2008/406/EC: Commission Decision of 11 December 2007 on State aid C 51/06 (ex N 748/06) which Poland has implemented for Arcelor Huta Warszawa (notified under document number C(2007) 6077) (Text with EEA relevance)
Date: 2007-12-11
Institutions: European Commission
Subjects: Poland, State aid, aid for restructuring, control of State aid, industrial restructuring, iron and steel industry

3.6.2008

EN

Official Journal of the European Union

L 143/31

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

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 11 December 2007

on State aid C 51/06 (ex N 748/06) which Poland has implemented for Arcelor Huta Warszawa

(notified under document number C(2007) 6077)

(Only the Polish version is authentic)

(Text with EEA relevance)

(2008/406/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

AHW), then still Huta L.W. Sp. z o o (hereinafter HLW).
The plan was revised in March 2003 (hereinafter 2003
IBP).

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

establishing the European
subparagraph of
the

first

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

Having regard to Protocol No 8 of the Accession Treaty on the
restructuring of the Polish steel industry (1),

Having called on interested parties to submit their comments (2)
pursuant to the provisions cited above and having regard to
their comments,

Whereas:

I. PROCEDURE

(2)

(3)

The process of steel restructuring in Poland started in
June 1998, when Poland presented a first Restructuring
Industry to the
the Iron and Steel
Programme for
Community in order to comply with Article 8(4) of
Protocol 2 of the Europe Agreement with Poland (here-
inafter referred to as Article 8(4)), which allowed, excep-
tionally, State aid to be granted for restructuring in the
steel product sector during the first five years after the
entry into force of the Agreement.

On 5 November 2002, the Council of Ministers of the
Republic of Poland approved the Restructuring and De-
velopment Programme for the Polish Iron and Steel
Industry until 2006 and, on this basis, on 25 March
final National Restructuring
2003 it
Programme
(hereinafter NRP). This plan essentially
allows for State aid of up to PLN 3,387 billion (EUR
846 million) (3)
to be awarded to the Polish steel
industry for restructuring in the period from 1997 to
2006.

adopted its

(1)

In 2002 a restructuring plan (also referred to as the
individual business plan) was presented to the Polish
(hereinafter
authorities by Arcelor Huta Warszawa

(4)

The NRP was submitted to the Commission, which
assessed it on 25 March 2003 and, on the basis of its
assessment, made a proposal for a Council Decision to
extend the grace period (initially due to expire in 1997)

(1) OJ L 236, 23.9.2003, p. 948.
(2) OJ C 35, 17.2.2007, p. 41.

(3) Assuming that EUR 1 = PLN 4.

L 143/32

EN

Official Journal of the European Union

3.6.2008

for the granting of State aid to the Polish steel sector
under the Europe Agreement until the end of 2003,
subject to the beneficiaries achieving viability by 2006.
The proposal was approved by the Council
in July
2003 (4).

(9)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Union (8).
The Commission invited interested parties to submit their
comments on the aid.

(5)

(6)

(7)

(8)

industry (hereinafter Protocol No 8) (6).

The EU thus allowed Poland, by way of derogation from
EU’s rules (5),
to grant restructuring aid to the steel
industry. This was finally laid down in Protocol No 8
the
to the Act of Accession, on the restructuring of
It
Polish steel
confirms acceptance of State aid of not more than
PLN 3,387 billion
eight
companies indicated, including HLW, up to the end of
2003, provided that restructuring is completed no later
than 31 December 2006 (7). The NRP allocates PLN 322
million of restructuring aid to HLW (see Table 8), which
is confirmed in greater detail in the 2003 IBP and which
is to be implemented according to point 9(a) and (h) of
Protocol No 8.

granted

being

the

to

reports,

In order
to ensure compliance with its conditions,
Protocol No 8 sets out detailed provisions for implemen-
tation and monitoring. Inter alia Poland had to provide
independent
bi-annual monitoring
evaluations were
an independent
carried out by
consultant in 2004, 2005 and 2006. Company reports
for HLW/AHW have so far been presented in February
2004, April 2005, May 2006 and June 2007. They were
discussed with the Polish authorities and the beneficiaries
and accepted by the Commission services and the Polish
authorities.

and

The IBP of HLW was amended in 2005 by AHW (here-
inafter 2005 IBP) and the Commission’s approval sought
according to point 10 of Protocol No 8.

the Commission
By letter dated 6 December 2006,
informed Poland that
it had decided to initiate the
procedure laid down in Article 88(2) EC in respect of
potential misuse of aid.

(4) Council Decision of 21 July 2003, OJ L 199, 7.8.2003, p. 17. Cf.
Commission Decision in Case C 20/04, OJ L 366, 21.12.2006, p. 1,
points 23 et seq.

(5) Cf. Communication from the Commission on Rescue and Restruc-
turing aid and closure aid for the steel sector OJ C 70, 19.3.2002,
p. 21, which prohibits restructuring aid to the steel industry.

(6) See footnote 1.
(7) According to the latest monitoring report of June 2007, PLN 2,727
billion of aid has been disbursed. Out of the eight beneficiaries, three
companies, namely Technolgie Buczek (cf. Commission Decision of
23 October 2007 in Case C 23/06, not yet published), Huta Andrzej
and Huta Batory have in the meantime gone into liquidation, while
four companies, namely Polskie Huty Stali S.A. (now Mittal Steel
Poland, see Commission Decision in Case N 186/05, Change of IBP
of MSP), Huta Bankowa, Huta Labędy and Huta Pokόj, have restored
viability.

(10)

(11)

(12)

Poland replied by letter of 2 March 2007. On 19 March
2007 the Commission also received comments from the
beneficiary AHW, which it
forwarded together with
questions to the Polish authorities. After a meeting
with the Polish authorities and the beneficiary in March
2007, further questions were sent to Poland on 2 April
2007 and 6 August 2007. On 4 June 2007 and
1 October 2007 Poland replied.

Then, on 18 October 2007 the Commission services
its preliminary assessment of
informed Poland about
further exchanges between the
the case and, after
on
Polish
and
indicated
16 November 2007 the Polish authorities
‘without
that the company intended to repay the aid,
prejudice to the legal situation’.

Commission,

authorities

the

in a

confirmed

Polish authorities

The
letter of
22 November 2007 that on 20 November AHW had
paid 2007 EUR 2 089 768 into an account blocked in
the Polish Ministry of Finance. Under the
favour of
conditions of the agreement, no one will have access
to the money on the account until
this Decision is
adopted. On the date of its adoption the Ministry will
receive
as of
the
If the decision is not issued by
20 November 2007.
the end of February 2008, the money will revert
to
AHW.

amount plus

accrued

interest

II. DETAILED DESCRIPTION OF THE AID

(13) AHW is a Polish steel producer which produces liquid
steel and long products, especially quality and special
steels (light and heavy section profiles).

(14)

In 1991 the majority of shares in HLW were taken over
by the Italian steel producer Lucchini and sold in 2005
to Arcelor, which merged with Mittal Steel in 2006 (9).

(8) See footnote 2.
(9) See Commission Decision Mittal/Arcelor of 2 June 2006, Case No

COMP/M.4137.

3.6.2008

EN

Official Journal of the European Union

(15)

1. The restructuring programme of the 2003 IBP

that HLW was

The Commission understands
facing
serious financial constraints at the time of the adoption
of the business plan. It was not getting any additional
moneys from its mother company Lucchini, which was,
according to Poland, in a profound financial crisis, and it
was unable to sell its own valuable assets due to regu-
latory problems. Therefore, between 1997 and 2003 the
company was very short of cash, which was reflected in
the restructuring plan (10).

(16)

In order to restore viability, HLW’s 2003 IBP therefore
set several core restructuring tasks (in point 3.2) among
which the most important were:

(a) Asset

restructuring and financial

restructuring in
order to obtain funds for the implementation of
this programme,
and
reduce financial costs.

financial

liquidity

ensure

products
enterprise, cost reduction […].

increase

and

competitiveness

L 143/33

of

the

(c) Further improvement of environmental protection

standards.

