2007/319/EC: Commission Decision of 8 September 2006 on State aid C 45/04 (ex NN 62/04) in favour of the Czech steel producer Třinecké železárny a.s. (notified under document number C(2006) 5245) (Text with EEA relevance)
Date: 2006-09-08
Institutions: European Commission
Subjects: Czechia, State aid, aid for restructuring, control of State aid, iron and steel industry

9.5.2007

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Official Journal of the European Union

L 119/37

COMMISSION

COMMISSION DECISION

of 8 September 2006

on State aid C 45/04 (ex NN 62/04) in favour of the Czech steel producer Třinecké železárny a.s.

(notified under document number C(2006) 5245)

(Only the Czech text is authentic)

(Text with EEA relevance)

(2007/319/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

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

Having regard to Protocol 2 on the restructuring of the Czech
steel industry to the 2003 Accession Treaty,

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

Whereas:

1. PROCEDURE

(1)

On 12 November 2003 the Commission received infor-
the Czech Government had adopted the
mation that
‘Resolution concerning the finalisation of
the restruc-
turing of the steel sector and proposing a solution for
Třinecké železárny, a.s.’ (hereinafter referred to as TŽ).
The Resolution indicated that the Government planned
to grant State aid amounting to around CZK 1,9 billion
(approximately EUR 67 million) (2) to TŽ.

(2)

In the Resolution the Czech Government gave its consent
to the following transactions:

— the Czech Government acquires from TŽ, through
the Czech Consolidation Agency
the
10,54 % stake held by TŽ in the steel company
ISPAT Nová Huť (INH). The price for these shares
will be determined by the Ministry of Finance in
agreement with the Ministry of Industry and Trade,

(CCA),

— the CCA transfers 10 000 bonds with a nominal
value of CZK 1 billion (EUR 35 million), issued by
TŽ and currently held by CCA, back to their issuer,
TŽ, for a total price of CZK 100 million (EUR 3,5
million), i.e. only 10 % of their nominal value.

(4)

(5)

(6)

(7)

The Resolution also stipulates that both transactions can
only come into force after receiving a positive decision of
the Czech Office for the Protection of Competition (OPC)
issued
European
Commission.

consultation with

following

the

By letter dated 26 November 2003, the Commission
requested information concerning the above mentioned
transactions.

On 10 December 2003 and 7 January 2004 meetings
were held between the Czech Prime Minister and Minister
of Trade and Industry and the Commissioner for Compe-
tition.
the
Resolution would be respected (see point 3).

the last statement of

It was agreed that

On 20 February 2004 the Commission received a
description of all
the projects for which the Czech
Government intended to grant State aid to TŽ. On 17
consultation between the
March 2004 a
technical
Commission departments,
the
the representatives of
Czech authorities and the company took place in
Brussels.

On 29 March and 29 April 2004 the Commission sent
comments to the Czech authorities indicating that on the
the information provided it could not be
basis of
excluded that
the planned acquisition by the Czech
Government of the INH shares held by TŽ would be
done above the market price, thereby involving State
aid in favour of the latter, and that State aid financing
different TŽ projects did not seem to be compatible with
the current Community State aid rules.

(1) OJ C 22, 27.1.2005, p. 2.
(2) The currency conversion used in this Decision is EUR 1 = CZK
28,43 (as at 20 September 2006) and is provided for information
only.

(8)

On 22 and 30 April 2004 the Czech Office for the
Protection of Competition authorised the State aid to TŽ.

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(9)

By letter dated 14 December 2004 the Commission
informed the Czech Republic that
it had decided to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of
the measures and requested
certain information.

(10)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (3).
The Commission invited interested parties to submit their
comments on the measure. No comments were received.

