2006/900/EC: Commission Decision of 20 October 2005 on the State Aid implemented by Finland for investment aid to Componenta Corporation (notified under document number C(2005) 3871)   (Text with EEA relevance)
Date: 2005-10-20
Institutions: European Commission
Subjects: Finland, State aid, aid to undertakings, control of State aid, investment aid, metallurgical industry

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Official Journal of the European Union

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COMMISSION DECISION

of 20 October 2005

on the State Aid implemented by Finland for investment aid to Componenta Corporation

(notified under document number C(2005) 3871)

(Only the Finnish and Swedish versions are authentic)

(Text with EEA relevance)

(2006/900/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(6)

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

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

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

Whereas:

I.

PROCEDURE

(1)

(2)

(3)

By letter dated 10 March 2004 from Metalls Verkstadsklubb
vid Componenta Alvesta AB, Sweden, the Commission was
informed that the City of Karkkila had made a financial
transaction with Componenta Corporation Oyj in Karkkila,
Finland which it suspected contained state aid. Based on
this information the Commission requested clarifications
from Finland. By letter dated 22 June 2004 Finland
provided the Commission with the information requested.

By letter dated 19 November 2004 the Commission
informed Finland that
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of the suspected aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission invited interested parties to submit their
comments on the measure.

(4)

The Commission received no comments from interested
parties.

II.

DETAILED DESCRIPTION OF THE AID

The aid and the beneficiaries

(5) Componenta Corporation Oyj (hereinafter called Compo-
nenta)
is a metal sector company with international
operations, based in Karkkila, Finland. It has production
plants in Finland, the Netherlands and Sweden. Most of the
company's net sales in 2004 of EUR 316 million came from
the Nordic countries and Central Europe. The Group
employs around 2 200 people.

(7)

(8)

The suspected aid was provided to Componenta in
December 2003 and consisted of two operations. In one
case it was provided through the purchase by the city of
Karkkila (hereinafter called Karkkila) of 50 % of the shares
in the real estate company Karkkilan Keskustakiinteistöt Oy
(hereinafter called KK), which was jointly owned (50/50) by
Karkkila and Componenta.
In the other case Karkkila
granted KK an interest-free loan, which was used by KK to
reimburse a loan of the same amount that it had been
granted by Componenta in 1996. The total sum of the deal
was EUR 2 383 276,5 (EUR 713 092,5 for the shares and
EUR 1 670 184 in the form of the loan repayment) (3).

The price for the shares was based on the estimated net
value of
the company (assets minus liabilities) and by
dividing this amount by 2, since Componenta owned 50 %
of KK. Since the net value of KK was calculated as
EUR 1 495 918,
the 50 % shares was
EUR 747 958. The price for the shares was set somewhat
lower at EUR 713 092,5.

the value of

sales

agreement between Karkkila
The
Componenta (Seller) furthermore stated the following:

(Buyer)

and

a.

b.

in the extension of
‘The Seller agrees to invest
Componenta Karkkila Oy’s production facilities in
the territory of the City of Karkkila as specified in
Appendix 1 of this contract. It is estimated that the
investment will create 50–70 new full-time jobs in
Karkkila in 2004 (the average number of Componenta
employees in Karkkila in 2003 was 130).

the Seller’s

the extension of
If
commenced in 2004 as
paragraph,
transaction at its own discretion.’

the Buyer has the right

is not
facilities
specified in the above
the

to cancel

(9) Annex 1 of the sales agreement stated that Componenta
will merge the operations of two of the Group’s foundries
(the Alvesta foundry in Sweden and the Karkkila foundry);
that the two units that operate at a low utilisation rate will
be merged; that analyses were required for making the
decision on the location of the foundry and commence-

(1) OJ C 49, 25.2.2005, p. 11.
(2) See footnote 1.

(3) Elsewhere in the text

these amounts have been rounded for

convenience.

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ment of employer–employee negotiations as regards the
decision on the closing of the Alvesta or the Karkkila
foundry and that detailed planning of the new foundry,
including the transfer of machinery from the other foundry,
was necessary. It is, therefore, clear that the decision was
linked to the moving of the production facilities from one
of the two locations to the other.