(a) Investments

(17)

The 2003 IBP (point 3.3) stated its industrial strategy to
be ‘to focus on the gradual improvement of its product
mix through a significant reduction of the production of
merchant bars and billets and the development of
production with a focus on speciality and engineering
steels’. To this end, HLW expected ‘ … to pursue a
programme of gradual
investments in the following
areas of the plant: medium rolling mill, forging shop,
drawing mill, ingot-casting bay’, while the narrow strip
mill was to be closed.

(b) Implementation of investments in order to further
improve the quality and mix of the manufactured

(18)

the company
In order to pursue the above strategy,
planned an investment programme of
[between PLN
150 million and PLN 220 million] (*), which was
indicated in the 2003 IBP as follows:

Table 1

Planned steel production investments (= table 21 of the 2003 IBP)

In PLN 1 000

2002

2003

2004

2005

2006

Steel-shop

Hot rolling mills

General

Drawing mill

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

Total

[…]

[…]

[…]

[…]

[…]

Total

[…]

[approx. 95 %]

[…]

[…]

[PLN 150-220 million]

(19) As

the 2003 IBP,

indicated in point 4.4 of

focused on modernisation of

the
the hot
investments
(see Table 22 of 2003 IBP). This
rolling mills
the medium section
comprised the modernisation of
mill, as well as
the reheating
furnaces of the blooming mill and the heavy section
mill. The timing for implementation of the investments
the 2003 IBP, which
was indicated in Table 23 of
indicated that
to be
commenced in 2002.

the replacement of

investments were

almost

all

(10) Cf. information submission of Poland of 4 June 2007, points 19,

30, 55.

(b) Employment restructuring

(20) Under the 2003 IBP (point 4.11), the company planned
to reduce the number of its employees from 1 249 to
850. The 2005 IBP now states that the workforce will be
reduced to 700 employees. The 2003 IBP allocated
PLN 4,03 million for the employment restructuring, of
which PLN 1,5 million was to be supported by specially
earmarked State aid, PLN 1,17 million by the PHARE
programme and PLN 1,34 million by the company (11).

(*) Parts of this text have been hidden so as not to divulge confidential
information. These have been indicated with a dotted line in square
investment programme amounts to between
brackets. The total
PLN 150 million and PLN 220 million.
In order to make the
decision easier to follow, further confidential financial information
is given as an approximate percentage of the amount of PLN 150-
220 million (taking PLN 150-220 million as 100 %).

(11) 2003 IBP, p. 66, Table 35.

L 143/34

EN

Official Journal of the European Union

3.6.2008

(21)

(22)

(23)

(24)

(c) Financial restructuring

The 2003 IBP also provided for financial restructuring
and asset restructuring, which, according to the plan
(point 3.2), concerned ‘repayment of short-term loans
and the sale of unnecessary assets not connected with
production.’

The 2003 IBP (point 4.7) provided for the restructuring
of debt of PLN 513 369 million (according to the
balance sheet this was the total of long-term and short-
It was intended to finance this from
term liabilities).
restructuring. Proceeds of
future profits
and asset
PLN 363 million were expected from the latter
in
2004 and 2005, PLN 60 million of which was to
cover new debts.

In detail, the Commission understands that the 2003 IBP
specified the following measures for financial restruc-
turing: firstly, public debt had been waived resulting in
aid of PLN 21,5 million (see 4.12.2); secondly, HLW had,
since 2000, been conducting some ongoing asset restruc-
turing by selling non-productive assets, and this was
supposed to generate funds to finance the investment
programme.

In 2000 the

The asset restructuring must be seen against the back-
ground that HLW’s assets had already been the subject of
a financial transaction described by HLW as a ‘sale and
leaseback transaction’.
company had
obtained a PLN 250 million loan basically collateralised
by a pledge on land and buildings belonging to the
company. This concerned productive and non-productive
assets. Repayment was to take place in two payments a
year until 2010. The transaction was necessary because
HLW was in need of cash but could not sell off its non-
productive assets immediately. This was to be done in
the course of the coming years and would result in cash
generation and the reduction of financial costs.

(25) According to the 2003 IBP, the asset restructuring was to
concern the non-productive assets (points 4.7 and 4.8).
Apparently at the end of 2001 a first part (53 hectares)
of the 100 hectares was sold. However the sale of other
non-productive assets was delayed because AKR (Agencja
Kapitałowo Rozliczeniowa S.A. — a company whose share-
holders are the Industry Development Agency and the
State Treasury) had difficulties in regulating the legal
status of
the land not connected with
production.

the part of

investments

and to cover

million was envisaged. The loan was supposed to be used
for
short-term liabilities
(PLN 219 million in total). In addition, PLN 53 million
was allocated to bringing forward investments originally
planned for after 2006 (this 219 + 53 million add up,
together with 10 % financing costs (i.e. 27 million), to
total
299 million). Consequently, of
funds of
the
[PLN 150-220 million] planned for
investments, at
least PLN […] million (i.e. PLN […] million —
PLN 53 million) should be included in the PLN 219
million. The remaining amount of PLN […] million
(PLN 219 million — PLN […] million) must therefore
have been the costs of short-term financial restructuring.

(d) Environmental restructuring

programme

investment
implementation of

The 2003 IBP (point 4.9) also included a separate en-
vironment-related
which
consisted of
an environmental
management system in accordance with ISO 14001
(PLN 0,5 million), a number of investments under the
umbrella of a land reclamation project with costs of PLN
50 million and modernisation of the power engineering
department
(for which no funds were allocated). The
measures were to be commenced in 2002.

time

The investigation indicated that some but not all of the
measures indicated in the 2003 IBP were implemented
according to the
the
construction of a scrap-processing plant was postponed
to 2007-08, and was not underway until summer 2007.
Moreover the construction of a discard-processing plant
was abandoned as the discard processing is run by a
subcontractor (12), which is a more cost-efficient solution.

In particular,

schedule.

(27)

(28)

(29) However, the investigation also confirmed Poland’s claim
that the costs for the environmental restructuring were
not to be paid under the restructuring plan, but were to
be covered from own funds, such as proceeds from the
asset restructuring.

(e) Financing the restructuring

(30)

identifies a financing gap of
The 2003 IBP (4.12)
PLN 300 million (see also the cash flow statement,
point 5.1). As no indication is given to the contrary, it
can be assumed that this was the only financing required.

(26) As funds were not available from the sale of land, a
bridging loan guaranteed by the State for PLN 300

(12) See ESC report for 2006 of July 2007.

3.6.2008

EN

Official Journal of the European Union

L 143/35

(31)

of

that

the restructuring required
Point 4.12 indicates
financing
PLN 113,6 million in 2002 and
PLN 105,3 million in 2003, as well as the PLN 21,9
million financing
funds.
Moreover, an additional PLN 53 million was allocated
to bringing forward investments. However, there is no
indication of what exactly the financing was needed for.

cost of borrowing

these

‘The

confirms

[…] Restructuring

(32) After 2003 no more financing seemed to be necessary.
Indeed in its 2005 IBP AHW, when describing the 2003
IBP
Programme
assumed that series of actions of strategic and operational
character would be taken, as a result of which significant
improvement
the activities was
expected, and as a result, financial liquidity. The Restruc-
turing Programme accepted that financial liquidity factors
would gradually improve, starting from the year 2003.’

in the profitability of

to carry out

financing gap resulting from the delay of part of the
in order to enable the
asset restructuring. Therefore,
restructuring and
company
investments in 2002/03 and possibly also 2004,
the
company was granted the bridging loan guaranteed by
the State Treasury. The
restructuring project was
therefore clearly connected with a time schedule.

financial

independent of

(35) However, the asset restructuring was not indicated in the
2003 IBP as leading to restructuring costs. It was, rather,
the State aid-
an ongoing exercise,
supported restructuring plan and clearly requiring no
additional State
funding. Also some measures not
directly linked to restoring viability, such as the environ-
mental measures, were
financed through the asset
restructuring and were, as is reiterated by Poland, thus
pursued outside of the restructuring.

