2007/582/EC: Commission Decision of 10 May 2007 on State aid C 4/2006 (ex N 180/2005) — Portugal — Aid to Djebel (notified under document number C(2007) 1959) (Text with EEA relevance )
Date: 2007-05-10
Institutions: European Commission
Subjects: Portugal, State aid, control of State aid, holding company, hotel industry, investment aid

L 219/30

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Official Journal of the European Union

24.8.2007

COMMISSION DECISION

of 10 May 2007
on State aid C 4/2006 (ex N 180/2005) — Portugal — Aid to Djebel
(notified under document number C(2007) 1959)

(Only the Portuguese text is authentic)

(Text with EEA relevance)

(2007/582/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

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

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission called on interested parties to submit
their comments. There were no comments from third
parties.

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

II. DETAILED DESCRIPTION OF THE AID

The companies involved

(5)

Djebel is a company located in Madeira, Portugal.

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

(6)

Whereas:

I. PROCEDURE

The company is part of the Pestana Group, which is the
main hotel group in Portugal and is not covered by the
definition of an SME. It does not comply with the the
Commission Recommendation
1996
concerning the definition of small and medium-sized
enterprises (3) or autonomy criteria set out in Article 3
of the Annex to the Recommendation of 6 May 2003
concerning the definition of micro, small and medium-
sized enterprises (4). It is therefore a large company.

3 April

of

(1)

(2)

(3)

as

by

received

By letter of 5 April 2005 (sent via their Permanent
Representation),
the
registered
Commission on 7 April,
the Portuguese authorities
notified the Commission of their intention to grant aid
to Djebel — S.G.P.S., S.A. (hereinafter Djebel) in order to
help finance an investment by the company in Brazil. At
the Commission's request, Portugal submitted additional
information by letters of 25 July, 26 September and 23
December 2005 (sent via their Permanent Represen-
tation), registered as received by the Commission on
27 July and 28 September 2005 and 3 January 2006.

By letter of 22 February 2006, the Commission informed
Portugal that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid.

By letter of 31 March 2006 (registered as received on 4
their
April),
presented
comments
abovementioned
procedure.

authorities
the

context of

Portuguese

in the

the

(7)

(8)

(9)

Djebel manages a holding company in Brazil that invests
in and manages hotels and tourist activities.

The Pestana Group had already acquired a hotel
in
Mozambique before 1999 and has acquired a further
four hotels in Brazil in addition to the one covered by
the present notification.

The project

The project consists in the acquisition by Djebel of shares
in the capital of RASH — Administração de Hotéis de
Turismo, Lda, a Brazilian company whose only asset is
the Hotel Rio Atlântico, located in Rio de Janeiro, Brazil.

(10)

The capital of RASH was acquired in October 1999 and
the hotel was already fully operational at the time of the
acquisition.

(1) OJ C 91, 19.4.2006, p. 25.
(2) See footnote 1.

(3) OJ L 107, 30.4.1996.
(4) OJ L 124, 20.5.2003.

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The aid

(11)

The cost of acquiring the shares of RASH amounted to
EUR 14 720 474.

(12)

Portugal intends to grant a soft loan of EUR 3 680 119,
corresponding to 25 % of
for the
abovementioned project. The amount of aid is EUR
574 466, giving a net aid intensity of 3,90 %.

the eligible costs,

(18)

(13) An additional amount would be granted by the State to
Djebel to cover the costs related to studies and technical
assistance, financial guarantees and legal assistance under
the de minimis Regulation (5).

(14)

The present aid scheme was notified under Portuguese
aid scheme N 667/1999, approved by the Commission
on 8 August 2000 (6). That scheme, which ran from
2000 to 2006, was designed to promote modern and
competitive entrepreneurial strategies. Under it aid for
investment projects by large companies
foreign direct
had to be individually notified to the Commission.

