2008/408/EC: Commission Decision of 20 November 2007 on the State aid C 36/A/06 (ex NN 38/06) implemented by Italy in favour of ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche (notified under document number C(2007) 5400) (Text with EEA relevance)
Date: 2007-11-20
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, electrical energy, price of energy, tariff preference

4.6.2008

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Official Journal of the European Union

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

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 20 November 2007

on the State aid C 36/A/06 (ex NN 38/06) implemented by Italy in favour of ThyssenKrupp,
Cementir and Nuova Terni Industrie Chimiche

(notified under document number C(2007) 5400)

(Only the Italian version is authentic)

(Text with EEA relevance)

(2008/408/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

and Cementir (hereinafter ‘the Terni companies’).

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

(2)

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

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

Whereas:

I. PROCEDURE

(1)

aware of

in Sardinia,
extension of

In framework of case C 13/06 (ex N 587/05) — Prefer-
the Commission
ential Electricity Tariff
became
two measures
the
granting a preferential electricity tariff. The extension
was granted by virtue of Article 11, paragraph 11 of
decreto-legge No 35/2005, converted into Law 80 of
14 May 2005 (hereinafter Law 80/2005) and was imple-
mented without prior notification to the Commission.
The beneficiaries are the aluminium producer Alcoa
and the three successor companies of Società Terni:
Terni Acciasi Speciali, Nuova Terni Industrie Chimiche

(3)

(4)

(5)

(6)

By letter dated 23 December 2005 the Commission
requested information from Italy, which replied by
letter dated 24 February 2006. By
letters dated
2 March 2006 and 27 April 2006, Italy provided addi-
tional information.

By letter dated 19 July 2006, the Commission informed
Italy that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of
both schemes (Case C 36/06).

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission invited interested parties to submit their
comments on the measures.

Italy submitted observations by letter dated 25 October
2006. Further information was submitted by letters dated
9 November 2006 and 7 December 2006.

The Commission received comments from interested
parties. It forwarded them to Italy, which was given the
opportunity to react. Italy’s comments were received by
letter dated 22 December 2006.

(1) OJ C 214 of 6.9.2006, p. 5.

(2) See footnote 1.

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By letter of 20 February 2007, the Commission requested
further information, which was provided by Italy by
letters dated 16 April 2007, 10 May 2007 and
14 May 2007.

the Italian territory. The transfer to ENEL was laid down
in Article 4, paragraph 5, fourth indent of the nationa-
lization law.

(7)

(8)

On 18 September 2007 the file was split into part A,
which deals with the three companies resulting from the
(the Terni companies) and
splitting of Società Terni
part B, which concerns Alcoa. This decision concerns
exclusively the extension of
in
favour of the Terni companies.

the preferential

tariff

(9)

The exchanges of correspondence which concern Alcoa
are not quoted here.

II. DETAILED DESCRIPTION OF THE MEASURE

extension in time of

(10) Article 11, paragraph 11 of Law 80/2005 provides for
the
two measures granting
reductions of the general electricity tariff. The benefi-
in
ciaries of
nature
are
aluminium-producer Alcoa on the one hand, and three
companies resulting from the splitting up of Società
Terni, on the other.

these two measures, which are different
dealt with

separately,

and will

be

The original measure and its first extension

(11)

Italy nationalised its electricity sector by law No 1643 of
6 December 1962 (hereinafter the nationalisation law).
The law provided for the transfer of Italy’s existing power
plants to the newly created State-owned company ENEL,
which was to hold a monopoly in the production, distri-
bution and supply of electricity.

(12) At the time of nationalization, Società Terni was a State-
owned company active in the manufacturing of steel,
cement, and chemicals. The State exercised effective
control over the company via a majority stake in its
capital, held by the State holding IRI and the State-
owned Finsider group. Società Terni also owned and
operated a hydropower plant. Most of
the electricity
produced was tused to power the company’s manufac-
turing processes.

(13)

The nationalisation law laid down that, as a general rule,
companies which produced electricity primarily for self-
consumption (self-producers) were excluded from nationa-
lisation and were permitted to retain their power
generating assets (3). Società Terni’s electricity assets
were nationalized in spite of the company’s status as a
self-producer because they were strategically located on

(3) Article 4, paragraph 6,

first

indent,

letters (a) and (b) of Law

1643/62.

(14)

(15)

By Presidential Decree No 1165/63,
Italy granted the
company compensation for the transfer of its electricity
assets. The compensation took the form of a preferential
electricity tariff which was to apply from 1963 to 1992.

In 1964, Società Terni was split up into three companies:
steel-maker Terni Acciai Speciali, chemical manufacturer
Industrie Chimiche and cement manu-
Nuova Terni
facturer Cementir. These
later
privatized and acquired by ThyssenKrupp, Norsk Hydro
and Caltagirone, respectively.

undertakings were

(16) As indicated in point (1) of this decision, these successor
undertakings will be collectively referred to as ‘the Terni
companies’ whereas the original company will be referred
to as ‘Società Terni’. The tariff applicable to Società Terni
first, and to the Terni companies later, will be referred to
as ‘the Terni tariff’.

(17)

(18)

(19)

The preferential tariff continued to apply, under the same
conditions, to the three Terni companies. The main bene-
ficiary (in terms of the quantity of subsidized electricity,
both in absolute terms and also as a proportion of
the company’s total electricity consumption)
is Thys-
senKrupp.

the special

tariff coincided with the
The duration of
general duration of hydro-electric concessions (4)
in
Italy, which were to expire in 1992. Società Terni’s
own hydroelectric concession had been granted for an
exceptional duration of 60 years (against the normal 30
years) and was to expire at the end of the 1980s.

In 1991 Italy extended existing hydroelectric concessions
until 2001 by Law No 9 of 9 January 1991 ‘Implemen-
ting provisions for the new National Energy Plan: institu-
tional aspects, hydro power plants and networks, hydro-
carbons and geothermal energy, self-producers and fiscal
provisions’
(hereinafter Law 9/1991). By virtue of
Italy also
Article 20, paragraph 4 of Law 9/1991,
prolonged until 2001 the preferential
the
Terni companies. Over the subsequent six years (2002-
2007) the quantities of subsidized electricity supplied to
the Terni companies were to be gradually reduced
(phased-out),
advantage would
the
disappear by the end of 2007.

so that

tariff

tariff

for

(4) Companies which exploit public water to generate power operate on
the basis of a concession (concessione di derivazione idroelettrica) which
is temporary.
is suf-
ficiently long to allow companies to defray their investment costs.
As concessions expire, they should be awarded again on the basis of
a transparent selection procedure.

Its duration (generally thirty years in Italy)

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Law 9/1991 included a large number of provisions, some
of which involved State aid. Law 9/1991 was submitted
to the Commission together with Law 10/1991 ‘Imple-
menting provisions for
the National Energy Plan as
regards energy efficiency, energy savings and the deve-
lopment of renewable energy sources’. The Commission
declared compatible the aid contained in both laws under
the State aid rules in 1991 (5).

Structure of the Terni tariff

second of
sponds
described in Decree 1165/63.

to the

the

alternative methods

(25)

The gradual reduction of the quantities of electricity and
power delivered to the Terni companies at the prefer-
ential price during the phasing-out period (2002-2007)
is shown in the table below:

(20)

(21)

The conditions of Società Terni’s preferential tariff were
established in Articles 6, 7 and 8 of Presidential Decree
No 1165/63 Transfer to Ente Nazionale per l’Energia
Elettrica of the assets used for the activities mentioned
in Article 1(1) of Law No 1643 of 6 December 1962
carried out by ‘Terni-società per l’Industria e l’Elettricità
S.p.A.’
(hereinafter DPR 1165/1963). DPR 1165/1963
laid down that ENEL would supply Società Terni with
a fixed amount of electricity (1 025 000 MWh a year)
which was the equivalent of the company’s electricity
consumption in 1961, plus an extra amount (595 000
MWh a year) which corresponded to its additional
expected
from investments
undertaken but not yet completed in 1962.

consumption

resulting

(22)

The preferential price was calculated by comparing two
alternative methods and applying whichever was more
favourable to the company:

(26)

paid

(a) Alternative 1 was based on the average electricity
Terni’s manufacturing
price
branches to the company’s electricity branch (corre-
sponding to the production cost of Terni’s own
hydroelectric plant);

Società

by

(23)

(24)

(b) Alternative 2 was linked to ENEL’s reference price for
a customer having the same profile (self-producer) as
Società Terni.

In practice, the first method was used until 2000, when
changes in the Italian tariff structure due to the liberal-
ization of the electricity market made it necessary to
switch to the second method.

