-being and that they went beyond the rules
applicable at the time concerning animal hygiene and well-
being. Each financed project has been checked by an
inspection committee of
the Ministry and the relevant
Region to verify that the objectives of the projects were
achieved.

(75) Article 12(5) specifies the types of

investment aid not
subject to the prohibition and limitation provided for by the
rest of
the Articles and which could in principle be
authorised. These are:

(77) The maximum aid rate provided for in the Regulation (35 %
and 75 % in less favoured areas),
including all public
sources of aid channelled to the investments was not
exceeded.

— aid for land purchase,

— subsidised operating loans for a period non exceeding

one marketing year,

(78) Furthermore, the Italian authorities assured the Commis-
sion that the total number of animals was not increased,
following the completion of the investments and that all the
investments were carried out
in accordance with the
requirements in Article 6 of Regulation (EEC) No 2328/91.

— the purchase of male breeding stock,

(79) As set out in Section VI.1 (a) 3, eligible expenses do not
include financial recovery needs (esigenze di equilibrio
finanziario), nor the loans for debt consolidation.

— securities for loans contracted, including interest,

(80)

— aid for investment in the protection and improvement
of the environment, provided that it does not entail an
increase in production,

In view of the foregoing, the abovementioned aid measures
the
granted by the Italian authorities
investments in the primary production are compatible
with the common market according to Article 87(3)(c) of
the EC Treaty.

to carry out

— aid for investment

for the purpose of

improving
hygienic conditions or complying with Community
animal welfare standards where these are stricter from
Community standards, provided that
these invest-
ments do not give rise to an increase in production,
they are granted in accordance with
and that
Articles 87 and 88 (formerly 92 and 93) of the Treaty.

(76) By letter of 13 October 2000,

the Italian authorities
declared that aid for investments in primary production
have only been granted under Law No 252/91 to three
projects. These investments were aimed at restructuring and
improving breeding centres in order to reduce production
costs, improve quality and improve the health and well-
being of animals. On the whole, the investments allowed
better ventilation of the premises, reduced animal density,
improvement of the illumination, water distribution and so
on. The Italian authorities assured that the aid was granted
towards the completion of investments going beyond the

VI.1.(a) 3. A i d f o r

r e c o v e r y o f
f i n a n c i a l
c o m p a n i e s a n d d e b t c o n s o l i d a t i o n

t h e

(81) As stated in the section above, Article 5(2) of Law No 290/
99 stipulates that credit subsidies on loans contracted under
Article 15(16) of Law No 67/88 in respect of
joint
development or debt consolidation measures continue to
apply even where the integrated project approved under
Article 1 of Law No 87/90, as replaced by Article 1 of Law
No 252/91, is only completed in part, provided that the
integrated project of the person who took out the loan is
completed. Article 5(3) provides that credit subsidies on
loans contracted under the above Law for the sole purpose
of debt consolidation remain valid even where the
integrated project fails to be carried out or is carried out

(23) Council Directive 91/629/EEC of 19 November 1991 laying down
the protection of calves (OJ L 340,

minimum standards for
11.12.1991, pp. 28 to 32).

(24) Council Directive 91/630/EEC of 19 November 1991 laying down
(OJ L 340,

the protection of pigs

minimum standards
11.12.1991, pp. 33 to 38).

for

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only in part, provided that the person who took out the
loan submits a personal investment project to be under-
taken using some of the loan.

(82) The credit subsidies referred to in Article 5 of Law No 290/
99, which were the subject of the Commission's initial
assessment, are provided for in Law No 67/88. Arti-
cle 15(16) of this Law, against which the Commission
decided to initiate proceedings, provided that cooperatives
and their consortia can raise loans up to a maximum of
ITL 7 000 billion for the construction, restructuring or
extension of slaughtering plants. Also, according to that
Article, farmers taking out the loans may use them, up to a
limit of ITL 100 billion in 1988 and of ITL 50 billion in
1989, to consolidate existing debt on the aforementioned
facilities and premises.

(83) Both Article 5 of Law No 290/99 and Article 15(16) of Law
No 67/88 provide therefore for the possibility to use the
allocations to consolidate debts.

(84) Nevertheless, according to the information submitted by
the Italian authorities in their reply to the initiation of
proceedings by the Commission (25), within the framework
of Law No 252/91, the State also took into account what
are described as financial recovery needs. According to the
Italian authorities, the execution of the project called for a
high financial commitment in terms of both the actual
implementation of
the ‘development projects’ and of
recovery of
the financial commitment resulting there-
from (26). Financial recovery needs were considered addi-
tional to the investments since they were strictly related to
the amount of money generated by said investments.

(85)

In the light of the above, it is apparent that part of the aid
granted by the Italian authorities to the companies for the
relevant projects was actually aimed at enabling these
companies to face the financial burden ensuing from, but
not strictly related to, these investments.

(86) The Commission has always expressed doubts as to the
compatibility with the common market of the aid for debt
consolidation provided for by Law No 67/88 and of aid for
financial recovery granted under Law No 252/91. In their
reply to the initiation of proceedings, dated 18 May 2000,
the Italian authorities claimed that both aid measures were

granted in connection with investments carried out within
the framework of the integrated projects planned. Indeed,
the Italian authorities stated that Law No 67/88 had linked
the acknowledgement of debt consolidation to the actual
completion of the investment projects. In their opinion, the
consolidation loan simply aimed at providing cooperatives
with liquidity and in this respect worked as a grant. The
consolidation loan was a financial operation linked,
in
every case, to an investment project.

