Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Commission Report on the Application of Council Regulation (EC) No 1407/2002 on State Aid to the Coal Industry {SEC(2007) 602}
Date: 2007-05-21
Institutions: European Commission
Subjects: State aid, aid policy, coal industry, committee report, energy policy, implementing Regulation, mining operation, mining production, regulation (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 21.5.2007 
COM(2007) 253 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Commission Report on the Application of Council Regulation (EC) No 1407/2002 on 
State Aid to the Coal Industry 

{SEC(2007) 602} 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Commission Report on the Application of Council Regulation (EC) No 1407/2002 on 
State Aid to the Coal Industry 

1. 

INTRODUCTION 

1.1. Historical development of State aid to the Coal industry 

Coal, in its various forms from lignite to hard coal, is today an important source of energy in 
the EU. It accounts for 17% of overall energy consumption, and for about 30% of electricity 
production. The EU imports approximately one third of its coal consumption.  

From the 1950s onwards, parts of the indigenous coal production could no longer compete on 
the  market,  mainly  due  to  a  reduction  in  transport  costs  for  coal  from  third  countries,  the 
depletion of coal fields with attractive geological conditions and increased labour costs. The 
European  Community  for  Coal  and  Steel  ("the  ECSC")  and  then  the  European  Community 
("the  EC")  allowed  Member  States  to  grant  subsidies  to  their  coal  industry,  with  a  view  to 
allowing for an orderly restructuring and closure process. 

The most recent legal basis for this has been Council Regulation (EC) No 1407/2002 on State 
aid to the coal industry ("the Coal Regulation").1 It was adopted on the basis of Article 87 (3) 
(e)  of  the  EC  treaty,  and  establishes  an  exception  to  the  general  prohibition  of  State  aid.  It 
allows for closure aid (Article 4), operating aid (Article 5 § 3), investment aid (Article 5 § 2) 
and aid for inherited liabilities (Article 7), subject, regarding Articles 4 and 5, to the condition 
that the aid follows a downward trend (Article 6) and that Member States include the mines in 
a plan for access to coal reserves, which needs the approval of the Commission (Article 9). 
Based on this Regulation, the Commission has authorized State aid in various Member States. 

1.2 Scope of the report 

The scope of this report is set out in Article 11 of the Coal Regulation. 

Article 13 sets out the rules for reviewing the Coal Regulation in the light of the conclusions 
of the Commission in its report. 

Article  14  §  3  contains  a  “sunset  clause”,  according  to  which  “This  Regulation  shall  apply 
until 31 December 2010”.  

The  political  context  within  which  this  report  is  carried  out  is  set  by  the  Commission 
Communication "An Energy Policy for Europe",2 the Green Paper "A European Strategy for 

1 

2 

OJ L 205, 2.8.2002, p. 1–8; amended by Annex II, point 12 of the Treaties of Accession for the 2004 
and 2007 EU enlargements. 
COM(2007) 001 final. 

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Sustainable,  Competitive  and  Secure  Energy",3  the  Renewed  Sustainable  Development 
Strategy,4  the  Gothenburg  Strategy5  and  the  Commission's  Communication  "A  sustainable 
Europe for a better world: a European Strategy for sustainable development".6 

2. 

RESULTS  OF  THE  APPLICATION  OF  THE  COAL  REGULATION  BETWEEN  2002  AND 
2006 

The  Coal  Regulation  entered  into  force  on  24  July  2002.  Article  14  foresees,  however,  the 
possibility  for  Member  States  to  grant  aid  for  the  period  between  24  July  2002  and  31 
December  2002  under  the  rules  of  Decision  No  3632/93/ECSC  of  28  December  1993 
establishing  Community  rules  for  State  aid  to  the  coal  industry  (the  Coal  Decision).  All 
Member States that granted aid in this period made use of this possibility.7 Hence, the de facto 
application of the Coal Regulation commenced only on 1 January 2003. 

