2007/385/EC: Commission Decision of 12 October 2006 on State aid No C 11/2005 (ex N 21/2005), which Germany is planning to implement for the construction of an ethylene pipeline in Bavaria (notified under document number C(2006) 4836) (Text with EEA relevance)
Date: 2006-10-12
Institutions: European Commission
Subjects: Bavaria, Germany, State aid, control of State aid, exchange of information, hydrocarbon, pipeline transport

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

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 12 October 2006

on State aid No C 11/2005 (ex N 21/2005), which Germany is planning to implement for the
construction of an ethylene pipeline in Bavaria

(notified under document number C(2006) 4836)

(Only the German version is authentic)

(Text with EEA relevance)

(2007/385/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

view, was a general infrastructure measure and did not
constitute State aid.

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

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

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

Whereas:

1. PROCEDURE

(1)

2 December

2003 Germany

the
On
its intention to notify formally their
Commission of
intended intervention in support of a pipeline project
between Ludwigshafen in Baden-Württemberg
and
Münchsmünster in Bavaria.

informed

(2)

On 12 January 2005 Germany,
certainty,

for reasons of
formally notified the measure, which,

legal
in its

(3)

(4)

(5)

On 16 March 2005 the Commission initiated the formal
investigation procedure in respect of the alleged State aid.
The Commission decision to initiate the procedure was
published on 26 April 2005 in the Official Journal of the
European Union (2). The Commission called on interested
parties to submit their comments on the aid.

On 19 April 2005 Germany replied to the initiation of
the formal investigation procedure (see Section 5).

Comments were received from several interested parties.
The Association of Petrochemicals Producers in Europe
some Bavarian companies not participating
(APPE),
directly in the project
(Mineraloelraffinerie Oberrhein
GmbH & Co KG (Miro), Bayernoil Raffineriegesellschaft
mbH and Industriepark Gersthofen Service GmbH & Co
formulated positive
as Austria
KG (IGS))
comments in letters dated 2 May, 12 May, 17 May, 3
June and 8 June 2005 respectively. One petrochemicals
producer who requested anonymous treatment of
its
identity gave a critical opinion on 24 May 2005. The
opinion of Austria has been taken into consideration
even though it was submitted after the 30-day deadline
specified in the Official Journal.

as well

(1) OJ C 100, 26.4.2005, p. 18.

(2) See footnote 1.

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(6)

These observations were transmitted for comment
Germany on 16 and 20 June 2005.

to

(7)

The German authorities commented on the observations
of the interested parties on 14 July 2005.

(8)

(9)

On 28 October 2005, the Commission requested further
information which Germany submitted by letter dated 24
November.

Numerous contacts and exchanges of correspondence
took place from the end of 2005 between the Federal
and the Bavarian authorities, representatives of Bavarian
industry and the Commission.

(10) On 8 February 2006 Germany sent a letter to which
letters from the companies
were attached additional
Infraserv
Infraserv Gendorf,
BASF, Borealis, Clariant,
Hoechst,
the MOL Group, OMV (Österreichische
Mineralölverwaltung Aktiengesellschaft) Austria, OMV
Germany and Ruhr Oel GmbH (ROG), as well as letters
from the consortia Aethylen-Rohrleitungs-Gesellschaft
(ARG)
intended beneficiary, Ethylene-
Pipeline Süd GmbH & Co. KG (EPS). On 21 February,
the Bavarian authorities transmitted further comments
from Infraserv
and a revised version of
Hoechst. On 5 February the
same petrochemicals
producer that had sent comments on 24 May 2005
sent
further comments containing a more positive
assessment of the planned aid on condition that open
access was guaranteed between Rotterdam and Bavaria.

the letter

and,

the

as

(11)

In a letter dated 24 July 2006, Germany communicated,
together with a number of other documents, a revised
proposal for their intervention in support of the pipeline
project. This letter was supplemented by letters dated
14 August and 7 September and concerning more
specifically the participation of
für
Aufbaufinanzierung
(hereinafter
Förderbank
LfA), a 100 % subsidiary of the Land of Bavaria, in the
project.

the Landesanstalt

Bayern

2. DESCRIPTION

2.1. The project

(12)

The project consists of building a 357 km pipeline
between Ludwigshafen and Münchsmünster with a total
transmission capacity of 400 000 tonnes.
annual

The

there is no transport of ethylene between
Currently,
Ludwigshafen
expected
and Münchsmünster.
transport volumes are given in Table 1 below. As the
production and use of ethylene develop unevenly,
it is
expected that in the initial years there will be a net flow
in the direction of Ludwigshafen, whereas in subsequent
years there will be a reversal in the situation. The figures
do not take into account the explosion at Basell’s poly-
ethylene plant (see paragraph 24). If the plant is recon-
structed with a similar capacity, it is less likely to close
by 2015, which means a significant smaller net flow as
from 2015. If the plant is reconstructed with a larger
capacity,
transport volumes will be generally lower
throughout the period.

