2008/90/EC: Commission Decision of 10 July 2007 on State aid C 20/06 (ex NN 30/06) implemented by Slovenia for Novoles Lesna Industrija Straža d.d. (notified under document number C(2007) 3223) (Text with EEA relevance )
Date: 2007-07-10
Institutions: European Commission
Subjects: Slovenia, State aid, control of State aid, regional aid, wood industry

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

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 10 July 2007

on State aid C 20/06 (ex NN 30/06)

implemented by Slovenia for Novoles Lesna Industrija

Straža d.d.

(notified under document number C(2007) 3223)

(Only the Slovenian version is authentic)

(Text with EEA relevance)

(2008/90/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

for Companies
in Difficulty. This measure was not
notified to the Commission on the grounds that it had
been approved by the Slovenian State Aid Monitoring
Commission on 23 April 2004, i.e. prior to accession.
However, since the relevant criterion for determining
when aid is granted is the legally binding act by which
the competent national authority undertakes to grant
state aid, the Commission considered that the measure
in question constituted new aid, which should thus have
been notified on the basis of Article 88 and assessed
under Article 87 of the EC Treaty (2).

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

(3)

Whereas:

By letter dated 16 May 2006 the Commission informed
Slovenia that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid.

(1)

(2)

I. PROCEDURE

On 1 December 2004 the Commission received a
complaint concerning alleged aid to the Slovenian
wood-processing firm Novoles Lesna Industrija Straža
d.d. (hereinafter Novoles Straža).

(4)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (3).
The Commission invited interested parties to submit their
comments on the aid/measure.

The complaint concerned financial measures allocated to
Novoles Straža on 27 May 2004 by decision of the
Slovenian Government pursuant
the
Slovenian Act Governing Rescue and Restructuring Aid

to Article 21 of

(5)

The Commission received no comments from interested
parties.

(2) Details of the procedure were described in the decision to open the
procedure (see footnote 1) and remain relevant for the purpose of
the present decision.

(1) OJ C 194, 18.8.2006, p. 22.

(3) Cf. footnote 1.

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(6)

(7)

(8)

Slovenia submitted observations by letter dated 17 July
2006. Additional
information was requested by letters
dated 11 October 2006 and 23 February 2007 and
submitted on 30 November 2006 and 23 April 2007.
In addition, a meeting was held between Commission
services and the Slovenian authorities on 28 June 2006.

II. DETAILED DESCRIPTION OF THE AID

1. The beneficiary

Straža manufactures

Novoles
semi-finished wood
products and furniture. It is located in Straža, Slovenia,
which is an assisted area within the meaning of Article
87(3)(a) of the EC Treaty. In 2003 it had about 800
employees and it is one of the bigger employers in the
wood and furniture sector in Slovenia.

(100 %)

The company has holdings in two companies, Novoles-
and Pohištvo Brežice, d.d.
Primara, d.o.o.
(93,7 %). Slovenia submitted that both those companies
were also in poor financial condition. While the former
generated a very small profit in 2003, the latter made a
loss.

(10)

(9)

The company is owned by a number of natural and legal
persons. However, ownership is so widely spread that

funds

are merely

them is able to exercise control over

the
none of
company to the extent that it could be considered as
part of a larger group. In fact the biggest shareholders
are employees and former employees, who are not linked
by any kind of share agreement and who hold 22,3 %.
Besides that, a number of ‘PIDs’ hold a total of 33,4 %.
However, the Commission understands that these PID
investment
administrative bodies
managing the shares of private shareholders. These share-
‘social
holdings are the result of
capital’
that companies
in Slovenia,
belonged to everybody. Ownership of this social capital
was transformed by issuing ownership certificates to
citizens, who could exchange them for shares. PIDs
were formed to enable citizens to participate in this
transformation of ownership by exchanging the cer-
tificates
authorities
The
confirmed that the PIDs have no resources available to
help the company overcome its difficulties.

the privatisation of

the concept

Slovenian

shares.

into

i.e.