(87) Despite this statement,

the Commission expressed its
doubts on the abovementioned aid measures by declaring
that, contrary to the Italian authorities' contention, the
description provided and the wording of the Law seemed to
indicate that the aid was aimed at relieving the beneficiaries
from their financial difficulties with no link whatsoever
with the actual completion of the investments. In the same
letter expressing its reservations,
the Commission also
invited the Italian authorities to explain whether the aid in
question complied with any of the provisions applicable at
the time the aid was granted.

(88)

In their reply to the abovementioned letter (27), the Italian
authorities stated that, with respect to financial recovery,
the financial actions planned took account of the overall
financial
requirement of each integrated project. This
overall global financial requirement consisted in the actual
investments and in the financial equilibrium, which could
not exceed 50 % of the overall financial requirement. The
financial recovery therefore ensured the payment of the
financial charges linked to the investments undertaken.

the financial

recovery needs of

(89) Following the Commission's remarks on this specific point,
the Italian authorities, in their letter of 29 October 2004,
registered on 3 November 2004, undertook to disaggregate
the financial recovery needs from eligible expenses. There-
fore,
the companies,
originally included in the eligible expenses linked to the
investments, were deducted. This means that only eligible
expenses directly linked to the completion of the financed
investments, funded under the conditions indicated above,
were considered. Financial recovery never resulted in an
additional transfer of financial resources from the State to
the companies undertaking integrated projects, but it was
originally added to the eligible expenses.

(25) Letter of the Italian authorities of 18 May 2000.
(26) See p. 5 of the abovementioned letter.

(27) Letter of the Italian authorities of 13 October 2000.

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(90) According to the new calculation (excluding the financial recovery needs from the eligible expenses), the
aid intensity of the two cooperatives who benefited from it (CONAZO and Consorzio latterie sociali
mantovane) was still limited to 35 % for primary production, was below 55 % for the processing and
marketing sector in ordinary areas and was limited to 75 % in less favoured areas, as shown in the table
below:

Table 3

Financial recovery

Eligible costs ITL

Public contribution under
Law No 252/91

7 652 930 000

4 972 623 097

48 753 248 149

61 378 801 246

2 678 525 500

3 729 467 323

20 700 797 658

27 108 790 481

%

35,00

75,00

42,46

44,16

6 067 000 000

3 260 533 100

53,74

CONAZO

Production

Processing in less favoured areas

Processing

TOTAL CONAZO

Consorzio Latterie Sociali
Mantovane

Processing in non disadvantaged
areas

(91) Concerning debt consolidation,

the Italian authorities
specified that the ‘debt consolidation funds’ were aimed at
loans linked to the
loans’,
financing ‘development
completion of
for which the
the integrated projects
resources provided for by Law No 252/91 proved to be
insufficient and ‘consolidation loans’, aimed at financing
previous investments.

i.e.

(92)

‘Development loans’ are granted within the scope of the
integrated projects financed under Law No 252/91 and on
the same conditions. They were granted to CONAZO, GEA
and Val di Cesola. The gross grant equivalent of these loans
was included in the overall aid intensity and the maximum
grant equivalent deriving from the cumulation of the aid in
form of cash subsidy under Law No 252/91 and in form of
development loans under Law No 67/88. The total aid rates
are in accordance with the aid rates authorised at the time
by the Commission (as shown in Table 2 above).

(93) The ‘consolidation loans’

that only concern CONAZO,
however, were linked to previously accomplished invest-
ments and are designed to reduce the cost of financing
loans contracted in respect of earlier investments. They
were granted under the conditions set in Commission letter
of 7 March 1989 (28), namely:

— aid (for example, to pay interest) should be aimed at
reducing the financial burden of previous loans taken
out to fund investments,

— the cumulated grant equivalent of previous loans
granted when the loans were taken out and of the new

(28) SEC(89) 343/2 of 7.3.1989.

aid measure may not exceed the Commission limit
rates for primary production investments: 35 % or
75 % in less favoured areas pursuant to Directive 75/
268/EEC; for processing or marketing investments:
55 % (75 % in Objective 1 areas),

— the aid in question must follow adjustments in the
interest rates on new loans to take account of changes
in the price of money (the aid must be less than or
equal to the change in the rate for new loans) or must
be for agricultural undertakings presenting guarantees
of viability, particularly where the financial burden
resulting from existing loans is such that there is a risk
that the undertaking's viability might be in danger or
that it may become bankrupt.

(94)

In the present case, in their letter of 12 July 2001 and in
that of 29 October 2004, registered on 3 November 2004,
the Italian authorities specified that the debt consolidation
loans were only granted to one company, CONAZO, which
was not in financial difficulty. The aid granted for debt
consolidation was meant to relieve the company from debts
in order to allow the
relating to previous investments,
cooperative to undertake new investments for the moder-
nisation of the livestock sector. The consolidation loans
were granted to finance projects undertaken between 1986
and 1993 for the setting-up of slaughtering plants, the
construction of buildings, purchase of equipment and the
purchase of a breeding centre for a total amount of

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ITL 12 396 406 733 (about EUR 6 million). The gross
grant equivalent of this contribution on the overall eligible
costs is around 9 % (ITL 1 198 351 597) and therefore did
not exceed the Commission aid rates, as specified above.