With regard to the Member States which joined the EU on 1 May 2004 and 1 January 2007, 
the Commission started to apply the Coal Regulation as of 1 May 2004 and 1 January 2007 
respectively.  Prior  to  that  date,  their  national  competition  authorities  applied  the  text  of  the 
Coal Regulation, as foreseen by the so-called Europe Agreements. To the extent that data is 
available to the Commission for the pre-accession period, it has been included in this report. 

Following  the  end  of  coal  production  in  France  in  2004,  11  Member  States  produce  coal 
covered  by  the  Coal  Regulation.8  Among  the  candidate  countries,  Turkey  and  the  Former 
Yugoslav Republic of Macedonia also produce coal covered by the Coal Regulation.  

2.1.  Overview  on  the  use  of  State  aid  for  the  coal  industry  and  the  results  of  the 
restructuring process 

2.1.1  Operating  and  investment  aid  (Article  5  §  2  and  Article  5  §  3  of  the  Coal 
Regulation) 

3  groups  of  Member  States  can  be  distinguished:  those  having  stopped  coal  subsidies  for 
mines in operation (the Czech Republic, France, Italy), those granting investment aid (Poland, 
Slovakia,  the  United  Kingdom),  and  those  granting  operating  aid  (Bulgaria,  Germany, 
Hungary, Romania, Slovenia, Spain).  

Complete stop of coal subsidies 

France  closed  its  last  coal  mine  in  2004.  In  2006,  France  authorized  a  private  undertaking, 
which will not receive any subsidies, to start mining operations in a new open-cast coal mine 
in the area of L'arc (Gardanne). The Czech Republic has privatized its formerly state-owned 

3 
4 
5 
6 
7 

8 

COM(2006) 105 final. 
Document 10117/06, adopted by the Council on 9 June 2006. 
Adopted by the Council in Gothenborg on 15 and 16 June 2001. 
COM(2001) 264 final. 
This concerns Spain (see decisions N 3/2002; C 17/2003), France (see decisions N 551/2002), Germany 
(see decision N 550/2002) and the United Kingdom (see decision N 740/2002). 
The Coal Regulation covers high grade, medium grade and low grade A and B coal within the meaning 
of  the  international  codification  system  for  coal  laid  down  by  the  United  Nations  Economic 
Commission for Europe; see Article 2 (a) of the Coal Regulation. Low grade C coal is excluded from its 
scope. The countries producing coal covered by the Coal Regulation are Bulgaria, the Czech Republic, 
Germany, Hungary, Italy, Poland, Romania, Slovenia, Slovakia, Spain, and the United Kingdom. 

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coal mines, and decided to stop granting subsidies. This has led to an important reduction in 
both  mining  output  and  employment.  Today,  the  privatized  mining  undertaking  OKD  is 
successfully competing on the world market. Italy has one coal mine in operation in Sardinia, 
for which no State aid has been notified to the Commission.9 

In these 3 countries, the restructuring process is completed.  

Investment aid (Article 5 § 2 of the Coal Regulation) 

The UK, Poland and Slovakia have limited their subsidies to investment aid under Art. 5 (2) 
Coal Regulation. The UK and Slovakia have completely privatised their formerly state-owned 
mines.  In  Poland,  the  process  of  privatisation  is  on-going.  Table  1  (see  SEC  (2007)  602) 
shows the total amount of investment aid authorized by the Commission. 

The restructuring process of the coal mining industry in these countries is completed, to the 
extent  that  all  mines  which  were  far  from  break-even  have  disappeared  from  the  market. 
However, these Member States have decided that as part of their overall energy strategy, they 
want  to  keep  in  the  market  coal  mines  which  have  some  prospects  of  being  viable  without 
operating aid. 

