State aid — United Kingdom — State aid No C 40/2006 (ex NN 96/2005) — Loan assistance schemes — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty   (Text with EEA relevance)
Date: 2006-12-01
Institutions: European Commission
Subjects: State aid, United Kingdom, aquaculture, control of State aid, exchange of information, fishing industry, loan

C 292/6

EN

Official Journal of the European Union

1.12.2006

STATE AID — UNITED KINGDOM

State aid No C 40/2006 (ex NN 96/2005) — Loan assistance schemes

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2006/C 292/04)

(Text with EEA relevance)

By means of the letter dated 13 September 2006 reproduced in the authentic language on the pages
following this summary, the Commission notified the United Kingdom of Great Britain and Northern
Ireland of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty concerning the
abovementioned aid.

Interested parties may submit their comments within one month of the date of publication of this
summary and the following letter, to:

European Commission
Directorate General for Fisheries
DG FISH/D/3 ‘Legal Issues’
B-1049 Brussels
Fax: (32-2) 2 295 19 42

These comments will be communicated to the United Kingdom of Great Britain and Northern Ireland.
Confidential treatment of the identity of the interested party submitting the comments may be requested in
writing, stating the reasons for the request.

SUMMARY

tions of Guidelines for the examination of State aid to fisheries
and aquaculture applicable at the time of granting of the aid.

In June 2004 the Commission was informed of aid granted by
the Shetland Islands Council, the public authority in the Shet-
land Islands of the United Kingdom, to the fisheries sector
which possibly concerned illegal State aid.

Salmon Farming Loan Assistance was granted between 2000
and 2003 for the purpose of providing working capital loans
to individual salmon farming companies. The loans vary from
GBP 87 000 to GBP 250 000, with a maximum of 75 %, with
a total of GBP 3 477 130. The loans were subject to interests
at rates corresponding to the applicable European interest rate
plus 2 %. In order to secure the loan, it was granted under the
condition that the lender took the ‘right of title’ on the smolts
(young salmon).

Under the Loan scheme for fish processing 5 loans have been
provided during the period from 1996 to 2002 to fish proces-
sors. The loans vary from GBP 73 000 to GBP 200 000, with
a total of GBP 698 300.

Public loans must be regarded to benefit undertakings if they
are decided upon in circumstances which would not be accep-
table to a private investor acting under normal market-
economy principles. From the information provided by the
United Kingdom, it can at this stage not be established whether
the loans indeed can be deemed to be commercial loans, given
under conditions that would be acceptable to a normal private
lender. The loans thus appear to be State aid in the sense of
Article 87 of the EC Treaty.

State aid to the fisheries sector may be deemed to be compa-
tible with the common market if they comply with the condi-

As no information is available about the individual
loans, it
cannot be established at this stage whether the loans have been
specific investments made by the companies
granted for
concerned or whether they have been given as a general loan
to improve de liquidity of the company. In the first case the
loans must be regarded as to be investment aids, in the second
case they are operating aid.

As far as operating aid is concerned, such aid, which is granted
without imposing any obligations serving the objectives of the
Common Fisheries Policy on the part of the recipients and
which is intended to improve the situation of the undertakings
and increase their business liquidity, is according to all Guide-
lines incompatible with the common market.

projects

concerning

As far as the loans could be deemed to be aid for investments
made by the recipients different conditions apply for both
schemes concerned. With regard to the Fish farming loans,
according to Regulation (EC) No 3699/93 aid to aquaculture
may involve physical investments in the construction, equip-
ping, expansion and modernisation of aquaculture installations
and
scale
approaching that of normal productive investments, the tech-
nical and economic viability of
farming species not yet
commercially exploited in the aquaculture sector or innovative
farming techniques, provided that they are based on successful
research work. Aid may be granted up to 60 % of the eligible
costs. According to Regulation (EC) No 2792/1999 aid may be
granted for aquaculture investments provided that the promo-
ters of intensive fish-farming projects shall forward the infor-
mation provided for in the Annex IV to Directive 85/337/EEC

to demonstrate, on a

1.12.2006

EN

Official Journal of the European Union

C 292/7

to the management authority together with their application
for public aid. The management authority shall decide whether
the project must be submitted for assessment under Articles 5
and 10 of that Directive. The costs for this assessment shall be
eligible for assistance. Aid may be granted up to 60 % of the
eligible costs.