(f) Conclusion as to the restructuring efforts under the 2003

IBP

(33)

The restructuring provided for in the IBP for which extra-
investment
required includes
ordinary support was
(PLN [150-220] million,
including the PLN 53 million
of investments brought forward), employment restruc-
turing (PLN 4,03 million), some write off of public
(PLN 21,5 million), some financial restructuring
debt
(PLN 81,5 million) and some financing costs for the
loan (PLN 27,1 million), all totalling PLN 324,63 million.

(34)

The restructuring was to be financed mainly from a
State-guaranteed loan, which was intended to close a

(36)

Indeed, the only reason why the asset restructuring is
mentioned is because it was
to generate financing
through the sale of the non-productive assets. However,
the repayment of the sale and leaseback transaction is
not mentioned.

2. State aid

(37) Out of the PLN 322 million aid (calculated as net grant
equivalent) originally
accepted in the NRP, AHW
obtained the aid shown in the attached table submitted
by Poland:

Table 2

State aid approved and received in 2002 and 2003 (*)

NRP
(in PLN 000)

State aid obtained
(in PLN 000)

Difference
(in PLN 000)

Total 2002-03

321 878 000

203 946 000

117 932 000

(*) Figures correspond to Table 36 of the 2003 IBP. Figures updated in line with the Polish and independent Monitoring Reports

of June 2007, taking EUR 1 to be PLN 3,95.

(38)

The aid was granted for three different purposes:

(a) PLN 0,33 million for employment restructuring (1,5 million had originally been planned),

(b) PLN 20,56 million for debt write-offs (21,5 million had originally been planned), which was used

for general improvement of the company’s financial situation.

L 143/36

EN

Official Journal of the European Union

3.6.2008

(c) guarantee of a loan of PLN 183,2 million (EUR 46,3 million; PLN 299 million had originally

been planned, and approved by the Commission).

(39)

The State guarantee-supported loan was given to HLW by Bank Pekao S.A. on the basis of an
agreement between HLW and the bank of 10 December 2003. The loan agreement indicates that
the loan has to be repaid five years after the signing of the agreement, i.e. by 10 December 2008.

(40) AHW had applied for the guarantee in August 2003. It was granted by a decision of the Council of
Ministers of 31 December 2003 and concerned a nominal value of EUR 46,3 million, plus interest
and other associated costs of up to EUR 58,3 million. The Council of Ministers decision recognised
that HLW would first need the aid in order to finance investments relating to the hot rolling mill and
the property purchase costs under sale and leaseback agreement, and ordered that it should be used
for this purpose. In detail:

(a) one part of the loan was intended for an amount of up to EUR 14 600 000 to finance
(medium) and rolling
production investments,
machine modernisation
only
28.2.2005
and
EUR 2 854 355 was utilised in eight instalments. The repayment took place on 16.9.2005.

investment connected with the rolling mill

(cages). However,

30.9.2004

between

(b) the other part, for an amount of up to EUR 31 430 000, with which the company wanted to pay
off the remaining part of the sale and leaseback agreement, was intended for debt restructuring
by way of repurchase of production property (land and buildings). From 24.8.2004, the company
utilised EUR 31 245 684, and repaid it 16.9.2005. According to the Polish authorities and the
beneficiary, the loan was used to pay off the sale and leaseback agreement of 2000.

(41) Altogether, the company indicated that it had paid interest amounting to EUR 1 132 788,35, which
it paid in tranches. To this end it was considered that the first interest tranche, paid on 30 December
2004, should be allocated to the respective loan portions drawn, whereas from that point onwards,
the interest amounts could be distributed between the respective totals. The Polish authorities
submitted that this led to the following split of the interest payments:

Table 3

Interest paid

Date, interest paid

Total interest

Interest on the part of the
loan used for repayment of
the sale and leaseback
agreement

Interest on the part of the
loan used for investment

30.12.2004

EUR 371 931

EUR 363 880

EUR 8 051

30.6.2005

16.9.2005

EUR 536 522

EUR 491 612

EUR 44 910

EUR 224 336

EUR 205 557

EUR 18 778

EUR 1 132 788

EUR 1 061 050

EUR 71 738

(42) AHW also had the following items of expenditure connected with the guaranteed loan:

(a) a preparation fee of EUR 270 000,

(b) a State Treasury fee for granting the loan guarantee of EUR 583 300, paid on 30.4.2004 (1 % of
the guarantee total amount of EUR 58 330 000, independent of the size of the loan actually
granted),

(c) costs sustained by the bank for the loan contract and passed on to AHW: EU 55 947.

3.6.2008

EN

Official Journal of the European Union

L 143/37

(43) HLW’s 2003 loan application also indicates that the reduction of the loan (in relation to the amount
approved under the 2003 IBP) was based on HLW’s own initiative because it had already negotiated
the loan. However, HLW reserved the right to apply for the remaining aid under the PLN 75 million
ceiling, but never did so.

3. Implementation of the 2003 IBP

(44)

It is not disputed that the 2003 IBP was only partly implemented. Between 2002 and 2004 HLW
spent only PLN 58,7 million on the restructuring. Only PLN [approximately 25 % of the total
investment amount shown in Table 1] million was spent out of the PLN […] million for investment
in modernisation of the hot rolling mill envisaged for 2002 to 2004. Investments concerned only the
modernisation of the medium section mill, while no investments were made in the reheating furnaces
of the blooming mill or the heavy section mill. Moreover, less than half a million out of PLN […]
million was invested in the steel plant and PLN […] million in other general investments (for details
see columns for 2002, 2003 and 2004 in Table 4 below).

(45)

The Commission has not been provided with any information as to whether financial restructuring
was performed. However, from the 2005 IBP the Commission sees that the indebtedness of HLW on
30.6.2005 was about the same as that of HLW at the end of 2001 (see point 1.8 of the 2005 IBP).
Moreover, HLW was able to achieve a positive operating result already in 2004. Hence,
the
Commission assumes that the company has achieved its planned short-term financial restructuring.

(46)

The reports of the independent consultant in charge of the monitoring confirm that HLW was not
viable in 2004, at the end of 2004 or the end of 2005. However, AHW was viable at the end of the
restructuring period (end 2006).

(47)

It is undisputed that the viability at the end of 2006 is due to a number of factors, which derive,
apart from the partial modernisation of the rolling mill, above all from the boom in the steel sector,
which had a very positive impact on the company’s turnover. Moreover, with the takeover of HLW
by Arcelor, a strong investor, all of HLW’s liquidity problems had vanished. However, the company
was not able to substantiate its general statement that the actual use of the guarantee for refinancing
purposes was a cause of the company’s achieving viability.

4. Changes in the 2003 IBP

(48)

In 2005, the entry of a new owner resulted in a considerable change in the investment strategy.
Instead of modernising the existing hot rolling mills, AHW now plans to build a new rolling mill
with capacity to produce long products for construction applications. Apparently the mill will use
square 160 mm CC billets as feedstock and its production range will be carbon steel reinforcing bars,
round and flat bars, light sections and square and cross sections. Poland explains that this adaptation
is a response to the development of the construction market, for which substantial growth is
predicted for many years in the Warsaw area, which may give AHW a first-mover advantage due
to its location in Warsaw.

(49)

The new mill will be fully operational by mid-2008 and will replace the existing hot rolling mills, in
which PLN [approximately 25 % of the total
investment amount shown in Table 1] million has
already been invested in modernisation. The total cost of the investment programme is summarised
in the following table:

L 143/38

EN

Official Journal of the European Union

3.6.2008

Table 4

Costs for the new investment programme in the 2005 IBP

In PLN 000

2002 (*)

2003 (*)

2004 (*)

2005

2006

Steel-shop

Hot rolling mills

General

Total

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

Total

[…]

[approximately 120 % of
the total investment
amount shown in Table 1]

[…]

[approximately 140 % of
the total investment
amount shown in Table 1]

(*) Investments already implemented under the 2003 IBP.