(10) According to information in Componenta’s annual report
2004, its foundry in Alvesta, Sweden, was closed down in
May 2004 with the key production and machinery
thereafter moved to Karkkila, Finland. According to the
information from the company the total cost of closing
production in Sweden and investing in Finland amounted
to EUR 13 million.

(11) Finland argued that the transaction between Componenta
and Karkkila was market-based and that no aid was
involved. In its decision to initiate the formal procedure the
Commission, however, expressed doubts that the transac-
tion between Karkkila and Componenta was market-based.
It stated that if the purchase price was above the market
aid to
value of
Componenta. The aid amount would be the difference
between the price a private investor would be willing to pay
for the shares and the EUR 2,4 million transferred from
Karkkila to Componenta.

this would constitute

shares,

the

(12) The Commission furthermore considered that the clauses
of the sales agreement referred to above provided a strong
indication that the transaction was not market-based, and
that it was instead intended as a form of compensation for
Componenta’s new investments in the territory of Karkkila,
which were linked to the closure of the Alvesta foundry.

(13) After taking over Componenta’s shares in KK, Karkkila

decided to liquidate KK and transfer the land to the city.

III.

COMMENTS FROM FINLAND

(14) Since the only significant asset of KK was its land, Finland
has specified in more detail how the land owned by KK was
valued when setting the price of the shares.

a.

b.

For land to be used for private homes and apartment
buildings the value was based on the land sales criteria
used by the city itself when selling land. According to
Finland this was equal to or below the market price.
Finland also provided a copy of a letter from a
certified real estate agent stating that the market value
per square metre of
the different land types was
slightly above the price used in the transaction in
question.

As regards a large area of land situated in the centre of
Karkkila called Asemansuo, Finland claims that the
purchase price was calculated on the basis of the lower
limit of permitted building area specified in the city
plan, but no information was provided on which base
the amount in euro per square metre was fixed.

c.

Finally, as regards the value of land designated for
parks, a valuation of EUR 456 000 was considered by
the real estate agent to be the market value.

(15) The Commission requested Finland to make a market
valuation of all the land owned by KK at the time of the
sales agreement. Finland replied that this was not needed,
since Karkkila and Componenta had used a real estate agent
land similar to the land
to estimate the unit value of
involved in the transaction and that a market evaluation
had therefore already been done.

(16) As regards the condition in the sales agreement stipulating
that Karkkila would buy the shares in KK from Compo-
nenta only if Componenta invested in new production
facilities (thereby moving its foundry from Alvesta, Sweden
to Karkkila), Finland denies allegations by the Commission
that this clause is a sign that the transaction was not
market-based.
It justifies the clause by the fact that if
Componenta’s activity were increased in Karkkila this
would be favourable for the city, boosting its revenue. It
would also increase the demand for real estate, thereby
raising the value of the land owned by KK. Otherwise,
Karkkila would not ‘need’ to conclude the transaction.

(17) Asked by the Commission whether Componenta had tried
to find another buyer for the shares, Finland replied that it
had not, since Karkkila had the right of first refusal to
redeem the shares at the market price in the event of
Componenta wanting to sell its shares in KK.

(18) Finally, as regards the loan transaction, Finland confirms
that the repayment of Componenta’s shareholder loan by
new funds from Karkkila to KK was an integral part of the
share transaction between Karkkila and Componenta and
that the ‘total purchase price’ consisted of the payment for
the shares and the repayment of the loan.

(19)

In this respect, Finland argues that the loan transaction too
was market-based, since the total amount provided to
Componenta for the shares and the loan, EUR 2,37 million,
was less than the market value of half of KK. Furthermore,
Finland argues that KK’s financial situation had improved
since 1996 when the loan was granted to KK by
Componenta.

IV.

ASSESSMENT OF THE AID

Definition of aid

(20) According to Article 87(1) of the EC Treaty, any aid granted
by a Member State or through state resources in any form
whatsoever which distorts or threatens to distort competi-
tion by favouring certain undertakings or the production of
in so far as it affects trade between
certain goods is,
Member States,
incompatible with the common market.
the European
Pursuant
Courts, the criterion of trade being affected is met if the

to the established case law of

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recipient firm carries out an economic activity involving
trade between Member States.