As regards the loans for fish processing, eligible investments
shall relate in particular to the construction and acquisition of
buildings and installation, the acquisition of new equipment
and installations needed for the processing and the marketing
of
fishery and aquaculture products between the time of
landing and the end-product stage and the application of new
technologies intended in particular to improve competitiveness.
Investments shall not be eligible when they concern fishery and
aquaculture products intended for purposes other than human
consumption. Aid may be granted up to 60 % of the eligible
costs.

From the information available to the Commission,
the
Commission is at this stage unable to establish whether the
conditions have been complied with. As specific information
on the types of investments for which the loans have been
granted and calculations with regard to the compatibility with
the aid rate are lacking, the Commission therefore at this stage
has serious doubts on the compatibility of the Loan assistance
schemes with the common market.

In accordance with Article 14 of Council Regulation (EC) No
659/1999, all unlawful aid can be subject to recovery from the
recipient.

TEXT OF LETTER

‘(1) The Commission wishes to inform the United Kingdom of
Great Britain and Northern Ireland that, having examined
the information supplied by your authorities on the
measure referred to above, it has decided to initiate the
procedure laid down in Article 88 (2) of the EC Treaty.

1. PROCEDURE

(2) By letter of 15 June 2004 the Commission was informed
by a citizen of
the United Kingdom of unlawful aid
granted by the authorities of the Shetland Islands of the
United Kingdom. By letters of 24 August 2004, 4
February, 11 May and 16 December 2005 the Commis-
sion has requested the United Kingdom authorities to
provide information about these measures, to which the
United Kingdom authorities responded by letters of 10
December 2004, 6 April, 8 September 2005, 31 January
and 23 February 2006.

2. DESCRIPTION

(3) The Shetland Islands Council (SIC), the public authority in
Shetland, has made payments to the fisheries sector under
the scope of two aid measures named “Aid to the Fish
Catching and Processing Industry” and “Aid to the Fish
Farming Industry”, which actually consisted of several
different types of aid schemes. Amongst these schemes
were the so-called Loan assistance schemes.

(4) Under Loan assistance schemes aid has been granted to
fish processors, by way of aids granted through the Fish
processors association, and to fish farmers, by way of aid
granted through the Fish farming association.

(5) According to Article 88(3) of the EC Treaty Member State
have to inform the Commission of any plans to grant or
alter aid. The United Kingdom have until now not been
able to provide evidence that the aid measures existed
already before the United Kingdom joined the European
Economic Community and thus would have to be
regarded as existing aids. Moreover, the United Kingdom
has confirmed to have altered the aids over the years
without notification to the Commission.

Salmon Farming Loan Assistance

(6) The Salmon Farming Loan Assistance was established in
2000 for the purpose of providing working capital loans
to individual
salmon farming companies. The loans
granted under the scheme vary from GBP 87 000 to
GBP 250 000, with a maximum of 75 %. The total
amount of the loans granted is GBP 3 477 130.

(7) The loans have been made to companies that could
demonstrate viability through the productions of an
acceptable business plan and financial projections for a
period covering at
three years. The loans were
subject to interests at rates corresponding to the applic-
able European reference rate plus 2 %. In order to secure
the loan,
it was granted under the condition that the
title” on the smolts (young
lender took the “right of
salmon), thus securing the loan on the basis of the sale
value of the adult fish

least

Loan scheme for fish processing

(8) Under the Loan scheme for fish processing 5 loans have
been provided during the period from 1996 to 2002. The
loans vary from GBP 73 000 to GBP 200 000, with a
total of GBP 698 300. The loans have been made to
companies that during the period of the loan undertook
to provide professionally audited accounts, to work to the
relevant national and EU standards on hygiene, health and
safety, and to be a member of Shetland Fish Processor's
Association.