Table 1

Expected transport volumes (1 000 tonnes/year)

2008-2009

2010-2014

As from
2015

Producers

OMV

Ruhr Oel

Users

Wacker

Borealis

Clariant

Vinnolit

Basell

New investors

Net transport volume

(*) Confidential information

[…] (*)
[…]

[…]
[…]
[…]
[…]
[…]
[…]

140

[…]
[…]

[…]
[…]
[…]
[…]
[…]
[…]

80

[…]
[…]

[…]
[…]
[…]
[…]
[…]
[…]

200

The transport fee is established, using the fees of the
Aethylen-Rohrleitungs-Gesellschaft as a benchmark, e.g.
EUR 34,21 per tonne for the whole distance of
the
pipeline or EUR 0,0957 per tonne per kilometre. The
fees will be applied equally for members of
the
consortium and any other user. They will be adjusted
annually on the basis of an independent assessment.

amounts

investment cost of

the planned
The expected total
pipeline
to EUR 154 million, which is
EUR 14 million more than the amount originally
envisaged by Germany. This increase is a result of
higher building costs,
rights
and environmental measures,
and higher operating
costs (electricity, insurance). After the various preliminary
legal steps, the necessary studies should be carried out

including acquisition of

(13)

(14)

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until the end of 2006 and the pipeline built in 2007,
with the entry into service being scheduled for September
2007 according to the initial project. An environmental
impact assessment will be conducted as part of
the
procedure for obtaining the necessary permits and in
compliance with Council Directive 85/337/EEC of 27
June 1985 on the assessment of the effects of certain
public and private projects on the environment (3).

2.3. The beneficiary

(18)

The beneficiary of the aid will be Ethylen-Pipeline Süd
GmbH & Co KG (EPS) (4), a consortium of the petro-
chemical companies (5) BASF AG, Borealis Polymere
GmbH, Clariant GmbH, OMV Deutschland GmbH,
ROG, Vinnolit GmbH&Co KG and Wacker Chemie
GmbH, together with LfA (6).

(15)

The planned pipeline will be operated on the basis of the
following principles: ‘common carrier/open access’, ‘non-
discriminatory fees’ and ‘minimum profit’. Any producer
and user of ethylene will have access to the pipeline
the same conditions. There will be sufficient
under
spare capacity to ensure respect
these principles
(available reserve capacities equivalent to around 50 %
of capacity). These conditions must be respected for at
least 25 years.

for

2.2. The aid

(16)

The Land of Bavaria intends to provide a grant of
EUR 44,85 million equivalent to 29,9 % of investment
costs of EUR 150 million or 29.1 % of a maximum cost
of EUR 154 million. The planned investment over the
period 2004-08 should be EUR 4,5 million in 2004,
EUR 7,8 million in 2005, EUR 54,2 million in 2006,
EUR 86 million in 2007 and EUR 1,5 million in 2008.
In any case, the aid must be limited to a maximum of
29,9 % of the costs and will be reduced proportionally if
the total costs fall below EUR 150 million.

(19)

(20)

2.4. The ethylene industry

as
and

Ethylene is
the simplest alkene hydrocarbon and a
colourless gas. This olefin is commonly produced from
petroleum (either as naphta, as is usually the case in
installations
Europe, or
(crackers)
in
results
ethylene and propylene in a fixed proportion. Ethylene
is the basis for a wide range of polymers (e.g. poly-
ethylene, PVC and polystyrol) which are themselves
used to produce plastics for a large number of appli-
cations.

gas)
in petrochemical
the production process

is

asphyxiant

an anaesthetic,

Ethylene
and highly
inflammable gas that explodes on contact with the air.
It is classified in the highest hazard class. It is therefore
that directly connect
transported only by pipelines
producers and users, with very few exceptions for more
costly sea transport. A number of pipeline systems (of
for
variable length, but often local) have been built
individual
by
ethylene
companies or by consortia such as ARG.
In contrast,
most ethylene derivatives can be transported much
more easily.

1960s,

either

since

the

no

that would

(17) Germany claims that, without the aid given by Bavaria,
the project would not be economically viable because it
would imply much higher transport costs (EUR 54,6 per
tonne)
competitive.
Furthermore, even with the planned aid of EUR 44,85
million and taking into account indirect advantages for
the participating companies, the expected internal rate of
return would be only 1,2 %. It should be noted that, if
Basell’s plant is rebuilt with a larger capacity, the flows
and hence the return on investment will be lower (see
below paragraph 24).

longer

be

(3) OJ L 175, 5.7.1985, p. 40. Directive as last amended by Directive
the Council

the European Parliament and of

2003/35/EC of
(OJ L 156, 25.6.2003, p. 17).