In 1997 began the overhaul of the tariff structure, with
the introduction of a structured tariff consisting of two
parts: Part A representing fixed and general costs and
Part B reflecting variable costs. As of 1 January 2000,
the Terni tariff was awarded in the form of a compen-
satory component (componente compensativa) calculated as
the sum of all components of the tariff which Terni, as a
(virtual) self-producer, was not required to pay (the whole
of part B and a fraction of part A). This method corre-

(27)

(28)

(29)

Year

2001

2002

2003

2004

2005

2006

2007

GWh

1 620

1 389

1 157

926

694

463

231

MW

270

231

193

154

116

77

39

The second extension of the tariff

By Article 11, paragraph 11 of Law 80/2005,
Italy
decided to interrupt the phasing-out and extend again
tariff arrangement until 2010. Article 11,
the Terni
paragraph 13 of the Law made this measure applicable
as of 1 January 2005. Shortly afterwards, ordinary hydro-
electric concessions were extended until 2020 (6).

The second extension of the tariff is the measure on
investi-
which the Commission has opened the formal
the
gation procedure pursuant
Treaty and which is the object of this decision.

to Article 88(2) of

the Terni
Law 80/2005 laid down that, until 2010,
companies will benefit from the same treatment they
enjoyed on 31 December 2004 in terms of quantities
supplied (926 GWh for the three Terni companies) and
prices (1,32 eurocents/kWh). The quantities of supplied
electricity are currently broken down as follows: Thyssen-
Krupp 86 %, Nuova Terni Industrie Chimiche 10 % and
Cementir 4 %.

also introduced

Law 80/2005, as interpreted and implemented by the
AEEG,
an indexation mechanism
whereby, as of 1 January 2006, the preferential tariff
would increase yearly in line with price increases
recorded
of
Amsterdam and Frankfurt, subject to a 4 % cap.

European Power

Exchanges

on the

(5) State aid NN 52/1991, letter SG (91) D/15502.

(6) Article 1, paragraph 285 of Law 266/2005.

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Financing mechanism

(30)

The Terni preferential tariff was initially managed and
paid for by the State-owned company ENEL, which
held a monopoly position in the generation,
trans-
mission, import, distribution and supply of electricity in
Italy.

(35) With the exception of the advance payments mentioned
in paragraph (34) above, all other payments made to the
companies by Cassa Conguaglio under Law 80/2005 are
covered by a guarantee.

(31)

(32)

In 2002, as the electricity market was gradually liber-
alized and ENEL no longer held a monopoly position,
the financial burden arising from the preferential tariff
systems was transferred from ENEL to all electricity
users (7). The compensatory components due to the
Terni companies were advanced by electricity distri-
butors, who were then reimbursed by the State-owned
body Cassa Conguaglio per il Settore Elettrico (Equalisation
Fund for the Electric Sector, hereinafter referred to as
‘Cassa Conguaglio’) by means of
levy
collected via the A4 component of the electricity tariff,
which is one of the cost items that appear on the elec-
tricity bill.

a parafiscal

In 2004 the AEEG decided to hand over the administra-
tive management of the special tariff schemes entirely to
Cassa Conguaglio (8). As of September 2004, the Terni
companies pay the market price for the electricity they
purchase (on the liberalized market) and receive from
Cassa Conguaglio reimbursement corresponding to the
difference between the price paid and the preferential
price to which they are entitled (the compensatory
component) minus charges for transport, measurement
electricity
and sales. The
consumers in Italy by means of
levy
mentioned in paragraph (31) above.

are paid for by

the parafiscal

costs

The guarantee imposed by the AEEG

(33) After the Commission initiated the formal investigation
procedure,
the AEEG, by Delibera 190/06, made
payments under Law 80/2005 conditional upon the
provision, by the Terni companies, of a guarantee to
cover the risk of recovery of the aid.

(34)

In the same Delibera, the AEEG foresaw, as an alternative,
the possibility to pay out in 2006 as an advance the
amounts of aid which would have become due until
the end of
(2007) on the
basis of Law 9/1991. For these amounts, the AEEG did
not request a guarantee. This option was taken up by the
Terni companies and implemented by the AEEG.

the previous arrangement

(7) Delibera AEEG No 228/01.
(8) Delibera AEEG No 148/04.

III. DECISION TO INITIATE PROCEEDINGS UNDER
ARTICLE 88.2 OF THE EC TREATY

(36)

The Commission Decision to initiate a formal
investi-
gation was based on the grounds described in points
(37) to (41).

(37)

The Commission expressed doubts as to whether the
tariff could be considered a compensatory measure,
since Società Terni was a State-owned undertaking at
the time of nationalization. Given that the State cannot
expropriate itself, the Commission had doubts that the
transfer of Società Terni’s assets to ENEL could be
construed as an expropriation entitling Società Terni to
compensation, and formulated the hypothesis that such
transfer could in fact be regarded as a mere restructuring
of the State’s own assets.

(38)

The Commission took the view that, even if the compen-
satory nature of
the measure were to be conceded,
doubts would still persist as regards the proportionality
of this compensation with regard to the financial damage
suffered by Società Terni. The Commission in particular
expressed doubts
compensation could still be
that
justified after 44 years.

(39)

The Commission pointed out that the nature of the tariff
appeared to have changed when ENEL stopped adminis-
tering the scheme and bearing the financial burden
arising from it.

(40)

The Commission Decision to open the procedure also
relied on ECSC Decision 83/396: Commission Decision
of 29 June 1983 concerning aid the Italian government
to certain steel producers (9), which
intends to grant
precluded such aid from being granted to Società Terni,
and the judgment of
Justice in case
C 99/92 (10), where the Court upheld the aforementioned
ECSC Decision, as evidence that
tariff had
already been found to constitute State aid.

the Court of

the Terni

(9) OJ L 227, 19.8.1983, p. 24.
(10) Sentence of the ECJ in Terni SpA and Italsider v. Cassa Conguaglio per
il settore elettrico, reference for a preliminary ruling, Case C 99/92,
[1994] ECR p. I-00541.

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(41)

that Thys-
The opening decision also pointed out
senKrupp has not yet repaid a State aid granted by
Italy and which was declared incompatible (11), and
therefore, pursuant to the Deggendorf (12) case-law, could
not receive any further State aid.

(46)

IV. COMMENTS FROM INTERESTED PARTIES

Comments from the Terni companies

(42) Most of

as

the tariff,

functioning

the observations

submitted by the Terni
companies on Società Terni’s
ente
pubblico economico, the nature of the operation leading
to the transfer of the company’s assets, the compensatory
nature of
the ECSC
decision and ECJ ruling as well as the role played by
Cassa Conguaglio are largely equivalent
to those made
by Italy, which are summarized in points (52) to (69).
Therefore, only the main thrust of the Terni companies
observations and any additional elements submitted will
be reported here in points (43) to (51).

the interpretation of

Nature of the compensation

(43) According to the Terni companies,

is the
legitimate compensation to which Società Terni was
entitled following the expropriation of
its assets and
cannot therefore be qualified as State aid.

the tariff

Adequacy of the compensation

(44)

Concerning the adequacy of the compensation, the Terni
companies retrace the history of the tariff, pointing out
that all the extensions of the Terni tariff beyond 1991
were concomitant with the general renewal of the hydro-
electric concessions for other generators, and thus in line
with the principle that there should be no discrimination
between Terni and other self-producers who had not
been expropriated and who could therefore continue to
produce and consume electricity at very low cost.

Impact on trade

The Terni companies claim that
impact on trade between Member States
reasons summarized below:

the measure has no
the

for

is

cement, which

industry. Cement

In its Spoleto plant

(the plant which
(a) Cementir:
from the tariff) Cementir produces and
benefits
the
markets mainly
to
construction
is uneco-
substitute with other products. Since it
for
nomical
Imports of
cement
cements are negligible in Italy, since they account
for 5 % of overall demand in Italy and Cementir
markets all the production of its Spoleto plant in
central Italy;

to transport,
is regional or multi-regional.

the geographic market

used
difficult

is

Industrie Chimiche: The plant which
(b) Nuova Terni
benefits
from the tariff produces ammonia and
nitric acid. Ammonia can be economically trans-
ported only by sea and provided ports are suitably
equipped for its storage. There are no such storage
plants in central Italy. The same applies to nitric acid.
the
Therefore,
geographic market
is at best national. National
demand is fully met by domestic production and
there are no trade flows;

claim that

companies

the Terni

(c) ThyssenKrupp: the Terni companies claim that the
market for the distribution (not the production or
sale) of steel products is national. In particular, Thys-
senKrupp’s Terni plant markets only 6 % of
its
production in the European Union.

Legitimate expectations

(47)

The Terni companies claim legitimate expectations on
two grounds:

(a)

firstly, the Italian authorities had explicitly confirmed,
in a letter to the AEEG, that the nature of the tariff
was compensatory and that
the
existing tariff scheme was not subject to prior noti-
fication to the Commission under
the State aid
rules (13);

the extension of

(45)

The Terni companies also point out that the financial
amounts received in the form of lower electricity tariffs
never exceeded the difference between the cost of
acquiring energy on the market and the cost of self-
produced electricity.