(a) Measures adopted in April 2004

(18) On 14 April 2004 the Government of

the Czech
Republic passed a resolution specifying that a purchase
price of CZK 1 250 per share would be paid to TŽ for
the 1 306 920 INH shares in its possession, representing
10,54 % of the capital of this latter company. On 22
April 2004 the OPC considered that
this transaction
did not involve State aid within the meaning of Article
87(1) of the EC Treaty. The transaction was executed at
the end of that month.

(11)

By letters of 31 January 2005, registered as received on 1
February 2005,
the Czech Republic replied to some
questions raised in the decision to initiate the formal
investigation procedure.

(12)

By letter of 18 April 2005, the Commission requested
additional information, which was provided by letter of
16 May 2005, registered as received on 18 May 2005.

(13)

By letter of 4 July 2005, the Commission requested a
copy of certain documents quoted by the Czech auth-
orities, which were submitted by letter of 21 July 2005,
registered as received on 25 July 2005.

(14)

By electronic mail of 10 August 2005, the Czech auth-
orities informed the Commission about new elements.

(15)

(16)

the Commission
By letter of 28 September 2005,
requested additional
information, which was submitted
during a meeting with the Czech authorities on 29
September 2005 and by letter of 18 October 2005,
registered as received on 19 October 2005.

the Commission
By letter of 15 December 2005,
requested further information, which was submitted by
letter of 20 March 2006, registered as received on 21
March 2006.
the Czech authorities
letter,
indicated that they would not pay the closure aid as
TŽ had modified its business strategy.

In this

(17)

By letter of 18 July 2006, the Commission requested
further information, which was submitted by letter of
16 August 2006.

(3) See footnote 1.

(19) On 30 April 2004 the OPC authorised State aid in
favour of TŽ provided in the form of a transfer of
bonds in the total nominal value of approximately CZK
576,7 million (EUR 20 million)
for environmental,
research and development, training and closure projects
for the years 2004-06. Part of
this was aid of CZK
44 088 300 (EUR 1,5 million) for training projects and
CZK 4 152 500 (EUR 0,14 million) for a closure project.

(b) Information about the company

(20)

TŽ was privatised in the mid-1990s and has been fully
restructured without State support.

(21)

(22)

The main scope of business of TŽ is metallurgical (steel)
production with a closed metallurgical cycle. Apart from
the main
production of coke, crude iron and steel,
products of the company are the products produced by
rolling mills,
i.e. blooms, slabs, billets, rolled wire, re-
inforcing steel, and light, middle and heavy section
steel. TŽ is the only producer of rails in the Czech
Republic.

2. GROUNDS FOR INITIATING THE PROCEDURE

The Commission decision to initiate the formal investi-
gation procedure concerned three of the measures taken
by the State in favour of TŽ, namely the shares purchase,
the training aid, and the closure aid. The other aid
measures
(R&D and environmental protection) were
found to comply with the relevant rules and are not
the subject of the present procedure (4). In its decision
the Commission expressed
to initiate the procedure,
doubts that these three measures implemented by the
Czech Republic before accession involved disguised
restructuring aid to TŽ, which would be in contradiction
with Protocol 2 to the 2003 Accession Treaty (here-
inafter Protocol 2).

(4) The Czech authorities informed the Commission by letter of 20
March 2006 that they might consider changes in these projects.
The Commission understands that such changes would be notified
in compliance with Article 88(3) of the Treaty.

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(23)

(24)

the

in force at

requirements of

the
Regarding the training aid and the closure aid,
they complied with all
Commission had doubts that
corresponding Community
the
State aid rules
the time the aid was
granted (5). The documents submitted to the Commission
in February and March 2004 were not clear about the
objective and the conditions of these two aid measures.
The vague information provided in the decisions of the
OPC did not allow checking whether this aid had indeed
been granted in line with the relevant rules.