(4) More specifically, EPS consists of two companies:

— the Ethylen-Pipeline Süd GmbH & Co KG, responsible for the
planning, building and management of the pipeline, where the
only liable partner (Komplementärin)
is the company Ethylen-
Pipeline Süd Geschäftsführungs GmbH, which does not hold
any capital; the other (limited) partners (Kommanditisten) with
shares in the EUR 700 000 capital are BASF, OMV and Ruhr Oel
with 20 % each and Borealis Clariant, Vinnolit and Wacker with
10 % each (LfA will participate neither as a liable or a limited
partner in Ethylen-Pipeline Süd GmbH & Co KG and it will have
no liability for the financing of the project);

— the Ethylen-Pipeline

Süd Geschäftsführungs GmbH, which
manages Ethylen-Pipeline Süd GmbH & Co KG, with LfA
holding 25,1 % of
the
capital
is shared between the industrial partners of Ethylen-
Pipeline Süd GmbH & Co KG in proportion to their share-
holdings.

the EUR 28 000 capital;

the rest of

(5) BASF is both a producer and a user of ethylene, whereas OMV and
Ruhr Oel are producers and Borealis, Clariant, Vinnolit and Wacker
are users. One major user of ethylene in Bavaria, Basell,
is not
participating in the pipeline project.

(6) See paragraph 11.

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L 143/19

(21) According

figures

to the

submitted by Germany,
in western Europe was 23,2
production capacity
million tonnes at
the end of 2002, of which more
than 10 million tonnes in Germany and the Benelux
countries alone. Production rose by 2,6 % to 20,7
million tonnes from 2002 to 2003. Since consumption
in Western Europe exceeds production, 0,24 million
tonnes had to be imported in 2002.
In central and
eastern Europe (including the 10 new Member States)
production capacity was 2,24 million tonnes at the end
of 2002 and consumption 2 million tonnes.

(22)

(23)

(24)

The demand for ethylene is directly correlated to the
demand for plastics, which, in turn, is directly correlated
to overall GDP growth. Hence, the expected growth of
ethylene consumption is around 2 % per year in western
Europe and around 5,5 % in central and eastern Europe.
Ethylene producers not connected by pipeline compete
with each other indirectly via competition in the markets
for ethylene derivatives.

The European petrochemical
industry has been very
for a long time. Competitive pressures are,
successful
however, mounting because of stricter environmental
requirements, on the one hand, and strong competition
from polyethylene suppliers in the Middle East, where gas
is available as a cheap raw material, on the other. The use
of gas, though, restricts the number of by-products and
so Europe has a technical competitive advantage in this
respect. In addition, transport costs play an important
role, in particular for shipments to Europe’s heartlands.
Most investments in new capacity in the Middle East are
intended to serve booming markets in China and other
South-East Asian countries but,
if growth on those
markets were to slow down for whatever reason, the
European chemical industry could face stronger compe-
tition from the Middle East.

in

plants

The ethylene industry in Bavaria consists of two ethylene
production
Münchsmünster-Gendorf-
Burghausen owned by OMV and Ruhr-Öl Germany and
a number of ethylene consumers which convert ethylene
into polyethylene and other products: Basell GmbH (in
Münchsmünster), Clariant GmbH and Vinnolit GmbH &
Co. KG (in Gendorf), Borealis Polymere GmbH and
Wacker-Chemie (in Burghausen). The plant owned by
Basell suffered a major incident on 12 December 2005
required to restart
and major
production of polyethylene. No decision has been taken
so far on the future of this plant; Basell stresses the
importance of the pipeline project under investigation.

investment will be

(25)

Ethylene production and supplies between the companies
involved are summarised in Table 2.

Table 2

Current production and supplies

in tonnes (2003 figures)

OMV
Deutschland
GmbH,
Burghausen

Ruhr Oel
GmbH,
Münchs-
münster

Basell GmbH, Münchsmünster (before
the explosion)

Clariant GmbH, Gendorf

Vinnolit GmbH & Co., KG, Gendorf

Borealis Polymere GmbH, Burghausen

Wacker-Chemie, Burghausen

[…]

[…]
[…]
[…]
[…]

[…]

[…]
[…]
[…]
[…]

Total production

350 000

320 000

2.5. A pan-European olefins pipeline network

(26) According to Germany, the planned pipeline project is
intended to form part of a pan-European pipeline
network. Existing ethylene pipelines have an overall
length of some 2 500-3 000 kilometres and connect
about 50 % of
the industry, compared with almost
100 % in the United States. These existing regional but
not interconnected systems are:

— North-West

Europe

(Rotterdam/Ludwigshafen),
including bundled chemical pipelines (with one for
ethylene) Rotterdam harbour-Maasvlakte; pipeline
Rotterdam-Moerdijk-Antwerp; pipeline of Aethylen-
Rohrleitungs-Gesellschaft ARG, pipeline Wesseling
(156 km); pipeline Frankfurt/
(Cologne)/Frankfurt
Ludwigshafen (68 km);

— Ethylene

(Wallonia);

and propylene pipeline Antwerp-Feluy

— Central Europe (Stade-Leuna-Neratovice);

— France (Marseille/Berre–Feyzin-Carling);

the section
Mediterranean-Viriat
from
1970, and the section Viriat-Carling (396 km) from
2001;

(Bourg-en-Bresse) dates

— United

Grangemouth–Wilton,
Kingdom:
Grangemouth–Stanlow,
the new
ethylene pipeline Teesside–Saltend (150km) dates
from 2001;

Stanlow-Wilton;

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— Northern Italy (Ravenna-Porto Marghera-Mantua);

— Bavaria: pipeline Münchsmünster-Gendorf (112 km),

Gendorf-Burghausen;

— Eastern Europe (Slovakia-Ukraine).