(11) Commission Decision SEC/1999/687 of 11 May 1999 in Case
C 49/98, Measures in favour of employment, Articles 15 and 26
of Law 196/97, OJ L 42, 15.2.2000, p. 1-18.

(12) Sentence of the ECJ in Deggendorf v. Commission, Case C-355/95

[1997] ECR p. I-02549.

(b) secondly, the Commission had not called the measure
into question, either when it was first prolonged by
Law 9/1991 (approved in the context of case NN
52/1991), or when information on the second
extension was submitted in the context of another
State aid procedure (C 13/06).

(13) Communication of 16.12.2005 of

the Ministry for productive

activities to the AEEG.

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(48)

State aid clearance of the second extension

The Terni companies further submit, in this context, that
when Article 11, paragraph 12 of Law 80/2005 (estab-
lishing a preferential tariff
for certain energy-intensive
companies in Sardinia, case C 13/06) was notified to
the Commission, the Italian authorities had submitted
information and clarifications also on the Terni tariff,
so that the notification might be considered complete
within the meaning of Article 4, paragraph 5 of Regu-
lation EC 659/1999 of 22 March 1999 laying down
detailed rules for the application of Article 93 of the
EC Treaty (14). The Commission had failed to take a
decision within two months, and therefore, even if the
tariff was to be considered State aid, quod non, it should
be deemed to be authorized on the basis of Article 4,
paragraph 5 of Regulation N 659/1999 (15).

(49)

The Terni companies underline that their good faith is
substantiated by the fact that, in case of doubts on the
compatibility of the tariff, ThyssenKrupp would certainly
not have launched large-scale investments in the Terni
area.

Amounts received

(50)

have

benefited

they would

The Terni companies point out that, in the absence of
Law 80/2005,
until
31 December 2007 from the preferential tariff on the
basis of Article 20, paragraph 4 of Law 9/1991
(approved by the Commission). The AEEG authorized
Cassa Conguaglio to pay out
in 2006 (as advance
payment) only the sums which would have become
due in 2007 (16). Therefore, the amounts received until
31 December 2006 should be considered authorized.
According to the companies, the provisions of Decreto-
legge No 80/2005 have de facto not been implemented in
respect of these amounts.

fundamental
undertakings which carry out services of
public interest or in the energy sector may be transferred
to the State by way of expropriation, provided compen-
sation is granted.

(53)

Concerning the Commission’s doubts as to the possibility
to expropriate
assets belonging to a State-owned
Italy submits that neither Article 42, nor
company,
Article 43 of the Constitution limit the notion of expro-
priation to privately owned property. The expropriation
of Società Terni’s electrical branch was legally required,
according to Italy, because Terni was controlled by an
‘ente pubblico economico’, which, unlike an ‘ente pubblico’
was obliged to operate according to market principles.
The nationalization law did not envisage any compen-
sation for undertakings managed by public entities strictu
sensu, but it did for Terni in view of its different status
and mode of functioning.

(54) As regards Terni’s ownership structure, Italy underlines
that Terni was a joint stock company (società per azioni)
where the State had a majority stake, but equity was also
owned by a large number of private investors. Italy has
provided documentation showing that that Terni’s capital
was also partly in private hands and that the company
was quoted on the stock exchange.

(55) According to Italy, depriving Terni of the same right to
adequate compensation to which a private company
would be entitled would have constituted a breach of
the principle of neutrality of ownership enshrined in
Article 295 of the EC Treaty.

Deggendorf case-law

(51)

Concerning the Deggendorf case-law, ThyssenKrupp states
its willingness, in principle, to repay the aid, subject to
agreement being found on the amount to be recovered.

(56)

Italy quotes a number of rulings by the Corte di Cassazione
and the Consiglio di Stato whereby these Courts confirmed
that the logic of the tariff
for Terni was to put the
company on the same footing as self-producers of elec-
tricity from renewable sources of energy, and therefore
the tariff could not be raised by means of supplements
which would not apply to self-producers.

V. COMMENTS FROM ITALY

(52)

Expropriation of Terni’s assets and its entitlement to compen-
sation

Italy submits that Terni’s generating assets were natio-
nalized as an exception to the general rule set out in
the nationalization law,
to which self-
producers would not be subject to expropriation. The
nationalization law of 1962 was based on Article 43
of the Italian Constitution, according to which certain

according

(14) OJ L 83, 27.3.1999, p. 1.
(15) See footnote 14.
(16) Delibera AEEG 190/2006.

active

(57) As regards other electricity producers who were also
expropriated, Italy submits that, with the exception of
Terni, all expropriated producers were undertakings
exclusively or primarily
in the production,
import or supply of electricity. As a general rule, the
compensation paid by the State reflected the market
value of the assets, which was calculated in different
ways according to the type of company. The net
accounting value of the assets was taken as reference
value, but was corrected on the basis of other factors
which Italy did not identify in detail. For hydropower
producers,
the
residual duration of the concession played a role in the
calculation of the compensation.

the Italian observations

suggest

that

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L 144/43

(58)

Non-aid nature of Terni’s tariff and its clearance under the
State aid rules

Italy submits that both the original tariff arrangement —
which constituted Terni’s legitimate compensation for the
expropriation of its assets — and its further extensions in
time do not constitute State aid. To substantiate this
claim,
the
European Court of Justice, which concern the non-aid
nature of certain forms of compensation to under-
takings (17), notably compensation for damages and
services of general economic interest.

a number of

Italy quotes

rulings of

the

that Law 9/1991,

(59) As regards the State aid clearance of Terni’s tariff, Italy
laying down the first
underlines
tariff, was duly notified to the
extension of
subsequent
Commission and approved by it. The
extensions in time of the tariff, which are concomitant
with the extensions of hydroelectric concessions for
hydropower producers,
follow the same logic, which
was never challenged by the Commission. Therefore,
according to Italy, the Terni tariff should be considered
an existing non-aid measure.

solution, the improvement of interconnection and infra-
structure, and, as a medium-term solution,
long-term
supply contracts and partnership between customers
and energy suppliers/generators.

Absence of overcompensation

incomplete process of

(62) As regards the absence of overcompensation, Italy makes
If Terni had retained its
the following observations.
generating assets,
it would have been able to sell part
of its energy to third parties, thus obtaining additional
profits. The damage suffered by Terni was compounded
by the sharp increase, over the years, of electricity prices.
The still
the
energy markets has not yet delivered results in terms of
competitive electricity prices, and therefore the need to
continue
The Terni
companies are currently paying a price (between 40
and 72 EUR/MWh) which is largely in line with elec-
tricity prices paid by companies with an equivalent
consumption profile in the EU.
if Terni had
retained its assets, it would be paying between 5 and 7
euros per MWh of self-produced electricity.
Italy thus
concludes that the tariff does not involve any overcom-
pensation.

liberalization of

compensating

persists.

In fact,

Terni

(60)

Italy submits that it has thus always acted in good faith.
the contested
It did not notify under Article 88(3)
extension of the tariff arrangement for Terni since,
in
its view, it did not constitute State aid. Italy underlines
that the Commission was informed of the existence of
this measure (Report of November 2005 and letter of
February 2006).

(63)

field

these

between

(61) As regards the policy reasons of the second extension,
Italy submits that the tariff is necessary to establish a
energy-intensive
level-playing
companies active in Italy and their competitors in the
EU (18), which also benefit from reduced energy prices
(tariff or contract-based), pending the completion of
ongoing infrastructure projects on electricity generation
and transport. If the tariff was abolished, the companies
in question would delocalize their operations outside the
EU. This would inevitably lead to an industrial crisis and
sever
in the affected regions. Therefore,
according to Italy, the prolongation of the tariff should
be seen as a transitional
the
conclusions of
the High-level group on competitiveness,
energy and environment (19) which suggest, as a long-term

Italy quotes

job losses

solution.

(17) Notably the following judgments: A.D.B.H.U., Case C 240/83 of
7.2.1985 ECR (1985) p 00531, Asteris,
joint cases 106-120/87
of 27.9.1988, ECR (1988) p. 05515 Altmark, Case C-280/00 of
24/7/2003,
I-07747; Ferring, Case C 53/00 of
22.11.2001, ECR (2001) p. I-09067.

(ECR 2003) p.

(18) Notably in France, Germany, Spain, Greece and Finland. Italy has
provided a description of schemes allegedly in force in these
countries in favour of energy-intensive industries.