Operating aid (Article 5 § 3 of the Coal Regulation) 

Bulgaria,  Germany,  Hungary,  Romania  and  Spain  have  decided  to  maintain  schemes  of 
operating  aid.  The  national  mining  industries  of  these  countries  are  unlikely  to  survive 
without such operating aid. The success of the restructuring process seems to  be limited, as 
the production costs have been only slightly reduced, or have increased.10 In these countries, it 
seems  that  the  limits  of  possible  efficiency  gains  in  coal  mining  have  been  reached. 
Production costs remain extremely high, compared to the world market price for coal (Table 2 
based on 2006 figures11 - see SEC (2007) 602). 

The average price for imported coal was €60 per tonne of coal equivalent in the second half of 
2005,12  which  is  less  than  half  of  the  average  production  cost  in  Spain,  Germany  and 
Hungary.  Hence,  these  mines  are  structurally  not  competitive  on  the  world  market.  Table  3 
(see SEC (2007) 602) shows the total amount of operating aid authorized by the Commission. 
In  Spain,  the  electricity  produced  from  this  coal  accounts  for  4%  of  the  total  electricity 
production, in Germany for 10%, and in Hungary for 0.1%.  

Hungary  is  currently  planning  to  end  operating  aid  in  2014.  Germany  intends  to  do  so  in 
2018. 

9 

10 
11 

12 

The Commission is, however, currently investigating a complaint, alleging that Italy is granting State 
aid to the mine in question. 
See decision N 552/2005, State aid to the German coal industry for the year 2006. 
Bulgaria and Romania have to notify their plans for access to coal reserves to the Commission by 30 
April 2007 at the latest. The Commission received the notification of the plan from Romania within the 
prescribed deadline and conducts its examination. 
See Commission report under Council regulation (EC) N° 405/2003 of 27 February 2003, concerning 
Community  monitoring  of  imports  of  hard  coal  originating  in  third  countries,  available  under 
http://ec.europa.eu/energy/coal/market_pricing/doc/price_post_2002/hard_coal_electricity_semester_20
05_2_eur25.pdf. 

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2.1.2  Closure  aid  (Article  4  of  the  Coal  Regulation)  and  aid  for  inherited  liabilities 
(Article 7 of the Coal Regulation) 

The  Coal  Regulation  foresees  two  different  instruments  for  facilitating  the  closure  of  mines 
that  are  not  competitive  on  the  world  market:  closure  aid,  which  is  aid  covering  operating 
losses of mines until the date of closure, and aid for inherited liabilities, which covers certain 
categories of social and environmental liabilities resulting from coal mining.13 

Closure aid (Article 4 of the Coal Regulation) 

Closures of unprofitable mines have taken place in all Member States that produce coal, with 
the exception of Italy. Germany, Spain and France have granted closure aid under Article 4 of 
the  Coal  Regulation  in  order  to  cushion  the  social  consequences  of  the  mine  closure.  The 
amount of aid granted can be seen from table 4 (see SEC (2007) 602). In the period 2003 to 
2006, France closed 2 mines, Germany closed 2 mines, Spain closed 8 production units, and 
has committed to close down a further 9 mines by the end of 2007.14  

In other Member States, mine closures have also taken place in this period. Hungary closed 2 
mines,  Slovakia  1  mine,  and  Poland  3  mines.  These  closures  have  taken  place  without  the 
disbursement of closure aid. 

Aid for inherited liabilities (Article 7 of the Coal Regulation) 

In the Czech Republic and France, the state continues to pay subsidies for inherited social and 
environmental liabilities. However, the mining undertakings still in operation do not seem to 
benefit from these payments.15 

The  other  Member  States,  with  the  exception  of  Hungary  and  Italy,  have  taken  over  to  a 
certain extent inherited social and environmental costs not only for closed mines, but also for 
mines which are still in operation.16 Table 5 (see SEC (2007) 602) shows the total amounts of 
aid authorized for inherited liabilities. 