Hungarian company TVK), the market leader in Central
Europe but not party to the EPS project, also expressed
support
for the EPS project but preferred initially a
connection to the existing Ukrainian ethylene pipeline
via Slovakia (Bratislava) and Hungary (Szashalombatta
(Budapest)/Tiszaujvaros). More feasibility studies have
also been announced in the course of the discussions
between the Commission and Germany, e.g. on the
pipeline connections to the Czech Republic, between
the
Leuna in Eastern Germany and Poland (under
responsibility of PKN Orlen, a Polish company) and
between Ludwigshafen and Carling, France (under the
responsibility of BASF and Total).

(27)

The planned pipeline would connect to existing pipelines
between Münchsmünster and Gendorf/Burghausen and
between Ludwigshafen and Wesseling.
It would also
create opportunities for the following extensions:

(29)

— to the Czech Republic, e.g. Münchsmünster-Litvinov,
with the possibility of a circular system in Central
Europe;

— to Italy and Croatia, e.g. Burghausen-Porto Marghera;

flexibility and security of

Being connected to a sufficiently large olefins pipeline
network is important for the industry since it reduces
regional bottlenecks in the availability of raw materials,
improves
these
materials and increases
flexibility in the choice of
location of new investments. This explains why the
industry association is also promoting plans to connect
the individual systems for ethylene and/or propylene and
to expand them in order to create a more comprehensive
olefins pipelines network (7).

supply of

— to Austria,

e.g. Burghausen-Schwechat, with the
option of a further connection through Slovakia to
Hungary;

(30)

In the course of the procedure, the Commission received
commitments from Germany and the owners of
the
pipelines
involved in the Ludwigshafen-
Münchsmünster pipeline project to the effect that they
would respect the ‘common carrier’ and the ‘open access’
principles for the following pipelines:

that were

— to France, e.g. Ludwigshafen-Carling.

With these extensions, the planned pipeline will provide
an important connection between the petrochemical
industries in Western and Eastern Europe.

— pipelines in the ARG system: the Wesseling (Colog-
ne)/Frankfurt pipeline owned and operated by
Infraserv Höchst (8) and the Frankfurt/Ludwigshafen
(68 km) pipeline owned and operated by BASF;

(28)

In the letters attached to its letter of 8 February 2006,
OMV, which has a presence in Bavaria (Burghausen) and
in Austria (Schwechat, near Vienna), where it has recently
expanded capacity, Germany stated that, in the event of a
positive decision on the EPS project, it intended to set up
a working group that would look into transforming an
existing product pipeline from Schwechat (running some
into an ethylene pipeline and
150 km to the west)
extending it to Burghausen. OMV expected to receive
the findings of the working group at the end of 2006.
It also announced a study on this project, which could be
completed after a period of 7 to 14 years. MOL Group
(including the Slovakian company Slovnaft and the

— pipelines supplying the industrial sites in Bavaria: the
Münchsmünster-Gendorf pipeline (112 km) owned
and operated by Infraserv Gendorf (9)
and the
Gendorf-Burghausen pipeline owned and operated
by OMV.

(7) See the position paper of

the Association of Petrochemicals
‘The Development of a European Olefins
Producers in Europe,
Pipelines Network and Its Benefits’, May 2003 (see website:
http://www.petrochemistry.net/templates/shwPressroom.asp?TID=
4&SNID=16).

(8) Infraserv Höchst belongs to Clariant (32 %), Aventis (30 %), Celanese
(27,2 %), Nutrinova (4 %), Lil Europe (3,8 %) and Basell (3 %).
(9) Infraserv Gendorf belongs to Clariant (50 %) and to Vinnolit (11 %),
which are both members of the consortium. The remaining 39 % is
owned by Celanese.

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the pan-European pipeline
(31) According to Germany,
in particular would in the
network and this project
long term secure
the petrochemical
industry in Bavaria and the 17 700 or so jobs it provides.

future of

the

3. REASONS FOR INITIATING THE FORMAL
INVESTIGATON PROCEDURE

(32)

(33)

for

general

to whether

infrastructure measure

investigation
formal
The Commission initiated the
the grant constituted
procedure since it doubted that
financing
as
a
claimed by Germany, rather than State aid. It also had
doubts as
the aid could be considered
compatible with the common market. The benefits in
terms of environmental protection, transport safety and
road congestion appeared to be non-existent or only very
limited. The pipeline might be of strategic importance for
the chemical industry in Bavaria, but it might create an
inadmissible distortion of competition. The profitability
the indirect
calculated for the project was low, but
advantages
the existing ethylene and propylene
producers might be significant. The pipeline would
permit the transmission of substantial volumes between
companies along the pipeline, but it would also make it
possible to supply ethylene to other regions, where it
from other
might
suppliers
and
Rhineland-Palatinate. Effects on the propylene market
were not ruled out either.