Regarding the purchase of the INH shares held by TŽ, the
Commission doubted whether the price of CZK 1 250
per share paid by the State would have been acceptable
to a market economy investor and was free of aid in
in March 2004 the Czech
favour of the seller. Indeed,
Securities Commission (CSC) authorised INH to buy back
its own shares on the stock market at a price of CZK
550. In its submission to the CSC, INH underpinned the
proposed price by the valuation report of an expert. The
Commission observed that the State did not take into
account the much lower price approved by the CSC a
few weeks before and accepted to pay the price
calculated by its own expert (KPMG).

(25)

The title of Resolution of the Government of the Czech
Republic No 1126 adopted on 12 November 2003,
which stated that this resolution ‘concerns the finalisation
of the restructuring of the steel sector and proposes a
solution for Třinecké železárny, a.s’,
reinforced the
Commission's doubts.

(26)

The Commission therefore decided to investigate whether
these three measures constituted disguised restructuring
aid to the steel producer TŽ and thus were in contra-
diction with Protocol 2.

3. COMMENTS FROM THE CZECH REPUBLIC

Training aid

(27)

The Czech authorities submitted to the Commission
the projects of TŽ for
training of
copies of all
employees in the period 2004-06, which were assessed
by the OPC and on the basis of which the State aid was
granted. Moreover, they explained in details all activities
covered by general and specific training and indicated
how the training aid would improve and update the

(5) The other aid measures granted fully comply with the Community
Guidelines on State Aid for Environmental Protection (OJ C 37,
3.2.2001, p. 3) and the Community Framework for State Aid for
Research and Development (OJ C 45, 17.2.1996, p. 5).

(28)

(29)

(30)

(31)

levels of

the company's workforce and thus its
skill
employability in the light of the new challenges of the
market.

The training projects, to be carried out from 2004 to
2006, consist of a comprehensive training programme of
many different courses (personal development, commu-
nication, marketing, management training, auditing, new
technologies, engineering, quality etc.). The total eligible
costs of these projects amount to CZK […] (*). The total
aid amounts to CZK 44 088 300 (EUR 1,5 million).

Closure aid

In their letter of 20 March 2006, the Czech authorities
indicated that they would not be paying the closure aid,
amounting to CZK 4 152 500 (EUR 0,14 million),
covering
to
employees of the closeddown furnace because TŽ had
changed its business strategy.

redundancy

payments

part

the

of

Purchase of INH shares held by TŽ

The Czech authorities assert that they acted like a market
economy investor in not taking into account the price of
CZK 550 approved by the CSC and consecutively nego-
tiating the price with the seller — TŽ — only on the
basis of their expert's report (KPMG report). In support of
this assertion, the Czech authorities have put forward
several elements, including the following.

First, they claim that a market economy investor knows
that the interest of a company (INH in this case), when
buying back its own shares, is to pay the lowest price
possible. Therefore, during the negotiation of the price of
the shares with the seller, the rational investor will not
consider the price proposed within the framework of the
buy-back offer as constituting the market value.

(32)

Second, the Czech authorities claim that it cannot be
the price proposed by
that
concluded from the fact
INH was underpinned by an expert report and was
approved by the CSC that
it represented the market
value of the shares:

(a)

report,

regarding the expert

indeed,
the market
economy investor knows that the expert is chosen
and paid by INH, which was particularly interested in
setting a low purchase price. Therefore the impar-
tiality of the expert report could be questioned and
a tendency to set a lower price suspected;

(*) Business secret.

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(b) regarding the fact that the price was approved by the
CSC, the Czech authorities stress that, contrary to the
hypothesis of
the Commission expressed in the
opening decision, the CSC assesses the bid on the
basis of the applicable law and its internal metho-
dology on ‘Expert reports for setting the price of
participating securities within a mandatory take-over
bid and within a public offer to purchase shares’ and
it does not have the competence to set the price of
the shares itself or to replace the expert valuation
report by its own analysis. The CSC decided only
legal requirements for the tender offer
whether all
to buy back the companys
the
expert valuation report were satisfied.

shares and for

(36)