2.1.3 Development of mining output and employment 

In  the  EU25,  overall  mining  output  and  overall  mining  employment  declined  in  the  period 
2003 to 2006. Tables 6 (mining output for the years 1998 to 2004, see SEC (2007) 602) and 7 
(mining  employment  in  2004,  see  SEC  (2007)  602)  illustrate  the  development  country  by 
country. 

13 
14 
15 

16 

Annex to the Coal Regulation. 
The Commission is currently verifying whether this commitment has been respected. 
There is no coherent practice for the treatment of these payments under State aid rules. With respect to 
the Czech Republic, the Commission has authorized State aid for environmental liabilities (case CZ 45 
and 110/2004). It decided to open an ex officio investigation with respect to State aid for social inherited 
liabilities. This case is currently on-going. 
These  have  been  approved  in  Commission  decisions  N  574/2004  (Poland),  N  27  and  53/2005,  N 
419/2005, N 168/2005, NN 9/2006 and N 387/2006 (Slovakia), N 421/2003 and N 321/2004 (France), 
N  746  and  N  474/2002,  N  493/2003,  N  320/2004,  N  497/2004,  N  552/2005  (Germany),  N  20/2003 
(United  Kingdom)  C  14/2004  (Spain),  and,  prior  to  accession,  by  the  Slovenian  national  competition 
authority. 

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2.2 Role of indigenous energy sources in the overall EU energy mix and impact of Coal 
subsidies on the internal market for energy 

2.2.1 Role of indigenous energy sources in the EU energy mix 

Primary energy consumption reveals a general pattern of diversity in the fuels used. The most 
significant primary fuel for most Member States is oil and the next most significant is natural 
gas. This can be seen in Chart 1 (see SEC (2007) 602). 

The use of indigenous fossil fuels in Member States varies widely, depending on geological 
conditions and the degree of exploitation of resources. Apart from coal, there is production of 
gas (Denmark, France, Germany, Hungary, the Netherlands, the United Kingdom), oil (Czech 
Republic, Germany, Hungary, UK), oil shale (Estonia), and peat (in several Member States, 
used in particular in Ireland and Finland). 

As far as electricity production is concerned, most Member States use a diverse range of fuels 
in  the  process  of  electricity  generation.  While  the  particular  mix  of  fuels  differs  between 
countries,  there  is  significant  reliance  on  coal,  gas,  nuclear  and  hydro  (see  Chart  2,  SEC 
(2007)  602).  Coal  plays  a  prominent  role  in  the  fuel  mix,  accounting  for  30%  of  electricity 
production. One third of this electricity17 is generated from low grade C coal (ortho-lignite), 
which is not eligible for State aid under the Coal Regulation. Another third is produced from 
indigenous  coal,  which  is  eligible  for  State  aid  under  the  Coal  Regulation.  The  remaining 
third is produced from imported coal. Approximately 45% of the indigenous coal eligible for 
State aid under the Coal Regulation receives either operating aid or investment aid. In other 
words, subsidised indigenous coal serves as fuel for 4.5% of the electricity production in the 
EU. 

The  use  of  indigenous  renewable  energy  sources  has  increased  lasting  recent  years  in  the 
EU25, as can be seen from chart 3 (see SEC (2007) 602). Renewable energy sources account 
today for approximately 6% of total energy consumption and for about 16% of total electricity 
consumption.  A  further  increase  is  expected,  as  Member  States  have  accepted  targets  for 
electricity  production  from  renewable  energy  sources  in  Directive  2001/77/EC  on  the 
promotion of electricity produced from renewable energy sources in the internal market.18 The 
Commission  adopted  in  10  January  2007  a  "Renewable  Energy  Roadmap",19  in  which  it 
proposes the establishment of a mandatory target of 20% for the share of renewable energy in 
the  energy  consumption  in  the  EU  by  2020.  This  target  was  endorsed  by  the  European 
Council at its meeting on 8-9 March 2007. 