(19) First Report of the High Level Group ‘Contributing to an integrated
approach on competitiveness, energy and the environment policies —
functioning of the energy market, access to energy, energy efficiency and
the EU Emission Trading Scheme’ of 2 June 2006.

is

the

this

The

perhaps

Italy has submitted a ‘study’ carried out by the private
consultant Energy Advisor S.r.l. on behalf on the Terni
companies.
better
study, which
described as simple ‘calculation’, since it consists of one
table with a few pages of methodological explanations,
the electricity assets and
aims to assess the value of
compare
tariff
cumulative
figure with
advantage enjoyed by Terni. The study takes the book
value of the electricity assets and actualizes it to 2006 in
line with inflation. The study then calculates the net tariff
advantage for Terni. For the period 1963-1999, the study
considers the difference between the annual electricity
costs of a comparable customer (Alternative 2) and the
actual annual costs sustained by Terni on the ‘own
production costs’ basis (Alternative 1). For the purpose
this calculation, a comparable customer is a self-
of
alia,
producer of
from
inter
payment of
the period
the sovrapprezzo termico). For
the tariff advantage is calculated as the
2000-2006,
difference between the annual cost Terni would have
sustained if the tariff was calculated on the basis of its
own production costs (Alternative 1-no longer possible
the tariff) and the actual cost
after
the ‘comparable
sustained by Terni on the basis of
customer’ method (Alternative 2). The results of
the
study are outlined below:

the reform of

(exempted,

electricity

(a) Actualised value

(2006) of Terni’s

assets: EUR

1 687 745 045,19;

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Official Journal of the European Union

4.6.2008

(b) Tariff advantage (also actualized to 2006): EUR

1 400 895 446,90.

(64)

The study therefore contends that there has been no
overcompensation of Terni’s losses. A prospective calcu-
lation of the tariff advantage accruing to Terni until 2010
would also show the absence of overcompensation.

confined to collecting and redirecting monetary flows.
Cassa Conguaglio has no margin of manoeuvre in fixing
the tariff and has no control over the funds. Therefore,
according to Italy,
(a) the resources handled by Cassa
Conguaglio do not constitute State resources in the
light of the case-law of the Court of Justice (20) and (b)
the changes made to the administration of the special
tariffs with the intervention of Cassa Conguaglio in
2004 have no impact on the compensatory nature of
the tariff.

Irrelevance of
concerning Terni

the ECSC Decision and the ECJ Ruling

Deggendorf case-law

(65)

Concerning ECSC Decision 83/396 and ECJ
ruling
C-99/92, Italy makes the following factual clarifications.
The ECSC Decision does not concern either Cementir or
Nuova Terni, which were never active in the steel sector.
The ECSC Decision referred to the compatibility of of
State aid granted in the form of reimbursement of a
component of the tariff, the sovrapprezzo termico to the
plant belonging to Terni’s
steelmaking branch, but
located in Lovere,
in Lombardy, not in the Terni area.
This aid could be granted only to private steelmakers.
The ECSC Decision ruled that, since Terni was State-
from the
the Lovere plant could not benefit
owned,
aid. The preliminary ruling of
Justice
concerned the issue of possible discrimination between
private and State-owned producers.
It confirmed the
ECSC Decision in that it stated that it was not discrimi-
natory to envisage different aid measures for private
versus State-owned producers.

the Court of

(66)

Therefore, the Terni group submits that both the ECSC
Decision and the Court ruling are irrelevant to the case at
hand, in that they concern the sovrapprezzo termico paid
by the Lovere plant, not the special global tariff granted
to the three plants in the Terni area.

(67)

New investments planned by ThyssenKrupp in the Terni area

Italy also underlines that the contested extension of the
tariff
laid down in Article 11, paragraph 11 of Law
linked to a wide-ranging program of
80/2005 is
investments which ThyssenKrupp is carrying out in the
Terni-Narni industrial area. Under this action plan, new
generating capacity will be developed in the area. The
is therefore meant as temporary solution until
tariff
such generating capacity is in place, and its abolition
would jeopardise the investments currently underway.

(69) On

is

case-law,

Italy
carrying out

the Deggendorf
it

informs
the
Commission that
the pending
recovery order in respect of ThyssenKrupp, and that
set aside EUR 865 538,00 on a
the company has
blocked account in view of
final recovery, subject to
agreement being found on the amount.

(70)

(71)

VI. ASSESSMENT OF THE MEASURE

Compensation granted by the State for an expropriation
of assets does not normally qualify as State aid. In the
assessment of this measure, it is therefore necessary to
ascertain first of all whether the transfer of Società Terni’s
hydropower assets to ENEL gave rise to an obligation to
provide compensation, or whether it should be construed
as a mere reorganisation of public assets. If the answer is
that compensation was justified, the Commission must
then determine until what date and/or what amount the
Terni preferential tariff can be considered a commen-
surate compensatory measure.

Qualification as an expropriation and entitlement to
compensation

In 1962, when its hydropower assets were transferred to
ENEL, Società Terni was a State owned company,
controlled by an ente pubblico economico. According to
the Italian authorities, such entities had to be managed
according to market principles. The State was
the
majority shareholder in Società Terni, but part of the
capital was also held by private investors and the
company was quoted on the Stock exchange. The natio-
foresee compensation for enti
nalization law did not
enti pubblici
pubblici
the
reflects
economici
different principles which govern the functioning of
these
electricity
producers were expropriated during the same period
and also received compensation (although on the basis
of different criteria).

‘strictu sensu’, but did so for
such as Società Terni. This

entities. Moreover,

‘pure’

other

Role of Cassa Conguaglio and involvement of State resources

(68) On the nature and role of Cassa Conguaglio, Italy submits
intermediary, whose role is

that it is a mere technical

(20) Judgement of the ECJ in Pearle and others, (Case C-345/02 [2004]
ECR I-7139 and Preussen-Elektra, Case C-379/98 [2001] ECR
I-02099.

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Official Journal of the European Union

L 144/45

(72)

(73)

(74)

(75)

(77)

(78)

(79)

assets without

In the light of

compensation would

its private shareholders.

the removal of Società
The Commission notes that
Terni’s
have
damaged the interests of the company, and in particular
those of
the
principle of equality of treatment between private and
public undertakings, and also in view of the need to
rights of Società Terni’s
protect
private
the
compensation,
Italy’s decision to treat
Commission considers
in the same way as a privately-owned company
Terni
in the same position, and to grant it compensation for
the removal of its assets, can be considered justified.

the
shareholders

constitutional

to receive

that

Compensatory nature of the tariff

The original compensatory arrangement

In 1962, Italy decided not to compensate Società Terni
up to a fixed amount based on the market value of the
expropriated assets (contrary to what was done in the
case of ‘pure’ electricity producers). Instead, the compen-
sation took the form of the provision of a fixed amount
of electricity at the price the company would have paid if
it had retained its generating assets. It should be noted
that this method made economic sense: the treatment of
Società Terni as a ‘virtual self-producer’ of electricity had
the advantage of neutralising the risk of additional
damage that might have arisen to Terni, over the years,
in case of an increase in energy prices, for example.

The Commission can accept the principle of this method.
However, compensation for an expropriation cannot
consist
in an open-ended arrangement, but must be
clearly and predictably established at the time of the
expropriation, subject to the possibility for the expro-
priated company to challenge the proposed amount.
Once accepted, a compensatory package cannot be
reopened at a later stage.

the

that

sense

indeed,

residual

it made

economic

duration of
this

In Italy, the operation of a hydropower plant is subject to
a concession, the duration of which is such as to allow
the company to amortize the investment. When the
concession expires, the company loses, in principle, the
right to exploit its assets. Considering Terni’s compen-
satory method,
the
provision of electricity at production cost should not
company’s
overrun the
to be
appears
concession. And,
the
Italian law
the original provision of
rationale of
limiting the duration of the preferential tariff to 1992.
While Terni’s own concession would have expired
already a few years earlier,
the
Italian authorities intended to align the expiry of the
tariff with the general expiry of hydroelectric
Terni
concessions in Italy in 1992. Moreover, Società Terni
had been granted a particularly long concession (60
years instead of 30), and therefore, at the time of expro-
priation, the company had already had thirty years to
amortize its investment.

is conceivable that

it

In conclusion,
the
original compensatory package was commensurate and
by no means penalized for the company.

the Commission considers

that

The crucial issue here is whether the repeated extensions
of this tariff arrangement can still be considered part and
parcel of the compensation. The Commission takes the
view that this cannot be the case. When the State expro-
priates, it establishes ex-ante either an absolute amount
of compensation or, as in the case at hand, a compen-
satory mechanism. Any ex-post revision of the amounts
or the mechanism necessarily changes the nature of the
measure, which can no longer be considered compen-
satory
original
arrangement. To admit the contrary would result in the
exclusion of this type of measures from the scope of
State aid control.

from the

departs

insofar

as

it

In the case at hand, the overall amount of compensation
depended on the duration of
the tariff. The original
compensatory package offered by the Italian authorities
foresaw that the tariff would last thirty years and thus
end in 1992. Società Terni could have challenged this
mechanism under
it had
considered it inadequate (21), but chose not to do so.

the nationalization law if

(80) A Member State may, however, notify the Commission
of its intention to grant further advantages to an expro-
priated company. Such notification will be examined by
the Commission on its merits in the light of the State aid
rules and taking into account the specific circumstances
invoked.