outside Bavaria, Baden-Württemberg

compete directly with ethylene

for

The Commission also noted that
this project was to
some extent similar to the propylene pipeline between
Rotterdam, Antwerp and the Ruhr district, for which the
Commission approved aid on 16 June 2004 (10).
However, there were important differences: the absence
of substantial ethylene transport between the two ends of
the pipeline, with waterways and rail constituting a
genuine
the propylene
pipeline; the rebates in the transport fees for larger quan-
tities, long-term contracts and advance booking with this
the propylene pipeline,
project, unlike in the case of
this
which led the Commission to doubt whether
the
lead to disproportionate benefits for
would not
companies in the consortium as compared with other
users; according to the Commission, the aid intensity
would be 50 %, instead of below 30 % in the other case.

alternative

case of

in the

4. COMMENTS FROM INTERESTED PARTIES

(34)

The letters submitted in the context of the formal inves-
tigation procedure by the APPE and Austria contain

(10) See recital 47.

positive comments on the project, underlining the
advantages for Europe and the extension of the olefins
pipeline network. Even the Bavarian companies not parti-
cipating directly in the project (Miro, Bayernoil and IGS)
took a positive view, especially given the impact of the
project on the future of the petrochemical
industry in
ethylene producer who
Bavaria. By
the
requested anonymity stated on 24 May that
the
pipeline would be a purely regional defensive investment
aimed at conferring a market benefit on local producers
and would in no way increase the competitiveness of the
olefin industry; this producer, however, said that it was
very much in favour of a comprehensive pipeline
network for olefins in Europe.

contrast,

(35)

The parties directly involved in the EPS project unani-
mously supported the project in a letter attached to the
letter from Germany of 8 February 2006 and regarded it
as a first step towards a wider European network. More
detailed observations were expressed by OMV and MOL
(see paragraph 28). As regards the connection between
the planned and the existing pipelines, BASF, Infraserv
commitments
Gendorf
regarding open access and non-discriminatory pricing
(see paragraph 30).

and Infraserv Höchst

gave

(36) On 5 February 2006 the competitor which did not wish
to be named also sent positive comments
to the
Commission, subject to the opening of the two private
pipelines connecting Bavaria to the ARG system.

5. COMMENTS FROM GERMANY

(37) As

the

regards

the Commission decision to initiate the
formal investigation procedure, Germany still maintained
that the measure did not constitute State aid as it would
not confer a selective advantage and concerned a non-
It also
discriminatory infrastructure open to all users.
stressed that, owing to the difficulty of
transporting
ethylene,
and long-term nature of
large-scale
investment and the interdependence between ethylene
and propylene, the withdrawal of one player from the
Bavarian ethylene-producing or
-consuming industry
would have a knock-on effect on other players in the
industry: one closure would adversely affect the viability
of other plants, and this could lead to further closures
among the remaining ethylene consumers and producers.
As a consequence, a significant number of employees
could lose their jobs. The explosion at Basell’s plant in
Münchsmünster might be the beginning of such a chain

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Official Journal of the European Union

6.6.2007

that

reaction. Germany also underlined the integration of the
project into the wider European network, the particular
the pipeline for an isolated area like
importance of
Bavaria and the repercussion that a failure of
the
Bavarian system would have on other European regions
since the Bavarian pipeline was a key link between
pipelines in Western Europe and those, both existing
in Eastern Europe. Germany mentioned
and planned,
the positive impact
the project was expected to
have on the security of supply, flexibility and competi-
tiveness of the European industry in a global context. It
contended that the project would correct a market failure
inasmuch as, without public support, the project would
not be economically viable.
It also stressed that, even
the
with the EUR 70 million of planned support,
expected internal rate of return for EPS would be only
1,3 %, showing that the companies involved preferred
supply to short-term profits.
long-term security of
the project would not
Germany stated further
had
distort
participants
accepted the
and the
conditions
to the pipeline were non-
for
discriminatory.

‘minimum profit’ principle
access

that
because

competition

the

to

remain

that wished

(38) Germany underlined the virtually unanimous support for
the project. As to the critical comments made by the
anonymous,
competitor
Germany noted the latter’s support
for the European
network and stated that the EPS project was necessary
the
the network, contrary to the contention of
for
anonymous party. As to the connection to the two
private pipelines, Germany underscored the effect of
competition law, which would prevent any discrimi-
nation or abuse of their position by the owners, and
the negotiations carried out between EPS and the
to guarantee open
owners of
access. Referring to the low profit margin of
the
project, Germany contested the Commission’s misgivings
It
that
provided detailed information on the eligible costs, the
the market
calculation of
situation (including propylene
the
imports from third countries,
the expected flows of
ethylene, the production or consumption of the parties
to the project, and the pipelines to be connected to the
EPS pipeline.

the aid intensity was higher

the return on investment,

the private pipelines

than necessary.

derivates),

and

6. ASSESSMENT

6.1. Existence of State aid within the meaning of

Article 87(1) of the EC Treaty

(39) 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 competition by favouring certain undertakings or
the production of certain goods is, insofar as it affects
trade between Member States,
incompatible with the
common market.