— the debt consolidations loans granted under Law
No 67/88 were compatible with the relevant State aid
rules applicable at the time when the aid was granted,

(95) The aid was granted to help the cooperative to face
difficulties deriving from soaring interest rates, ranging
from 17,80 % in 1986 to 14,75 % in 1993. Although the
cooperative was viable, the high interest rates applied by the
banks were seriously detrimental to its financial situation.
Furthermore, the cooperative was undertaking new invest-
ments within the integrated projects financed under Law
No 252/91. In order to participate in such projects, the
cooperative had to meet a sine qua non condition that the
part of overall financial requirement not covered by State
contribution would be covered by the beneficiary compa-
nies in two ways:

(a)

at least 20 % with fresh capital paid by the share-
holders as capital increase or with a 10-year loan at
market rates;

(b) with a guarantee covering the total project, on the
basis of a joint and several liability, according to which
the integrated project was liable
each partner of
towards the other partner should any part or all the
project fail to be undertaken.

(96) According to the Italian authorities, the sum of the new
financial commitments and the old ones (deriving from the
high bank rates for the completion of previous investments)
would have borne heavy consequences even for viable
companies, such as the one concerned by this measure.
Moreover, the ‘consolidation loans’ were always linked to
the company's development plan, showing its financial
situation, the investments undertaken and to be undertaken
and compliance with the conditions indicated in point 94.

(97) The investments for which debt consolidation loans were
granted were different from and fully independent of those
financed under Law No 252/91 and the public contribution
towards debt consolidation (at the conditions indicated
above) did not affect the aid rates of
the investments
financed under Law No 252/91.

(98) Furthermore, the Italian authorities underlined that Arti-
cle 5(3) of Law No 290/99 (which stipulates that credit
subsidies on loans contracted under Law No 67/88 for the
sole purpose of debt consolidation remain valid even where
the integrated project fails to be carried out or is carried out
only in part, provided that the person who took out the
loan submits a personal investment project, to be under-
taken using part of the loan) had never been applied. No aid
(in the form of consolidation debts loans) was granted for
investments which were not carried out in their totality.

— the financial resources granted under Law No 67/88
as development loans were included in the overall
financial envelope of each project and assessed
according to the State aid rules applicable to
investments in primary production or in the proces-
sing and marketing sector (see sections VI.1 a 1 and
VI.1 a 2),

— the financial recovery needs never resulted in any
transfer of public resources and their amount was
deducted from the eligible expenses.

VI.2(d) C o n c e r n i n g t h e

l o a n s

r e f e r r e d t o i n

A r t i c l e 4 o f L a w N o 2 9 0 / 9 9

(100) In their

letter dated 27 February 2003,

the Italian
authorities clearly stated that the measure provided for in
Article 4 of Law No 290/99 had never been implemented,
since it was impossible to identify the credit operations that
the law intended to finance (namely the operating,
improvement and agricultural
loans which expired on
31 March 1998). Indeed, as these credit operations were
non-existent, no State aid within the meaning of Arti-
cle 87(1) of the Treaty could have been granted under
Article 4 of Law No 290/99 and the measures related
thereto.

VI.3

Finagra

VI.3.1. Existence of aid

(101) As pointed out in the paragraph above, Law No 252/91
also envisages the establishment of a private-law holding
company (finanziaria di partecipazioni di diritto privato) with a
subscribed and paid-up capital of ITL 70,114 million. The
main shareholder is the Ministry for Agriculture and
Forestry Policy which owns 92,79 % of the company's
shares. The remaining 7,21 % is owned by 13 different
credit institutions.

for

(102) The institutional tasks of the company are the following:
assistance in the preparation of economic/financial pro-
grammes
restructuring and development projects,
granting of guarantees for credit operations, organisations
of ‘pool’ financing, preliminary contacts with banks in
order to favour the financing operations planned, acquisi-
tion and sale of minority shares in companies, coopera-
tives, consortia, bodies and associations and granting of
aid.

(103) By Legislative Decree No 1 of 9 January 1999 (Riordino degli
enti e delle società di promozione e istituzione della società
Sviluppo Italia S.p.A), Finagra was merged into Sviluppo
Italia S.p.A. (29).

(99) On the basis of the information provided by the Italian

authorities, the Commission can therefore conclude that:

(29) Legislative Decree No 1 of 9 January 1999 (Riordino degli enti e
delle società di promozione e istituzione della società Sviluppo Italia
S.p.A).

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(104) The Italian authorities have consistently stated that Finagra
operations have never involved State aid elements and that
Finagra has
always operated under normal market
economy conditions within the meaning of the Commis-
sion's communication on the application of Articles 92
and 93 (now Articles 87 to 89) of the EC Treaty to public
companies (30).

(105) In order to prove that Finagra has always operated under
normal market conditions, upon the Commission's request,
the Italian authorities have provided details of all the 12
operations (in companies within the meaning of Article 5)
approved by the company until 31 December 1998 (31).

establish whether the holdings acquired by Finagra in
various companies operating in the agricultural sector
actually constituted State aid according to Article 87(l) of
the EC Treaty and must therefore be assessed on the basis
of Articles 87 to 89 of the EC Treaty or whether, as claimed
by the Italian authorities, such interventions did not
constitute State aid according to the provisions of the
abovementioned communication.

(111) The communication distinguishes four types of situation in
which public authorities may have occasion to acquire a
holding in the capital of companies:

(106) An analysis of Finagra's activities showed that Finagra had

operated at three levels:

(a)

the setting-up of a company,

— purchase of equity shares

— granting of loans

— issuance of guarantees.

(107) In their

letter dated 13 October 2000,

the Italian
authorities stressed that, even if rescuing and restructuring
operations were contemplated by the company's articles of
association, Finagra had never undertaken operations of
this type.

