Proposal for a Council Decision on a Community position in the EC-Bulgaria Association Council on the amendment of Article 3 of the Additional Protocol to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Bulgaria, of the other part, with regard to an extension of the period laid down in Article 9(4) of Protocol 2 to the Europe Agreement
Date: 2006-12-07
Institutions: European Commission
Subjects: Bulgaria, agreement (EU), aid system, association agreement, industrial restructuring, iron and steel industry, protocol to an agreement

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.12.2006 
COM(2006) 772 final 

Proposal for a 

COUNCIL DECISION 

on a Community position in the EC-Bulgaria Association Council on the amendment of 
Article 3 of the Additional Protocol to the Europe Agreement establishing an association 
between the European Communities and their Member States, of the one part, and the 
Republic of Bulgaria, of the other part, with regard to an extension of the period laid 
down in Article 9(4) of Protocol 2 to the Europe Agreement 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

Until  the  date  of  accession,  the  process  of  restructuring  of  the  Bulgarian  steel 
industry  is  regulated  by  Protocol  2  of  the  Europe  Agreement  with  the  Bulgarian 
Government1.  According  to  Article  9(4)  of  this protocol,  during  the  first  five  years 
after entry into force of the Agreement (i.e. until end 1997), and by derogation from 
paragraph  1(iii)  of  the  same  Article,  Bulgaria  could  exceptionally,  as  regards  steel 
products, grant public aid for restructuring purposes, provided that: (a) it leads to the 
viability  of  the  benefiting  firms  under  normal  market  conditions  at  the  end  of  the 
restructuring period; (b) the amount and intensity of  such aid are strictly limited to 
what is absolutely necessary in order to restore such viability and are progressively 
reduced;  (c)  a  National  restructuring  plan  will  be  developed  which  specifies  the 
measures  to  compensate  the  competitive  advantage  resulting  from  the  aid,  e.g. 
reduction of overall production capacity in Bulgaria. 

The  initial  period  of  5  years  expired  on  31  December  1997.  The  Bulgarian 
government  submitted  a  request  to  the  Association  Council  for  an  extension  of  the 
initial  period.  The  Community  and  Bulgaria  signed  on  21  November  2002  an 
Additional Protocol to the Europe Agreement (hereinafter the Additional Protocol to 
the  Europe  Agreement),  which  extended  for  a  further  eight  years,  from  1  January 
1998,  the  period  during  which  Bulgaria  might  grant  public  aid  for  restructuring 
purposes  under  the  conditions  listed  in  Article  9(4)  of  Protocol  2  to  the  Europe 
Agreement.  Under  the  terms  of  the  Additional  Protocol  the  extension  is  subject  to 
fulfilment  of  a  number  of  conditions,  namely  that  Bulgaria  submits  to  the 
Commission a restructuring programme and business plans, and that the Commission 
provides  a  final  assessment  of  whether  that  programme  and  plans  meet  the 
requirements listed in Article 9(4) of Protocol 2 to the Europe Agreement, and that 
the  Council  decides  that  the  programme  and  plans  are  in  compliance  with  that 
Article. 

On 18 March 2004, the Bulgarian government adopted a National Restructuring Plan 
for  the  steel  sector  (NRP)  and  an  individual  business  plan  (IBP)  for  the  only 
company  benefiting  of  state  aid,  Kremikovtzi,  which  cover  the  period  1998-2006. 
The  Commission  services  assessment  concluded  that  the  NRP  and  IBP  meet  the 
requirements  of  Protocol  2  to  the  Europe  Agreement  on  steel.  The  NRP  and  IBP 
foresaw that the Kremikovtzi AD would reach viability at the end of the restructuring 
period. This allowed the EU Council to confirm the extension of the period in which 
state aid may exceptionally be granted for restructuring until 31 December 2005 or 
the  date  of  accession,  whichever  comes first  (Council  Decision  2004/746/EC  of  18 
October 20042). 

The European Union and Bulgaria agreed to closely monitor the implementation of 
the restructuring programme until end 2007. These commitments are specified in the 
EU-Common  Position of June  2004 (CONF-BG 18/04)  which led to  the closure of 
the Competition Chapter in the accession negotiations. 

1 
2 

OJ L358, 31.12.1994, p. 91 
OJ L 328, 30.10.2004, p. 101 

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The monitoring carried out on the basis of 6-monthly reports from Bulgaria and an 
annual  independent  evaluation  carried  out  on  behalf  of  the  Commission  in  2005 
showed that Bulgaria lacked considerably behind the benchmarks for implementing 
the  restructuring  plan.  A  further  analysis  by  external  consultants  in  spring  2006 
revealed that the performance of the company benefiting from state aid, Kremikovtzi 
AD, remained below forecast and that Kremikovtzi AD would under current market 
conditions  not  reach  viability  by  the  end  of  2006  as  required  by  the  restructuring 
plan.  