(40)

The aid that Germany intends to grant is to be granted
directly by a State authority and thus involves State
resources.

(41)

The body managing the pipeline, EPS, pursues an
economic activity which consists in offering transport
services and must
therefore be considered to be an
undertaking within the meaning of Article 87(1).

(42)

(43)

Insofar as the aid allows the consortium to construct the
pipeline and to exploit it for 25 years without paying the
it confers an economic advantage on the
entire cost,
consortium. Since the investment
in the pipeline is
closely related to existing and planned investments in
production capacity for ethylene and propylene and for
ethylene derivatives, the aid confers an advantage not
to the transport, but also with
only with respect
respect to the production of ethylene and its derivatives.

This advantage must be considered to be selective and
the pipeline cannot be regarded as ‘public infrastructure’.
State funding for the construction or management of
infrastructure is not always regarded as aid
transport
within the meaning of Article 87(1). Public authorities
normally provide such infrastructure ‘because of
the
inability of the price system to do so effectively. Goods
such as infrastructures tend to be indivisible and collec-
tively consumable by all citizens whether they pay for
them or not. Such a public good provided by
government benefits society in a collective manner and
is not conferred upon any specific enterprise or industry
(principle of non-excludability)’ (11). So it
is not only
ownership but also other criteria that are of decisive
importance here.

(44) Unlike ports, airports and motorways, the infrastructure
at issue is not for the general public, but for business
only. It favours only some undertakings, namely a very
small number of players in a particular branch of the
chemical
industry in a particular part of one Member
State. The pipeline is suitable for ethylene transport
only and all members of the consortium are ethylene
producers or users with a direct interest in the pipeline.
The pipeline remains the property of the consortium, and
the restrictions on its use, which would have to be met
for the aid to be granted, apply only for 25 years. The
construction and operation of the pipeline have not been
put out
therefore
selective.

to public tender. The project

is

(11) XXVth Report on Competition Policy 1995, COM(96)126 final,

point 175, p. 85.

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Official Journal of the European Union

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(45)

In addition, building pipelines for chemicals does not
generally fall within the remit of
the State when it
exercises
its powers as a public authority. Building
pipelines for chemicals is an economic activity which is
normally the responsibility, and is in the interest, of the
industry. EPS intends to carry out an economic activity
by building the pipeline and providing transport services
with it so as to generate a – direct and indirect – return
on the investment. Decisions on investments in chemical
pipelines often form an integral part of investment and
disinvestment decisions
regarding productive capacity
itself. Some recent pipelines have been built without
aid, while others have received aid, but such aid was
justified under
for national
regional aid or on the basis of environmental con-
siderations.

the Community

rules

(46)

Pursuant to the established case law of the European
Court of Justice, the criterion of trade being affected is
met if the recipient firm carries out an economic activity
involving trade between Member States. In this respect,
considering not only ethylene, but also propylene and
derivatives of these two gases, the Commission notes
the partners in the consortium
that
involve trade between Member States. Accordingly, the
advantage conferred by the aid distorts or threatens to
distort competition between Member States.

the activities of

that

leads

competitors of

aid beneficiaries.

Article 87(1). The Commission has adopted various
guidelines and frameworks that set out the conditions
under which these exemptions can be applied. None of
these guidelines and frameworks is, however, applicable
to the aid in question. For instance, the rules set out in
the Community guidelines on State aid for environmental
protection (13) apply only to State aid that allows the
beneficiary to reduce its own pollution;
they do not
to a reduction of
apply to investment
In
pollution by
addition, transporting ethylene by means of a pipeline
cannot be seen as an adaptation of
the ethylene
production process that serves the interests of environ-
mental protection, but must be considered as a separate
service. This is illustrated by the fact that the pipeline will
be built by a new legal entity that has been created for
the sole purpose of building the pipeline and providing
transport services for ethylene. Although EPS' share-
holders are active in ethylene production and processing,
the new activity constitutes in the first place a transport
activity. Moreover, in the present case, there is currently
no ethylene
transport between Ludwigshafen and
Münchsmünster. So the project does not directly lead
to reduced emissions by the participating companies.
The direct effect
instead the creation of a new
transport activity that inevitably causes some emissions
and imposes some burden on the environment. Conse-
quently, the environmental aid guidelines do not apply to
the aid.

is

(47)

This assessment is to some extent similar to the one
made in Cases C 67/03, C 68/03 and C 69/03
concerning aid that Germany,
the Netherlands and
Belgium granted for the construction of a propylene
pipeline running from Rotterdam via Antwerp to the
Ruhr district. In those cases, the Commission adopted a
positive decision and stated clearly that the assistance
constituted State aid (12).

(50)

The rules on aid compatibility in Title V of the EC Treaty
(Transport) are not applicable either. Article 73 of the
Treaty states that aid is compatible with the Treaty if it
meets the needs of coordination of transport. However,
Article 80 of
the Treaty limits the provisions in the
transport chapter by stating that ‘The provisions of this
Title shall apply to transport by rail, road and inland
waterway.’ Article 73 does not, therefore, apply to the
present case.