VI.3.1.(a) P u r c h a s e o f e q u i t y s h a r e s

(108) The Commission's position on the purchase of shares by
public authorities in private companies is set out in the
Communication of the Commission on the application of
Articles 92 and 93 of the EEC Treaty to public authorities'
holdings. According to the communication,
‘public hold-
ing’ means a direct holding of central, regional or local
government, or a direct holding of financial institutions or
other national, regional or industrial agencies which are
funded from State resources within the meaning of
Article 87(1) of the EC Treaty, or over which central,
regional or
local government exercises a dominant
influence.

(109) Italy, through its Ministry for Agricultural and Forestry
policy owns about 92 % of Finagra's shares; as such, this
holding can be defined as ‘public’ within the meaning of
the abovementioned communication.

(110) The Treaty establishes both the principle of impartiality
with regard to the
system of property ownership
(Article 222) and the principle of equality between public
and private undertakings. This means that Commission
action may neither penalise nor favour public authorities
which provide companies with equity capital. Nor is it for
the Commission to express any opinion as to the choice
companies make between methods of financing — loan or
equity — irrespective of whether the funds are of private or
public origin. In this respect, the Commission needs to

(b)

partial or total transfer of ownership from the private
to the public sector,

(c)

in an existing public enterprise,
capital or conversion of endowment
capital,

injection of fresh
funds into

(d)

in an existing private sector company, participation in
an increase in share capital.

(112) Straightforward partial or total acquisition of a holding in
the capital of an existing company, without any injection of
fresh capital, does not constitute aid to the company.

(113) According to the information provided by the Italian
authorities, Finagra's interventions in existing private sector
companies took the form of an increase in the share capital
of the company's concerned and it cannot therefore be
immediately excluded that
they constituted State aid
according to Article 87(1) of the EC Treaty.

(114) The injection of fresh capital in a private company cannot
however be taken as clearly constituting State aid when the
capital is contributed by the public authority in circum-
stances that would be acceptable to a private investor
operating under normal market conditions. On the other
hand, there is State aid when the ‘private investor’ principle
is not respected and the injection of
is
contributed in circumstances which would not be
acceptable to a private investor operating under normal
market economy conditions (32). Point 3.2 of the commu-
nication lists six situations where this may be the case.

fresh capital

(115) In their letter of 13 October 2000, the Italian authorities
stated that the holdings were always taken on a temporary
basis for a period not longer than five years. Upon a
preliminary analysis therefore, the holdings might seem to
fall within the scope of point 3.3(iii) of the communication,
where it is stated that there is State aid whenever the
holding is a short-term one, with duration and selling price
fixed in advance, so that the return to the provider of
capital is considerably less than he could have expected

(30) Bulletin EC 9-1984.
(31) For an overall commitment of ITL 33 458 million.

(32) Ibid., point 3.3.

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from a capital market investment for a similar period. The
information provided by the Italian authorities, however,
proved that the similarity with the possibility provided for
in point 3.3(iii) on the existence of State aid is confined to
this element. Indeed, the time limited acquisition was never
provided for in any legal document and was decided at the
discretion of
the board of directors, where the other
13 members were also represented. As specified later (see
point 120), Finagra acquired shares in cooperatives in its
capacity as financing member (socio sovventore), which
enabled it to obtain higher benefits compared to a regular
investor. One obligation upon every financing member was
to keep the shares for a minimum period of time, but
without any obligation to sell them at the end of the
minimum period. As specified further in this document,
Finagra was one of the many financing members (including
banks) and was
to exactly the same rules/
requirements as any other private investor. In case of other
companies, the average holding time of Finagra was 3 to
3.5 years and the sale was carried out at market value. The
Italian authorities reiterated on several occasions that the
selling price of the shares was never pre-determined, but it
was fixed at market rates. They denied the existence of any
evidence (legal document, written or oral agreement or
implicit understanding of any type) pointing towards an a
priori definition of the front selling price of the holding,
which was defined on the basis of the market value at the
moment of the sale (see letter of 27 February 2003).

subject

(116) According to the Italian authorities, evidence of this is that
in all but one cases Finagra obtained a positive return from
the sales of
the shares. The only exception was the
acquisition of shares of one cooperative (ARA) that went
into voluntary receivership, with a loss of ITL 500 million
(about EUR 250 000). The loss in one acquisition of shares
could not be considered per se as an indication that Finagra
did not operate as any other private investor, when the
decision to buy shares in the company was sound and
based on viable financial and economic perspectives and all
the means to recover the invested money had been used. In
this specific case, when such acquisition was decided, the
cooperative was undertaking a process of restructuring and
modernisation in order
to increase production and
rationalise its industrial processes. The cooperative had a
high potential for growth, since it was well-rooted in the
economic reality of the geographical context in which it
operated. Its revenue rose constantly from 1990 to 1994
and its economic performance improved. The cooperative,
however, found itself in difficulty when facing the high
costs of modernisation and the decreasing prices of meat.
In 1996, therefore, the cooperative went into receivership.
The cooperative, which was also part of an integrated
project financed under Law No 252/92, completed the part
of the project under its responsibility. After its receivership,
the State recovered the entire money allocated for the
financed investments. The shares owned by Finagra,
however, were lost with the receivership of the company,
despite all the recovery procedures being activated. In their
letter of 24 November 2004, the Italian authorities clarified

that the guarantee for a total of ITL 125 million had been
called in and that the remaining ITL 375 million were
therefore a credit in favour of Finagra. At the moment, the
recovery procedure is still pending and Finagra will recover
(following normal recovery procedures) at least 40 % of the
outstanding credit.

(117) In view of the above, Finagra's short-term shareholding
cannot in itself be regarded as State aid within the meaning
of Article 87(1).