4. ASSESSMENT OF THE AID

4.1. Applicable law

Protocol 2 allows the granting of restructuring State aid
to the Czech steel industry in connection with its restruc-
turing in the period between 1997 and 2003 of up to a
maximum of CZK 14 147 million (EUR 453 million).
The Protocol combines the granting of State aid with
re-establishing
several
inter
viability and the commitment to reduce capacity.

alia, with

conditions,

(33)

(34)

Indeed,

Third,
in addition to the last consideration, the Czech
authorities indicate that, before eventually granting its
approval in March 2004, the CSC had already rejected
one submission by INH and one by LNM (the majority
shareholder of INH).
in both cases the expert
report which formed the basis for the price proposed
contained serious deficiencies with regard to the regu-
latory requirements
INH then
for an expert
made a new submission on the basis of a valuation
the regulatory requirements. The
report respecting all
this last
CSC no longer had any grounds to reject
submission and consequently approved it. According to
the Czech authorities, a market economy investor would
have interpreted this earlier double rejection by the CSC
as confirming its expectation that INH and LNM were
trying, through these deficiencies identified by the CSC in
the expert reports, to undervalue the company in order
to pay the lowest possible price for the shares they
planned to buy back.

report.

Fourth,
the Czech authorities indicate that a market
economy investor will consider that the price of CZK
550 is underestimated given the fact that it corresponds
to an exaggeratedly low price-earnings ratio (P/E). This
ratio is obtained by dividing the price of a share by the
net profit per share. On the basis of the net profit of INH
for 2003, which could be estimated at the beginning of
2004 when the transaction was performed, a price per
share of CZK 550 gives a P/E equal to around 1,25. A
price of CZK 1 250 per share gives a P/E of 2,8, which
was at the extreme bottom of the range of P/E observable
for the steel producers quoted on a stock exchange. In
other words, the price calculated by INHs expert corre-
sponds to a very low valuation of the company, which
was not reconcilable with the valuation by the financial
markets of the companies operating in the steel sector at
that time.

(35)

Finally, the Czech authorities point out that the public
offer by INH to buy back its shares at a price of CZK
550 met with very little response. The large majority of
the eligible investors decided not to sell their shares at
this price. Several of them have even lodged complaints
alleging breach of their rights.

(37)

‘notwithstanding
Point 1 of Protocol 2 provides that
Articles 87 and 88 of the EC Treaty, State aid granted
by the Czech Republic for restructuring purposes to
industry shall be
the Czech steel
specified parts of
deemed to be compatible with the common market’ if,
inter alia, the conditions set out in the Protocol are met.

(38)

‘only companies
Point 3 of Protocol 2 provides that
listed in Annex 1 shall be eligible for State aid in the
framework of the Czech steel restructuring programme.’
TŽ is not mentioned in Annex 1.

(39)

(40)

The last sentence of point 6 of Protocol 2 prohibits
granting any additional aid for the purpose of restruc-
turing to the Czech steel industry. To this end, point 20
gives the Commission the power to take ‘appropriate
steps requiring any company concerned to reimburse
any aid granted in breach of the conditions laid down
in this Protocol’ should the monitoring of the restruc-
turing show non-compliance by way of granting
incompatible State aid to the steel industry’.
‘additional

The grace period for granting restructuring aid to the
Czech steel
industry under the Europe Agreement was
extended by the Council until 31 December 2006. This
arrangement was recognised by Protocol 2. In order to
achieve this objective, the Protocol covers a timeframe
extending before and after accession. More precisely, it
authorised a limited amount of restructuring aid for the
years 1997-2003 and forbids any further State aid for
industry
restructuring purposes
between 1997 and 2006.
it clearly
the 2003 Accession
differs from other provisions of
Treaty,
in
Annex IV (the ‘existing aid procedure’), which only
concerns State aid granted before accession in so far as
it is ‘still applicable after’ the date of accession. Protocol 2
can, therefore, be regarded as a lex specialis which, for the
matters that it covers, supersedes any other provision of
the Accession Treaty.