(21) The activities of Componenta involve trade between
Member States. Therefore, aid to this company would fall
within the scope of Article 87(1) of the EC Treaty. State
resources include financial assistance granted by regional
and local authorities (4).

Existence of aid

(22)

In its decision to open the formal
investigation the
Commission stated that the aid amount would be the
difference between the price a private investor would be
willing to pay for the shares and the purchase price of
EUR 2,37 million.

(23) The Commission notes that

two parts. First, Componenta

the total purchase price
consisted of
received
EUR 0,7 million in cash in return for its shares and,
second, it was repaid EUR 1,67 million that it had provided
as a loan to KK. Therefore, in total Componenta received
EUR 2,37 million in the transaction concerned. The two
elements will be assessed separately.

The conditional clause

(24) The Commission notes that one alternative for Compo-
nenta had been to move its foundry activities from Karkkila
to Alvesta. It is therefore understandable that Karkkila may
have been concerned about
losing
production facilities and thereby employment.

the prospects of

(25) Furthermore, it may be correct that the demand for land
would increase if a main employer in the city expanded its
activities instead of reducing them. However, the fact that
the issue of buying the shares in KK and providing a loan to
KK was contractually linked with Componenta’s investment
decision and that the city even had the right to cancel the
entire transaction if Componenta did not make the
promised investments in Karkkila proves that the decision
of the city to perform the transaction with Componenta
was not based only on the market value of KK, but took
other considerations into account as well.

(26) However, according to the market economy investor
principle, as established by the Court, a market economy
investor takes his decisions having regard to the foresee-
ability of obtaining a return and leaving aside all social,
regional policy and sectoral considerations. Given that
Componenta’s investment in new production facilities was
a direct condition for
transaction under
investigation, it can be concluded that the behaviour of
Karkkila did not comply with the market economy investor
principle. To accept boosting tax revenue and improving
general welfare in the municipality as being market
economy investor considerations would be to mix the
roles of the city as a public authority and as commercial co-
owner of KK.

the financial

(4) Case 248/84, Germany v Commission [1987] ECR 4013, paragraph 17.

(27) The Commission also notes that that the Karkkila City
Board at its meeting on 1 September 2003 stated that the
transaction with Componenta was directly linked to its
investment decision in Karkkila and that when Karkkila
bought the shares of KK, Componenta would have the
funds to make the investment in its Karkkila plant.

(28) These observations

the Commission’s
findings below that the transaction was not market-based.

support

further

The price for the shares

(29) The price paid for the shares in KK is one part of the
financial transaction between Karkkila and Componenta.
The issue is whether this price was market based.

(30) Finland justified the price of the shares in KK in terms of
the net value of the assets owned by KK. However, the
transaction at issue is not a sale of real estate itself, but the
acquisition of shares in a company. For such investment, a
market economy operator would base his assessment of the
market price primarily on the likely return he could expect
from his investment. This is because a market economy
investor invests in view of the profits,
i.e. the expected
return on the investment. He would therefore have taken
into account the ratio between the expected yearly return
on the shares and the capital
invested in order to see
whether he could expect an appropriate return, compared
to other investment alternatives.

(31) On the basis of the results of the last few years, the return
on an investment
in KK would clearly be negative.
Moreover, there are no signs that this situation is set to
improve in the future. Finland has not provided any KK
business plan setting out measures planned to improve the
profit situation nor has it even claimed that Karkkila had
any expectations of improvement in profits and return.

this difficult

(32) The reason for the negative results is that KK was clearly in
difficulties, the demand for its land was weak and revenue
from its land was only marginal. The company had shown
losses for the past four years, had very low sales, could not
distribute any dividends and had a precarious financial
situation. Furthermore,
financial situation
existed even though the company was benefiting from
interest-free loans. Had it financed its activities by normal
loans with interest, the situation would have been even
worse. On the basis of past experience, and lacking any
prospects of an improvement in the company's financial
situation, a market investor could not have expected any
return on investment when purchasing the shares of KK.
Based on this, the Commission considers that the value of
the shares in KK was zero.