3. COMMENTS FROM THE UNITED KINGDOM

(9) The United Kingdom states that the aid schemes “Aid to
the Fish Catching and Processing Industry” and “Aid to
the Fish Farming Industry” have already been applied
before the accession of the United Kingdom to the Euro-
pean Economic Community. The United Kingdom is
however not able to provide any evidence of the existence
of these schemes at the time of accession.

(10) The United Kingdom confirms that the aid schemes have
been changed over the years and that these changes have
not been notified to the Commission in accordance with
Article 88(3) of the EC Treaty [former Article 93(3)]. The
United Kingdom states however that the expenditure and
application of the schemes have been reported yearly to
the Commission by way of the annual State aid inventory
and that the officials responsible for the aids believed that
by transmitting the annual reports no notification of the
aid would be necessary.

C 292/8

EN

Official Journal of the European Union

1.12.2006

(11) Finally the United Kingdom states that although the
schemes and the amendments to the schemes have been
applied without prior notification to the Commission,
they have been applied in accordance with the conditions
laid down in the Guidelines for the examination of State
aid to fisheries and aquaculture applicable of the time aid
was granted under the schemes. The United Kingdom
contests therefore that the aids are incompatible with the
common market.

(12) The United Kingdom states that

the Loan assistance
schemes both must be considered not to fall under the
scope of the State aid rules. The loans represent arms
length, commercial, private investor transactions under-
taken on an entirely commercial basis.

4. ASSESSMENT

(13) It must be determined first if the measure can be regarded
as State aid and, if this is the case, if this aid is compatible
with the common market.

4.1. State aid

(14) According to Article 87(1) of the EC Treaty, “save as
otherwise provided in this 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 certain goods shall, insofar as it affects trade between
Member States, be incompatible with the
common
market”.

(15) Four conditions are required for classifying a measure as a
State aid: first, the measure must provide some advantage
to the undertakings which benefit from it; second, the aid
must be granted by the State or through State resources;
third, it must distort or threaten to distort competition by
favouring certain undertakings; and, finally, must affect
trade between Member States.

(16) Public loans must be regarded to benefit undertakings if
they are decided upon in circumstances which would not
be acceptable to a private investor acting under normal
market-economy principles.

(17) From the information provided by the United Kingdom it
can at this stage not be established whether indeed, as
stated by the authorities, that the loans can be deemed to
be commercial loans, given under conditions that would
be acceptable to a normal private lender.

(18) For the Salmon Farming Loan Assistance it is stated that
the loans are given at a rate of 2 % above the applicable
European reference rate. No or insufficient information is
provided concerning the duration of the loans and the
value of the security taken. In order however to establish
the exact conditions of the loan and to assess the value of
the security taken on the smolts, it is necessary to obtain
the precise conditions of each of the loans granted during
the years 2000 to 2003.

(19) With regard to the Loan scheme for fish processing even
less information is provided. Apart from the general state-
ment
the loans have been granted under similar
conditions as the loans for the salmon farming and that
they must be regarded to have been commercial loans, no
further details are given.

that

(20) Therefore at this stage, from the information available, the
Commission is unable to verify whether the loans indeed
have been granted in a way and under conditions which
would have been acceptable to a normal private lender.

(21) Loans that have been granted under more favourable
circumstances or with more favourable conditions than
would be acceptable to a normal private lender must
considered to give the undertakings to which these loans
have been granted a benefit which they would not have
received under normal economic circumstances.

(22) As furthermore the companies concerned, salmon farms
as fish processors, are in direct competition with other
companies in the fisheries sector of both within the
United Kingdom as in other Member States, the measures
at this stage appear to be State aid in the sense of Article
87 of the EC Treaty.

(23) This seems even more to be confirmed by the fact that
the authorities of the United Kingdom have continuously
included these measures in their annual State aid report,
which confirms the that also the national authorities have
always considered the measures to be State aid rather
than commercial activities.