(48)

For the above reasons, the notified measure constitutes
State aid within the meaning of Article 87(1) of the EC
Treaty.

(51)

6.2. Compatibility

(49) Article 87(2) and (3) of the Treaty provides for certain
exemptions from the general prohibition of State aid in

interest

industry,

The pipeline is part of a wider pan-European ethylene
pipeline network and is of
to the European
petrochemical
including companies located in
assisted areas. The various guidelines and frameworks
take this into
adopted by the Commission do not
account. Therefore,
it should be examined whether the
aid qualifies for an exemption directly under Article
87(3)(c) of the EC Treaty. Application of this provision
requires an assessment of the measure’s contribution to
Community objectives, the necessity and proportionality
of the aid, and the potential distortions of competition
resulting from it.

(12) Commission Decision 2005/170/EC (OJ L 56, 2.3.2005, p. 15).

(13) OJ C 37, 3.2.2001, p. 3.

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(52)

(53)

6.2.1. Contribution to Community objectives

the petrochemical

The planned pipeline will play a pivotal role in the pan-
European ethylene pipeline network connecting the
existing networks with the various ‘islands of industry’
the common market. This network increases
across
the European economy in general
competitiveness of
and of
industry in particular, and
this constitutes a Community interest as competitiveness
is central to the Lisbon objectives. As Germany rightly
states, the pipeline will increase flexibility and security of
supply, e.g. in case of accidents or maintenance, thereby
reducing overall cost levels and improving production
and supply conditions for ethylene and its derivatives.
The network will also ease regional bottlenecks in the
availability of raw materials and will address the current
problem that demand for ethylene and that for propylene
do not grow in the same proportions as the fixed
proportion that characterises these products when they
chemical production process. The
result
network will also increase flexibility in the choice of
location of new investments, enabling the producer to
choose the production sites with the lowest costs. For
these reasons, the network is generally acknowledged to
be of great importance to the petrochemical industry (14).

from the

is
types of normal market

In addition, the pipeline network enables all producers
and consumers of ethylene to buy or sell ethylene along
the pipeline and connected networks. The pipeline thus
the relevant geographic market, which for
enlarges
currently limited to Bavaria.
Bavarian producers
Various
e.g.
swapping, will enable all players to enjoy the benefit of
a larger relevant geographic market and so the network
can be expected to increase not only competitiveness but
also competition between players in the market. This in
turn represents an important incentive for further cost
reductions and growing competitiveness in the industry
concerned.

transactions,

(54)

Increasing the size of the network will prove to be an
advantage for all companies connected to the network,
even though the Commission is aware that, for example,
the connection to the ARG area is more important for
the Bavarian industry than for the ARG area itself.

that

realisation of

even though effective

not yet certain to be made. This also applies to the
planned pipelines connecting Bavaria to the Czech
Republic and to Austria/Slovakia, which are crucial for
the further development of the network. The available
evidence, the business logic behind it and the expressed
support of the parties involved (including the Austrian
authorities) suggest that these connections are likely to be
realised,
these
In the particular
projects too is not entirely certain.
it would, however, be un-
circumstances of this case,
realistic
such uncertainty could be
to expect
avoided. The pipelines concerned will involve significant
costs and, in addition, decisions on such investments are
closely linked to other investment and disinvestment
decisions regarding ethylene and propylene production
capacity itself, which also involve additional significant
costs. All these decisions must, of course, be carefully
adapted to expected market developments and therefore
it will take time for the entire network to be built. The
planned pipeline must be seen as a first step towards
establishing the network and reducing uncertainty. Not
investing in the pipeline would, by contrast, mean that
the network would certainly not be completed. In this
respect, the Bavarian pipeline forms a crucial connection
between western Europe and other pipelines in central
and eastern Europe.

(56) As explained in paragraph 30,

in the context of the
assessment of this competition case and in addition to
the rules deriving from German competition law, the
companies that operate the pipelines to be connected
to the planned pipeline have undertaken to grant
access to their pipelines. These undertakings contribute
to the Community objective of fair competition. They
increase market transparency, improve competition and
help to avoid distortions of competition that may
otherwise arise. The Commission regards it as particularly
important that all these pipelines should be subject to the
principles of common carrier and open access and
considers these principles to be of great
importance
also for any future pipelines. It notes that these principles
already apply to a number of other pipelines,
in
particular those forming part of the ARG system and
that competition rules in the various Member States
concerned will
limit distortions of competition where
the pipelines are not formally operated on the basis of
these principles.

(55)

The Commission must take into account the fact that,
despite the evidence provided and commitments given by
Germany and by the participants in the project described
in paragraph 28, various connections to the pipeline are

(14) Decision No 1364/2006/EC of the European Parliament and of the
Council of 6 September 2006 laying down guidelines for trans-
European energy networks and repealing Decision 96/391/EC and
Decision No 1229/2003/EC (OJ L 262, 22.9.2006, p. 1).