to the Czech steel
In this respect,

the interim mechanism set out

such as

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(41)

Consequently, while Articles 87 and 88 of the EC Treaty
would not normally apply to aid granted before
accession, which is not applicable after accession, the
provisions of Protocol 2 extend State aid control under
the EC Treaty to any aid granted before accession for the
restructuring of the Czech steel industry between 1997
and 2006.

financed by the State or

through State
They are
resources. These additional financial means are liable to
distort competition in the Community by giving TŽ an
advantage over competitors not receiving aid. Lastly,
there is extensive trade between the Member States in
the steel sector in which TŽ is a non-negligible player,
so the aid is likely to affect trade between Member States.

(42)

aid,

and

after

research

applicable

In any event,

Protocol 2 does not apply to other State aid measures
granted to the Czech steel industry for specific purposes
that can be declared compatible on other grounds, such
as
environmental
development
protection aid, training aid, closure aid, etc. These aid
measures do not fall under the scope of Articles 87
they are granted before accession and are
and 88 if
not
the
accession.
Protocol does not limit the possibility to grant other
kinds of aid to the Czech steel companies in accordance
with the Community acquis. Of course, it does not limit
the possibility to adopt measures that do not qualify as
aid, e.g. capital injections in accordance with the market
economy private investor test. On the other hand, a
measure
companies which
constitutes State aid and which cannot be held to be
compatible with the common market under other rules
is to be considered as restructuring aid — given the
residual character of
in any
event, as aid related to restructuring of the Czech steel
sector and will therefore be subject to Protocol 2.

this qualification — or,

concerning Czech steel

(43)

Therefore,
in accordance with its constant practice and
with point 20 of Protocol 2, the Commission can thus
assess the measures in a formal investigation procedure
under Article 88(2) of the EC Treaty where it suspects
the Czech authorities have granted aid to steel
that
companies that
is not compatible with the common
market on grounds other than restructuring and that,
therefore, Protocol 2 is not being complied with by the
Czech Republic. Also Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 93 (6) applies.

4.2. Existence of aid

Training aid

(44)

Training subsidies in favour of TŽ constitute State aid
within the meaning of Article 87(1) of the EC Treaty.

Closure aid

(45)

The Czech authorities will not pay to TŽ the closure aid
covering part of the redundancy payments to employees
of the closeddown furnace because of a change in the
business strategy of TŽ. The company will therefore not
receive the grant of CZK 4 152 500 (EUR 0,146 million)
promised to it subject to certain conditions. This measure
of
the Czech authorities has therefore become inop-
erative.

(46)

(47)

Purchase of INH shares held by TŽ

The Commission will analyse, in the order in which they
appear in the preceding section ‘Comments from the
Czech Republic’,
forward by the
the elements put
Czech authorities to underpin their assertion that they
acted like a market economy investor (7) is not taking
into account, within the framework of the negotiation
with the seller,
the price of CZK 550 submitted by
INH and approved by the CSC.

The Commission accepts the first claim of the Czech
authorities that a market economy investor, as well as
the seller, knows that the interest of a company (i.e. INH
in this case), when buying back its own shares, is to pay
the lowest price possible. Therefore, during their nego-
tiation of the price of the shares, the rational
investor
and the seller will treat with suspicion the price proposed
within the framework of such a buy-back offer. They will
only consider it as constituting a reflection of the market
value if this price is underpinned by additional elements.
For instance, if the buy-back offer is completed and has
a
been a
significant percentage of investors are ready to sell their
shares at that price, the market economy investor will
normally take this price into account. However,
in the
present case, the buy-back offer was still running at the
time of the transaction and there was no information
available indicating that it would be a success.

among investors, meaning that

success

(6) OJ L 83, 27.3.1999, p. 1. Regulation as last amended by Regulation

(EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1).