(33) This conclusion is reinforced by the fact that KK was, as
explained above, to a large extent financed by two interest-
loans. This means that a change of
free shareholder

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ownership in the shares would have to be accompanied by
the takeover of the interest-free loans, which, as will be
explained below, a market investor would not have done.

(34) As already stated above, what is decisive is the expected
return in the long run, which might differ from the return
actually generated in the past. Nevertheless, a market
economy investor would also take past performance into
account. As regards expected returns, the crucial question is
whether KK could reasonably be expected to generate
adequate income through sale of
land and through the
leasing out of land. This is linked to the valuation of the real
estate in its totality as discussed below.

(35) Finland explained that the value of the land owned by KK
was the basis for the valuation of the shares. It is true that
the net value of assets is also considered by a market
economy investor for his decision. The Finnish argumenta-
tion for the valuation of the shares is summarised in the
table below:

Table 1

Value of KK according to Finland:

Land type

Value according to Finland (Euro)

For detached houses

For terraced houses and apart-
ment blocks

Asemansuo

Parks and communal land

Other area (Haapala)

Total land value

Book equity of KK

Debts of KK

Net value KK

Net value 50 % of KK

Price paid by city

Aid

1 031 565

1 136 849

2 358 158

491 738

49 678

5 067 988

- 231 595

- 3 340 475

1 495 918

747 959

713 092

0

(36) The considerations of the Commission Communication on
State aid elements in sales of
land and buildings by public
authorities (5) do not apply directly, because the transaction
does not concern individual pieces of real estate, but shares
in a company. However, they can be applied by analogy in
this case, since the aim of the Commission’s Communica-
tion, which is to ensure that transactions between public
and private undertakings involving land are free from aid, is
relevant for both the sale and purchase of land by public
undertakings and also because in this case Finland argues
that the valuation of the land was the basis for setting the

(5) OJ C 209, 10.7.1997, p. 3.

price of the shares. The Communication states that land
if not based on an unconditional bidding
evaluation,
should be carried out by one or more
procedure,
independent asset valuers prior to the sale,
in order to
establish the market value on the basis of generally accepted
market indicators and valuation standards.

(37) The Commission notes that the land was not evaluated on
the basis of an unconditional bidding procedure. Therefore
a valuation should have been made by an independent asset
valuer. The question is whether the valuation made by
Finland fulfils the requirement for such an independent
asset valuation. The Commission firstly notes that the short
report from a real estate agent provided by Finland does not
clearly indicate that it concerns the valuation of land owned
by KK. The relevance of this report will be further assessed
below.

(38) The Commission notes that the land owned by KK was
valued in different ways for different types of land, i.e. land
for detached houses, land for terraced houses and blocks of
flats, a specific area called Asemansuo, and parks and
communal land. These different land types will be analysed
separately.

(39) As regards land for detached houses, the valuation was
based on Karkkila’s official unit sales price for such land of
EUR 10,19 per square metre. The Commission notes that
this was the price used by the city to sell land to individual
buyers and thus the retail price. Finland also provided
information from a real estate expert on the unit value (for
the final customer, i.e. also in this case the retail value) of
different types of land in Karkkila. The expert notes that
such land was sold in Karkkila for between EUR 9,43 and
EUR 14,76 per square metre in 2003, but also notes that
the price used by Karkkila is close to the going value for
land, without providing any further details.

(40) However, the Commission notes that there was no actual
external valuation made of the specific land to be used for
detached houses that was owned by KK. Furthermore, there
was no estimation of the wholesale value of the land. In the
view of the Commission it is evident that the value of land
at the retail stage is considerably higher than when land is
sold in large quantities (such as in this case, where KK
owned 80 plots for detached houses) where the buyer's
intention is not to use it, but to sell it on at a later date.

(41) Therefore, an evaluation whereby the estimated retail value
land is simply multiplied by the total
for one type of
amount of land owned by KK contains two errors. First, the
specific land in question is not valued and, second, the
valuation does not indicate what a market investor buying
all the land at once would be willing to pay at the time of
the transaction, in particular taking into account the limited
size of the market for such plots.