2. Financial situation of the beneficiary

The company's poor financial situation stems from the
fact that it lost a significant amount of
its registered
capital of SIT 1,262 billion (about EUR 5,3 million (4)),
which had fallen to SIT 0,75 billion in April 2004. The
main financial and operating indicators taken from its
flow
balance
statement are indicated in the following table:

statement

income

sheet,

cash

and

Table 1

Financial indicators for Novoles Straža

Indicator

1999

2000

2001

2002

2003

Net sales revenue

6 341 790

6 507 932

6 602 106

8 093 436

6 014 466

Inventories

Claims

Profit (Loss)

Debt ratio

880 544

930 585

78 809

42,1

936 471

1 113 218

955 305

1 279 940

1 053 433

1 218 067

1 676 595

1 133 643

109 884

128 843

110 215

(511 149)

44,7

47,2

50,2

57,6

(11)

(12)

The Slovenian authorities explained that the company's
losses stem mainly from the failure to meet its sales plan
while on the other hand its financial costs increase. This
is evidenced by the fact that the company's debt ratio
was constantly increasing and by the increase in average
inventories.

(13)

the procedure,

In response to the opening of
the
Slovenian authorities explained that the volume of sales
had also decreased from 2000 to 2001 and from 2002
to 2003, while the increase in 2002 was due to extra-
ordinary events,
construction work in Croatia
(equipping large hotel complexes), the introduction of a
new furniture range and the inclusion of revenues from

i.e.

two subsidiaries, which were integrated into Novoles on
1 January 2003.

evidence

the Slovenian authorities

Furthermore,
furnished the
the
Commission with documentary
that
company was unable to obtain a sufficient amount of
fresh capital
In particular,
from the capital markets.
rejected Novoles Straža's application for new
banks
funds because it had a poor credit worthiness and insuf-
ficient security to make up for such a poor standing.
Even a State guarantee covering 65 % of the amount
requested was considered insufficient.

(4) At the beginning of 2006, EUR 1 = Slovenian Tolar (SIT) 240.

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3. Restructuring programme

(14)

In order to overcome its difficulties,
in April 2004
Novoles Straža presented the Ministry of Economy with
a restructuring plan from March 2004 concerning a
restructuring period from 2004 to 2008.

41 % to 31 % in 2008. Intermediate products will,
nevertheless, remain an important part of production,
thereby
but will not consist
increasing
company's
advantage here lies in its production of smaller quan-
tities for a known producer.

solely of plywood,

added.

value

The

the

(15)

(16)

The plan cites as the reason for the current situation the
decline of economic growth in its main export markets
(in particular Germany and USA), where it sold 60 % of
intermediate
products. Moreover,
its
products had fallen. The fall
in 2003
culminated in the company's inability to settle liabilities
from its own resources and hence in an increase in debts
and financial charges. Moreover, the company's organis-
ational structure did not enable it to tailor production to
demand.

for
in revenues

demand

(18)

In order to overcome its difficulties, a financial restruc-
turing operation was envisaged — and has since taken
place — aiming at transformation of mortgage-backed
short-term loans of SIT 1 669 940 776 into long-term
liabilities with the help of a State guarantee of SIT 1,1
billion for some loans which were 65 % mortgage-
backed,
of
SIT 569 940 776 was financed without state aid but
with a mortgage ratio of more than 100 % of nominal
value.

refinancing

remaining

while

the

the

aimed

adaptation

at more
of

restructuring
and

In addition, the redirection is accompanied by techno-
cost-efficient
logical
technological
production
to demand-driven production which also
equipment
meets ecological standards.
Investments amounting to
SIT 1 455 million (EUR 6,06 million) are envisaged,
focusing in particular on measures to increase pro-
ductivity, improve working conditions, improve the use
of materials, save energy and meet ecological standards.
The Slovenian authorities have provided the Commission
with a table of investments, which comprise measures
such as modernising the plywood profit centre,
intro-
ducing a computer-controlled drying process, mod-
ernising production at
the new product range profit
centre, overhauling the energy system and introducing
a new information system. The Slovenian authorities
have indicated some delays in the implementation of
some of the key investments, such as production at the
new product range profit centre or the overhaul of the
energy system, due to lack of funds (these investments
were mainly to be financed by own resources).