2.2.2 Impact of coal subsidies on the internal market 

State aid to the coal industry potentially affects three different product markets: the market for 
coal, the market for steel, and the market for electricity. There are also spill-over effects on 
the mining machinery sector and the eco-technology sector. 

17 
18 
19 

This corresponds to 10% of overall electricity production. 
OJ L 283, 27 October 2001, p. 33. 
COM (2006) 848 final. 

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Impact on the market for coal 

Coal comes in very different qualities. The prices paid and the possible uses vary, depending 
on the quality. Accordingly, it is likely that from a competition point of view, it is necessary 
to distinguish more than one product market for coal.20 The geographical dimension of these 
product  markets  is  also  likely  to  vary,  as  high  and  medium  grade  coal  can  be  easily 
transported,  and  there  is  a  world-wide  market  for  it,  whereas  for  low-grade  coal,  the 
Commission found that transport costs limit the geographical product market.21 

State aid for the coal industry has an impact on the markets for coal, as State aid keeps alive 
undertakings and mines which otherwise would go out of business. However, the distortion of 
the market within the EU seems to be limited by the fact that most subsidized coal covered by 
the  Coal  Regulation  is  consumed  in  the  national  market.  Besides  Poland  and,  to  a  lesser 
extent, the Czech Republic, no country exports its coal. This suggests that there is little direct 
competition  between  coal  produced  in  different  Member  States.22  The  consultations  carried 
out by the Commission in the preparation of this report confirm this analysis. 

With  respect  to  low-grade  coal,  the  impact  of  State  aid  seems  to  be  limited  by  the  fact  that 
transport  costs  for  low-grade  coal  are  high,  and  that  there  is  only  a  limited  degree  of 
competition between mines, as most of the production is used in near-by power stations.23 

Impact on the market for electricity 

In  order  to  avoid  spill-over  effects  from  State  aid  for  the  Coal  industry  in  the  market  for 
electricity, the Coal Regulation foresees a safeguard clause in its Article 4 (e). 

The reply of three environmental NGOs24 to the Commission's consultation implies, however, 
that  coal  subsidies  have  distorted  the  market  for  electricity  production  in  favour  of  coal.  It 
claims that “the energy sector is still far from providing a level playing field for all sources of 
supply. Dirty energy options, such as coal and nuclear, have benefited from many decades of 
state support, often in heavily protected and monopolistic markets”. 

A study carried out by Europe Economics for the Commission has analysed this question in 
detail, and concludes that State aid to the coal industry influences only the sourcing of coal, 
i.e.  the  decision  on  whether  to  buy  domestically  produced  coal  or  imported  coal.  The  study 
has found no indication that State aid to the coal industry would affect the overall fuel mix, 
i.e. the share of coal in electricity production. The reply of EURELECTRIC to the stakeholder 
consultations supports this position. 

20 

21 

22 

23 
24 

a 

for 

brown 

market 

separate 

In IV M.402 PowerGen/NRG Energy/Morrison Knudsen/Mibrag, the Commission concluded that there 
was 
see 
product 
http://ec.europa.eu/comm/competition/mergers/cases/decisions/m402_en.pdf 
In IV M.402 the Commission considered that the geographic market for brown coal was regional (in the 
case  at  hand:  Eastern  Germany).  In  State  aid  decision  N  597/2004  Lignit  Hodonín  s.r.o.,  the 
Commission  found  that  there  is  trade  in  ortho-lignite  across  borders,  although  only  between 
neighbouring  countries  and  for  small  distances.  Accordingly,  the  geographical  market  could  be,  in 
specific cases, a region that overlaps the territories of two or more Member States. 
The only indication for such competition concerns Germany, which has replaced parts of its indigenous 
production by Polish and Czech imports. 
See IV M.402 and N 597/2004 Lignit Hodonín s.r.o. 
European Environmental Bureau, Climate Action Network and Greenpeace. 