(118) Other elements of the shareholding should be taken into
account. In particular, in their letter of 12 July 2001, the
Italian authorities provided an in-depth study to prove that
their interventions in the form of shareholding acquisitions
were undertaken according to market principles, after a
thorough assessment of the company's financial position,
especially the structure and volume of
its debt. No
investment was made when the financial position of the
company was not such that a normal return from the
capital invested could be expected within a reasonable time.
As clearly stated by the Italian authorities, in all the cases at
issue, Finagra's interventions were based on an in-depth
analysis of the company's financial situation (analysis of the
the operation)
financial statements at
centreing on the possibility of normal returns on the
investments. The financial position of the company was
always sound. The criteria used to assess the viability of a
company before deciding the acquisition of shares were the
following:

the moment of

— position of the company in the market (geographical
context, level of diversification, percentage of sales on
the global and local market),

— the trend of company's profit/revenue and a critical
analysis of the reasons determining such profit,

— the gross operating margin, the marginal profit and

the net assets,

— the effectiveness of financial management in the use

of total resources.

These criteria were detailed and set down in Finagra's
internal rules.

The Italian authorities have provided the details of the
acquisitions of
in five companies/cooperatives,
specifying the situation of the companies against each of
(see letters of
the previously mentioned parameters
5 February 2001 and 26 November 2004).

shares

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(119) Finagra's shareholding in a company generally never accounted for over 30 % of the net worth of the
company acquired and never exceeded 10 % of Finagra's capital at the time when the decision to buy the
shareholding was taken, as shown in the following table:

Table 4

Shares owned by Finagra on total net worth of the companies (1)

Company

MCLC

1994

1995

1996

1997

1998

1999

2000

Unicarni

1994

1995

1996

1997

1998

1999

2000

2001

2002

Ultrocchi

1995

1996

1997

Net worth

28 412 481 648

28 458 138 741

30 546 834 954

32 191 589 226

33 957 143 898

32 090 948 834

34 682 267 274

Net worth

12 669 243 845

13 416 526 526

14 558 518 843

51 844 215 895

51 918 316 470

57 568 500 113

60 804 913 354

63 879 483 570

64 931 137 640

Net worth

46 033 965 272

46 202 537 881

46 376 056 268

Guardamiglio

Net worth

1995

1996

1997

1998

9 807 056 542

17 688 327 264

17 457 904 625

17 703 648 203

(1) As reported at 31 December of each year.

Finagra

1 240 200 000

2 479 800 000

2 479 800 000

2 479 800 000

2 479 800 000

1 239 600 000

1 239 600 000

Finagra

2 000 000 000

2 000 000 000

2 060 000 000

1 060 000 000

1 075 000 000

765 899 344

795 580 426

778 153 996

799 164 462

Finagra

1 805 200 000

1 805 200 000

1 805 200 000

Finagra

0

3 000 000 000

3 000 000 000

3 000 000 000

%

4,36

8,71

8,12

7,70

7,30

3,86

3,57

%

15,79

14,91

14,15

2,04

2,07

1,33

1,31

1,22

1,23

%

3,92

3,91

3,89

%

0,00

16,96

17,18

16,95

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(120) The companies always presented normal

investment
prospects and a sufficient margin of self-financing. In the
operations undertaken, Finagra defined the criteria for the
transfer of
the investments undertaken and obtained
guarantees from the counterparts in compliance with the
principles contained in the abovementioned Communica-
tion. As shown by Finagra's articles of association, the
board consisted of five members, also representing the
minority shareholders (banks, credit institutes and private
companies). All the decisions of the board were taken by
majority and in a manner completely independent of the
Government. These decisions were not subject to any
ratification or control by the public administration. All its
interventions were freely assessed by the administrative
board, exercising its activity in compliance with the rules
applicable to any merchant bank (Legislative Decree
No 385/93). The board carried out Finagra's financial
and credit activities fully independently from the State,
basing its decisions on three elements:
the
company's viability. These
expected return and the
procedures are laid down in Finagra's internal rules.

the risk,

(121) Furthermore, when the holding concerned cooperatives,
Finagra participated as financing member. This means that,
according to Italian Law, it had a special position compared
to normal members of the cooperatives, namely:

(123) The additional guarantee requested by Finagra consisted in
a security in favour of Finagra on 50 % of the shares. As an
example,
in the case of MCLC, the security in national
bonds was worth ITL 1 240 million (of the total shares
held by Finagra and worth ITL 2 479,8 million) and in the
case of Unicarni, it was worth 1 674 million (of the total
shares held by Finagra and worth ITL 2 825,9 million). The
Italian authorities underlined that such an additional
guarantee (which is substantial compared to the company's
shares held by Finagra) was not requested by other private
is, according to them, an
financing members and it
additional proof that Finagra applied the same (and even
tougher) criteria than private investors.

(124) As an additional element,

the Italian authorities also
indicated that Finagra's balance sheet had always shown a
positive return on capital.

(125) In the light of

the foregoing,

the Commission may
conclude that, in buying shares, Finagra acted as any other
private operator, under market conditions. There was
therefore no element of State aid, within the meaning of
Article 87(1) of the Treaty, involved in such acquisition.

— it obtained a higher profit than normal members (on

VI.3.1.(b) G r a n t i n g o f

l o a n s

average 2 % more),

— it could appoint one member to the board of directors
and one member to the board of statutory auditors,

— when acquiring the participation of a cooperative as
financing member, Finagra obtained guarantees on
50 % of the invested capital, constituted as a security.
This guarantee was not requested by other members
and was an extra security conditional upon the
participation of Finagra.