(57)

The pipeline may bring indirect environmental benefits
from reduced transport needs and use of
the most
efficient modes of transport. Pipeline transport of raw
materials like ethylene and oil is more environmentally
friendly than other modes of transport used for deriva-
tives and end-products. Consumption of plastics largely
depends on general consumption levels and industrial
production, and there is no reason to assume that this
should be different in Bavaria. Therefore, in a situation
the pipeline and assuming the scenario of
without

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to be

a general decline of the Bavarian petrochemical industry,
intermediate products and
more ethylene derivatives,
end-products would have
transported into
Bavaria. In addition, the pipeline makes it possible for
users to invest in capacity anywhere along the pipeline,
enabling them to choose a location closer
to their
customers and/or a location in areas where production
is less burdensome for the environment. However, a
industry
general decline of the Bavarian petrochemical
too
are
eventual advantages
is unlikely. Therefore,
uncertain to rely upon in assessing the aid. On the
other hand, it has to be assumed that the pipeline will
at least not have a negative impact on the environment.

(62)

ethylene being ‘exported’ to Ludwigshafen and possibly
into the ARG system. The effect on prices will remain
limited since the aid does not directly affect production
costs and there are transport costs on top. OMV and
ROG will compete directly with ethylene producers
elsewhere in the connected network, but the increase in
capacity with OMV and Ruhr Oel is slight compared with
existing capacity in the ARG area and the market shares
of the beneficiaries are small.

and for

intermediate

The aid distorts competition in the markets for ethylene
and final plastic
derivatives
products. The aid will
the
companies in this sector in Bavaria. But these effects
on competitiveness and competition are only indirect
and not of undue magnitude.

increase the efficiency of

(58)

6.2.2. Necessity and proportionality of the aid

The aid is limited to the minimum necessary and the
instrument seems well designed to attain the objective
set. The data provided by Germany show an internal
rate of return of about 1,2 % when taking into account
indirect advantages for the participating companies and
one of well below 1 % when only direct advantages are
taken into account. These rates are low compared with
normal rates of return in the sector. Therefore, it can be
assumed that the project would not take place without
the aid.

(59)

It should be pointed out that the aid intensity is 29,1 %
in any event exceed 29,9 %), which is
(and will not
the
than the 50 % envisaged for
significantly less
and on which the Commission’s
notified project
decision to initiate a formal
investigation procedure
was based.

(63) Given overall demand and supply conditions,

is

in

ethylene

elsewhere

production

largely proportional

the
increased ethylene production in Bavaria is unlikely to
reduce
the
Community significantly. The growth in demand for
plastics
to general economic
growth, a growth of 2 % being expected for western
Europe whereas
eastern
Europe
impact on the
ethylene market will be concentrated in Germany, the
notifying Member State. Effects along the pipeline
network in Belgium and the Netherlands will be
indirect and may also concern plants of the beneficiaries,
notably BASF’s plant in Antwerp.

the
is 5,5 %. Furthermore,

anticipated figure

the

for

(60)

aid guidelines or

The aid is proportional since the beneficiaries will bear at
least 70 % of the costs. An aid intensity of 29,1 % is
comparable with aid intensities admissible under the
environmental
aid
guidelines.
is lower than the intensity allowed for
It
infrastructures. However, more
other open transport
important than the aid intensity is the expected rate of
return, which in this case is 1,2 % when taking into
account indirect advantages for the consortium partners
and well below 1 % when only direct advantages are
taken into account.

regional

the

6.2.3. Avoiding undue distortion of competition

(61)

The aid distorts competition in the ethylene market in the
first place. First, the aid will lead to excess production of

(64)

(65)

the

companies
commitments given by the
Lastly,
operating pipelines connected to the planned pipeline
should avoid further distortions of competition between
the different users of these pipelines. As indicated in
the
paragraph 56,
pipelines should be operated in compliance with the
‘common carrier’ and ‘open access’ principles.

is of great

importance

that

it

the formal

Commission

investigation
In its decision to initiate
procedure
expressed misgivings
the
regarding the reduced rates for long-term contracts and
large quantities. Germany has made it clear that there will
be no rebates. This will also have a positive impact on
competition and on barriers to entry.

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6.2.4. Balancing the Community interest and distortions of

HAS ADOPTED THIS DECISION:

competition

Article 1

(66)

For the above reasons, it transpires that the aid serves the
Community interest and that this fact counterbalances
the limited distortions of competition that are expected.
The aid, therefore, can be regarded as being compatible
with the common market.

The State aid equivalent to 29,9 % of eligible investment costs
which Germany intends to grant to Ethylen-Pipeline Süd GmbH
& Co KG (EPS) is compatible with the common market on the
basis of Article 87(3)(c) of the EC Treaty up to a maximum aid
level of EUR 44 850 000.

7. CONCLUSION

This Decision is addressed to the Federal Republic of Germany.

Article 2

(67)

to 29,9 % of

the eligible
The State aid equivalent
investment costs which Germany intends to grant
to
the consortium EPS for the construction of an ethylene
pipeline between Ludwigshafen and Münchsmünster is
compatible with the
up to a
maximum aid level of EUR 44 850 000,

common market

Done at Brussels, 12 October 2006.

For the Commission

Neelie KROES
Member of the Commission