(76)

The Commission has assessed whether,
mechanism and duration,
arrangement could be considered adequate.

in view of its
the original compensatory

(81)

(21) The mechanism for challenging the amount of compensation was
laid down in Article 5, paragraph 5 of the nationalization law.

The ‘study’

The study referred to in paragraph (63) purports to show
that the compensation granted to Società Terni and its
successor companies over the years did not fully cover
the market value of the expropriated assets, and that
therefore there was no overcompensation and the bene-
ficiaries never de facto enjoyed an advantage.

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4.6.2008

that

is, at

the adequacy of

the time of expropriation.

(82) As a preliminary remark, the Commission would like to
underline that an analysis of
the
compensatory agreement can only be carried out ex
ante,
In that
context, it should be noted that the mechanism chosen
by the Italian authorities aimed to put Società Terni in
the same position as if its power plant had not been
expropriated, by granting it access to electricity at cost
price
concession.
the duration of
Therefore, the argument that, under this arrangement,
the Terni companies may have obtained less that what
they were legitimately entitled to is difficult to follow.
Besides,
the
findings of the study were substantiated (which is not
the case, as demonstrated in points (88) to (92), that
circumstance would be irrelevant
for the purpose of
establishing whether the tariff gave the beneficiaries an
advantage.

the Commission contends that, even if

throughout

its

(83)

It should be recalled that, at the time of the expro-
priation, Italy could have chosen to compensate Terni
by paying a fixed financial amount based on the value
Italy opted for a
of the expropriated assets. However,
different method, which consisted in treating Società
Terni as a virtual
self-producer. This method made
perfect economic sense, and it is within this reference
framework that the presence of an advantage should be
assessed. Following this approach, one must conclude
that, until the expiry of the original compensatory tariff
arrangement (and only until that date) the beneficiaries
did not receive an advantage. This conclusion cannot be
called into question as a result of applying alternative
benefit and loss calculations, especially where these are
carried out retrospectively.

results, as

(84) Using a different method retrospectively (ex-post) would
the
lead to conflicting or even illogical
illustrate. Suppose that, due to
following example will
an explosion in energy prices,
the financial amounts
received by the beneficiaries had already exceeded the
market value of Terni’s plant within the first 10 years
of the tariff arrangement, following the study’s metho-
dology, it should be concluded that there was an over-
compensation, even though the expropriation package
foresaw that the tariff would last 30 years. This would
be an obvious fallacy, since it would not
take into
account the ratio of the original arrangement. The same
conclusion must apply a contrario, in the hypothesis that
the actual amounts received fell short of covering the
assets' value.

(85)

in the context of an expropriation, an ex-post
Besides,
recalculation of benefits and losses is totally out of place.
The long-term economic outcome for the expropriated
company, which is unpredictable at
the
expropriation, cannot be the object of revision, many
in order to justify further tranches of
decades later,
compensation.

the time of

(86)

Therefore, the study can be dismissed as irrelevant.

(87)

(88)

(89)

The Commission has nevertheless examined the data and
findings of the study. This analysis has shown that the
study is methodologically flawed. As will be shown
below,
tariff
advantage for the Terni companies, and in all likelihood
overestimates the value of the expropriated assets.

underestimates

systematically

the

it

exempt

(Alternative 2). The advantage is

In order to calculate the tariff advantage for the period
1963-1999, the study compares the price paid by Terni
(Alternative 1-the cost of self-produced electricity) to the
ordinary price paid by a comparable customer, meaning a
from certain tariff
self-producer who was
components
thus
calculated as the difference between the two alternative prefer-
foreseen as compensation for Terni. The
ential
Commission
tariff
the
notes
advantage, Terni’s
should have been
compared with the ordinary tariff payable by a non self-
producer with Terni’s consumption profile. The study
therefore underestimates Terni’s tariff advantage.

that,
actual

to
tariff

treatments

calculate

the difference between the

For the period 2000-2006, the advantage is, again, taken
to be
two preferential
the actual
the only difference being that
treatments,
price paid by Terni corresponds to Alternative 2 (and
no longer Alternative 1, which was no longer possible
after the reform of the tariff). Using this method, for
to be
some years
negative, which demonstrates the flaws in the metho-
dology, considering that
the Terni companies always
paid a tariff below the market price. In principle, for
this period,
the tariff advantage should have been
simply equivalent to the compensatory component paid
by Cassa Conguaglio. Therefore, the advantage is, again,
very significantly underestimated.

even turns out

advantage

the

the difference between the

it should be noted that
that

(90) Another flaw in the study concerns the value of the
assets. The study simply takes as the book value of the
item ‘plant and
assets
machinery’ in Terni’s 1962 budget (the year before the
nationalization) and the same item the following year.
Firstly,
there is no concrete
proof
the difference is attributable exclusively to
the loss of the hydro power plant. However, even if,
the
arguendo,
method used in the study would nonetheless be flawed.
As confirmed by Italy, the real value of a hydro plant at
the moment of an expropriation is linked to the residual
duration of the underlying concession (22). Therefore, the
book value of the plant should have been corrected to
take this into account. In the study, the book value is
simply actualized to 2006 in line with inflation.
Therefore,
there is evidence suggesting that the study
overestimates the assets' value.

that book value

could be

accepted,

(22) It should be noted that, under Italian law, when hydro-power
the hydropower company loses ownership
its assets, notably certain engineering works,

concessions expire,
rights on part of
which automatically revert to the State.

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Official Journal of the European Union

L 144/47

(91)

In conclusion, the study can be dismissed altogether.

The extensions of the tariff

(92) As regards the extensions in time of the Terni tariff, the
Commission appreciates that their rationale was to retain
the parallelism in treatment with those hydropower
producers who had seen their concessions renewed.
However, such parallelism, which lies at the heart of
the compensatory mechanism, was foreseen in the expro-
priation arrangement only for 30 years, not indefinitely.
for the reasons already explained in para-
Therefore,
graphs (73)
these extensions did not
to (78) above,
have a compensatory nature.

(93)

to

This conclusion is even more obvious for the second
extension of
the tariff. This extension interrupted a
the
phasing-out mechanism intended
companies' transition to the full tariff, which signalled
the Italian authorities' conviction that
the companies
had been fully compensated for. Italy itself has, indeed,
extensively explained the reasons which led to this
second extension, and which are related to industrial
policy alone (see Italy’s comments in paragraph (61)
above).

ease

Conclusions on the compensatory nature of the tariff

(94)

In the light of the above, the Commission considers that
the Terni tariff can be considered compensatory until
1992. Until that date, the measure does not qualify as
State aid. All further extensions of the tariff, however,
must be examined in the light of the State aid rules.

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

(95)

the
The Commission has therefore assessed whether
preferential
tariff granted to the Terni group after
1992, and in particular as of 1 January 2005, date of
entry into force of Article 11, paragraph 11 of Law
80/2005, which is the object of
these proceedings,
constitute State aid within the meaning of Article 87(1)
of the EC Treaty.

(96)

In this context, the Commission takes note of the Italian
clarifications as regards the irrelevance of
the ECSC
Decision 83/396 and Court judgment C 99/92 and can
agree that
such decisions have no bearing on the
assessment of the State aid nature of the tariff granted
to the three plants in the Terni area.

(97) A measure constitutes State aid within the meaning of
Article 87(1) of the EC Treaty if the following conditions
the measure (a) confers an
are cumulatively fulfilled:
is granted
economic advantage to the beneficiary;
and is
the State or
by
(d) has an
imputable to the State;
impact on intra-community trade and is
liable to
distort competition within the EU.

through State
(c)

(b)
resources

selective;

is

Advantage

(98)

tariff

In the light of the reasoning developed in points (73) to
(94), the Commission has come to the conclusion that
the preferential
for Terni did not provide an
advantage to the beneficiaries throughout the duration
of
is, until
1992. Therefore, only the extensions of the tariff have
to be assessed in order to ascertain the presence of an
advantage.

the original compensatory package,

that

(99)

There can be no doubt that the provision of electricity at
lower prices compared to the ordinary electricity tariff
constitutes a clear economic advantage for the benefi-
ciaries, who see their production costs reduced and
their competitive position strengthened.

Selectivity

(100) Since this particular tariff arrangement applies only to the

Terni group, the measure is selective.

Financing through State resources and imputability to the State

(101) As regards the financing through State resources,

tariff

is borne by all

in Italy by means of a parafiscal

it
should be noted that, as of 2002, the financial burden
electricity
arising from the
consumers
levy
collected by Cassa Conguaglio via the A4 component of
the electricity tariff. Such levy is obligatory as it imposed
by means of Delibere of
the AEEG which implement
national
legislation. Cassa Conguaglio is a public body
established by law, which carries out its functions on
the basis of precise instructions
laid down in the
Delibere of the AEEG and the relevant legislative and
regulatory provisions.