(122) By buying shares in cooperatives as financing member,
Finagra acted as any other private member, mostly banks
and credit institutions, under the same conditions. The
Italian authorities provided evidence of this by listing all the
credit institutes and private individuals/companies partici-
pating as financing members in the cooperatives where
Finagra also held shares (33) (see Table 5 in point 136). They
also provided the documentation concerning a bank's
intervention in one of those cooperatives, MCLC, to prove
that Finagra acted under the same conditions as any other
private financing member, the only difference being that
Finagra requested greater guarantees before deciding
whether to finance a cooperative as financing member.
Furthermore, they provided the decisions concerning the
issue of shares for Unicarni's financing members and the
requests (and acceptance) of many private credit institu-
tions seeking to become financing members.

(33) Private

companies

and individuals: CoopFons Spa, Agricola
Sabbadina srl, CCFR Scarl. Among the credit
institutes: Banca
Agricola Mantovana, Em. Popolare Spa, Bipop Carire Spa, Banca
Popolare di Verona — Banca S.Geminiano S. Prospero, Banca di
Roma, Finec Merchant Spa, Agrisviluppo Spa.

(126) As stated in point 106 above, Finagra's operations also
included the granting of loans to companies operating in
the agriculture sector. According to the information
submitted by the Italian authorities, Finagra had granted
loans for a total amount of ITL 17 800 million.

(127) In their

letter dated 13 October 2000,

the Italian
authorities stated that the loans had always been granted
at market conditions by applying an interest rate which
reflected the risk connected to the loan granted and was
never lower that the one in force at the time the loans were
granted.

(128) The loans were granted at an interest rate equivalent to that
on government bonds (Rendistato) for operations lasting
more than 18 months, minus 5 points. The minimum
interest rate to be paid is however set at 3 %. In general, the
interest rate on government bonds is considered as a
benchmark to establish the economic viability of financial
investments. An investment
its
prospective yield is deemed to be at least equal to that
which can be obtained with the same amount of money if
invested on government bonds. However,
the 5-point
decrease compared to the State bond (Rendistato) interest
rate shows that Finagra could have accepted rates lower
than market rates when granting the loans.

is considered viable if

(129) In this respect, the Italian authorities pointed out that the
choice of companies to which loans were granted was
made very carefully to minimise the risk of insolvency.
in granting the loans, Finagra acted like any
Indeed,

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conditions,
institution operating in market
financial
considering whether to grant the loans to the above-
mentioned beneficiaries. The loans were granted on the
basis of investments submitted by the applicants and the
contracts always provided for loan granting and repayment
the
conditions compatible with the undertakings of
companies applying for the loans. Under the contracts,
loans had always to be reimbursed within 48 months or
immediately in the event of non-performance of
the
contract or delays in the repayment. The loans were always
granted to support economically viable projects and to
favour the aggregation of several entities for managing
projects based on tangible industrial plans with realistic
development prospects. The repayment capacity was
assessed by Finagra on the basis of the documents available
(financial accounts, investment projects, three-year plans)
followed by thorough analyses just
like the enquiries
carried out for the same purpose by credit institutions.
Furthermore, all companies concerned have regularly paid
back the amounts due in compliance with the deadlines set,
which proves, according to the Italian authorities, that the
companies had been selected on the basis of strictly
economic criteria, to minimise the risk of insolvency.

(130) The minimum interest rate levied by Finagra was 3 % until
May 1999 and 2 % after that date (until June 2000, when
Finagra merged into Sviluppo Italia). This is clearly below
the Commission reference rates applicable for the relevant
period.

(131) However, a distinction can be made between cooperatives
and private companies receiving the loans. Only two
cooperatives received loans from Finagra (MCLC and
Unicarni) worth in total ITL 8,3 billion.

for

the conditions

(132) In the case of cooperatives, loans were granted by Finagra
financing members, a
under
set
particular kind of cooperatives' membership expressly
provided for by Law No 59/92 (see description in point
120 above). The decision to grant loans was taken by
Finagra on the basis of the return on the loans, based on
the rates established in the articles of association of
cooperatives. These decisions were accepted by Finagra's
administrative board, representing all financing and other
members (including, as explained before, several banks,
credit institutes and private investors).

(134) According to the Italian authorities, therefore, the interest
rates on loans applied by Finagra should be assessed against
the other conditions linked to the provision of
these
loans, i.e.

— the link between the status of financing member of

cooperatives and that of loan-supplier,

— the fact that the loan rates applied were the same for

all subsidising members,

— the direct participation of Finagra in the management
of the cooperatives receiving the loans, through its
participation to their boards,

— the capital return 2 % higher than that of any other

normal member of the cooperatives,

— the fact that Finagra granted loans only to coopera-
tives giving sufficient guarantees of repayment, by
applying stricter rules for the provision of loans,

— the low management costs of Finagra, due to the
participation of banks in its holding, that allowed it to
have lower rates,

— the internal

regulation for collection of capital,
providing a minimum rate of 3 % until May 1999,
even when the application of the government bond
(Rendistato) rate minus 5 points would have led to
values close to zero and even negative at some points.

(135) In order to prove that Finagra was one of

the many
financing members of
the Italian
authorities provided the request (and acceptance) of many
credit institutions to become financing members of MCLC
and Unicarni, under the same terms and conditions as
Finagra.

these cooperatives,

(133) The interest rates applied were also part of the expected
return on the equity investments, on which Finagra, as
financing member, obtained a higher return than normal
members and was therefore linked to the overall invest-
ment strategy of Finagra. Not only could Finagra directly
control the management of the companies receiving the
loans (34) and obtain higher profit rates, but it could also
reduce the management costs, since it had large banks and
credit
institutions as partners. The Italian authorities
declared that the other private financing members, when
lending money to the cooperatives of which they were
members, applied the same interest rates, since those
interest rates are laid down in the rules for the collection of
members' loans, approved by the cooperatives.