coal, 

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The Commission considers that the combined application of Article 4 (c) and Article 4 (e) of 
the Regulation should allow excluding that coal subsidies have an impact on the market for 
electricity.25 

The Commission notes, however, that State aid to the coal industry might have an impact on 
the internal market for electricity with respect, in particular, to investment decisions for new 
coal-fired  power  plants.  In  case  the  investor  can  be  assured  that  State  aid  will  enable 
indigenous mines to produce coal for the foreseeable future, he will build a new power plant 
next to the mine, in order to minimise transport costs. If, on the other hand, aid for indigenous 
uncompetitive  production  is  uncertain,  the  construction  of  the  power  plant  could  take  place 
close to an inland waterway, in order to minimize transportation costs for imported coal. 

Impact on the market for coke production and steel 

The safeguard clause  in Article  4 (e) of  the Regulation applies also to the markets for coke 
production and steel. Neither stakeholders nor Member States have made any observations on 
possible distortions of competition in these markets. 

2.3 Problems the Commission has encountered in applying the Coal Regulation 

The Commission has encountered 5 main problems in applying the present State aid rules to 
the coal industry: the control of the criterion “no price distortions” (Article 4 (c) of the Coal 
Regulation), the distinction between coal covered by the regulation and coal not covered by 
the  regulation,  the  reduction  of  production  costs,  the  control  of  the  categories  of  aid  for 
inherited  liabilities  set  out  in  the  annex  of  the  Coal  Regulation,  and  the  control  of  mine 
closures. 

2.3.1 Control of the respect of Article 4 (c) of the Coal Regulation 

Article 4 (c) of the Coal Regulation foresees that “the amount of aid per tonne coal equivalent 
may  not  cause  delivered  prices  for  Community  coal  to  be  lower  than  those  for  coal  of  a 
similar  quality  from  third  countries”.  The  respect  of  this  Article  is  difficult  to  verify  in 
particular in two situations: 

Integrated  mining  and  power  companies.  In  several  Member  States,26  coal  mines  and 
power  plants  form  part  of  one  integrated  undertaking.  In  this  case,  the  price  for  coal  is 
arranged  as  part  of  an  intra-company  transaction,  which  is  by  its  very  nature  difficult  to 
monitor from the outside. The Commission has addressed this problem, to the extent possible, 
through in-depth analysis of the individual cases concerned. 

No world market price. There is no world market price for low-grade coal, as because there 
is virtually no trade of such coal: as explained earlier, due to high transportation costs and low 
calorific value, low-grade coal needs to be consumed in geographic proximity to the place of 
production. In these cases, the Commission has verified whether the methods of calculation 
for  the  price  appeared  reasonable,  and  did  not  lead  to  a  distortion  of  competition  on  the 
market for electricity production.27 

25 
26 
27 

See in this respect also point 2.3.1 below. 
For example: Germany, Poland, Spain and Hungary. 
See decision N 92/2005 State aid to the Hungarian coal industry, and decision N 320/2004 State aid to 
the German coal industry. 

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2.3.2 Distinction between coal covered and coal not covered by the Regulation 

According to Article 2 (a) of the Coal Regulation, only high-grade, medium-grade and low-
grade category A and B coal, within the meaning of the international codification system for 
coal laid down  by  the  United Nations Economic Commission for Europe,  is  covered by the 
Regulation, whereas low-grade category C coal and other solid indigenous fossil fuels, such 
as oil shale, tar sand and peat, are not. All the latter are thus subject to the general State aid 
rules. 