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(42) As

regards

land intended for
flats,

construction of
the
terraced houses and blocks of
in total valued at
EUR 1 136 849, Finland refers to the valuation made by the
real estate expert. The Commission notes that the valuation
provided by the real estate expert is EUR 70-80 per square
metre floor area for terraced houses and EUR 60-75 for
apartments. The value used by Finland was EUR 74,02 per
square metre of
terraced houses and
EUR 79,56 for apartment blocks. These figures are thus
in the middle of the range or slightly above those provided
by the real estate expert. The expert furthermore stresses
that there have been only a few comparable transactions in
recent years and demand continues to be low.

floor area for

(43) The Commission notes that for these types of land too the
expert appears to provide the retail value of the land, and
not the wholesale value, which is the price that a market
investor would pay to buy all the land in one transaction.
Given that the expert stresses that the demand for this type
of land continues to be low, the view of the Commission is
that the wholesale market value at the time of the assessed
transaction was greatly overestimated for these types of
land too.

to around half of

(44) As regards the estimated value of the land in the city centre
the
(Asemansuo), which amounts
estimated value of KK’s land (EUR 2 358 158), it is unclear
how the market valuation was made. Finland refers to a
value per square metre to be built on (EUR 79,56), and
multiplies
this by the area allowed to be built on
(29 640 m2. However, the real estate agent referred to by
Finland has valued this particular land at EUR 50 per square
metre to be built on, which would lead to a value of
EUR 1 480 200. The difference between these valuations is
EUR 877 958. Since this concerns one large piece of land,
it can be assumed that the estimate made by the real estate
expert for Asemansuo was the retail value, and the figure
provided by the real estate expert can therefore be
considered as plausible by the Commission. Finland has
not provided any explanation for the substantial deviation
from the expert report.

(45) As regards land intended for gardens and communal areas,
valued at EUR 491 738,
the Commission questions
whether it should be given much value at all, since such
land, which cannot be exploited for productive use, will not
provide any financial
return, and a market economy
investor would therefore not be willing to pay any
significant amount for this.

(46) Based on the

the Commission
above observations,
considers that the valuation of the land owned by KK
was not correctly done and did not comply with the
valuation criteria in the Commission Communication on State
aid elements in sales of land and buildings by public authorities.

(47) Taking just the overvaluation of Asemansuo, the total value
if
is reduced by

of KK’s land, and thus of the value of the company,
calculated on the basis of asset value,
EUR 876 158 to EUR 619 760.

(48) The Commission furthermore considers that the value of
the land intended for detached houses, terraced houses and
blocks of apartments, and communal land and gardens was
considerably overvalued, being based on the two errors
outlined above, namely that the specific land at stake was
not valued and secondly, that the valuation did not indicate
what a market investor selling all the land at once would
receive at the time of the transaction. The total value of the
land was, according to Finland, EUR 2 660 152. The
Commission considers that the land was overvalued by
more than EUR 619 760, which would be the remaining
net value of KK based on the calculation made by Finland,
after correction of
the overvaluation of Asemansuo.
Consequently, even calculating the value of the shares in
this way, the entire amount paid for the shares in KK by
Karkkila was aid to Componenta.

Table 2

Commission estimate of aid linked to the price of the shares
in KK:

Net value KK according to
Finland

Reduction based on real estate
expert valuation of Asemansuo

Estimated net value of KK after
this correction

Further overvaluation of land
according to the Commission

Net value of KK, based on asset
value

Euro

1 495 918

876 158

619 760

At least 619 760

0

(49) Since an investor buying the shares in KK could not expect
a return on the capital and since the land was overvalued,
the Commission concludes that the net value of the shares
in KK was zero. Furthermore, Componenta did not even try
to find another buyer for its shares in KK, which is also an
indication that Karkkila paid a price above market price,
since at least an attempt to find another buyer of the shares
would have been a useful manner to determine their market
price.

(50) The Commission therefore concludes, on the basis of the
valuation of both the company itself and the land owned by
it, that the shares in KK had no value at all at the time of the
change in ownership, and that the price paid for them by
Karkkila (EUR 713 092) therefore is aid in its entirety to
Componenta.