(34) Finagra, as financing member of cooperatives could appoint one
the Administrative board and one of the statutory

member of
auditors' board.

(136) The number of financing members in MCLC and Unicarni

is shown in the table below.

Table 5

Financing members of MCLC and Unicarni

Financing members of MCLC and Unicarni

1994

1995

1996

23

35

39

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Financing members of MCLC and Unicarni

1997

1998

1999

2000

2001

2002

2003

52

55

58

61

79

93

103

In 2004, Unicarni had ten financing members for a total
value of financing shares of EUR 5 918 000 and MCLC had
64 financing members for a total value of financing shares
of EUR 1 559 286.

(137) All the financing members, when providing loans, were
bound by the rules for the collection of loans approved by
the boards of the cooperatives. Those rules provided for an
to that on government bonds
interest rate equivalent
(Rendistato) for operations lasting more than 18 months,
minus five points. The minimum interest rate to be paid
was set at 3 % until May 1999. Finagra therefore acted as
any other (private) financing member when providing the
loans to the cooperatives.

(138) The financing members provided a substantial part of the money borrowed by the two cooperatives. As
shown in the table below, in the period between 1996 and 2003, MCLC and Unicarni received loans by
Finagra and other private investors, as financing members.

Loans granted to MCLC and Unicarni by all financing members in the period 1996 to 2003

Table 6

Year

1996

1997

1998

1999

2000

2001

2002

2003

Total loans received by financing
members(ITL)

No of financing members

Value of the loans granted by Finagra
(ITL)

3 500 000 000 (1)

33 000 000 000 (2)

6 390 361 001

6 727 572 001

10 366 345 007

10 274 854 007

8 342 949 006

8 520 314 006

6 603 670 715

7 491 842 237

39

48

51

53

53

54

91

98

(1) This amount includes the 4-year loan worth ITL 500 million to Unicarni and the 4-year loan worth ITL 3 billion to MCLC granted
in 1996. MCLC also obtained loans in 1994 worth ITL 1 500 million (letter by the Italian authorities dated 5 July 2001).
Loan granted to Unicarni.

(2)

(139) The fact that these loans were granted under the same
terms and conditions as any other private investor,
investing considerably in the same cooperatives where
Finagra entered as financing member, proves that
the
principle of equality was respected.

(140) On the basis of

the

foregoing considerations,

the
Commission can conclude that in granting the loans to
cooperatives Finagra behaved as a private investor operat-
ing on the market under
the same conditions. The
preference given by Finagra to the specific borrowers in
the agricultural sector stems from Finagra's will and
statutory duty to intervene in agricultural undertakings.
the loans granted by Finagra to the
In this respect,

cooperatives do not constitute State aid within the meaning
of Article 87(1) of the Treaty.

(141) In the case of other private companies, the difference
between the aid rates at which the loans were granted and
the Commission reference rates may well constitute State
aid within the meaning of Article 87(1) of the Treaty, even
if all the conditions referred to above in points 125 to 129
are fulfilled also in the case of private companies. The
difference between the return on loans granted to private
companies and loans granted to cooperatives in which
Finagra was a financing member is undeniable and has
been summarised in points 131 to 133 above. In the case
of cooperatives, Finagra, even when applying rates that
were lower than the Commission reference rates, acted as

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any other private investor in the same situation and
expected a higher return of the equity operations to which
the loans were linked. This additional return, together with

the Finagra's market behaviour, which is comparable to that
of any other private operator in the same situation,
is
clearly not applicable in case of loans to private companies.

(142) The Italian authorities stated that Finagra had granted loans only to two private companies
(Guardamiglio and Ultrocchi) and that the difference between the applied rates for these loans and
the Commission reference rate applicable at the time ranged from — 3,18 to — 5,20 percentage points.
According to the Italian authorities, this difference can be considered as aid towards the completion of
investments belonging to the integrated projects provided for by Law No 252/91, but clearly
distinguished from those financed by that Law. The investments, therefore, despite observing all the
criteria for obtaining funding under Law No 252/91, did not benefit from any funds under this Law or
any other public funds. These projects came within the integrated projects, but were functionally
independent of them. The loans were part, therefore, of a strategy aiming at finalising integrated projects,
by using different means of financing (though not cumulated, as in this case). The gross grant equivalent
aid rate of the two loans granted for completing investments in the processing and marketing sector is
0,96 % and 4,51 %, as shown in the following table.

Table 7

Finagra's loans to private companies

Eligible costs (not covered by
Law No 252/91)(ITL)

Difference of interests (ITL)

% of aid

2

3

Beneficiary

1

GUARDAMIGLIO

9 162 000 000

413 508 030

ULTROCCHI

42 940 033 423

415 954 000

4 = 3/2

4,51

0,96

(143) Since it considers that all

as

the subsidised investments
comply with the rules applicable to the investments in the
processing and marketing sector
listed in Sec-
tion VI.1 (a) 1 and that the aid rate (calculated as the
gross grant equivalent of the difference between the applied
rate for these loans and the Commission reference rate
applicable at the time) are within the maximum aid rates
applicable for this kind of investments, the Commission
can conclude that the loans granted by Finagra to private
companies constitute State aid within the meaning of
Article 87(1) of the Treaty. This aid is compatible with the
common market according to Article 87(3)(c) of the EC
Treaty.