4.2. Legality

(24) According to the United Kingdom,

the two general
schemes have been applied before the accession of the
United Kingdom to the European Economic Community.
However, the Commission notes that according to the
provided information, the Salmon Farming Loan Assistance
and Loan scheme for fish processing schemes were put in
place only in 2000 and 1996 respectively. In any event,
due to the absence of past records, the United Kingdom
acknowledged that it is not able to provide evidence that
the aid measures existed already before the United
Kingdom joined the union and thus would have to be
regarded as existing aids. In addition, the United Kingdom
confirmed that the aid schemes have been changed over
the years and that these changes have not been notified to
the Commission in accordance with Article 88(3) of the
EC Treaty [former Article 93(3)]. As a result, the aid
measures have to be considered as new aid.

(25) The United Kingdom has confirmed never to have notified
the schemes to the Commission in accordance with
Article 88(3) of the EC Treaty, under which Member State
are obliged to inform the Commission of any plans to
grant or alter aid. In this respect the United Kingdom has
stated that its authorities were mistakenly convinced that
the inclusion of the measures into the annual State aid
inventory, yearly submitted to the Commission, would be
sufficient to inform the Commission of the aid in ques-
tion. It must be noted however that such reporting to the
Commission can not be considered as notification of the
aid as required under Article 88(3) EC.

1.12.2006

EN

Official Journal of the European Union

C 292/9

4.3. Compatibility of the aid

(26) State aid can be declared compatible with the common
market if it complies with one of the exceptions foreseen
in the EC Treaty. As regards to State aid to the fisheries
sector, State aid measures are deemed to be compatible
with the common market if they comply with the condi-
tions of Guidelines for the examination of State aid to
fisheries and aquaculture applicable at the time the aid
was granted (1).

(27) As no information is available about the individual loans,
it cannot be established at this stage whether the loans
have been granted for specific investments made by the
companies concerned or whether they have been given as
a general loan to improve de liquidity of the company. In
the first case the loans must be regarded as to be invest-
ment aids, in the second case they are operating aid.

(28) As far as operating aid is concerned, such aid, which is
granted without
imposing any obligations serving the
objectives of the Common Fisheries Policy on the part of
the recipients and which is intended to improve the situa-
tion of
the undertakings and increase their business
liquidity, is according to all Guidelines incompatible with
the common market.

(32) As from 1 July 2001 Member States were to apply the
2001 Guidelines to all existing aid schemes and thus from
that date the conditions of Regulation (EC) No 2792/1999
had to be applied to the existing schemes. According to
this Regulation aid may be granted for aquaculture invest-
ments provided that
intensive fish-
farming projects shall forward the information provided
for in the Annex IV to Directive 85/337/EEC to the
management authority together with their application for
public aid. The management authority shall decide
whether the project must be submitted for assessment
under Articles 5 and 10 of that Directive. The costs for
this assessment shall be eligible for assistance. Aid may be
granted up to 60 % of the eligible costs.

the promoters of

(33) From the information available to the Commission, the
Commission is at this stage unable to establish whether
the conditions of Regulation (EC) No 3699/93 and Regu-
lation (EC) No 2792/1999 have been complied with. As
specific information on the types of
investments for
which the loans have been granted and calculations with
regard to the compatibility with the aid rate are lacking,
the Commission therefore at this stage has serious doubts
on the compatibility of the Salmon Farming Loan Assis-
tance Scheme with the conditions of the 1997 and 2001
Guidelines.

(29) As far as the loans could be deemed to be aid for invest-
ments made by the recipients different conditions apply
for both schemes concerned:

Loan scheme for fish processing

Salmon Farming Loan Assistance

(30) Fish farming loans have been granted from 2000 — 2003
and the aid thus needs to be assessed under the Guidelines
of 1997 and 2001. For the compatibility of aid to aqua-
culture those Guidelines make reference to Regulation
(EC) No
(EC) No
and
2792/1999 (3) respectively.

3699/93 (2)

Regulation

(31) According to Regulation (EC) No 3699/93 aid to aquacul-
ture may involve physical investments in the construction,
equipping, expansion and modernisation of aquaculture
installations and concerning projects to demonstrate, on a
scale approaching that of normal productive investments,
the technical and economic viability of farming species
not yet commercially exploited in the aquaculture sector
or innovative farming techniques, provided that they are
based on successful research work. Aid may be granted
up to 60 % of the eligible costs.