(51) However,

if Finland can provide evidence that the over-
valuation of the land, as described above,
is less than
EUR 619 760, the aid element in the shares transaction
could be reduced accordingly. Such a proof should be based
on a precise evaluation, by an independent asset valuer,
who should be a person with a good reputation who has

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obtained an appropriate degree or academic qualification,
or equivalent, and has suitable experience and is competent
in valuing land and buildings in the location and of the
category at
issue. The evaluation should estimate the
wholesale value of all the land owned by KK at the time of
the transaction and, therefore, how much KK could have
received if all its land was sold at that time on market terms.

The loan repayment

(52) The other part of the financial transaction between Karkkila
and Componenta was that Karkkila granted KK an interest-
free loan of EUR 1,67 million, which KK used to
immediately repay a loan it had been granted by
Componenta in 1996. Two equal loans were provided to
KK in 1996, one from Karkkila and one from Componenta,
on equal terms, since KK at the time was not able to meet
its obligations towards private creditors. That means that
the total amount of the two loans was EUR 3,34 million.

(53) Finland claims that KK was in a good financial position in
2003. It refers, for example, to a footnote in KK’s annual
report 2003 where it is stated that the present value of the
land owned by KK was estimated to be EUR 5 052 459,
which is EUR 1 971 845 higher than the book value of the
land. However, as stated in the previous section,
the
Commission’s assessment is that the KK land was not worth
this much.

(54) The annual reports of KK for the years 2001 to 2003

provide the following key figures:

(amount in
Euro)

Sales/
income

Result

Cash (year
end)

Own capital
(year end)

2000

2001

2002

2003

19,883

25,127

50,015

48,044

- 14,817

94,147

- 207,052

- 16,180

65,576

- 223,233

- 1,879

- 6,481

53,425

28,256

- 225,113

- 231,595

(55) From this table it is clear that the demand for land was very
limited during those four years. It also reveals that the
company receives very little revenue from its land in the
form of land sales or rental income. It is also clear that the
company was running out of cash and that it had an
unusual balance sheet situation with a permanent negative
own capital.
the
company’s main financing, the two loans of a total sum
of EUR 3,34 million from Karkkila and from Componenta,
were interest-free. With a normal interest rate on the loans
the financial situation would have been much worse.

It can furthermore be noted that

(56) Based on this information, the Commission does not agree
with statements from Finland that the financial situation of
the KK was good.

(57) The question is whether KK would have been able to repay
the action taken by

its loan to Componenta without
Karkkila.

(58) The Commission first notes that there were two interest-
free loans of equal amounts provided to KK in 1996, from
Componenta and from Karkkila,
in order to rescue KK.
These two loans clearly provided a benefit to KK. Any
market economy investor who had provided such a loan
would require that repayment of the loans be made in equal
parts to both the parties that granted them. The partial or
total repayment of these loans should therefore be done
equally to both lenders (Componenta and Karkkila) in order
to avoid giving an advantage to one of them.

(59) Since in the transaction at issue Componenta was fully
repaid for the loan it had granted, it has to be assessed
whether KK, in a normal market situation, would have been
able to repay not only its loan to Componenta but also its
loan to Karkkila, in order to ensure that no advantage was
granted to Componenta. The issue is thus whether KK
would have been able to raise EUR 3,34 million on the
market, to be used to repay its two shareholder loans.

(60)

If KK had not been financed by interest-free loans, but had,
instead, had to pay the market interest rate on its loans of
EUR 3,34 million, its annual interest payments would have
been at least EUR 265 000 per year. This calculation is
based on a Commission reference rate for 2003, plus 4 %
points, which the Commission normally add for a company
in difficulty (3,95 % + 4 % =7,59 % multiplied by
3,4 million).

(61) Given the company's income over the past years and its
cash situation, KK would have to sharply increase its annual
income in order to service an interest-bearing debt of this
amount. Since the land apparently did not generate any, or
only marginal, rental
income, the only way for KK to
service its debt would have been to sharply increase its sales
of land.