(15) On 24 May 1999 Djebel submitted a proposal to F.
Turismo — Capital de Risco, SA (FCR), which is a risk
capital
fund owned by public and private companies,
concerning its participation in the planned project.
interventions
According to the Portuguese authorities,
by this fund do not contain elements of State aid
within the meaning of Article 87 of the EC Treaty.

(16)

The formal application for aid under State aid scheme
N 667/1999 was
submitted on 31 January 2001.
Portugal explained that the document presented to FCR
in 1999 constituted the original aid application and that
the project was
subsequently carried out on the
assumption that it would be eligible for aid under the
relevant Portuguese law. Owing to internal delays, the
Portuguese authorities notified the aid only in April
2005.

III. GROUNDS FOR INITIATING THE PROCEDURE

(17)

The Commission, in its decision to initiate the procedure
it would
in respect of

the present case, stated that

(5) Commission Regulation (EC) No 69/2001 of 12 January 2001 on
the application of Articles 87 and 88 of the EC Treaty to de minimis
aid (OJ L 10, 13.1.2001, p. 30) and Commission Regulation (EC)
No 1998/2006 (OJ L 379, 28.12.2006), which deals with the same
subject.

(6) By letter SG(2000) D/106085 (OJ C 266, 16.9.2000, p. 4).

examine the measure in the light of the derogation under
Article 87(3)(c) of the EC Treaty in order to determine
whether the aid could be considered to facilitate the
development of a certain economic activity without
to an extent
adversely affecting trading conditions
contrary to the common interest.

The Commission also stated that it would examine the
measure on the basis of criteria normally used for
assessing aid to large companies
foreign direct
investment (FDI) projects (7). In these cases it normally
weighs the benefits of the measure, in terms of contri-
buting to the international competitiveness of the EU
industry concerned, against possible negative effects in
the Community, such as the risks of relocation and
any adverse impact on employment.

for

The Commission also takes into account the necessity of
the aid by reference to the risks associated with the
project in the country concerned as well as to the defi-
ciencies of the company, such as those faced by SMEs.
One other criterion relates to a possible positive regional
impact. Lastly,
the Commission excludes any aid to
export-related activities.

In this connection, the Commission questioned what the
impact would be of the project on the tourism sector in
Portugal (and thus in the European Union) and whether
or not it would affect trading conditions in the European
Union to an extent contrary to the common interest.

The Commission was also doubtful whether the aid was
necessary and/or provided any incentive for the applicant
to carry out the investment since the project had been
completed even before Djebel formally applied for State
aid.
to submit comments and
It
provide
any information that might help in the
assessment of the case.

requested Portugal

IV. COMMENTS SUBMITTED BY THE PORTUGUESE
AUTHORITIES

that

Portugal considered that the necessity of the aid was
justified by the fact
the acquisition of RASH
constituted the first foreign direct investment project in
Brazil by the Pestana Group. This is a group whose
activity was focused virtually in its entirety on the
Portuguese market. Portugal stated that the challenge of
international expansion into Brazil, a high-risk country
but also one with a high development potential and with
close historical and cultural links with Portugal, became a
decisive issue for the Pestana Group’s development.

(19)

(20)

(21)

(22)

(7) See Cases C 77/97, Austrian LiftGmbH-Doppelmayr

(OJ L 142,
5.6.1999, p. 32) and C 47/02, Vila Galé-Cintra (OJ L 61,
27.2.2004, p. 76).

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(23)

(24)

(25)

Portugal pointed out to the Commission that the request
for aid from the company was drawn up on 24 May
1999 and was submitted to F. Turismo — Capital de
Risco SA, a company managing the risk capital fund
FCR F. Turismo. The notified request constituted a
second phase in the assessment of
It
should, therefore, be evaluated in the light of the circum-
stances prevailing at the time, namely in May 1999.

the project.

that

the fact

In this context and according to the Portuguese autho-
rities,
the investment was carried out
without the aid shows that the promoter was confident
about obtaining the aid and that it had to seize this
business opportunity. The Portuguese authorities argued
that the beneficiary should not be penalised because it
took longer to present the application that to carry out
the investment. They also referred to the handicaps and
exceptional risks of the operation, such as the high vola-
tility of the Brazilian real and the fact that this is the
company's first investment in Brazil.