Following discussions with the Commission and the Bulgarian government, the new 
majority  share  holders3  of  Kremikovtzi  since  August  2005,  Global  Steel  Holding, 
decided to prepare a new individual business plan (IBP), which was first presented in 
May  2006.  This  new  plan  proposes  to  modify  the  company's  investment  and 
marketing plan and to prolong the restructuring period until the end of 2008.  

Following  from  this,  the  Bulgarian  government  prepared  a  revised  National 
Restructuring  Programme  (NRP)  which  was  approved  by  the  government  on  13 
September  2006  and  formally  notified  to  the  Commission  on  19  September  2006. 
This NRP confirms the extension of the restructuring period as well as an extension 
of  the  existence  of  a  Steering  Committee  and  a  monitoring  process  for  the 
restructuring of the steel sector until May 2009. However, Bulgaria does not ask an 
extension of the period for granting restructuring aid, i.e. beyond 31 December 2005. 
Also, the public aid granted during this earlier period has not exceeded what was laid 
down in the prior IBP. If the Commission establishes, on the basis of the monitoring, 
that  substantial  deviations  from  the  forecasts  of  the  macroeconomic  developments, 
the  financial  situation  of  the  concerned  company  or  the  viability  assessment  have 
occurred, it may require Bulgaria to take appropriate steps to reinforce or modify the 
restructuring measures of the concerned company Kremikovtzi AD. Finally, it is also 
stated  in  the  revised  NRP  that  in  case  of  non  fulfilment  of  the  key  restructuring 
measures  until  the  end  of  2008  as  foreseen  by  Kremikovtzi  in  its  updated  IBP  the 
Bulgarian authorities will recover from the company an appropriate amount of public 
aid. 

The existence of a revised National Restructuring Programme for the steel sector and 
new  commitments  of  Bulgaria  with  regard  to  the  recovery  of  unduly  paid  state  aid 
necessitate the modification of the Additional Protocol to the Europe Agreement. 

The Commission is proposing a Council Decision which establishes the Community 
position for the necessary amendment of Article 3 of this Additional Protocol. 

The  Council  is  therefore  requested  to  approve  the  attached  draft  proposal  for  a 
Decision  on  a  Community  position  in  the  EC-Bulgaria  Association  Council  on  the 
amendment of Article 3 of the Additional Protocol to the Europe Agreement. 

3 

25 % shares remain public 

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Proposal for a 

COUNCIL DECISION 

on a Community position in the EC-Bulgaria Association Council on the amendment of 
Article 3 of the Additional Protocol to the Europe Agreement establishing an association 
between the European Communities and their Member States, of the one part, and the 
Republic of Bulgaria, of the other part, with regard to an extension of the period laid 
down in Article 9(4) of Protocol 2 to the Europe Agreement 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having regard to Decision 94/908/EC, ECSC, Euratom of the Council and the Commission of 
19  December  1994  on  the  conclusion  of  the  Europe  Agreement  between  the  European 
Communities and their Member States, of the one part, and the Republic of Bulgaria, of the 
other part 4, and in particular Article 2 (1) thereof,  

Having regard to the proposal from the Commission, 

Whereas: 

(1)  An  Additional  Protocol  to  the  Europe  Agreement,  with  regard  to  an  extension  of  the 
period  laid  down  in  Article  9(4)  of  Protocol  2  to  the  Europe  Agreement,  has  been  signed 
between  the  European  Communities  and  their  Member  States,  of  the  one  part,  and  the 
Republic  of  Bulgaria,  of  the  other  part  on  21  November  2002.  The  Additional  Protocol  has 
been  modified  by  Decision  No  1/2004  of  the  EU-Bulgaria  Association  Council  of  28 
September 20045. 

(2) Under Article 4, the Additional Protocol may be amended by decision of the Association 
Council, 

HAS DECIDED AS FOLLOWS: 

Sole Article 

The position to be adopted by the Community in the Association Council established by the 
Agreement  establishing  an  Association  between  the  European  Communities  and  Bulgaria 
shall be based on the draft Decision of the EC-Bulgaria Association Council annexed to this 
Decision.  

4 
5 

OJ L 358, 31.12.1994, p. 1. 
OJ L68, 15.3.2005, p. 41. 