(62) Since, according to the real estate expert, demand for most
of the land owned by KK was low (for terraced houses and
apartment blocks) and that the Asemansuo area was not
ready for exploitation it is difficult to see how KK could
suddenly increase its annual income sharply.

(63) Even more importantly, such land sales to service the debt
would mean that the company would be getting rid of its
main assets just to service debt. This would mean that if KK
had to sell land for at least EUR 300 000 per year to service
its debt and to cover some minimal administrative costs, it
would after ten years, for example, have basically no assets
left, but still owe the principal of EUR 3,34 million.

(64) Therefore, the Commission concludes that even on the
basis of a simple calculation it is evident that KK would not
have been able to replace its two interest-free loans with a
loan at the market rate. Given the state of its finances, it is
even unlikely that KK would be able to receive a smaller

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market-based loan, allowing it to repay part of its interest-
free loans.

(65) The Commission’s conclusion is

the transaction
whereby KK received an interest-free loan of EUR 1,67 mil-
lion from Karkkila, which KK immediately used to repay
Componenta, did not comply with the market economy
investor principle and is state aid to Componenta.

that

Conclusion on aid amount

(66)

In conclusion,
the aid amount based on information
provided by Finland is the entire amount provided to
Componenta in the transaction at issue. This comprises the
payment for shares in KK (EUR 713 092,50) and the loan
to KK, enabling it to repay a loan (EUR 1 670 184) granted
by Componenta. The total
thus
the aid is
EUR 2 383 276,5. However,
if Finland can provide
evidence that the overvaluation of the land, by the method
described above, is less than EUR 619 760, the aid element
in the share transaction (EUR 713 092,5) could be reduced
accordingly.

sum of

Appraisal of the compatibility of the aid in the light of the
doubts expressed by the Commission

(67) The Commission notes that its doubts on whether the
transaction between Karkkila and Componenta was market-
based have been confirmed, and that Componenta received
aid of EUR 2 383 276,5.

(68) The Commission also notes that this state aid was illegal,

since it was not notified to the Commission.

(69) The Commission further notes

the activities of
Componenta involve trade between Member States and
that state resources include financial assistance granted by
regional and local authorities (6).

that

(70) The Commission therefore concludes that

the
existence of which has been established above, falls under
the prohibition of Article 87(1) of the Treaty, since it was
granted through state resources,
to distort
competition by favouring an undertaking (Componenta),
and affects trade between Member States.

threatens

the aid,

(71) The only exception to this prohibition is where the aid falls
under one of the derogations stated in Article 87 of the
Treaty. Since the aid was intended to finance a new
investment
the Commission has assessed
whether Componenta would have been eligible for regional
investment aid. The Commission's conclusion is that this
would not be possible for two reasons.

in Karkkila,

(72) First, Karkkila is situated in a non-assisted area according to
the regional aid map for Finland for the years 2000 to
2006. Second, Componenta is not an SME according to the
criteria laid down in Annex I of Commission Regulation
(EC) No 70/2001 of 12 January 2001 on the application of
Article 87 and 88 of the EC Treaty to state aid for SMEs (7).
Componenta had sales in 2003 of EUR 178 million,
whereas the definition of an SME stipulates sales of no
more than EUR 40 million. Furthermore, the company’s
average number of employees in 2003 was 1 595, as
against a maximum of 250 employees under the SME
criteria.

(73) The Commission furthermore concludes

the aid
cannot be approved on the basis of any of the other
derogations provided for in the Treaty, and in particular
Article 87. Therefore the illegal aid is incompatible with the
common market and should be recovered with interest.

that

V.

CONCLUSION

(74) The Commission finds

that Finland has unlawfully
implemented aid for a total sum of EUR 2 383 276,5 in
breach of Article 88(3) of the Treaty. The aid has been
illegally granted by the City of Karkkila, Finland to
Componenta Oyj, Finland, in two parts.

(75) The first part totals EUR 713 092.5 in the form of a price
above market price paid to Componenta Oyj for its shares
in Karkkilan Keskustakiinteistöt Oy. This amount may be
reduced by the estimated theoretical value of KK, if Finland
provides evidence that the overvaluation of the land, as
described above, is less than EUR 619 760.