(50)

Thus total investment costs will now be PLN [approximately 140 % of the total investment amount
shown in Table 1] million, of which it is planned to allocate PLN [approximately 120 % of the total
investment amount shown in Table 1] to the hot rolling mill, thus PLN […] million more than
originally earmarked for investment. However, these costs include the PLN […] million for the
medium section mill already completed. If these were subtracted from the PLN […] million, the
cost of the new rolling mill would amount to PLN [less than 200] million.

5. Capacity development

(51)

The development of AHW’s capacity is illustrated in the following table:

Table 5

Maximum production capacity per year in thousand tonnes

Production

2002

2003

2004

2005

2006

2007

2008

Remarks

Liquid steel

[…]

[…]

[…]

[…]

[…]

Flat products

20

20

20

20

0

Rolling mill — wire rod

180

180

180

180

180

Rolling mill merchant
bars light-sections
profiles

Rolling mill long heavy-
sections profiles

Rolling mill forged
profiles

Cold-rolled strip

New rolling mill

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

30

0

0

0

0

0

0

0

0

0

0

[…]

[approx.
100 % of
total mill
capacity]

0

0

[approx.
40 %]

[approx.
60 %]

[idem]

No changes

0

0

0

0

0

0

[Approx.
70 %]

Stipulated by
Protocol No 8

Stipulated by
Protocol No 8

New strategy (*)

New strategy (*)

New strategy (*)

Stipulated by
Protocol No 8

New strategy
(not provided
for in Protocol
No 8)

(*) Protocol No 8 does not provide for this capacity reduction.

3.6.2008

EN

Official Journal of the European Union

L 143/39

(52) After the new rolling mill is fully operational in 2008,
the old rolling mill will be closed. At no point before
2007 did the company’s total production exceed the
maximum capacity of […] tonnes. Thus the modification
of the investment program will result in an additional
reduction of the company’s capacity by […] tonnes.

(c) Thirdly, the transaction was part of the asset restruc-
turing which was provided for in the restructuring
plan. The company therefore decided ‘to replace the
leaseback agreement with a less costly financial loan’
in order to reduce its ‘negative cash flow effects from
existing financial debt’. Poland indicated that this was
urgent as HLW was at the ‘point of exhaustion of its
financial resources’.

III. REASONS FOR INITIATING THE PROCEDURE

(53)

the Commission
In its letter of 6 December 2006,
indicated that AHW’s restructuring plan had not been
implemented and stated that it intended to investigate
whether this constituted a misuse of the restructuring
aid granted. In particular the Commission indicated that
a large amount of the aid had not been properly used.

(54)

Further, the Commission doubted whether it could accept
the updated business plan under point 10 of Protocol No
8, as it concerns a new investment which might be useful
but not necessary for the restructuring of the company.

(56)

The Polish authorities further claim that the sale and
leaseback transaction also contributed to the viability of
the company but do not substantiate this.

(57)

The Polish authorities confirm that the timing of the aid
was crucial. In fact they state that ‘there was a need for
State aid only in 2003/04’ when there was essentially a
financing gap (13).

IV. COMMENTS FROM POLAND

(55)

The Polish authorities insist that AHW used the State
guarantee in accordance with the terms and conditions
under which it was granted and explains that:

(58)

The Polish authorities reiterate that AHW has paid back
the aid. The State guarantee was supposed to be only
supplementary to the other collaterals for the loan. In
fact a collateral
in the form of a pledge on land and
on all fixed assets was given to the bank, as well as
seven bills of exchange. Moreover, Poland submitted
that
details on various other
financing instruments
HLW was also using at
the time and consequently
argues that HLW could have obtained financing on the
market without the guarantee.

(a) Firstly, the repayment of the sale and leaseback trans-
investments, which were
action related to the
described only as a very general measure, without
any investments being specified in detail.

(59)

The Polish authorities recall that Arcelor would not have
bought the company unless it was certain that HLW was
‘entitled to the State aid it had received for the restruc-
turing process’.

(b) Secondly, it was part of the financial restructuring as
the amount of restructuring costs was PLN 857
million, since they also consider losses and liabilities
to be restructuring costs. Poland indicates that these
consist of losses of PLN 150 million for the years
2002 and 2003, indicated in the forecasted balance
sheet (p. 79, 2003 IBP). Moreover the company also
had long-term and short-term debt of PLN 513,4
million. The additional costs come from the restruc-
turing of employment and investments (PLN 190,5
million).

(60)

The Polish authorities underline that the modification of
the plan will result in a broader investment programme
than the one envisaged in the original plan and that all
the investment was irrecoverably committed by the end
of 2006 (i.e. by the end of restructuring period). The
Polish authorities are thus of the opinion that the aid
should not be considered misused and the proposed
modification
considered
plan
compatible with Community rules.

should

the

be

of

(13) Letter of 4 June 2007, point 20.

(61)

(62)

(63)

L 143/40

EN

Official Journal of the European Union

3.6.2008

indicate that

the investment
The Polish authorities
envisaged in the 2005 IBP,
i.e. the replacement of the
medium mill, was discussed as early as 1997. However
from 1997 to 2003 the company had insufficient cash
flow to finance this investment. Only when Arcelor took
over the company were sufficient funds available for the
financing (14).
the
product range was only broadly defined in the 2003
IBP and what was defined was not optimal to meet the
changed demand structure in the Polish market, which
required adaptation of the product range.

Poland argues

Furthermore

that

(67)

that

the guarantee was
The beneficiary also argues
granted before Poland’s accession to the European
Union (the resolution of the Council of Ministers was
adopted in December 2003), and it was therefore up
to the Polish government to determine the purpose of
the aid. Moreover, the company indicates that it has used
the aid in exact accordance with the decision granting the
guarantee.

(68) AHW reiterates

to serve the
objective of the old plan and the change of strategy is
necessary for the long-term viability of the company.

the new plan is

that

The Polish authorities argue that the amendments in the
2005 IBP have no negative impact on Protocol No 8.
The new plan is necessary to achieve ‘lasting viability’.
The current viability at
the restructuring
period was only due to the positive market and price/
revenue/cost situation. In this sense it is claimed that the
blooming technology would not guarantee the company
being competitive in the long term, and needed to be
replaced by a state-of-the-art continuous casting process.

the end of

that even if

The Polish authorities
the aid
suggest
obtained was considered to be additional operating aid,
it should be deemed to be balanced by the compensatory
measures, i.e. the company’s additional capacity reduction
after the strategy was modified. The Polish authorities
its
also confirm that HLW did not carry out all
investments because its asset restructuring was delayed.

(69)

(70)

(64)

Poland also informed the Commission of the interest rate
charged for the loan as indicated above in point (41) and
the other costs charged in relation to the loan and
guaranty as indicated in point (42).

V. COMMENTS FROM INTERESTED PARTIES

(65)

The beneficiary submitted comments on the initiation of
the procedure and has subsequently been kept informed
about
the
exchange
Commission and the Polish authorities.

information

between

the

VI. ASSESSMENT

1. Applicable law

Point 1 of Protocol No 8 provides that ‘notwithstanding
Articles 87 and 88 of the EC Treaty, State aid granted by
Poland for restructuring purposes to specified parts of the
Polish steel industry shall be deemed to be compatible
with the common market’ if, inter alia, the conditions set
out in the Protocol are met.