(1) OJ C 260, 17.9.1994, p. 3; OJ C 100, 27.3.1997, p. 12 and OJ C

19, 20.1.2001, p. 7.

(2) Council Regulation (EC) 3699/93 of 21 December 1993 laying
down the criteria and arrangements regarding Community structural
assistance in the fisheries and aquaculture sector and the processing
and the marketing of its products (OJ L 346, 31.12.1993, p. 1).
(3) Council Regulation (EC) No 2792/1999 of 17 December 1999
laying down the detailed rules and arrangements regarding Com-
munity structural assistance in the fisheries sector (OJ L 337,
30.12.1999, p. 10), as last amended by Regulation (EC) No
485/2005 (OJ L 81, 30.3.2005, p. 1.)

(34) As regards the loans to the processing sector, these aids
have been granted between 1996 and 2002 and thus
need to be assessed under the 1994, 1997 and 2001
Guidelines.

(35) According to point 2.3 of the 1994, 1997 and 2001
Guidelines aid for investments in the processing and
marketing of fishery products may be regarded compatible
with the common market provided that they comply with
the relevant conditions laid down in the respective regula-
tions for the structural fund for fisheries (Regulations (EC)
No 3699/93 and (EC) No 2792/1999).

(36) According to both Article 11 and point 2.4 Annex III of
Regulation (EC) No 3699/93 and Article 13 and point
2.4. of Annex III of Regulation (EC) No 2792/1999
eligible investments
to the
construction and acquisition of buildings and installation,
the acquisition of new equipment and installations needed
for the time of landing and the marketing of fishery and
aquaculture products between the time of landing and the
end-product stage and the application of new technologies
intended in particular to improve competitiveness.

relate in particular

shall

(37) Investments shall not be eligible for assistance when they
concern fishery and aquaculture products intended to be
used and processed for purposes other
than human
consumption, with the exemption of investments exclu-
sively for the handling, processing and marketing of
fishery and aquaculture wastes. Aid may be granted up to
60 % of the eligible costs.

C 292/10

EN

Official Journal of the European Union

1.12.2006

(38) From the information available to the Commission, the
Commission is at this stage unable to establish whether
the conditions of Regulation (EC) No 3699/93 and Regu-
lation (EC) No 2792/1999 have been complied with. As
specific information on the types of
investments for
which the loans have been granted and calculations with
regard to the compatibility with the aid rate are lacking,
the Commission therefore at this stage has serious doubts
on the compatibility of the Loan scheme for fish proces-
sing with the conditions of the 1994, 1997 and 2001
Guidelines.

5. DECISION

(39) The Commission observes that there exist, at this stage of
the preliminary examination, as provided for by Article 6
of Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 88 of
the EC Treaty, serious doubts on the
compatibility of these aid schemes with the Guidelines for
the examination of State aid to Fisheries and aquaculture
and, therefore, with the EC Treaty.

(40) In the light of the foregoing conditions, the Commission,
acting under the procedure laid down in Article 88 (2) of
the EC Treaty and Article 6 of Regulation (EC) No

659/1999, requests the United Kingdom of Great Britain
and Northern Ireland to submit its comments and to
provide all such information as may help to assess the aid
scheme, within one month of the date of receipt of this
letter. It requests your authorities to forward a copy of
this letter to the recipients of the aid immediately.

(41) The Commission wishes to remind the United Kingdom
of Great Britain and Northern Ireland that Article 88 (3)
of the EC Treaty has suspensory effect and would draw
your attention to Article 14 of Council Regulation (EC)
No 659/1999, which provides that all unlawful aid may
be recovered from the recipient.

(42) The Commission warns the United Kingdom of Great
Britain and Northern Ireland that it will inform interested
parties by publishing this
letter and a meaningful
summary of it in the Official Journal of the European Union.
It will also inform interested parties in the EFTA countries
which
EEA Agreement,
to
by publication of a notice in the EEA Supplement to the
Official Journal of the European Union and will inform the
EFTA Surveillance Authority by sending a copy of this
letter. All such interested parties will be invited to submit
their comments within one month of the date of such
publication.’

signatories

the

are