(17) Moreover, Novoles Straža aims to redirect its activities as

follows:

(19)

Finally, personnel restructuring will aim at reducing the
workforce by 96 employees and providing special and
general training for the remaining employees. The costs
of SIT 537 million will be covered partly by a subsidy of
SIT 283 million (EUR 1,2 million).

— A change in its marketing strategy, consisting of a
partial switch from the EU and North American
markets towards the markets of Eastern Europe and
Russia. The Slovenian authorities have provided
evidence of several sales projects commencing inter
alia in Russia, Slovakia and Serbia. Sales to foreign
markets will increase to 77 % in 2008 compared with
70 % in 2004, with sales
to Eastern European
markets accounting for 8 % (compared with 0 %).

— A reduction in the proportion of
in favour of

intermediate
products
Finished
products will account for 33 % in 2008 (compared
with 26 % in 2003) and own brand products will
account for 26 % in 2008 (compared with 20 % in
2003) while intermediate products will decline from

final products.

(20)

Slovenia presented five-year business projections indi-
cating that the restructuring plan would enable Novoles
Straža to restore viability.

(21)

The Slovenian authorities have provided the Commission
with data in support of the sales forecasts. First, the
projections took into account growth from 2005 to
2007 of
around 10 % in the Western European
markets and around 20 % in the Eastern European
markets (5). Second,
shift of
production from intermediate products
to finished
products (59 % finished products rather than 46 %).

they factored in the

(5) This information is based on assessments by Euromonitor, 2003.

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(22) On the basis of these assumptions, together with sales
executives’ forecasts based on information obtained at
through agents and directly from buyers,
trade fairs,
Novoles Straža has produced a sales plan for
the
period 2004 to 2008.

to 8,4 % in foreign sales. Consequently, the restructuring
will result in an operating margin of 11,7 % in 2008.
The operating profit in relation to equity capital will
increase to 12,6 % in 2008.

(23) On the basis of realistic forecasts,

it is projected that,
over
annual growth will be
between 3,6 % and 5,7 % in domestic sales and 6,5 %

the period 2003-08,

4. Costs and financing of restructuring

(24)

The table below gives an overview of the financing of the
restructuring costs:

Table 2

Costs and financing of restructuring

Financing required (in SIT 000)

Own funds

Subsidies

Guarantee

Total

Financial restructuring

Marketing and development
restructuring

369 000 (*)

675 000

1 100 000

1 469 000

675 000

Technological restructuring

1 456 000

200 000

1 656 000

Personnel restructuring

253 988

Total

2 384 988

282 771

282 771

536 759

1 300 000

4 337 699

(*) Figure introduced by the Commission.

(25)

(26)

The company received state aid totalling SIT 1 583
million (EUR 6,6 million), however apparently only at
the end of 2004 and not as planned in mid-2004.

The main support consists of a State guarantee for four
loans totalling SIT 1,3 billion, which enable Novoles
Straža to reschedule its existing debt. The deadline for
repayment is seven years,
including a two year mora-
torium. Thereafter the interest rate is 4,5 %, including a
lumpsum payment amounting to 0,1 % for concluding
and managing the credit transaction. The guarantee will
cover 100 % of the loans and will be additionally secured
by a mortgage of at least 65 %.

to

be

generated

add another SIT 569 million from the private financing
of the loans (amounting to 8,5 %). Some of the own
disinvestments
by
funds were
(SIT 1 323 million,
i.e. 30,5 %) and by amortisation
and depreciation (29,76 %). The Slovenian authorities
have provided the Commission with a detailed list of
the disinvestments. While around SIT 300 million was
further divestments were
already disinvested in 2005,
planned (and have been partly realised)
for 2006
(around SIT 600 million) and for 2007 and 2008
(SIT 450 million).