(7) The market economy investor principle has long been recognised by
the Court of Justice. See, for instance, Case C-305/89 ALFA Romeo,
ECR [1991], p. I-603, (points 19 et seq.).

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in order to value the company,

(48) As regards the second assertion of the Czech authorities,
the Commission would emphasise that the specificities of
the case need to be analysed. First, there was no stock
market price which could be used as a clear and indis-
putable basis for the market value of the company (8).
Consequently,
it was
future cash flows or
necessary to make forecasts of
dividends
value.
their present
and then calculate
Second, the company to be valued was going through
a deep reorganisation. The company had recently been
sold by the State, which was controlling it until that day,
to a large private steel group. The latter undertook to
modernise
substantial
investments. Considering this dramatic change in the
financial data
company and in its management, past
could not be considered a reliable guide to future
performance. Forecasts about
cash flows or
dividends could not be based on observable existing
series. In conclusion, the valuation of the company was
dependant on forecasts, for which no indisputable base
could be used. The Commission agrees that,
in these
particular circumstances,
it cannot be concluded from
the fact that the price proposed by INH was underpinned
by an expert report and had been approved by the CSC
that it represented the market value of the shares:

and to make

company

future

the

on the development of a company undergoing
dramatic changes, and not from factors such as the
stock market price or past financial data which can
be formally verified by the CSC. The Commission
follows from the information
would note that
provided by the Czech authorities that, if the expert
valuation contains no deficiencies and incoherencies,
the CSC cannot reject it simply because it is based on
‘conservative’ hypotheses and consequently arrives at
a low price for the valued shares.

it

(49)

The Commission accepts the third element put forward
by the Czech authorities, namely that a market economy
investor would have
interpreted the prior double
rejection by the CSC as confirming its expectation that
INH and LNM (the majority shareholder of INH, which is
the driving force behind this operation since it will buy
from INH the shares that the company has bought back)
were trying to undervalue the company in order to pay
the lowest possible price for the shares they wished to
buy back.

(a)

the Commission accepts that, regarding the expert
report, the market economy investor and the seller
know that the expert is selected and paid by INH.
Given the fact that the valuation of the company INH
could only be derived from hypotheses about future
developments, which given the recent privatisation
were difficult to verify, and not from observable indi-
cators, the hired consultant can make a conservative
hypothesis about the future developments in order to
arrive at the price expected by the ordering company
without committing any formal mistake and endan-
gering its reputation. The Commission observes that
the forecasts made by the expert selected by INH
were indeed conservative (see below);

the Commission observes

(b) on the basis of the information submitted by the
Czech authorities,
that
the CSC did not produce its own expert report on
the value of the shares, which would replace the
expert valuation report presented by INH. The CSC
decided only whether all legal requirements for the
tender offer to buy back the companys shares and for
the expert valuation report were satisfied.
In the
present case the Commission would observe that
the valuation had to be derived from hypotheses

(8) In the opening decision, the Commission acknowledges that, while
the stock market price normally constitutes the best indicator of the
value of shares, the price observable on the Prague Stock Exchange
for INH shares does not constitute a reliable indicator of the value of
a 10 % stake in INH capital. Indeed, monthly and yearly statistics
show that the value of the trades is very limited. The stock market
price, therefore, does not result from the interaction of a substantial
number of significant investors.