The grace period for granting restructuring aid to the
Polish steel
industry under the Europe Agreement was
extended by the Council until the accession of Poland
to the European Union. This arrangement was recognised
in Protocol No 8 as part of Poland’s accession to the
European Union. In order to achieve this objective, the
Protocol covers a time frame extending before and after
accession. More precisely, it authorises a limited amount
of restructuring aid for the years from 1997 to 2003 and
forbids any further State aid to the Polish steel industry
for restructuring purposes between 1997 and 2006. In
this respect it clearly differs from other provisions of the
Accession Treaty such as the interim mechanism set out
in Annex IV (the existing aid procedure), which only
concerns State aid granted before accession insofar as it
is ‘still applicable after’ the date of accession. Protocol No
8 can therefore be regarded as lex specialis which, for the
matters that it covers, supersedes any other provision of
the Act of Accession (15).

(66) AHW argues that a large part of the aid was used to buy
back some leased assets in order to reduce financial costs.
the investments concerned the leased
Moreover, as
property,
the
restructuring.

its buy-back could be seen as part of

(14) The Polish authorities confirm that the capital expenditure required
for the adaptation relating to continuous casting and extending the
product range is higher, but argue that it is compensated for by two
factors: firstly, switching investment to the construction of a repla-
cement mill should result in considerable cost savings of up to EUR
85 million and, secondly, there should be energy and operating cost
savings later.

(71)

Consequently, while Articles 87 and 88 ECT would
normally not apply to aid granted before accession and
not applicable after accession, the provisions of Protocol
No 8 extend State aid monitoring under the EC Treaty to
any aid granted for the restructuring of the Polish steel
industry between 1997 and 2006.

(15) See Decision of 5.7.2005 in Case C 20/04 Huta Czestochowa (OJ

L 366, 21.12.2006, p. 1).

3.6.2008

EN

Official Journal of the European Union

L 143/41

(72)

(73)

(74)

(75)

The decision may be taken under Article 88(2) EC after
Poland’s accession because,
in the absence of specific
provisions in Protocol No 8, the normal rules and prin-
ciples should apply. Consequently Council Regulation
(EC) No 659/1999 of 22 March 1999 laying down
detailed rules for the application of Article 93 (here-
inafter the Procedural Regulation) (16) will also apply.

2. Misuse of aid

Point 18(a) of Protocol No 8 gives the Commission the
power to take ‘appropriate steps requiring any company
concerned to reimburse any aid granted in breach of the
conditions laid down in this Protocol […] if monitoring
of the restructuring shows that the commitments for the
transitional arrangements contained in this Protocol have
not been fulfilled’.

the

Following the formal investigation, the Commission has
concluded that Poland has not been able to allay its
doubts concerning misuse of the restructuring aid. The
Commission concludes
company has not
that
properly implemented its restructuring plan as explicitly
stipulated in points 9(a) and (h) of Protocol No 8. The
Commission observes that, of
the financial resources
made available (around EUR 34 million), only an insig-
nificant part was used for financing investments in line
with 2003 IBP, while the rest, i.e. EUR 31,2 million, was
used for purposes not indicated in the plan.

To arrive at its conclusion, the Commission first assessed
what kind of measures were planned in the original IBP,
then whether the measures which were pursued by the
company were in any way incompatible with the
common market, and then the effect of the incompat-
ibility of the misused aid in view of the overall plan,
before considering the aid amount. The question of
whether the new plan may change this conclusion is
discussed in the following chapter (3).

(78)

(79)

(80)

certain measures necessary for HLW to restore viability in
a timely fashion. This mainly concerned investments and
financial restructuring. The emphasis of the plan was on
enabling the company to restructure in 2002 and 2003.

programme.

Firstly, under the 2003 IBP HLW was to invest PLN
[150-220] million. However, both the beneficiary and
the Polish authorities seem to infer that acquisition of
the
the productive assets could be seen as part of
investment
the
that
investments were described as a very general measure,
without specifying any of
the investments in detail.
Moreover the beneficiary argues that the purchase was
necessary to the restructuring process ‘since the plant
could not have been operated during the restructuring
without these facilities’.

Poland

argues

The Commission cannot accept these arguments.
It is
evident that the 2003 IBP earmarked the investments
under point 4.4 in terms of costs (Table 21 of 2003
IBP, shown as Table 1 in point
(18) above), object
(Table 22 of 2003 IBP) and time (Table 23 of 2003
IBP). There was no room for any paying off of
the
productive assets sale and lease agreement. In fact, this
attempt rather illustrates that neither the Polish auth-
orities nor the beneficiary saw any plausible justification
for paying off the sale and lease agreement. Otherwise
this would have been included in the plan.

the 2003 IBP envisages

Secondly,
limited financial
restructuring. In their later submissions the Polish auth-
orities claimed that the amount of the repurchase of the
productive assets should be included in the financial
restructuring (17). They argue that the financial restruc-
turing also covered existing losses of PLN 150 million
and debt rescheduling of PLN 513 million and thus
arrive at total restructuring costs of around PLN 858
million.

(a) Scope of restructuring established in the original investment

plan

(76)

The Commission first clarifies the scope of the 2003 IBP
and whether the pay-off of the productive assets sale and
leaseback agreement, for which the restructuring aid was
mainly used, was covered by the 2003 IBP.

(77) As stated above in point (34),

the main task of the
restructuring plan was to guarantee the execution of

(81) However, the Commission cannot accept that the existing
losses of PLN 150 million and the debt rescheduling of
PLN 513 million are restructuring costs. As indicated in
point (22), the Commission does not dispute that point
4.7 of the 2003 IBP mentions that ‘the company intends
to restructure the liability of PLN 513 million’. However,
it is not indicated that this is necessarily part of the
restructuring tasks. Indeed, point 3.2 singled out only
the ‘repayment of short-term loans and the sale of unne-
cessary assets not connected with production’ as a
restructuring task.

(16) OJ L 83, 27.3.1999, p. 1.

(17) Letter 4 June 2007, point 24.

L 143/42

EN

Official Journal of the European Union

3.6.2008

(82) Moreover,

it is also not usual to consider all kind of
losses simply as restructuring costs as Poland claims.
Balance sheet liabilities are not necessarily equivalent to
restructuring costs, as liabilities as such form part of
is true that excessive
normal business operations.
liabilities may give raise to difficulties but then restruc-
turing must identify specific measures such as capital
injections or loans or rescheduling agreements to deal
with the liabilities. The plan does not include any of
restructuring (point
the financial
for
these measures
4.7, fifth paragraph).

It

(83)

Indeed, the 2003 IBP indicates in point 4.7 that only
PLN 363 million was required to finance the restruc-
then the total existing debt of
turing. This
is
the PLN 60 million
PLN 513 million. Moreover,
mentioned in point 4.7 seems
to relate to future
working capital. Thus, PLN 300 million at most was to
go towards the restructuring (see above point (30)).

less

(84) However, the use of the PLN 300 million is clarified in
point 4.12.1 of the 2003 IBP concerning the costs and
sources of the programme. This point explains that total
financial coverage of PLN 219 million was required for
2002-03. Given that this was also to cover investments,
as indicated above in point
for
the funds left
financial restructuring were only PLN […] million.

(26),

(85)

The PLN 81,5 million would not even cover the amount
to pay off the sale and leaseback agreement. Point 3.2
indicated clearly that financial restructuring would only
the financial
concern the short-term debt. Therefore,
restructuring included in the plan was
limited to
PLN 81,5 million, which did not, however, concern the
paying off of the sale and lease agreement, which, as it
was to have been repaid over the years up to 2010, was
clearly a long-term liability. Hence paying off the sale and
leaseback agreement can also not be viewed as part of
the financial restructuring to be supplemented by aid.