Portugal took the view that this investment in Brazil
contributed to improving the competitiveness of
the
standing in the
Pestana Group and reinforcing its
to the
global
and
enhanced recognition of
Resorts’ brand, with the accompanying enhanced visi-
bility of Portugal as a destination.

in particular
‘Pestana Hotels

tourism sector,

thanks
the

(26) Moreover, the Group’s experience in Mozambique is not
remotely comparable to its experience of internationali-
sation in Brazil, given the different characteristics of the
two markets. Whereas the Mozambique market, despite
its high potential, is still only in an embryonic phase of
development, Brazil is an open market with a high level
of competition and one which presents a far more chal-
lenging prospect
the
than Mozambique.
Pestana Group’s current process of internationalisation,
its experience in Mozambique did nothing to attenuate
the high risk and anxiety associated with this operation.

In terms of

(27)

Lastly, the Portuguese authorities claimed that the aid
would have a limited effect on trading conditions in
the European Union, notably because:

— the amount of the aid is only EUR 574 466, repre-

senting 3,9 % of the eligible investment;

— the Pestana Group has a market share of only 2 % in
Portugal, which is negligible in European terms;

— the Brazilian market has around 10 000 hotels, of
which some 7 % are owned by foreign companies;

— the company’s European competitors operating in
Brazil already have very high market shares, led by
the French group ACCOR, with 108 hotels, and
followed by the Spanish Sol Melia group, with 23;

— in view of the dimension of the Brazilian market, the
project is not of a sufficient size to produce any
appreciable increase in local supply or to affect the
positions of European companies already operating in
Brazil.

Portugal concluded that there was no possibility that the
investment concerned, which involved the purchase of
only one hotel, could have any significant impact on
trading conditions in the European Union and that
there was even less possibility that such an impact
could be contrary to the common interest.

(28)

There were no comments from third parties.

V. ASSESSMENT

Presence of aid within the meaning of Article 87(1)
of the EC Treaty

(29) Under 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 compe-
tition
the
certain
production of certain goods shall, in so far as it affects
trade between Member States, be incompatible with the
common market’.

undertakings

favouring

by

or

(30)

The Commission, in its decision of 22 February 2006,
concluded that the aid fell within the scope of Article
87(1) of the EC Treaty for the following reasons:

— Under the notified measure, a large enterprise will
receive funds for investing in the tourism sector in
Brazil as part of an internationalisation strategy. This
the
measure amounts to preferential
an
it
beneficiary firm, gives
incentive compared with other firms and thereby
distorts or threatens to distort competition.

treatment of
an advantage or

— Aid will be granted to a firm in the EU tourism
market, where there is or could be trade between
Member States or on which firms
from other
Member States might wish to participate. The
between
could
measure
Member States.

therefore

affect

trade

— Brazil is a competitive market but one with a very

low level of concentration;

— The measure is funded through State resources.

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(31)

The Commission considers that the arguments adduced
by Portugal (see paragraph 27) are insufficient to modify
these conclusions for the following reasons:

Compatibility of the aid with the EC Treaty

Incentive effect

It

for aid.

— The Pestana Group was the leading Portuguese hotel
group, a position which it still holds today, and it
owned some 15 hotels in Portugal at the time of the
is clearly advantageous for the
request
national tourism sector as a whole to have one of
the most important Portuguese brands represented in
‘Pestana
South America. The international scale of
Hotels and Restaurants’ gave the Group enhanced
visibility,
and
strengthened its business activity in the hotel sector.
These factors helped to increase its size and to
enhance its capacity for investing in the Portuguese
market.

negotiating

boosted

power

its

three new hotels,

Pestana Group has made

— Since the start of its process of internationalisation,
the
a number of
investments in Portugal, namely (i) the construction
of
the
(ii)
management of the Pousadas de Portugal network,
the purchase of a two other inefficient hotel
(iii)
companies and subsequent modernisation of
their
hotels, and (iv) the development of sizeable tourist
projects,
the Cidade da Criança in the
Autonomous Region of Madeira.