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Done at Brussels,  

For the Council 
The President 

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Decision No xxx/2006 of the EU-Bulgaria Association Council 

of <date> 

amending Article 3 of the Additional Protocol to the Europe Agreement establishing an 
association between the European Communities and their Member States, of the one 
part, and the Republic of Bulgaria, of the other part, with regard to an extension of the 
period laid down in Article 9(4) of Protocol 2 to the Europe Agreement (2006/xxx/EC) 

THE ASSOCIATION COUNCIL, 

Having  regard  to  the  Europe  Agreement  establishing  an  association  between  the  European 
Communities and their Member States, of the one part, and the Republic of Bulgaria, of the 
other part [1], 

Having regard to the Additional Protocol to the Europe Agreement establishing an association 
between  the  European  Communities  and  their  Member  States,  of  the  one  part,  and  the 
Republic of Bulgaria, of the other part, with regard to an extension of the period laid down in 
Article 9(4) of Protocol 2 to the Europe Agreement [2], and in particular Article 4 thereof, 

Whereas: 

(1)  Bulgaria  has  recently  indicated  that  it  would  not  be  able  to  meet  the  requirements  of 
Article  9(4)  of  Protocol  2  to  the  Europe  Agreement  on  the  basis  of  the  current  national 
restructuring programme and individual business plan. Therefore, it has submitted a modified 
restructuring programme and business plan to the European Commission. In its restructuring 
programme  Bulgaria  proposes  that  if  monitoring  of  the  implementation  of  the  restructuring 
shows  that  the  relevant  requirements  of  Protocol  2  to  the  Europe  Agreement  and  key 
restructuring measures (including all investments implemented) have not been fulfilled or that 
in the course of the restructuring period Bulgaria has granted additional State aid in favour of 
the steel industry, and to Kremikovtzi AD in particular, Bulgaria will recover any aid granted 
in breach of these conditions according to the law applicable before or after its accession to 
the European Union.  
(2)  The  Commission  has  made  an  assessment  of  the  modified  restructuring  programme  and 
the business plan submitted by Bulgaria. The assessment indicates that the implementation of 
the restructuring programme and the business plan will allow the company concerned to reach 
viability  under  normal  market  conditions  and  meet  the  requirements  of  Article  9(4)  of 
Protocol 2 to the Europe Agreement.  
(3)  The  European  Union  and  Bulgaria  agree  to  closely  monitor  the  implementation  of  the 
restructuring programme. If the Commission establishes, on the basis of the monitoring, that 
substantial  deviations  from  the  forecasts  of  the  macroeconomic  developments,  the  financial 
situation  of  the  concerned  company  or  the  viability  assessment  have  occurred,  it  should  be 
able to require on behalf of the European Community that Bulgaria takes appropriate steps to 
reinforce or modify the restructuring measures of the company concerned, Kremikovtzi AD. 

(4) The Additional Protocol to the Europe Agreement establishing an association between the 
European  Communities  and  their  Member  States,  of  the  one  part,  and  the  Republic  of 
Bulgaria, of the other part, with regard to an extension of the period laid down in Article 9(4) 
of  Protocol  2  to  the  Europe  Agreement  (hereinafter  the  Additional  Protocol  to  the  Europe 
Agreement), should therefore be amended accordingly, 

HAS DECIDED AS FOLLOWS: 

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Article 1 

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Article  3  of  the  Additional  Protocol  to  the  Europe  Agreement  establishing  an  association 
between  the  European  Communities  and  their  Member  States,  of  the  one  part,  and  the 
Republic of Bulgaria, of the other part, with regard to an extension of the period laid down in 
Article 9(4) of Protocol 2 to the Europe Agreement, is replaced by the following: 

"Article 3 

The  European  Commission  shall  regularly  monitor  the  implementation  of  the  restructuring 
programme and the plans referred to in Article 2 on behalf of the European Community. The 
Ministry of Finance shall do so on behalf of Bulgaria. The European Commission may require 
Bulgaria  to  take  appropriate  steps  to  modify  the  restructuring  plan  for  Kremikovtzi  AD 
company in case the fulfilment of the requirements of Article 9(4) of Protocol 2 to the Europe 
Agreement are unlikely to be fulfilled. 

The  European  Commission  shall  decide  whether  the  restructuring  programme  and  the  plans 
are fully implemented and are in compliance with the requirements of Article 9(4) of Protocol 
2 to the Europe Agreement.  

In case monitoring of the implementation of the restructuring programme and the plans shows 
that  the  relevant  conditions  of  Protocol  2  to  the  Europe  Agreement  and  key  restructuring 
measures, including all investments implemented, have not been fulfilled or that in the course 
of  the  restructuring  period  Bulgaria  has  granted  additional  State  aid  in  favour  of  the  steel 
industry, and to Kremikovtzi AD in particular, Bulgaria shall recover from the beneficiary any 
aid granted in breach of these conditions before or after its accession to the European Union." 

This Decision shall enter into force on the day of its adoption by the Association Council. 

Article 2 

Done at Brussels, <date> 2006. 

For the Association Council 

The President 

[1] OJ L 358, 31.12.1994, p. 3. 

[2] The Additional Protocol to the Europe Agreement as amended by Decision No 1/2004 of 
the EU-Bulgaria Association Council, OJ L68, 15.3.2005, p. 41. 

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