(88)

(89)

(86)

Finally, the Polish authorities seem to accept that paying
off the sale and leaseback transaction was not part of the
asset restructuring, as they do not argue that this is the
case. However, they indirectly refer to the asset restruc-
turing when citing a passage from the part on asset
‘the above sale will enable Huta L.W. to
restructuring,
liquidity’
repay part of its loans and maintain financial
(point 64 of letter of 4 June).

from which the above quote of

leaseback is to be rescheduled, while the plan indicates at
several points that the rescheduling concerns only the
non-productive assets. This is reiterated twice in the
same chapter
the
Polish authorities was taken. In fact, it is clearly set out
there that certain debts under the sale and leaseback
agreement, namely those concerning non-productive
assets (see point 4.12.1 of the 2003 IBP), are to be
subject to asset restructuring. These concern the 100-
this
hectare and 88-hectare projects. The purpose of
asset restructuring was to free up cash in order to
make
investments. This would simultaneously
reduce the financial cost of the debt. However, no indi-
cation is given that
the entire sale and leaseback
agreement should be paid off ahead of schedule in
order to reduce financial costs. Rather the asset restruc-
turing aims only to ‘reduce’ financial costs, not eliminate
them.

the

given HLW’s

financial

constraints,

Finally,
the
Commission does not see any reason why HLW had to
aim to purchase
assets when the
its productive
repayment was only due at a later stage. Indeed, it was
in no way indicated that the lease contract would be an
obstacle to the restructuring. In particular, point 4.12 of
this, since it only
the 2003 IBP does not support
indicates that by selling off some assets, which were
previously identified as the unproductive ones, HLW
would be able to reduce the costs of
serving the
leasing contract. This is only logical, given that assets
were to be sold in order to (partly) repay the loan and
thus relieve HLW from paying interest on the loan.
However, it in no way relates to the re-purchase of the
productive assets, which could not generate any cash as
these assets would be kept by the firm.

Buying back the productive assets was not
therefore
provided for in the 2003 IBP. Hence, HLW used the
aid for a purpose which was not covered by the restruc-
turing plan which was the basis for authorisation of the
aid. This means that the aid was used in contravention of
the NRP and the authorisation decision, i.e. Protocol 8.
Under Article 1(g) of the Procedural Regulation, this may
be considered misuse, since this is defined as using the
aid
approval
decision (18).

in contravention of

State

the

aid

(b) Incompatibility of the misused aid

(90) After it has been established that the State aid obtained
was not used in accordance with the plan, it needs to be
demonstrated that this misused aid is also incompatible
with the common market.

(87) However, the Polish authorities fail to accept that it is
nowhere stated that the entire debt from the sale and

(18) Misuse does not, however, call into question whether a beneficiary
was originally entitled to receive aid, but only concludes that the aid
has been used in contravention of the decision granting it.

3.6.2008

EN

Official Journal of the European Union

L 143/43

In formal terms, this can already be concluded from the
fact that, firstly, the company did not use the aid in
accordance with the plan, which, under Protocol No 8,
it is obliged to implement properly and, secondly, that
any other State aid outside the IBP, NRP and Protocol No
8 is incompatible with the common market under point
18 of Protocol No 8.

implementation of

indicated that the asset restructuring was expected to take
place in 2004 and 2005, which was obviously too late
investment programme.
for
the
loan was provided to bridge
Therefore
the
the
Indeed,
the introduction to the plan
financing gap.
‘implementation of
reiterates
restructuring
the
that
programme in accordance with the adopted schedule
require the
and continuation of
necessary bridging loan’.
the bridging
to bring
loan was
investments forward according to a specific schedule.

the enterprise will
In conclusion,

considered necessary in order

(91)

(92)

In addition, the Commission notes that it would not have
been able to find the actual use compatible with the
common market, despite the fact that AHW restored
its viability. In this context the Commission would like
to clarify that, although the beneficiary doubts that the
beneficiary’s current viability is sufficient,
it must be
its understanding of viability departs
considered that
from the way viability was predefined in Annex 3 of
Protocol No 8. This understanding was agreed under
Protocol No 8, was monitored by both contracting
a
parties
beneficiary.

altered retroactively by

and cannot be

In fact,

(93) However, the Commission reiterates firstly that compati-
bility does not simply follow from the fact that HLW did
the restoration of
restore viability in 2006.
viability is not alone sufficient to render a restructuring
project compatible with the common market. Moreover,
it must be ensured that the restoration of viability is
achieved with the minimum amount of State aid
necessary for the restructuring and that compensatory
measures are implemented. The Commission recalls that
these conditions are stated in Article 8(4) of the Europe
Agreement, to which reference is made in point 1 of
In particular the concept of State aid
Protocol No 8.
being the minimum necessary implies
the aid
should not be used to finance an investment or
measure that is not essential for the restructuring (19).

that

(94)

Secondly, the Commission recalls that the plan, i.e. the
restructuring tasks and the measures to finance them,
from an ex ante point of view, ensure that
must,
the 2003 IBP put
viability will be achieved.
In fact,
and on bringing
emphasis on investments
special
forward investments in its use of State aid. The plan
indicated that investments were to be brought forward
it is
to 2003 thanks to the bridging loan. Moreover,

(19) This common principle has already been reiterated. It is laid down
in point 45 of
the rescue and restructuring guidelines and
confirmed in Commission Decision in Case C 31/2001 Schmitz-
Gotha, OJ L 77, 24.3.2003, p. 41, where the Commission rejected
the acquisition of a subcontractor, which was seen as useful, but
not as strictly necessary for the restructuring. This was upheld in
Case T-17/03 Schmitz-Gotha [2006] ECR II-1139.

(95)

(96)

The fact that HLW did opt to pay off the productive
assets sale and lease agreement and not to make the
investments in time therefore indicates that, from an ex
ante point of view, HLW’s action endangered its chances
of restoring viability. In fact, the Polish authorities have
not communicated any reason why in August 2003,
when HLW applied for
the situation
it was only five
should have changed, given that
months after
the plan in March
2003. Such use of the aid was therefore not an im-
plementation of the plan but rather, given the fact that
the investments were tied to a time schedule, obstruction
of proper implementation of the plan. Thus, from the ex
ante point of view,
the company clearly endangered
viability, despite the fact that it later restored it.

the last update of

the guarantee,

It is true that financial resources are fungible, and the fact
that the State aid was not used in accordance with the
plan might imply that the restructuring plan could be
financed by other means, which it was originally
planned to use for other purposes, for which the aid is
now being used. However, such argumentation is not
acceptable in the case of a restructuring project, where
the financial means of the company should be used for
the firm’s reorientation and, owing to the company’s
should be available for
difficulties, no spare funds
the
the use of
projects outside the plan. Therefore,
funds from the State-guaranteed loan to pay off
the
loan for the productive assets is a causal factor in the
in
reduction of
particular
above
investments.

elsewhere,
the

implementation

restructuring

activities

timely

of

(97)

Furthermore, the Commission does not see the relevance
of the argument put forward by the Polish authorities
in 2003 the
and the beneficiary to the effect
it was
company was in such financial distress that
unable to undertake any investments. This is because
the Commission fails to see why a company in such a
situation would have opted for repayment of a long-term
debt rather than for other measures which were identified
as being necessary to restore viability.

that

L 143/44

EN

Official Journal of the European Union

3.6.2008

(98)

(99)

Finally, it is also not relevant that the company is now
offering to catch up with the investments forgone in
2004, because the implementation was bound to a
particular time schedule, which was considered the only
way to restore viability by the end of 2006. This in-
fringement is definite and can also not be altered by a
change in the IBP. This is so even despite the fact that the
2005 IBP provides for additional
investments, as these
cannot put right the misuse.

the Commission finds it unlikely that

Thirdly, even if HLW assumed in August 2003 that the
investments were no longer necessary to restore viability,
this would imply that HLW had indicated excessively
high restructuring costs in the 2003 IBP and that the
aid received was not necessary for the restructuring.
the
However,
company changed its mind just five months after the
2003 IBP had been concluded (in March 2003) when,
in August 2003,
the guarantee and
it applied for
indicated that the main part was wanted to pay off the
loan on the productive assets. In order to substantiate
such a finding, the company should then in any event
have indicated this fact to the Commission in due time,
which it did not.