(102)

It is settled case-law that, the yield of a levy which is
obligatory under national
law and is paid to a public
body established by law constitutes State resources
within the meaning of Article 87(1) of
the Treaty
when it is earmarked for the financing of a measure
which fulfils the other criteria of that Article (23).

(23) See judgments of the ECJ in Steinike & Weinlig, C-78/76, [1977]
ECR p. 595 and in French Government v. Commission, Case
C-47/69 [1970] ECR p. 00487.

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(103)

(104)

In paragraph (68) above, Italy quotes Pearle (24) in order
to substantiate its claim that
the resources transiting
through Cassa Conguaglio do not constitute State aid.
In Pearle, the Court found that under certain, precisely
the resources of a levy which
defined circumstances,
transited through a public body could not be considered
State resources.
In Pearle, the measures were financed
entirely by an economic sector, at the initiative of that
sector, by way of a levy which merely transited through a
public body and the the subjects paying the levy were
identical to those who received the benefits of the aid
measure. The Commission contends that the case at hand
is manifestly different. The Terni tariff was established at
the initiative of the State, (not an economic sector), the
beneficiaries of the tariff do not bear any of the financial
the levy, which rests solely on electricity
burden of
consumers,
can, at any time, give
and the State
instructions to Cassa Conguaglio via a Delibera of the
AEEG or other legislative or regulatory provisions, as
to how to dispose of the funds collected through the
levy. Therefore, Pearle is irrelevant to this case.

In the Preussen-Elektra case, also quoted by Italy in
the Court considered that a
paragraph (68) above,
electricity
purchase obligation imposed on private
supply
from
renewable sources at minimum prices higher than the
real economic value of that type of electricity did not
constitute State aid because the measure did not involve
any direct or indirect transfer of State resources.

undertakings

electricity

purchase

to

(107) The criterion of

imputability to the State (25)

is also
fulfilled, since the legal basis for the Terni tariff is laid
down in national
in conjunction with the
Delibere of the AEEG which is a public body.

legislation,

Impact on trade and distortion of competition

(108) As regards the last criteria of Article 87(1) — impact on
trade between Member States and distortion of compe-
tition — the Commission can dismiss the arguments put
forward by the Terni companies in paragraph (46) on the
basis of the considerations developed in points (109)
to (116).

(109) The beneficiaries' main substantive argument is that the
plants which benefit from the tariff are not active in
intra-community trade
their
products on the domestic market.

they sell most of

as

(110)

that

in this respect,

It should be noted,
the analysis
cannot be limited to the plants located in the Terni
area. The beneficiaries are part of international groups
the economy (26), and
active in various
operating aid granted to one branch or plant can be
used to cross-subsidize other branches of the group in
sectors open to intra-community trade, and in fact, this
circumstance alone could warrant the conclusion that the
tariff has an impact on trade between Member States.

sectors of

the

(105) Here again, the substance of the cases is clearly different.
In Preussen Elektra, the resources required to finance the
measure were provided directly by
electricity
suppliers without any public body being involved, not
such
even as a passive vehicle for
monies.
In that case, no transfer of State resources
could be identified. In the case at hand, however, the
monies come from the general public via a parafiscal
charge which transits through a public body before
is
being channelled to the final beneficiaries. This
therefore a classic case of involvement of State resources.

the transit of

(111) Besides, even if it was demonstrated that most or all of
sold on the Italian
the companies' production was
domestic market, quod non, this would be irrelevant for
the purpose of
impact on intra-
establishing the
community trade of the measure. The Court has ruled
that ‘aid to an undertaking may be such as to affect trade
between the Member States and distort competition
where that undertaking competes with products coming
from other Member States even if it does not itself export

(25) See

the ECJ

judgment of

v. Commission, Case
C-303/88,[1988] ECR I.1433, France v. Commission, Case C
47/69 [1970] ECR 4393; judgment of the CFI in Deutsche Bahn/
Commission, Case T-351/02, [2006] ECR II. 1047.

in Italy

(106)

In the light of the above, therefore, the parafiscal
used to finance
the Terni
resources.

levy
constitutes State

tariff

(24) Judgment of the ECJ

in Pearle and others v. Commission, Case

C-345/02 [2004] ECR I-7139.

(26) Cementir belongs to the Caltagirone Group, operates a number of
plants in Italy, some of which are active in the export business. The
company produces a variety of cement and lime products and
controls a cement-producer in Turkey which exports to the EU.
Nuova Terni
Industrie Chimiche belongs to the Norsk Hydro
group, active in the production of chemical and mineral fertilizers,
oil
a global
conglomerate active mainly, but not only, in steel production.

and petrochemicals. ThyssenKrupp is

and gas

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its products (…). Where a Member State grants aid to an
undertaking, domestic production may for that reason be
maintained or increased with the result that undertakings
established in other Member States have less chance of
exporting their products to the market in that Member
State’ (27).

(112) Therefore,

the Commission has examined whether,

in
there is intra-community trade in the

general
sectors concerned.

terms,

(113) As regards cement-producer Cementir, the Commission
has extensively analysed the cement market and its
various segments, most notably in its 1994 Cement
Decision (28). Cement is a heavy product having a low
value in relation to its weight, so that
the cost of
transport may make it uneconomical to transport over
long distances. The Commission found, however, that
this constraint did not
impede intracommunity trade.
Cement products are de facto traded between Member
States, and the conclusion in the past of unlawful
agreements and concerted practices between cement
producers (sanctioned in the above Decision)
in order
to protect their home markets is further evidence that
there is effective competition at the EU level.

(114) As regards Nuova Terni Industrie Chimiche, it suffices to
in the very merger decision whereby the
say that,
Commission authorized the takeover by Norsk Hydro
of Nuova Terni Industrie Chimiche (29), the Commission
found that, for the products manufactured by the Terni
chemical branch, there was intra-community trade and
the geographical market was at least EEA-wide.

(115) Concerning ThyssenKrupp, the Commission notes that
the steel market is a global, highly competitive market.
In previous decisions, the Commission had already found
that
the market segments in which ThyssenKrupp is
active were at least EU-wide (30).

(116) Therefore, the conclusion must be drawn that the prefer-
three Terni
electricity tariff granted to the
ential
competitive
their
companies
position vis-à-vis
in intra-
community trade. It is settled case-law (31) that in such

competing undertakings

to improve

liable

is

(27) Judgment of

the ECJ France Republic v. Commission, Case

C 102/87, [1988] ECR p. 04067.

(28) Commission Decision of 30 November 1994 (Cases IV/33.322 —

cement), OJ L 343/1994, p. 1-158.

(29) Decision IV/M.832 of 25.10.1996 Norsk Hydro/Enichem Agri-

coltura — Terni (II).

(30) See,

inter
11 August 1997.

alia, Decision IV/M.925 Krupp-Hoesch/Thyssen of

circumstances
considered affected and competition distorted.

intra-community

trade

should

be

Conclusions on the presence of aid

(117)

In the light of the above, the Commission has come to
the conclusion that the preferential tariff granted to the
Terni companies as of 1 January 2005 constitutes State
aid within the meaning of Article 87(1) of the EC Treaty
and can only be authorized if it can benefit from one of
the derogations laid down in the Treaty.

Qualification of the measure as new aid and

lawfulness of the aid

(118) The measure cannot be considered existing aid for the

reasons explained in points (119) to (133).

(119) The original provision of Law 9/1991 which is
considered to be covered by a State aid authorisation
was modified in 2005 by Article 11(11) of Law
80/2005.

(120)

It should be noted that the substance of the implicitly
approved tariff and that of the tariff introduced by Law
80/2005 are only apparently similar.

(121) Law 80/2005 laid down that Terni should continue
benefiting from a preferential tariff until 2010. Even if
the second extension had been a mere prolongation in
time of the previous measure, it would have constituted
new aid. It is settled case law that an amendment to the
duration of an existing aid should be regarded as new
aid (32).

(122) A more detailed analysis

the
differences between the two measures are much more
substantive.

shows, however,

that

(123) Before the entry into force of Law 80/2005, the Terni
price (and its annual update) was still based on the
original parallelism in treatment with self-producers.
Law 80/2005 intervenes by severing this link and effec-
tively decoupling Terni from self-producer treatment. The
price set for 2005 happens to coincide with the 2004
price, but
the price formation mechanism is funda-
mentally altered, since the new price is updated in line
with average increases in energy prices, with a guarantee
that, however high such price increases may be, the tariff
will not rise by more than 4 % yearly.

(31) See, inter alia, the judgment of the ECJ in Philip Morris/Commission,
(Case 730/79, ECR [1980] p. 02671, paragraph 11) and judgment
of the ECJ in Air Liquide Industries/Ville de Seraing et Province de
Liège (Joint Cases C 393/04 and C 41/05, [2006] ECR p. I-05293).