(27)

Slovenia submits that SIT 2 385 million of the restruc-
turing costs is financed from the company's own funds.
the Commission considers it appropriate to
However,

5. Market situation and compensatory measures

(28) Novoles Straža produces the following products,
which its market shares in the EU-25 are as follows:

for

Table 3

Market shares

Product

2003 market share

2005 market share

Plywood (*)

Chairs and parts (**)

Furniture and parts (***)

Average

0,14 %

0,07 %

0,08 %

0,09 %

(*) US Harmonised system codes 4412 14 00, 4412 19 00, 4412 93 00.
(**) US Harmonised system codes 9401 61 00, 9401 69 00, 9401 90 30.
(***) US Harmonised system codes 9403 60 10, 9403 60 90, 9403 90 30.

0,13 %

0,04 %

0,05 %

0,06 %

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(29)

(30)

(31)

(32)

(33)

6. Other aid

Correcting the figures quoted in the decision opening the
procedure, the Slovenian authorities stated that Novoles
Straža did indeed benefit from favourable loans in 2004,
but that these loans, granted from public and private
sources for environmental purposes, amounted to only
SIT 115,2 million (EUR 0,48 million) and had a net grant
equivalent of SIT 14,9 million (EUR 62 000). This aid
was given under the ‘Environmental
Investment Cofi-
nancing’ scheme and approved in February 2004.

the aid received in 1999
Slovenia also reported that
consisted only of SIT 18,1 million (EUR 75 000)
in
interest rate subsidies, SIT 11,5 million (EUR 48 000)
in employment aid, SIT 3,6 million (EUR 15 000)
in
aid for research and development and SIT 1,1 million
(EUR 4 600) in export aid.

The first aid mentioned in the previous paragraph, which
was originally assumed to be restructuring aid, was
merely an interest rate subsidy granted because interest
rates in Slovenia were relatively high compared to foreign
interest rates. In fact, one of the conditions for benefiting
from the programme was that the companies had to
have an A, B, C or D credit rating and were not
allowed to be in bankruptcy proceedings. The company
furnished proof that it had an A/B rating at that time.

III. REASONS FOR OPENING THE PROCEDURE UNDER
ARTICLE 88(2) OF THE EC TREATY

In its letter of 16 May 2006, the Commission held that
the measures in question constituted new aid and should
thus be notified on the basis of Article 88 EC and
the
assessed under Article 87 EC. To this
Commission reiterated that the relevant criterion is the
legally binding act by which the competent national
authority undertakes
state aid, which was
to grant
adopted in May 2004.

end,

In addition, the Commission expressed doubts on the
compatibility of the measure with the common market,
and in particular with the 1999 Community Guidelines
on aid
in
and
rescuing
difficulty (6), on the following grounds:

restructuring

firms

for

— It was not sure whether the company showed the
usual signs of a company in difficulty, given that its
sales increased in 2003 and inventories decreased in
2002. Moreover,
the
company was part of a larger group.

it was not clear whether

(6) Community Guidelines on State aid for rescuing and restructuring

firms in difficulty (OJ C 288, 9.10.1999, p. 2).

— It was not clear how the company was to restore its
long-term viability,
in particular as data underlying
the financial projections for the future was missing.

— It was unclear whether the company was providing a
significant own contribution to the restructuring for
want of a clear explanation as to how the own funds
mentioned were to be sourced.

— No market analysis was provided to justify the non-

existence of compensatory measures.

— Compliance with the ‘one time,

last time’ principle
was doubtful, given that the company had already
received restructuring aid in 1999.

IV. COMMENTS FROM SLOVENIA

Slovenia insisted that the state aid for Novoles Straža was
allocated before Slovenia’s accession to the European
Union, since the state's economic exposure was known
before accession.

to allay the European Com-
Second, Slovenia sought
mission's doubts
regarding whether or not Novoles
Straža belongs to a larger business group by explaining
the particularities of the ownership structure in Slovenia,
as presented above, and by correcting the percentages of
the participating interests of the shareholders.

Third, Slovenia put forward evidence that Novoles Straža
is a ‘company in difficulties’, explaining more fully the
overall trend of
financial difficulties the company has
been facing since 1999 (as evidenced by growing inven-
tories and debt and a decrease in sales, with certain
extraordinary events causing the increase in 2002),
culminating in its inability to obtain external financing
in 2004.