For  the  Member  States  of  the  ECSC,  the  Commission  established  the  coal  quality  in  its 
Communication  concerning  the  interpretation  of  the  expressions  “coal”  and  “lignite” 
mentioned in annex I of the ECSC treaty of 11 October 198628. For the Coal Regulation, it 
was assumed that this distinction between coal and lignite corresponded to the new dividing 
line between low-grade B coal and low-grade C coal. For EC Member States which were not 
Member  States  of  the  ECSC,  the  Commission,  in  its  decision  practice,  has  accepted 
geological  analyses  carried  out  by  accredited  laboratories  of  the  Member  States,  and  has 
established  that  the  mines  Màrkushegy  in  Hungary  and  Bana  Dolina  and  Hornonitrianske 
bane Prievidza in Slovakia produce low-grade B coal, whereas the mine "Lignit Hodonín" in 
the Czech Republic produces low grade C coal.29 

2.3.3 Reduction of production costs 

The  Coal  Decision  foresaw  that  any  mine  receiving  operating  aid  had  to  show  a  “trend 
towards a reduction in production costs”. This condition has not been taken over in the Coal 
Regulation.  The  Commission  was  confronted  in  its  decision  N  552/2005,  State  aid  for  the 
German coal industry for the year 2006, with the question of whether, under the Regulation, 
it had to authorize operating aid regardless of the development of production costs, i.e. also in 
a  situation  where  production  costs  increase.  It  concluded  that,  in  principle,  undertakings 
applying  for  State  aid  under  Article  5  (3)  of  the  Coal  Regulation  need  to  follow  a  path  of 
reduction of their production costs. 

2.3.4 Application of the categories in the Annex 

The  Annex  of  the  Regulation  sets  out  the  categories  for  authorizing  State  aid  for  covering 
inherited liabilities. The costs for which aid is allowed by the Annex to the Coal Regulation 
sometimes have no or only an indirect link with restructuring of the coal industry. In addition, 
some of the categories are extremely vague.30 The effect of this can therefore be to allow aid 
for costs of the companies concerned without inducing them towards further restructuring. In 
this  respect,  it  should  also  be  noted  that,  contrary  to  aid  under  Article  4  and  5,  aid  under 
Article 7 is not subject to a financial maximum and is not required to be digressive. 

28 
29 

30 

OJ C 254, 11 October 1986, p. 2. 
See decision N 92/2005 State aid to the Hungarian coal industry, for Hungary; see decision N 27 and N 
53/2005 State aid to the Slovak coal industry, and decision NN 9/2006, State aid for the Bana Dolina 
coal mine, for Slovakia; see decision N N 597/2004 Lignit Hodonín s.r.o., for the Czech Republic. 
Category 1 (f), for example, allows for the reimbursement, by the state, of any “residual costs resulting 
from administrative, legal or tax provisions”. 

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2.3.5 Control of mine closures 

The Commission has been confronted with the problem that Spain has not followed up on its 
commitment  to  close  mines  which  have  received  closure  aid  under  Article  4  of  the  Coal 
Regulation. In its decision C 14/04, Restructuring plan of the Spanish coal industry and State 
aid  for  the  years  2003  –  2005,  the  Commission  gave  a  detailed  explanation  of  these 
problems.31 The Commission will continue carefully to monitor this situation. 

3. 

NEED TO AMEND THE COAL REGULATION 

According to Article 13(1) and recitals 9 and 23 of the Coal Regulation, the Commission shall 
evaluate  whether  the  development  of  the  coal  market  and/or  the  social  and  regional 
consequences of coal mining render amendments to the Coal Regulation as of 1 January 2008 
necessary.  

3.1 Developments on the coal market and overall energy security 

In  the  period  2003  to  2006,  prices  for  coal  on  the  world  market32  fluctuated  considerably. 
However, they were more stable than prices for oil and natural gas. The underlying reason for 
price changes was a strong increase in coal demand, coupled with limited output capacities of 
coal mines and limited transportation capacities. The increase in demand was mainly due to 
the high coal demand of China and India. In addition, high prices for natural gas made coal-
fired power stations more competitive than before, which may also have increased demand. 