(32) See,

for example, on this point,

in
Territorio Historico de Alava — Diputacion Foral de Alava, Joint
Cases T-127/99 and T-148/99, [2002] ECR II-012575, paragraphs
173-175.

the judgment of

the CFI

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(124) The level of aid is also raised due to the increase in the
quantities supplied at the preferential price. The degres-
sivity element is eliminated altogether.

Article 93, paragraph 3 of the EC Treaty cannot not be
considered as a valid notification.

(125)

It should be underlined, in this context, that even if the
aid level had remained unchanged, the same conclusion
would necessarily have to be drawn, if the the Opinion
of Advocate General Fennelly in Case Italy and Sardegna
Lines v. Commission (33) is to be followed. In assessing
what constitutes a substantive change to a scheme,
Advocate General Fennelly stated that ‘the introduction
of a wholly new method of providing effectively the
same level of aid constituted a significant amendment
of the original regime’.

(126) The Commission also notes that, in the light the different
mechanisms governing the tariff, it would be impossible
to distinguish, in the new measure implemented in 2005,
a part which, until 2007, would continue to be existing
aid, and an alteration liable to be classified as new
aid (34).

(130) Only measures which are duly notified pursuant
implemented before
and are not

to
Article 88(3)
a
Commission Decision can benefit from the procedural
time limits set out in Regulation 659/99. In the case as
is undisputed that Article 11(11) of Law
issue,
80/2005 was not notified.

it

(131) Besides, according to Article 4, paragraph 6 of Regu-
lation 659/99, where the Commission fails to take a
decision within the two months' procedural time limits,
the aid is deemed to have been authorized provided the
its intention to
Member State gives prior notice of
implement
the measure, and unless the Commission
takes a decision within a period of 15 working days
following receipt of the notice. In the case at hand, no
prior notice was given by Italy. Therefore, even if the
Terni’s companies allegation was substantiated, which is
not the case, as explained in paragraphs (129) and (130)
above, Article 4, paragraph 6 of Regulation 659/99
would not be applicable.

(127) Therefore, the Commission considers that the measure
referred to as ‘second extension’
is in fact a fully new
aid scheme in that it is substantially altered compared to
that covered by the 1991 Decision.

(132) Since Italy failed to notify Article 11(11) of Law

80/2005, the aid is unlawful.

(128)

In the light of the above, the measure must be considered
new aid as from 1 January 2005, which is the date when
Law 80/2005 made
tariff
applicable (35).

extension of

the

the

(129) The allegation, made in paragraphs (48) and (60), that
the measure should be deemed authorized pursuant to
Article 4, paragraph 5 of Regulation N 659/1999
because the Commission had been informed of it and
failed to take a decision within the procedural
time-
limits ) is manifestly unfounded. There is a substantial
to
difference between notifying a measure pursuant
Article 88(3), on the one hand, and simply informing
the Commission of the existence of a measure, on the
other. In Breda Fucine Meridionali (36), the Court of First
Instance has notably ruled that
the transmission of
documents which are not addressed to the Secretary
General and do not contain an explicit reference to

(33) Joined Cases C 15/98 and C 105/99, Italy and Sardegna Lines v.
Commission ECR [2000] I-8855, paragraph 74 of the Opinion.
(34) Judgment of the CFI in Government of Gibraltar v. Commission,
Joint Cases T 195-01 and T 207/01 [ECR 2002 ] p. II-02309.
(35) The conversion law of Decree 80/05 provided for the retroactive
entry into force of the tariff extension as of 1 January 2005.
(36) Breda Fucine Meridionali v Commission, Joined Cases T-126/96 and

T-127/96 [1998] ECR II-3437, paragraph 47.

Compatibility of the aid

The first extension

(133) Even though this procedure concerns only the second
extension of the tariff, the Commission deems it appro-
priate to make a number of considerations on the first
extension and its approval under the State aid rules.

the State aid rules

(134) This first extension of the Terni tariff was provided for in
Article 20(4) of Law 9/1991. This law was declared
compatible under
in case NN
52/1991 (37). The Commission Decision as notified to
Italy does not specify which articles of the Law were
found compatible. However,
the internal documents
leading to the Commission Decision provided for a
brief description and assessment of
the articles with
State aid relevance. Article 20(4) of the law, providing
for the extension of the Terni tariff, was not mentioned.

(135) Given such scant

is unfortunately
information,
impossible to trace back the reasoning followed in that
case, and in particular to know whether the Commission
had examined and intended to approve the Terni tariff.

it

(37) See footnote 5.

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(136) However, since Italy notified the entire law and the
approval decision also refers to the entire law,
the
extension of
should be considered
covered by the 1991 Commission Decision.

the Terni

tariff

The second extension under challenge

(137)

In derogation from the general prohibition of State aid
laid down in Article 87(1) of the EC treaty, aid may be
declared compatible if it can benefit from one of the
derogations enumerated in the Treaty.

(138) The State aid granted to the Terni companies pursuant to
Article 11(11) of Law 80/2005 can be classified as
operating aid.

(139)

It is settled case-law that operating aid, that is to say, aid
intended to relieve an undertaking of the expenses which
it would normally have had to bear in its day-to-day
management or its usual activities, in principle, distorts
competition to an extent contrary to the common
interest in the sectors in which it is granted (38). The
Commission notes that operating aid granted in the
form of a preferential electricity price to an energy-
intensive undertaking, that is, an undertaking having elec-
tricity as one of its major cost factors, is a particularly
distortive form of support since the aid has a substantial
and direct impact on that undertaking’s production cost
and resulting competitive position.

(140) Operating aid may be granted, under specific conditions,
under the Guidelines on State aid for environmental
protection (39). The tariff under consideration, however,
serves no environmental purpose.

(141) Exceptionally, operating aid may be granted in assisted
of
for
eligible
areas
Article 87(3)(a) of
the
period considered, Region Umbria was not eligible for
aid under Article 87(3)(a) of the Treaty.

derogation
the
aid
the EC Treaty. Throughout

under

(38) See Judgments of

the ECJ

in Italy v Commission, Case C-86/89
[1990] ECR I-3891, paragraph 18, and France v Commission, Case
C-301/87 [1990] ECR I-307, paragraph 50; judgment of the Court
of First Instance in Siemens v Commission, Case T-459/93 [1995]
ECR II-1675, paragraph 48.

(39) OJ C 37, 3.2.2001, p. 3.

to (127),

(142) Even though, for the reasons explained above in para-
graphs (123)
the two extensions constitute
different measures, the Commission deems it useful to
recall that, when the first extension was notified, Region
Umbria was going through a serious economic crisis,
which affected in particular
the steel and chemical
sectors in the Terni area. This crisis, which had come
the 1990s, was
to a head at
the beginning of
acknowledged by the Commission when,
it
approved the Italian map of areas eligible for aid under
Article 87(3)(c) (40). The Terni and Perugia areas were
declared eligible for aid under Objective 2 of
the
Structural Funds.

in 1997,

(143)

In 2005, however, at
the time Law 80/2005 was
adopted, the process of structural adjustment in Umbria
had already largely taken place. In the proposed regional
aid map for the period 2007-2013, Umbria will lose the
status of assisted region altogether. Therefore, while it is
difficult to know whether Regional development consid-
erations may have played a role in the original approval
decision, it is nevertheless certain that the Commission
cannot rely on any such considerations in assessing the
second extension of the tariff.

(144)

Italy has in fact extensively explained the industrial policy
reasons for the second prolongation of the Terni tariff
(see paragraph (61)). The main thrust of Italy’s argument
in favour of the tariff is that energy intensive companies
in other Member States can also benefit from reduced
energy prices and the tariff is required as a transitional
measure to avoid delocalization outside the EU pending
the full
the energy market and the
improvement of infrastructure. Incidentally, these expla-
nations contradict the Italian claim that the Terni tariff
would still be compensatory and certainly offer no justi-
fication for a revision of the expropriation package.

liberalization of

(145) The Commission notes that the Court has ruled that ‘the
fact
that a Member State seeks to approximate, by
unilateral measures, conditions of competition in a
particular sector of the economy to those prevailing in
other Member States cannot deprive the measures in
question of their character as State aid’ (41). Further, the
Italian argument that such a State aid would be justified
by the existence of other (equally distortive) State aids in

(40) State aid No 27/1997, Commission Decision SG(97) 4949 of

30 June 1997.

(41) See, for example, the judgment of the ECJ in Italian Republic v
Commission, Case C-372/97 [2004], ECR I-03679, paragraph 67.

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the EU,

the EU is to be dismissed altogether. Such an approach
would lead to subsidy races and would run counter to
the very objective of State aid control. As regards the
alleged risk of delocalization outside
the
Commission notes that there is no precedent in its deci-
sional practice or in the jurisprudence of the Community
courts, where such an argument has been accepted as a
justification for the grand of State aids. In the case at
issue,
there is no need for the Commission to even
consider this question since the Italian authorities have
not provided any substantiation for such an allegation.
Notably,
the tariff was
it has not been shown that
necessary and proportionate to prevent that risk.