(50) As regard the fourth assertion of the Czech authorities,
the Commission would observe that, at
the time of
preparation of the valuation reports respectively ordered
by INH and the State in the first quarter of 2004, INH's
profit for the full year 2003 was not yet known but
could be estimated on the basis of the figures of the
first quarters which were already known. Accordingly,
the forecast net profits for the full year 2003 included
in both valuation reports are of similar magnitude. On
the basis of the net profit they forecast for 2003, a price
per share of CZK 550 gives a P/E equal to around 1,5.
(The Czech authorities calculated the P/E ratio of 1,25 on
the basis of the effective profit, which was not known at
that time and which turned out to be better than forecast
by both experts, hence the lower P/E ratio.) The latter
figure is very low. A market economy investor will value
a company at such a depressed price only if he has
exceptionally negative expectations for the growth of
the net income in the future. The Commission would
observe that the expert hired by INH indeed considers
that the net profit achieved in 2003 is very exceptional
and anticipates that profits will decrease by two thirds
this expert
over
anticipates for the years after 2003 a nearly complete
(CZK 0,9 billion), a
return to the 2002 profit
period when INH was
suffering from weak
management and a lack of investment following from
State ownership. The expert forecasts low sales growth
and limited cost reductions. The Commission would
observe that
the valuation report does not clearly
explain why LNM, which took control of INH at the
beginning of 2003, would be inefficient at restructuring
the company, at reducing the operating and input costs,
and at developing more profitable products and business
relations.
the price of CZK 1 250
calculated by the expert hired by the State, KPMG,
gives a P/E between 3 and 3,5. This is at the bottom

the coming years.

In other words,

In comparison,

level
still

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the

like

expert hired by INH,

of the P/E range observed on the financial markets at that
time for steel producers. This low ratio reflects a prudent
forecast for the growth of profit. KPMG indeed foresees a
(limited) decline in profit after 2003. KPMG therefore
the
acknowledges,
favourable situation on the steel market in 2003 and
its cyclical nature. However, KPMG also anticipates that,
under the control of LNM, the operational restructuring
of
the formerly State-owned company will continue,
cheaper sources of inputs will be found thanks to the
integration in a large steel group, and production will be
reoriented towards higher-added-value products.
In
conclusion,
a market
the Commission agrees
economy investor would have considered the price of
CZK 550 as underestimated given the fact that it corre-
sponds to an exceptionally low P/E, which is difficult to
justify on the basis of the expected improvement in the
financial performance of
the company which could
reasonably be expected following its privatisation and
the investment and restructuring programme launched
by its new private shareholder.

that

(51)

the Government purchase,

The Commission concludes that the combination of the
four foregoing elements helps to explain why, at the time
the price of CZK 550
of
the buy-
proposed by INH within the framework of
back operation and endorsed by the CSC would not
have been seriously taken into account by a market
economy investor and could not constitute a serious
bargaining tool to force the seller to decrease its price.
In the absence of any other available reference price, a
market economy investor would therefore have nego-
tiated with the seller on the basis of the price calculated
by its expert (9). As
the price paid by the Czech
Government is in the price range calculated by KPMG,
these State resources have been invested in a way
acceptable to a market economy investor. Accordingly,
the Commission considers that the shares purchase does
not constitute State aid within the meaning of Article
this
87(1). The Commission wishes
conclusion is totally dependent on the particular circum-
stances of the present case.

to stress

that

(52)

Finally, regarding the fifth element put forward by the
Czech authorities, namely the fact that the public offer by
INH to buy back its shares at a price of CZK 550 met

in its decision to initiate

(9) Insofar as the experts valuation report does not contain deficiencies.
However,
investigation
procedure, the Commission did not express doubts about the plau-
sibility of the views expressed in this report. Nor does the above
analysis indicate that its conclusions are unreasonable.

formal

the

with very little response, the Commission acknowledges
that it was not known at the time of the transaction
analysed and therefore concludes that this fact cannot
justify why the proposed price was not
taken into
account by the State.

4.3. Compatibility of the aid

(53) As explained in recitals 42 and 43, the Commission has
to assess the potential compatibility with the applicable
regulations of the measure found to be State aid, in order
to ensure that it does not constitute restructuring aid,
which is forbidden under the Protocol 2.

(54)

Training aid is assessed on the basis of Commission
Regulation (EC) No 68/2001 of 12 January 2001 on
the application of Articles 87 and 88 of the EC Treaty
to training aid (10).