Fourth, the Slovenian authorities provided information
indicating that Novoles Straža's strategy is based on
market research and forecasts confirming relatively high
furniture sales.

as

regards

compensatory measures, Slovenia
Fifth,
submitted a market
that Novoles
study
Straža's market share in the relevant product market in
the EU-25 is very small. The Slovenian authorities also
pointed out that Novoles Straža is located in an assisted
area within the meaning of Article 87(3)(a) EC.

showing

(34)

(35)

(36)

(37)

(38)

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(39)

Finally, as regards state aid received in the past, Slovenia
corrected some
sums
received and, above all, stated that
the aid originally
identified as restructuring aid was not allocated for
rescue and restructuring as defined in the Guidelines.

regarding the

clerical

errors

V. ASSESSMENT OF THE AID

1. Existence of state aid

(40) According to Article 87 EC, any aid granted by a
Member State or through State resources in any form
whatsoever which distorts or threatens to distort com-
petition by favouring certain undertakings or
the
production of certain goods,
insofar as it affects trade
between Member States, constitutes incompatible state
aid unless it can be justified under Article 87(2) or (3)
EC.

aid, even if
beforehand.

the exposure of

the State was known

(44)

The Commission maintains its initial conclusion that the
binding act by which the competent national authorities
undertook to grant aid did not come into effect before
accession. The relevant Slovenian provisions state that
the aid is to be awarded by a decision of the government
on the basis of a proposal from the Ministry responsible.
While prior decisions of
the interdepartmental expert
commission and the Ministry responsible are indeed
necessary for the award, they are not sufficient to grant
the aid. The final decision lies with the Government. In
the present case, the Government’s decision was issued
on 27 May 2004 and Slovenia joined the European
the measures
Union on 1 May 2004. Therefore,
constitute new aid and have to be notified on the basis
of Article 88 EC and assessed under Article 87 EC.

(41)

The Commission notes that the aid is granted through
State resources to an individual company. This clearly
applies to a direct grant, but also to a guarantee,
in
particular where a company is in difficulty and 100 %
security for the loan is provided (7). Indeed, the guarantee
allowed the company to secure a larger loan than it
would have been able to obtain without the guarantee.

3. Compatibility of the aid

(45) Given that the aid in question is restructuring aid, it is
compatible with the common market if it complies with
the criteria under the Community Guidelines on aid for
rescuing and restructuring of firms in difficulty (here-
inafter the Guidelines) (9).

(42) As there is trade in wood products between Slovenia and
other Member States, the measure is liable to improve
the position of the recipient in relation to its competitors
in Slovenia and the EU. The aid therefore distorts com-
petition and affects trade between Member States. Conse-
the present
quently,
measures in favour of Novoles Straža constitute state
aid pursuant to Article 87(1) EC.

the Commission considers

that

(46)

(47)

2. Existence of new state aid

(43)

The Slovenian authorities first questioned whether the
Commission was empowered to assess the aid under
Articles 87 and 88 EC, arguing that
it was granted
before accession. In the decision opening the procedure
in order to determine
the Commission clarified that,
into effect before or after
whether aid has been put
the relevant criterion is the legally binding
accession,
act by which the
authorities
competent national
undertake to grant the aid (8). In the absence of such a
decision before accession, the measure constitutes new

In view of Slovenia’s comments and the information
the
gathered
Commission has reached the following conclusions on
the points which caused it to open the formal procedure.

investigation,

course of

in the

its

3.1. Eligibility

the

view that

In view of the information submitted by Slovenia, the
company's
the
Commission takes
performance, as described in paragraphs (24)
to (27)
above, shows that it was indeed a company in difficulty
at
the time the state aid in issue was granted. The
Commission notes in particular that the problems were
part of a trend for the years 2000-04 and not simply an
exceptional occurrence in 2003. Moreover, the Slovenian
authorities provided sufficient evidence that in 2004 the
company would not have been able to refinance its
short-term debts on its own. This is not contradicted
by the fact that the company succeeded in obtaining
some refinancing without aid, as this was achieved
using a high level of security which the company could
not have provided for the entire amount
to be refi-
nanced.