(100) Nevertheless, even if

the investments had not been
necessary, the redirecting of the funds to pay off the
sale and leaseback of the productive assets would not
seem to be justifiable as restructuring costs. In fact, the
financing to pay off
the productive assets sale and
leaseback agreement was arranged, and could have
been paid off after the end of the restructuring period.
It may be true that it resulted in financial burdens, but
these were apparently taken into account in the financial
projections of the 2003 IBP. As the assets could not be
sold off, the only effect of the repayment would thus be
relief from the financial costs, which would have given
HLW additional liquidity. This means that HLW obtained
additional cash, which can be considered operating aid,
which could have even resulted in measures involving
excessive distortion of the market. Thus the Commission
does not see how such measures could have been
authorised if notified to the Commission. Thus also,
if
the investments were really not necessary, the actual use
of the aid would also be considered incompatible with
the common market.

(101) Finally,

that

the Commission does not dispute the ben-
eficiary’s argument
the guarantee was used in
accordance with the government decision and that the
government was competent to determine the purpose of
the aid. However,
this is
without effect on the compatibility of
the guarantee,
which has
to be determined in accordance with
Protocol No 8 and the 2003 IBP, which do not

the Commission notes that

include aid for the purpose approved by the government
in the granting decision.

(102)

In view of the foregoing, the Commission must conclude
that the aid has been used in a manner incompatible
with points 9 and 18 of Protocol No 8. It is therefore
incompatible with the common market.

(c) Effect of

the incompatibility of

the misused aid on the

entire restructuring plan

(103) Finally, the effect of the incompatibility of the misuse

must be determined.

to be

(104) To this end, the Commission would first like to point out
that the present investigation did not find that some
restructuring costs had become obsolete, but that parts
of the State funds had been misused. It might be true
that some investments could have been cancelled —
after obtaining Commission approval. This
ideally
the actual restructuring costs were
would mean that
the aid would
lower and the relevant proportion of
have
an approach which the
recovered;
Commission has accepted in previous steel restructuring
cases (20). However, in the present case it is not only that
some restructuring costs have become redundant but, as
discussed above, the problem is that the entire financing
of a part of the restructuring (i.e. the EUR 31,2 million)
has lost its object, given that from the ex ante point of
view the bridging loan was used almost entirely in a way
that was not in line with the IBP and endangered the
restoration of viability or, from the point of view of the
time when the change occurred, it equipped the company
with surplus cash, which must be returned. Moreover,
such misuse can not be rectified retroactively, by the
later, because the
company implementing investment
to enable financing of
funds were given in order
investments and financial
restructuring at a certain
point in time. This incentive for the aid was already
outdated in 2005. In fact, if the restructuring had been
in particular not the
arranged at a later stage, no aid,
bridging loan guaranteed by the State, would have been
necessary. Hence the misuse concerns all
the funds
provided under the bridging loan which were used for
the sale and lease-back of the productive assets.

(105) The Commission is further aware that an excess of
resources at the end of the restructuring period is not
unusual and that a company should not be punished for
achieving better results than expected ex ante. However,
this should lead to better business results, allowing the
company some more margins for bringing forward the
debt repayment, for example. This does not mean that
the company may redirect almost all the aid to purposes
not indicated in the business plan.

(20) Commission Decision of 13.9.2006 in Case N 350a/2006 MSO,

OJ C 280, 18.11.2006, p. 4, point 48.

3.6.2008

EN

Official Journal of the European Union

L 143/45

(106) Secondly,

it must be recalled that

the company also
received several other State aid measures, such as the
debt write-off and a part of the guaranteed loan used
to finance
im-
plemented according to the plan and helped to achieve
viability for the company.

investments. These measures were

(107) Nevertheless, it could be assumed that the entire restruc-
turing must be deemed to have failed, because the plan
was only partly implemented and, from an ex ante point
of view, only full
implementation of the restructuring
plan would ensure that viability was restored. However,
in this context it might be of relevance that the company
did restore viability (21). This is the case at least so long
as the company did not obtain any excess aid which was
not necessary to restore viability. In other words if this
advantage were recovered it would restore the ex ante
situation, i.e. make good the receipt of excessive aid. In
this case the remaining measures, which were imple-
mented in accordance with the plan, may indeed have
contributed to restoring viability. They could therefore,
provided that the excess aid received was recovered, be
considered compatible.

(108) Therefore, as the remaining measures did ensure that
viability was restored with the minimum aid necessary,
the Commission can conclude that only the redirected
the entire
the guaranteed loan, and not
amount of
amount of the restructuring aid, was misused, and that
the other measures under
the 2003 IBP remained
compatible.

(d) Aid element of the misused part of the guaranteed loan

(109) Finally, the aid element of the State-guaranteed loan of
EUR 31 245 684 must be determined. In principle the
aid intensity of a guarantee can be up to 100 % (22).

(110) The Commission acknowledges however

the
guarantee as a form of aid had in this case a limited

that

(21) See Commission Decision of 23 October 2007 in Case C 23/06
Technologie Buczek, not yet published, where this was not the case.
(22) Commission Notice on the method for setting the reference and
discount rates (OJ C 273, 9.9.1997, p. 3). See also Commission
Decision of 12.9.2007 to open proceedings in case NN 45/2007 (C
38/2007), Arbel Fauvet Rail, OJ C 249, 24.10.2007, p. 17, point 15.

to recover all

the Commission considers that

the loan for which HLW
distortive effect given that
obtained a guarantee was repaid after one year by
Arcelor. Therefore,
in
order
the advantage received by the
is necessary to recover only the interest
company it
subsidy given by the guarantee for the period when the
company’s disposal.
borrowed money was
at
Moreover, the Commission notes that the company still
had some chances of getting finance and was able to
confirmed in the
provide decent
guarantee contract, which required security.

security. This

the

is

(111) According to constant Commission practice, the interest
subsidy would be equivalent to the difference between
the interest that would have had to be paid on market
terms and the interest actually paid by the company. The
market interest in this case would be calculated on the
basis of the reference rate at the time when the money
was made available (August 2004) plus 400 basis points,
given that HLW was not viable in 2004 (see above point
(46)), but was a company in difficulty (23). Established
Commission practice does not allow going below 400
basis points (24). However no further increase is necessary
as the company provided security and the steel sector
was performing well in 2004.

it

i.e. 4,43 %.

In this context

(112) As the loan was provided not in PLN but in euro, the
the
Commission is applying the reference rate for
Eurozone,
should be
the benefit actually achieved must be
recalled that
assessed by comparing the conditions obtained by the
company and the conditions that would have been
achieved under market conditions (without
the State
guarantee).
It is normal market practice to determine
credit interest on the basis of the reference rate (usually
the relevant interbank reference rate) for the currency of
the principal, because the fluctuation of
the value of
money is related to the economy in which a particular
currency is used. Therefore,
in the case of a loan
denominated in euro the reference rate applied by a
market economy creditor should also be the one used
for credit denominated in euro, even though the loan
was granted in Poland.

that a firm is

and restructuring

(23) The Commission determines

in difficulty in
accordance with the Community Guidelines on State aid for
rescuing
in difficulty, OJ C 244,
firms
1.10.2004, p. 2. Furthermore a firm is also regarded as being in
difficulty when it is in its restructuring period and is following a
restructuring plan, which is the case here. For the 400 basis points
cf. Commission Decision of 2.3.2005 in Case C 43/2001,
Chemische Werke Piesteritz, OJ L 296, 12.11.2005, p. 19, points
107-108; and Commission Decision of 24.1.2007 in Case C
38/2005, Biria, OJ L 183, 13.7.2007, p. 27, points 83 et seq.
(24) Commission Notice on the method for setting the reference and

discount rates, OJ C 273, 9.9.1997, p. 3.