VI.3.1.(c) T h e p r o v i s i o n o f g u a r a n t e e s

(144) In their

letters of 29 October 2004,

registered on
3 November 2004, and of 23 November 2004 the Italian
authorities stated that Finagra only provided one guarantee
with respect to bank loans, in favour of Guardamiglio.

(145) The bank guarantee for Guardamiglio, worth ITL 2 billion,
ITL 17 billion, which
was granted on a loan of
Guardamiglio fully repaid without calling in the guarantee.

down in the Commission letter SG(89) D/4328 of 5 April
1989, in the Commission letter to Member States SG(89)
D/12772 of 12 October 1989 and in the Commission
communication to the Member States on the application of
Articles 92 and 93 of the EC Treaty and of Article 5 of
Commission Directive 80/723/EEC to public undertakings
in the manufacturing sector (35). On the basis of these
documents, the Commission accepted the guarantees only
their realisation was contractually linked to specific
if
conditions which may go as far as the compulsory
declaration of insolvency of the beneficiary or any similar
procedure. An assessment of the aid element of guarantees
entailed an analysis of the borrower's financial situation.
The aid element of these guarantees would be the difference
between the rate which the borrower would pay in a free
market and that actually obtained with the benefit of the
guarantee, net of any premium paid for the guarantee.

(147) In this case, according to the Italian authorities,

the
guarantee does not constitute State aid within the meaning
of Article 87(1) of the Treaty for the following reasons:

— the beneficiary was not in financial difficulty,

— the borrower had obtained a loan for ITL 17 billion
on the financial market, which proves that
the
company was considered trustworthy and the invest-

(146) When the guarantee was set up, the provision of State
guarantees was examined according to the principles laid

(35) OJ C 307, 13.11.1993, pp. 3 to 14.

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EN

Official Journal of the European Union

L 276/21

ment viable,

— the guarantee was linked to a specific financial
transaction,
it was for a fixed maximum amount
and for a limited amount of time; the guarantee only
covered around 11 % of the total loan,

— the borrower had not received the loan at conditions
more favourable than the normal market rate, because
of Finagra's guarantee,

— the guarantee was subject to specific conditions for
recovering the credit, either by extra judicial settle-
ment or, in compliance with the provisions contained
in the Italian civil code, through the forced execution
of credit on the guaranteed debtor's assets;

— the premium requested by Finagra was an annual rate
of 0,40 % and represented, according to the Italian
authorities, the market price for additional guaran-
tees (36) at the time, considering the sound financial
situation of the beneficiary, its economic prospects
and the investments about to be undertaken. The
market price of a primary guarantee at the time was
0,70 %, according to the Italian authorities. In case of
an additional guarantee, the market rate was between
0,40 % and 0,70 %, according to the beneficiary's
financial situation. In case of a loan granted to a
company judged positively by a pool of banks and
with good economic perspectives, undergoing a
thorough process of modernisation, the annual rate
of 0,40 % reflects, as stated by the Italian authorities,
the market rate applicable to this type of operation.
The guarantee is linked to an underlying operation
(investments), which is part-financed by the State
through Law No 252/91 and therefore in line with
State aid rules.

(148) On the basis of the foregoing information, the Commission
can conclude that the guarantee provided by Finagra does
not constitute State aid under Article 87(1) of the Treaty.

VII.

CONCLUSION

(149) The Commission finds that Italy has unlawfully imple-
mented the aid in question contrary to Article 88(3) of the
Treaty. However, from all the foregoing considerations, it is
clear that:

— the aid measures provided for by Article 15(16) of
Law No 67/88, Article 5 of Law No 290/99 and Law
No 252/91 (integrated projects) are compatible with
the common market within the meaning of Arti-
cle 87(3)(c) of the Treaty,

— the measures provided for by Article 4 of Law
No 290/99 (namely: the operating, improvement and
agricultural loans due on 31 March 1998 were never
implemented and, therefore, did not amount to State
aid within the meaning of Article 87(1) of the Treaty,

— the interventions of Finagra, under Law No 252/91
relating to the acquisition of shareholdings,
the
granting of loans to cooperatives and the provisions
of guarantees did not constitute State aid within the
meaning of Article 87(1) of the Treaty,

— the interventions of Finagra under Law No 252/91
relating to the granting of loans to private companies
were State aid within the meaning of Article 87(1) of
the Treaty. They are compatible with the common
market within the meaning of Article 87(3)(c) of the
Treaty,

HAS ADOPTED THIS DECISION:

Article 1

1. The State aid which Italy implemented in favour of the meat
sector, provided for by Article 15(16) of Law No 67/88, Article 5
of Law No 290/99 and Law No 252/91 (integrated projects) and
Finagra's interventions under Law No 252/91 relating to the
granting of loans to private companies are compatible with the
common market within the meaning of Article 87(3)(c) of the
Treaty.

2. The measures provided for in Article 4 of Law No 290/99
concerning the operating, improvement and agricultural loans
due on 31 March 1998 were never implemented and did not
result, therefore, in State aid within the meaning of Article 87(1)
of the Treaty.

3. The interventions of Finagra, under Law No 252/91 relating
to the acquisition of shareholdings, the granting of loans to
cooperatives and the provisions of guarantees did not constitute
State aid within the meaning of Article 87(1) of the Treaty.

This Decision is addressed to the Italian Republic.

Article 2

Done at Brussels, 5 July 2005.

For the Commission

Mariann FISCHER BOEL

Member of the Commission

(36) The guarantee granted by Finagra was

indeed an additional
guarantee, since the loan was already covered by a primary
guarantee.