(7) See points 2.1.2. and 4.2 of Commission Notice on the application
of Articles 87 and 88 of the EC Treaty to State aid in the form of
guarantees (OJ C 71, 11.3.2000, p. 14).

(8) See the Decision to open the procedure (cf. footnote 1), point 20 et

seq.

(9) As the aid was granted in May 2004, the aid has to be assessed on
the basis of the 1999 Guidelines, i.e. the Community Guidelines on
State aid for rescuing and restructuring firms in difficulty (OJ C 288,
9.10.1999, p. 2).

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(48)

and poor

fragmentation of

the passive nature

The Commission also notes Slovenia’s
explanations
concerning the nature of Novoles Straža's ownership.
In view of
capital
resources of Novoles Straža’s institutional owners and
the
the
Commission accepts
company could not
obtain the necessary funds from its shareholders. For
the same reasons, and taking into account the fact that
no single owner holds more than 22 % of Novoles
Straža’s share capital,
the Commission also takes the
view that Novoles Straža does not belong to a larger
business group.

remaining ownership,
the

its
that

(49)

The Commission accordingly accepts that Novoles Straža
was eligible for restructuring aid.

(50)

(51)

3.2. Return to viability

The Commission indicated in the decision opening the
procedure that it was unclear how the restructuring plan
would enable Novoles Straža to restore
long-term
viability. This related mainly to the five-year financial
projections indicating how the company was likely to
evolve as a result of
the restructuring measures. The
Commission remarked that Slovenia had not submitted
the information required by the Commission to assess
the assumptions on Novoles Straža's likely performance
under the restructuring plan.

and (22)

above. This

In the course of the proceedings, Slovenia has submitted
the complementary information mentioned in paragraphs
(21)
information adequately
explains the basis for the assumptions. The Commission
notes that the sales forecasts for Novoles Straža might
appear today rather optimistic given that in 2005 and
2006 the sector was facing fierce competition from Far
East which resulted in excess supply and pressure to
reduce prices. However,
it is not clear that this infor-
mation was already known at the beginning of 2004.
Moreover,
the Commission itself observed in 2006
‘plywood production and consumption have seen
that:
significant increase in the past few years, with a strong
export market developing for certain grades’ (10). Since
the Commission has been provided with no contra-
dictory information which might call into question the
company's or its own assumptions, it has no grounds to
dispute them. The Commission therefore considers that
the projections do not appear implausible, and its doubts
on this point have been allayed.

(52)

In the decision opening the procedure the Commission
also found that the restructuring plan contained several
internal measures which, if implemented, were likely to

the technical

contribute to a turnaround of the company. In the course
of
the investigation the Commission obtained infor-
mation that the company has not yet implemented all
the planned restructuring measures. According to the
Slovenian authorities, the reasons for this were among
other things the delayed receipt of the state aid and
worse-than-expected operating results.
In this context
the Commission observes that, under the restructuring
plan,
restructuring was to be financed
mainly from own resources. However, such a weakness
was not apparent beforehand and can even be justified
by the fact that the state aid did indeed have to be the
in particular for a Member State
minimum necessary,
to such a plan (11) on the eve of
committing itself
accession. So in this special case the Commission will
not view that weakness as
into
question the existence of a viable restructuring plan.
that approval
However,
implementation of
of the aid is conditional upon full
the restructuring plan (point 43) and will be monitored
(point 46).

the Commission would recall

sufficient

to call

The Commission therefore expects Slovenia, pursuant to
point 46 of the Guidelines, to submit at least two moni-
toring reports, one concerning 2007 by the end of
January 2008 and one concerning 2008 by the end of
January 2009, containing detailed information on the
company's financial performance and the investments
made. The Commission would point out that, even if
the company restores its viability without making all
it might be liable to pay back some
the investments,
state aid if the planned investments are not fully imple-
mented (12).