take-up of

such as

the

— In view of the size of the Pestana Group, a significant
increase in the number of jobs created in Portugal
would not be the only consequence of buying a
hotel in Brazil. Such an increase has indeed already
taken place, but primarily as a result of the various
abovementioned
investments which the Group
recently made in Portugal and which are largely due
to the momentum generated by its process of inter-
nationalisation.
In 1999 the Group had a total
workforce of only 1 800, whereas by 2005, only
six years later, the figure already exceeded 3 500.

— By helping with the acquisition of a hotel as part of
the internationalisation initiative of a Portuguese
company in Brazil, the notified measure favours a
certain undertaking or
the production of certain
goods. The Commission considers that aid granted
to undertakings of the European Union for foreign
direct investment is comparable to aid granted to
all
undertakings
their
almost
of
production outside the Community.
In such cases,
given the interdependence between the markets on
it cannot
which Community undertakings operate,
be excluded that aid may distort competition within
the Community (8).

export

that

(8) See Judgment by the European Court of Justice in Case C-142/87,

Tubermeuse [1990] ECR I-959, paragraph 35.

(32)

The Commission indicated that
it would assess the
compatibility of the aid with the EC Treaty in the light
of the derogation under Article 87(3)(c) of the Treaty,
which authorises aid ‘to facilitate the development of
ceertain economic activities’ where such aid does not
adversely affect trading conditions to an extent contrary
to the common interest. The Commission also indicated
that it would take into account certain criteria which it
had applied in previous cases of aid to large companies
for outward foreign direct
(see
paragraph 18) with a view to striking a balance
between the benefits of the measure, in terms of contri-
buting to the international competitiveness of the EU
industry concerned (e.g. whether the aid is necessary by
reference to the risks associated with the project in the
country of investment), and its possible negative effects
on the EU market (9).

investment projects

(33)

The Commission noted in this context that, as regards
the incentive effect of the aid, there appeared to be some
indications that the aid did not meet this criterion. In
addition, it had doubts as to the impact of the measure
inter alia, the
on the common market. This included,
necessity of the aid given the risks associated with the
project in the country concerned as well as the defi-
ciencies of the company (similar to those that may be
faced by SMEs).

(34) As a general principle of State aid legislation, in order for
aid to be compatible with the common market, it must
be demonstrated that
the aid leads to an additional
activity by the beneficiary which would not be carried
out without the aid. Otherwise, the aid would simply
positive
distort
counter-effect.

competition without

having

any

(35)

The Commission doubted already in the decision to
initiate the procedure in the present case that the aid
was necessary for Djebel to carry out this investment.

(36)

In its decision of 22 February 2006, the Commission
emphasised that the notified project was not the first
the Pestana Group, of
internationalisation project of
which Djebel forms part. The Group was already active
in Mozambique and it was therefore doubtful whether
the aid was needed in order to carry out the first inter-
nationalisation experience of
the Pestana Group in
Brazil (10).

(9) See Cases C 41/04, Orfama (Decision of 7 March 2007) and

C 36/04, Cordex (Decision of 21 February 2007).

(10) See Case C 47/02, Vila Galé-Cintra, which involved a first interna-

tionalisation experience.

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(37) Moreover, Djebel is owned by the major hotel group in
Portugal. From 1999, the firm has expanded its activity
in Brazil, where it currently has nine hotels and is among
the ten largest hotel chains. This seems to indicate that
the investment would have gone ahead even without the
prospect of obtaining the aid. Moreover, an aid granted
now for an investment that took place over seven years
ago is unlikely to have any practical
link with the
investment anymore.

(44)

that

the Pestana Group
The Commission stresses
increased its commercial activity in the hotel sector
following the investment in question, which was not its
first investment abroad. According to the information
provided by the Portuguese authorities, even though it
did not benefit from the aid, the investment in Brazil
helped to strengthen the competitiveness of the Pestana
Group and its visibility in the general tourism market,
thanks in particular to the projection of the ‘Pestana
Hotels and Resorts’ brand.