The limits in output and transport capacity are due to the fact that investments in new mining 
and  transport  capacities  need  a  run-up  time  of  one  or  more  years.  Adaptation  to  changes  in 
demand patterns thus occurs relatively slowly. 

In  addition,  the  European  Union’s  security  of  energy  supply  was  put  high  on  the  agenda 
following  the  Russian-Ukrainian  gas  dispute  at  the  beginning  of  2006  and  the  Russian-
Belorussian oil dispute at the beginning of 2007. Overall, it is clear that there is a higher level 
of awareness of the importance of energy security in 2007 than there was in 2003. However, 
problems concern mainly oil and natural gas. With respect to coal, the world market seems to 
function  efficiently,  as  was  shown  by  the  increase  in  coal  production  in  reaction  to  the 
increased demand from India and China. The security of European coal imports is today not 
considerably different from 2003. 

Developments  on  the  world  market  for  coal  are  important  for  the  economic  viability  of 
European coal mines. Many mines in the Czech Republic, Poland, the United Kingdom and 
Italy  are  profitable  at  the  relatively  high  coal  prices  observed  since  2005,  but  could  not 
survive in case of a drop in coal prices to the level observed in the beginning of the century. 

31 

32 

See decision C 14/04, Restructuring plan of the Spanish coal industry and State aid for the years 2003 – 
2005. 
A world market exists only for high and medium grade coal; low grade coal is always used close to the 
place of production. 

EN 

10 

   EN 

 
                                                 
3.2 Social and regional consequences of mining 

None of the replies received from stakeholders or Member States indicate that there have been 
important  changes  with  respect  to  the  social  and  regional  aspects  of  coal  mining. 
Nevertheless,  Germany,  Spain,  and  several  respondents  to  the  stakeholder  consultation 
propose  to  prolong  State  aid  for  the  reduction  of  activity  under  Article  4  of  the  Regulation 
until 2010. They express fears that otherwise, the reduction of production capacity might be 
more difficult. 

The Commission has already approved the plans for access to coal reserves and the plans for 
mine  closures  for  all  Member  States,  with  the  exception  of  Spain  and  Romania  where  the 
examination of the notifications is still ongoing, until 201033. For these approvals, the fact that 
Article 4 aid is phased out as of 2008 did not create any particular difficulties. In addition to 
the mine closures reported above in point 2.1.2, Germany plans to close two more mines by 
2010 and Slovakia plans to close another mine in 2007. The Spanish plans for mine closures 
are currently under examination by the Commission. Contrary to what the replies mentioned 
above suggest,  the examination  of  these mine closures by the  Commission  has  not revealed 
any need for a prolongation of Article 4, because all State aid necessary for carrying out the 
closures could be approved under Articles 5 and 7 of the Coal Regulation.  

In addition, the practical impact of any such modification for the period 2008 to 2010 would 
be very limited. The Commission has already approved the plans for access to coal reserves 
for Germany, Hungary, Poland, the United Kingdom and Slovakia. The plan for Spain and for 
Romania is currently under assessment. These countries account for the major part of all State 
aid granted to the coal industry. In order to impose any changes to the State aid foreseen in 
these  plans,  the  Commission  would  need  to  propose  to  these  Member  States  appropriate 
measures according to Article 17 and following Council Regulation (EC) No 659/1999 laying 
down detailed rules for the application of Article 93 of the EC Treaty34. This would require 
considerable  administrative  resources  from  both  the  Commission  and  the  Member  States 
concerned. 

3.3 Conclusion 

In  the  light  of  the  above  the  Commission  considers  that  it  is  not  necessary  to  propose 
amendments to the Coal Regulation. The Commission invites the Parliament, the Council, the 
European  Economic  and  Social  Committee,  the  Committee  of  the  Regions  and  all 
stakeholders to present their views on this report. 

33 
34 

Bulgaria did not notify its plan for access to coal reserves and mine closures. 
OJ L 83, 27 March 1999, p. 1. 

EN 

11 

   EN