(55)

The distinction between specific training and general
training actions is drawn under Article 2 of the Regu-
lation. Specific training is defined in Article 2(d) of the
Regulation as training involving tuition directly and prin-
cipally applicable to the employee's present or future
position in the assisted firm and providing qualifications
which are not, or only to a limited extent, transferable to
other firms or fields of work.

(56) General training is defined in Article 2(e) of Regulation
(EC) No 68/2001 as training involving tuition which is
not applicable only or principally to the employee’s
present or
future position in the assisted firm, but
which provides qualifications that are largely transferable
to other firms or fields of work and thereby substantially
improve the employability of the employee.

(10) OJ L 10, 13.1.2001, p. 3. Regulation as last amended by Regulation

(EC) No 1976/2006 (OJ L 368, 23.12.2006, p. 85).

L 119/44

EN

Official Journal of the European Union

9.5.2007

(57)

the Commission was able to verify that

The Czech Republic has provided detailed information on
the proposed training courses. On the basis of this infor-
mation,
the
distinction between general and specific training applied
by the Czech Republic was in conformity with Article 2
of Regulation (EC) No 68/2001. Thus,
the courses
described as general
training relate to qualifications,
such as management, personal development, communi-
cation, marketing and auditing skills,
that are largely
transferable to other firms or fields of work. On the
to
same
technical
products,
projects,
quality
improvement, and thus had limited applicability to
in
other functions, were described as specific training,
line with Article 2(d) of the Regulation. According to
the information submitted to the Commission,
the
training aid was necessary to achieve the envisaged
objectives.

courses which
new technologies,
environmental

relate
engineering,
management,

particularly

basis,

(58) Article 4(7) of Regulation (EC) No 68/2001 defines the
eligible costs of a training project and requires the infor-
mation on costs to be transparent and itemised. The
Czech Republic has
supplied to the Commission
detailed information on the costs related to the project,
itemised in such a way that it was possible to identify
these costs with those set out in Article 4(7) of the
Regulation. This
in
information was
conformity with the requirements of Article 4(7) of the
Regulation.

found to be

(61)

(62)

5. CONCLUSION

The Commission concludes that the training aid of CZK
44 088 300 (EUR 1,55 million) in favour of TŽ complies
with Regulation (EC) No 68/2001.

The closure aid of CZK 4 152 500 (EUR 0,14 million)
will not be paid to TŽ as TŽ has changed its business
plan.

(63)

The purchase of the INH shares held by TŽ does not
constitute State aid.

(64) Accordingly,

these three measures do not constitute
disguised restructuring aid to TŽ, which would have
been in contradiction with Protocol 2,

HAS ADOPTED THIS DECISION:

Article 1

The training aid of CZK 44 088 300 in favour of Třinecké
železárny, a.s. complies with the criteria laid down in Regu-
lation (EC) No 68/2001 and it does not constitute restructuring
aid within the meaning of Protocol 2 to the 2003 Accession
Treaty.

The purchase of the shares of ISPAT Nová Huť held by Třinecké
železárny, a.s. does not constitute State aid within the meaning
of Article 87(1) of the EC Treaty.

(59)

Further, the aid intensities applied by the Czech Republic
were found to be in conformity with the maximum aid
intensities allowed under Article 4(2) and (3) of Regu-
the aid intensities
lation (EC) No 68/2001. Thus,
proposed correspond to those allowed under the Regu-
lation for specific and general training, respectively, with
regard to a large enterprise located in areas which qualify
for regional aid under Articles 87(3)(a) of the EC Treaty.

Article 2

This Decision is addressed to the Czech Republic.

Done at Brussels, 8 September 2006.

(60)

In conclusion, the aid is in line with the requirements
laid down in Regulation (EC) No 68/2001.

For the Commission

Neelie KROES
Member of the Commission