(76) The second part

totals EUR 1 670 184,0, provided to
Componenta Oyj through an interest-free loan granted to
Karkkilan Keskustakiinteistöt Oy, which was used to repay a
loan of the same amount to Componenta Oyj.

(77) The aid is not compatible with the common market and
from the
therefore, be recovered, with interest,

must,
beneficiary, Componenta Oyj,

HAS ADOPTED THIS DECISION:

Article 1

The state aid which Finland has implemented for Componenta
Oyj, amounting to EUR 2 383 276,5 in the form of a payment
from Karkkila City for shares in Karkkilan Keskustakiinteistöt Oy
of EUR 713 092,5 and an interest-free loan of EUR 1 670 184,0
granted from Karkkila City to Karkkilan Keskustakiinteistöt Oy,
which was used by Karkkilan Keskustakiinteistöt Oy to repay
Componenta Oyj for its outstanding loan of the same amount, is
incompatible with the common market.

(6) Case 248/84, Germany v Commission [1987] ECR 4013, paragraph 17.

Regulation (EC) No 364/2005 (OJ L 63, 28.2.2004, p. 22).

(7) OJ L 10, 13.1.2001, p. 33.; see the regulation as amended by

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This aid amount of EUR 713 092,5 can be reduced if Finland
provides evidence that the overvaluation of the land, as described
above, is less than EUR 619 760. The aid amount would then be
reduced by the corresponding proven value of the shares in
Karkkilan Keskustakiinteistöt Oy sold to Karkkila City.

Article 2

1.
Finland shall take all necessary measures to recover from the
beneficiary, Componenta Oyj, the aid referred to in Article 1 and
unlawfully made available to the beneficiary.

2. Recovery shall be effected without delay and in accordance
with the procedures under national law, provided that they allow
the immediate and effective execution of this Decision.

3. The aid to be recovered shall include interest from the date
on which it was at the disposal of the beneficiary until the date of
its recovery.

Interest shall be calculated in accordance with the provisions
4.
laid down in Chapter V of Commission Regulation (EC) No 794/
2004 of 21 April 2004 implementing Council Regulation (EC)
No 659/1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (8).

Article 3

1.
Finland shall inform the Commission, within two months of
notification of this Decision, of the measures already taken and
planned to recover the aid referred to in Article 1. It will provide
this information using the questionnaire attached in the Annex
of this Decision.

Finland shall also submit, within two months of notification
2.
of
this Decision, documents giving evidence that recovery
proceedings have been initiated against the beneficiary Compo-
nenta Oyj.

Article 4

This Decision is addressed to the Republic of Finland.

Done at Brussels, 20 October 2005

For the Commission

Neelie KROES

Member of the Commission

(8) OJ L 140, 30.4.2004, p. 1.

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Information regarding the implementation of the Commission decision (2006//EC)

ANNEX I

1.

Calculation of the amount to be recovered

1.1.

Please provide the following details on the amount of unlawful state aid that has been put at the disposal of the
recipient:

Date(s) of payment (°)

Amount of aid (*)

Currency

Identity of recipient

(°) Date(s) on which (individual instalments of) the aid has been put at the disposal of the recipient (if the measure consists of several

instalments and reimbursements, use separate rows).

(*) Amount of aid put at the disposal of the recipient, in gross grant equivalents.
Comments:

1.2. Please explain in detail how the interest payable on the amount to be recovered will be calculated.

2.

Recovery measures planned or already taken

2.1. Please describe in detail what measures have been taken and what measures are planned to bring about the immediate
and effective recovery of the aid. Please also explain what alternative measures are available under national law to
effect recovery. Where relevant, please also indicate the legal basis for the measures taken or planned.

2.2. By what date will the recovery of the aid be completed?

3.

Recovery already effected

3.1. Please provide the following details of aid that has been recovered from the recipient:

Date(s) (°)

Amount of aid repaid

Currency

Identity of recipient

(°) Date or dates on which the aid was repaid.

3.2. Please attach supporting documents for the repayments shown in the table at point 3.1.