(38)

In order for aid to have an incentive effect, it must also
be established that a request for support was introduced
before the investment started.

(39)

(40)

The Commission points out that the investment took
place in October 1999, more than one year before the
beneficiary formally applied for aid under State aid
scheme N 667/1999 (on 31 January 2001) and so did
not comply with the ‘incentive effect’ criterion normally
required by the Community rules on national regional
aid (11).

The Portuguese authorities argued that the proposal for
the participation of FCR in the investment, which took
place on 24 May 1999 (prior to the investment),
is
sufficient proof
criterion is met. The
this
Commission does not consider that such a proposal for
the participation of a risk capital firm in the investment
can, on its own, be considered to constitute an appli-
cation for State aid capable of
justifying its incentive
effect.

that

(41)

The Commission also stresses that the investment took
place around five and a half years before the notification
was submitted to it by the Portuguese authorities.

there is no evidence that

(42) On the basis of the above, the Commission concludes
the aid proposed by
that
Portugal was necessary to compensate for any specific
risks associated with the project. Thus, it considers that
the aid was not necessary in order for the Pestana Group
to carry out the investment in Brazil and to trigger that
investment. In its view, the aid has no incentive effect.

(43)

The Commission has also maintained in previous cases
likely to
that aid for
financial
strengthen
and
strategic position and thus affect
its relative position
relative to competitors on the EU market (12).

foreign direct
beneficiary's

investment
overall

the

is

(11) See point 4.2 of the Guidelines on national regional aid, which
states that an application for aid must be submitted before work
on the project
the required
incentive effect exists (OJ C 74, 10.3.1998, p. 13).
(12) See Case C 77/97, Austrian Lift GmbH-Doppelmayr

is started in order to ensure that

(OJ L 142,

5.6.1999, p. 32).

(45)

Lastly, the Commission notes that, even if the investment
by Djebel had had a positive impact in Portugal, this
in principle, be attributed to the aid since, as
cannot,
explained above,
it has no incentive effect in this case
as the project was concluded prior to Djebel's requesting
the aid and was not necessary to carry out
the
investment.

(46) When

of

the

aid,

assessing

compatibililty

the
Commission takes a close look at the balance between
its positive and negative effects and determines whether
its beneficial effects for the Community outweigh its
effects on competition and trade on the
negative
Community market. On the basis of the above,
it has
no reason to believe that the granting of aid to Djebel in
respect of its investment in Brazil would help to improve
the competitiveness of the European industry or would
have a positive effect on the EU regions concerned. On
the contrary, the aid would strengthen the position of the
beneficiary to the detriment of its competitors receiving
State aid in a market that is characterised by intensive
competition. Therefore, the Commission considers that
the aid would not have any positive effects for the
Community that could outweigh its negative effects on
competition.

VI. CONCLUSION

(47)

The Commission concludes that Portugal has failed to
demonstrate that, without
the aid, Djebel would not
have carried out the project concerned. The aid would
thus simply have a distorting effect on competition in the
common market without contributing to any additional
activity on the part of the beneficiary. On this basis, the
aid cannot be considered to facilitate the development of
an economic activity within the meaning of Article
87(3)(c) and is thus incompatible with the common
market.

(48) Given the above, the Commission does not consider it
necessary to assess other aspects that cast doubts on the
compatibility of the aid expressed in its Decision of 22
February 2006,

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HAS ADOPTED THIS DECISION:

Article 2

This Decision is addressed to the Portuguese Republic.

Article 1

Done at Brussels, 10 May 2007.

The notified soft loan of EUR 3 680 119 proposed by Portugal
to Djebel for its investment in Brazil is incompatible with the
common market since it does not meet the criteria set out in
Article 87(3)(c) of the EC Treaty and must not be therefore be
granted.

For the Commission

Neelie KROES
Member of the Commission