(151)

the exceptional
Commission has examined whether
circumstances
in
the Terni
paragraph (47) could have led them to entertain such
legitimate expectations.

alleged by

companies

In substance, the beneficiaries plead that Italy had given
them assurances about
the
measure, and that the Commission had not called the
first
measure
extended,
second
extension was submitted.

either when it was
on

into question,
or when

the non-aid character of

information

the

(146) As regards the conclusions of

(61),

the High Level group
mentioned in point
they are irrelevant as they
reflect the outcome of general political debate and do
not constitute legally binding provisions.
It should be
noted,
incidentally, that the solutions proposed by the
group and quoted by Italy do not involve the granting
of State aid.

(147) Since the aid cannot benefit of any of the derogations
laid down in Article 87 of the EC Treaty, the second
the
extension of
Terni companies should be declared incompatible with
the common market.

the preferential

in favour of

tariff

(148) Pursuant to Council Regulation (EC) No 659/1999 (42)
laying down detailed rules
application of
Article 93 of the Treaty, in cases of unlawful aid which
is not compatible with the common market, effective
competition should be restored and the aid,
including
interest, needs to be recovered without delay.

the

for

Legitimate expectations

(149)

It is settled case-law that, when aid has been granted
without prior notification pursuant to Article 88(3) of
the Treaty, the recipient of the aid cannot have at that
time a legitimate expectation that its grant is lawful (43).
A diligent businessman should normally be able to
determine whether the notification procedure has been
followed and the aid is lawful.

(152) As regards the first claim,

it will suffice to recall that,
according to settled case-law, the existence of legitimate
the
expectations cannot depend on the behaviour of
in
Member State granting the aid. The CFI has ruled,
particular,
a
information given by
Member State about the legality of a measure cannot
in any circumstances give rise to legitimate expectations,
especially where the Commission has not even been
informed of that information’ (45)

‘incorrect

that

(153) Only the behaviour of the Community administration
may thus give
In
particular, the Court has ruled that ‘a person may not
plead infringement of that principle unless he has been
given precise
added) by the
Community administration’ (46).

to legitimate

expectations.

assurances

(emphasis

rise

(154) The Terni companies claim that the measure was not
called into question in 1991, when the Commission
It should be pointed out that
approved Law 9/1991.
the
the 1991 Commission Decision covers only
measure
the
so that
laid down in Law 9/1991,
approval of that measure cannot give rise to legitimate
expectations concerning the lawfulness or compatibility
of the new aid measure introduced by Law 80/2005.
Even if the Commission had explicitly stated that the
1991 measure did not constitute aid, quod non, the bene-
ficiaries could not assume that the 2005 measure would
also automatically qualify as non-aid, since there are
that may transform a non-aid
many circumstances
measure into a State aid.

(150) However, a recipient of unlawfully granted aid is not
precluded from relying on exceptional circumstances on
the basis of which it had legitimately assumed the aid to
be lawful and thus declining to refund that aid (44). The

(42) OJ L 83, 27.3.1999, p. 1.
(43) Judgment of the ECJ in Alcan Deutschland, Case C 24/95 [1997],
ECR I-1591, paragraphs 25, 30 and 31, and Demesa and Territorio
histórico de Álava v Commission,
Joined Cases C-183/02 P and
C-187/02 [2004] ECR I-10609, paragraph 45.

(44) Judgment of the ECJ in Commission v Germany, Case C-5/89 [1990]

ECR I-3437, paragraph 16.

(155) Moreover, the wording of the Commission Decision as
notified to Italy, which declares compatible the aid
measures
contained in Law 9/1991 and 10/1991
would, if anything, suggest the opposite, that the Terni
measure did constitute aid.

(45) See judgment of the CFI in Fleuren Compost v. Commission, Case

T-109/01 [2004] ECR p. II-127, paragraphs 141-143.

(46) See judgment of the ECJ in Germany v. Commission, Case C-506/03,

[2005] ECR p. I-0000, paragraph 58.

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(156) Therefore, the Commission Decision could not possibly
have given the beneficiaries precise assurances as to the
the tariff, but — at best — a
non-aid character of
legitimate expectation that the 1991 extension of the
tariff was compatible. No expectations could be enter-
tained, however,
the 2005 extension.
in respect of
Therefore, this argument should also be dismissed.

(162) Therefore, the Commission considers that the residual
amounts of aid to which the beneficiaries would have
been entitled under Law 9/1991 in 2005, 2006 and
2007 if Law 80/2005 had not been implemented may
Italy
be deducted from the sums to be recovered,
considers that
the beneficiaries are entitled to them
under national law.

if

the

this

tariff,

(157) As regards the Commission’s alleged failure to act dili-
received information on the second
gently when it
extension of
claim is manifestly
unfounded. Italy allegedly mentioned the Terni tariff in
the 2005 State aid Report. Detailed information on the
measure provided for in Article 11(11) of Law 80/2005
was provided, however, only in February 2006, on
request by the Commission, in the context of the State
the same Law
aid investigation on Article 11(12) of
(State aid C 13/06). The formal investigation procedure
was opened by the Commission in July 2006.

(158) Considering
submission
Commission,
diligently.

short
time
information

elapsed between the
the
of
the
and
it is manifest that the Commission acted

action

by

(159)

In the light of the above considerations, the Commission
has concluded that there are no extraordinary circum-
stances which could have led the Terni companies to
entertain legitimate expectations as to the lawfulness of
the contested measure.

Recovery

(160) All amounts of

Terni

and Nuova

incompatible aid received by Thys-
senKrupp, Cementir
Industrie
Chimiche pursuant to Article 11(11) of Law 80/2005
the period starting on 1 January
and which cover
shall be recovered, with
2005 (see paragraph (26))
interest,
in accordance with Chapter V of Commission
Regulation (EC) No 794/2004 of 21 April 2004 imple-
menting Council Regulation (EC) No 659/1999 laying
down detailed rules for the application of Article 93 of
the EC Treaty (47).

(161)

It should be recalled, in this context, that the purpose of
to restore the beneficiary’s
recovery is
competitive
situation prevailing before the grant of the incompatible
aid. In establishing what was the competitive situation of
the Terni companies before the introduction of Law
80/2005, account should be taken of the existence of
the existing aid measure laid down in Law 9/1991,
which was cleared under the State aid rules until 2007.

VII. CONCLUSION

(163) The Commission finds that Italy has unlawfully imple-
mented, in breach of Article 88(3) of the EC Treaty, the
provision of Article 11, paragraph 11 of Decreto-legge
80/05, converted into Law 80/2005, providing for the
modification and extension in time until 2010 of the
preferential electricity tariff applicable to the three Terni
such
that
companies. The Commission considers
measure, which constitutes pure operating aid,
is not
eligible for any derogation under the EC treaty, and is
therefore
common market.
Therefore,
the above measure that have
not yet been granted or paid must not be implemented.
The aid already paid has to be recovered. The amounts to
which the beneficiaries would have been entitled in
2005, 2006 and 2007 under Law 9/1991 may be
deducted from the total amount to be recovered,

incompatible with the
the parts of

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Italy has implemented in favour of
1.
ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche is
incompatible with the common market.

2.
The State aid which Italy has granted but not yet paid out
to ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche
is also incompatible with the common market and may not
therefore be implemented.

Article 2

Italy shall recover from the beneficiaries the aid referred to

1.
in Article 1(1).

The sums to be recovered shall

2.
include interest for the
entire period running from the date on which they were put at
the disposal of the beneficiaries until the date of their recovery.

(47) OJ L 140, 30.4.2004, p. 1-134.

The interest shall be calculated on a compound basis in

3.
conformity with Regulation (EC) No 794/2004.

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Article 3

1.
Italy shall take all necessary measures to recover from the
beneficiary the illegal and incompatible aid referred to in
Article 1.

2.
Recovery shall take place without delay and in accordance
with the procedures under national law provided that they allow
the immediate and effective execution of the decision.

Italy shall ensure that the present decision is implemented

3.
within four months of the date of notification.

to comply with the present decision. By the same deadline, it
shall send to the Commission all the documents demonstrating
that the beneficiaries have been ordered to repay the aid.

After the period of
Italy shall

two months referred to in para-
3.
graph 2,
submit, on a simple request by the
Commission, a report on the measures already taken or
planned to comply with this decision. This report shall also
provide detailed information on the amounts of aid and
interest already recovered from the beneficiaries.

Article 5

Article 4

This Decision is addressed to Italy.

1.
Italy shall keep the Commission informed of the progress
of the national proceedings to implement this decision until
these proceedings have been completed.

2. Within two months of notification of this decision, Italy
shall submit information specifying the total amounts (principal
and interest)
to be recovered from the beneficiaries and a
detailed description of the measures already taken or planned

Done at Brussels, 20 November 2007.

For the Commission

Neelie KROES
Member of the Commission