3.3. Aid limited to the minimum

own

contribution

The aid is also limited to the minimum. In particular, the
the provision of a
Commission's doubts as regards
significant
allayed.
According to point 40 of the Guidelines, the aid must
be limited to the strict minimum needed for restoring
viability, whereas aid beneficiaries are expected to make a
significant contribution to the restructuring plan from
their own resources.

been

have

The explanations by the Slovenian authorities regarding
the own contribution, as indicated in paragraph (27), are
detailed enough to allow the Commission to verify that
the company has made or will make a significant
number of disinvestments between 2005 and 2008
amounting
costs.
Moreover, the Commission noted that Novoles Straža
has obtained external financing free of aid amounting
to 8,5 %.

to 30,5 % of

restructuring

the

(53)

(54)

(55)

(11) See point 32 of the Guidelines. The commitment to the plan was

indeed before accession, only the aid was granted later.

(12) See Commission Decision of 13 September 2006, Case N

(10) http://ec.europa.eu/enterprise/forest_based/tradeflows_en.html

350a/2006 MSO (OJ C 280, 18.11.2006, p. 4).

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(56) On the other hand, the Commission reiterates that it
cannot accept depreciation as an own contribution
because it does not provide resources available to the
company and also depends on future operations which
are the result of the state aid provided (13).

(57)

Therefore, the Commission can in sum identify an own
contribution of 39 %, which can be seen as significant
under the 1999 Guidelines (14).

(58) Moreover, the aid is also limited to the strict minimum
for restoring viability given that the aid essentially covers
the imminent refinancing needs for mature short-term
loans and thus does not equip the company with any
surplus liquidity.

3.4. Compensatory measures

(59) According to points 35 and 36 of

the Guidelines,
measures must be taken to mitigate as far as possible
the state aid on competitors.
any adverse impact of
However, according to point 36 of the Guidelines, such
compensatory measures are not required where the ben-
eficiary's share of the relevant market is negligible.
In
these cases, compensatory measures are thus not a
condition for
finding the aid compatible with the
common market.

(60)

The Commission does not dispute the claims of
the
Slovenian authorities that Novoles Straža is active in
several product markets, which it defines as plywood,
furniture. As regards plywood the
chairs and other
Commission notes that in a merger case a ‘market inves-
tigation has largely confirmed that the different type of
wood-based boards such as plywood, hardboard, raw
particleboards
and coated particleboards, decorative
laminates (HPL/CPL) and wood-based panel components
for the furniture and construction industry belong to
separate product markets (15).’

(61)

For the definition of the relevant market, Slovenia has
provided the Commission with a market study which

(13) This was confirmed in the Commission Decision of 22 February
2006 in Case N464/05 AB Kauno, point 17 and, as regards cash
flow under the 1999 Guidelines, in the Commission Decisions in
Case C-19/2000 TGI, OJ L 62, 5.3.2002, p. 30, point 106 and Case
C-30/1998 Wildauer Kurbelwelle, OJ L 287, 14.11.2000, p. 51, point
52.

(14) See also the Commission Decisions in Case C 39/2000 Doppstadt,
OJ L 108, 30.4.2003, p. 8, point 74 and Case C 33/1998 Babcock
Wilcox (OJ L 67, 9.3.2002, p. 50).

(15) Commission Decision of 28.6.2006, Case No COMM/M.4165 —

Sonae Industria/Hornitex, point 11.

investigations

indicates the market shares for the relevant product
market in the EU-25. In this respect, the Commission
has little reason to depart
from the presumption in
footnote 20 of the Guidelines that the relevant market
is the EEA. It recalls that it has previously conducted
some market
in the European wood-
based products industry (including in particular wood
particleboard) in a merger case (16), and concluded that
the relevant market was wider than the national market,
and at least cross-border regional. This was borne out by
large cross-border trade flows. That similar trade flows
also exist in the case of plywood is confirmed by figures
provided by the Commission's internal experts (also,
Novoles Straža's intra-Community export sales account
its turnover – 60 %). Moreover, a
for the majority of
cross-border regional market was found to relate to a
distance of about 1 000 km, with the distance varying
according to the value added of the products,
i.e. the
distance was even longer for coated products compared
to non-coated products. As plywood is already a higher-
quality product and exports concern mainly veneered
plywood,
than for
plywood than for particleboard (and even lower for
In
chairs and other furniture made out of plywood).
view of the above, the Commission takes the view that
the relevant market for the products manufactured by
Novoles Straža should be, if not the entire EEA or the
EU-25, at least a good part of the EU-25.

transportation cost

lower

are

reduced

(62) Given that Novoles Straža's market share in the EU-25 is
in any event not above 0,13 %, and that it should in
the geographical
principle no more than double if
market were
the Commission
by
considers that the market share is still well below 1 %
which,
the market
comprises a large number of small and medium-sized
considered negligible (17). Conse-
producers,
quently, no compensatory measures are necessary to
ensure
compatible with the
aid is
the
common market.

in connection with the fact

can be

state

half,

that

that

3.5. Other aid

(63)

Finally, Slovenia has furnished the Commission with
sufficient information on all other aid received by the
company in order to allow a proper assessment of the
‘one time, last time’ principle. According to this principle,
laid down in points 48 et seq. of the Guidelines, the
Commission cannot approve restructuring aid to a
company which has previously received restructuring
aid. The Commission considers
this principle
requires it to take into account any restructuring aid
granted within the 10 years preceding the aid under
consideration,
irrespective of whether the first state aid
was granted before the granting Member State's accession
to the EU.

that

(16) Commission Decision of 28.6.2006, Case No COMM/M.4165 —

Sonae Industria/Hornitex, point 13.

(17) At least in the light of other examples under the 1999 guidelines,
see Commission Decision in Case C-3/2005 FSO, OJ C 100,
26.4.2005, p. 2, point 38 et seq.

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(64)

the

aid amounting

The Commission notes first that the company has not
received any restructuring aid in the past. In particular, as
to SIT 18,1 million
regards
(EUR 75 000) granted in 1999 as an interest
rate
subsidy, the Commission's doubts that this might have
constituted restructuring aid have been allayed, since at
that time the company had an A/B rating and could not
therefore be considered as being in difficulty and the aid
cannot be considered as restructuring aid liable to trigger
last time’ condition.
an infringement of the ‘one time,

(65) Moreover, the Commission notes the correction of the
clerical error by the Slovenian authorities in an earlier
submission, which it had reproduced in the decision
opening the procedure, which means
that all aid
measures mentioned in that decision are as such de
minimis (18). Moreover,
the Slovenian authorities have
clarified that all that aid was granted before accession
for purposes other
the
assessment of the aid thus falls outside Commission's
competence and even the fact that the company was in
difficulty does not make that aid restructuring aid under
time’
the 1999 Guidelines (19),
condition is not triggered by any of these previously
granted aid measures.

than restructuring aid. As

‘one time,

last

the

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Slovenia has implemented for Novoles
Straža is compatible with the common market within the
meaning of Article 87(3)(c) of
the EC Treaty and the
Community Guidelines on state aid for rescuing and restruc-
turing firms in difficulty adopted in 1999.

Article 2

The restructuring plan shall be implemented in full. All
1.
necessary measures shall be taken to ensure that the plan is
implemented.

Implementation of the plan shall be monitored on the
2.
basis of annual
reports communicated by Slovenia to the
Commission. A report concerning the 2007 activities shall be
submitted by the end of January 2008 and a report concerning
the 2008 activities shall be submitted by the end of January
2009. The reports shall contain detailed information on the
financial performance of
the company and the investments
made.

VI. CONCLUSION

This Decision is addressed to the Republic of Slovenia.

Article 3

(66)

In view of the above, the Commission finds that the aid
in question is restructuring aid which complies with the
the 1999
the applicable guidelines,
conditions of
restructuring guidelines.
that,
It
although Slovenia has unlawfully implemented the
restructuring aid to Novoles Straža in breach of Article
88(3) EC of the Treaty, the state aid is compatible with
the common market,

concludes

therefore

i.e.

Done at Brussels, 10 July 2007.

For the Commission

Neelie KROES
Member of the Commission

(18) See Commission Regulation 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).

(19) This might be different under point 20 of the 2004 guidelines.