L 143/46

EN

Official Journal of the European Union

(113) Thus, the interest should have been at 8,43 % p.a., i.e. it
should have amounted to EUR 2 807 206. This needs to
be compared with the expenses the company actually
incurred.
of
EUR 1 061 050 plus some premiums for the guarantee
(as indicated in points (42)(a) and (b)), which, according
to Commission practice, have to be considered when
calculating the aid amount of a guarantee (25).

interest

consist

These

the

of

the interest covered by the guarantee. This

(114) The cost of the guarantee should be spread over the total
amount of the guarantee and related to the misused aid
plus
is
because the limited use of the guaranteed part of the
loan for investments was a business decision that had
not yet been taken when the guaranteed loan was
arranged as a loan of EUR 46 million plus interest for
five years. Otherwise the guaranteed loan would have
been arranged differently. Hence a pro rata division
should be made by calculating the proportion of the
relating to the actual amount guaranteed and
fee
misused. Moreover, for the same reasons the fee should
the time actually used in
be calculated pro rata of
relation to the guarantee for the total period of
five
years, as the guarantee was theoretically amortised in
that period. If it is terminated earlier, this is a revision
of a business decision which is independent of
the
former arrangement.

(115) This means that the Commission accepts deduction of
the costs for the State Treasury fee and the preparation
fee as indicated above in point (42), but on the basis of a
pro rata calculation, based on (a) the ratio of the amount
actually guaranteed (32,3 (=31,24 + 1,06 (principal plus
interest actually paid))
the
guarantee (EUR 58 330 000)) and (b)
the ratio of
actual use to the intended use for five years (i.e. 388
days out of a potential 1 826 days).

to the total amount of

3.6.2008

(EUR)

Total amount financed

31 245 684,00

Appropriate interest required from 24.8.2004
to 16.9.2005

2 807 206

Interest actually paid by HLW on guaranteed
loan

1 061 050

Preparation fee for guarantee, pro rata over
total guarantee and loan duration

31 792

State Treasury Fee, pro rata over
guarantee and loan duration

total

68 683

costs

Total
incurred

for guaranteed loan actually

1 161 525

Interest differential (= benefit)

Plus compound interest at recovery rate from
24.8.2004 to 20.11.2007

1 645 682

444 086

Payable on 20.11.2007

2 089 768

(e) Conclusion

(118) To summarise:

that

the Commission concludes

the
paying off of the sale and leaseback agreement for the
productive assets was not envisaged in the 2003 IBP and
put the restoration of viability at risk, at least at the time
when the aid was required. However, as the company
nevertheless restored viability,
the aid
does not affect the compatibility of the remaining aid.
Moreover as the guarantee has been terminated and the
loan has already been repaid, only the interest subsidy
from which HLW benefited in the period when the
money was available (i.e. from the transfer of money
to the repayment) need now be recovered. This interest
subsidy amounts to EUR 1 645 682.

the misuse of

(116) However, as regards fees for the loan indicated above in
point (42)(c), the Commission does not consider these as
costs deductible from the advantage, given that any loan
on market terms must also involve similar costs, which
could possibly even have been higher.

3. Change of plan

(119) Poland has asked the Commission to accept an updated

IBP under point 10 of Protocol No 8.

(117) This

leads

to the following calculation,

taking into
account
from
24 August 2004 until repayment, at a recovery rate of
7,62 % p.a.:

compound interest on the benefit

(25) Cf. 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, point 3.2.

(120) The Commission has dealt with similar cases in the past
and has clarified that, ‘An agreement by the Commission to a
change of an IBP must be based on the consideration that there
is no problem of compatibility of the change with the objectives
of Protocol No 8. This is the case where the main figures

3.6.2008

EN

Official Journal of the European Union

L 143/47

indicated in the Protocol concerning State aid, capacity and
the
timing remain unchanged and the proportionality of
State aids as
in place
stipulated in the Protocol
without questioning the objective of viability (26).’

remains

(124)

In any event the Commission notes that the amendment
of the plan does not require any additional aid but is
entirely financed from the investor’s funds. Therefore, the
Commission sees no reason to object to the updated
programme, even if there is a change in strategy (28).

that

(121) The Commission clarified in the opening decision that in
this case the changes concerned neither an increase of
the total amount of State aid nor an increase of
production capacity (27) within the restructuring period,
the revised IBP mainly implied a significant
but
change in the company’s investment strategy, that the
State aid provided seemed to have been abused as
operating aid and no more State aid was necessary to
complete the investments (see points (54) and (56)).
these
Essentially,
doubts were not
indeed
misused, as concluded above, and is incompatible with
the common market.

investigation confirmed
as

that
aid was

allayed,

the

the

(122) The 2005 IBP does not rectify this defect, i.e. the excess
of State aid, and can thus not be approved in that form.
In particular, the fact that AHW has in the meantime
revived the investment programme does not suffice to
rectify the defect. As discussed above, this would have
been so even if the company had carried out only the
investments indicated in the restructuring plan. It is clear
that the new investment programme will be implemented
at a much later stage than originally envisaged in the
the original aid was
plan.
provided to ensure adherence to the schedule of
the
restructuring programme. Thus the aid was related to
the purpose of inciting HLW to make these investments
in a scheduled, timely fashion in 2003 and 2004. In fact,
if the restructuring schedule had been delayed ex ante to
2004 and 2005, no bridging loan and thus no aid would
have been necessary.

further clear

that

is

It

(123) Notwithstanding the misuse, the Commission notes that
if the misused aid is recovered, it can accept the residual
new plan. In the decision initiating the procedure the
Commission noted its
the new
strategy from an industrial point of view,
business
accepting that the new investment would be beneficial
for the company’s future economic performance and
could have other positive effects as regards environmen-
tal protection and cost reduction.

to accept

readiness

(26) Commission Decision in Case N 186/05, Change of IBP of MSP,
point 41 and Commission Decision No N 600/04 Change of IBP of
VPFM.

(27) The Commission noted that the new investment would result in a

reduction of capacity from 930 kt to 700 kt.

VII. CONCLUSION

(125)

In short, the Commission concludes that, pursuant to
points (9) and (18) of Protocol No 8, the guarantee for
loan of EUR 31,2 million was misused and was used in
an incompatible manner by HLW. Taking into account
that the State guarantee has been terminated and the loan
has been repaid, meaning that there was an advantage for
HLW equivalent
subsidy of EUR
to an interest
1 645 682, this advantage should be reimbursed. Given
that on 20 November 2007 AHW voluntarily repaid into
the blocked account EUR 2 089 768, corresponding to
the amount to be recovered plus compound interest, to
be received by the Polish authorities as of the day of
issuance of this decision, no further recovery is necessary.

(126) Moreover, provided that

this aid is reimbursed,

the
Commission can, under point (10) of Protocol No 8,
approve the change of plan as indicated in the 2005
IBP, as it does not involve additional aid and reinforces
the viability of the firm,

HAS ADOPTED THIS DECISION:

Article 1

State aid of EUR 1 645 682 granted to HLW/AHW by Poland
in breach of point (18) of Protocol No 8 has been misused by
HLW/AHW and is incompatible with the common market.

Article 2

In view of the repayment of the misused aid referred to in
to AHW’s
Article 1,
the Commission has no objections
amendment of its business plan.

(28) In the interests of completeness, the Commission would also like to
note that it maintains its view that the replacement was not already
included in the 2003 IBP. The IBP states clearly that HLW wanted
‘to focus on the gradual improvement of its product mix’ by ‘the
development of production with a focus on speciality and engi-
neering steels’. The 2005 IBP clearly indicates that ‘in order to
meet market demand,
it has become necessary to refine the
strategy and to enrich the portfolio of the steel works by a new
range of new products’. This implies that AHW wanted to meet the
demand for construction steel by erecting a new mill capable of
producing construction steel and using the existing liquid steel
more efficiently for this purpose. However,
it is evident that the
company did not have the funds make do these investments before
2003, but could only do so with the help of Arcelor.

L 143/48

EN

Official Journal of the European Union

3.6.2008

This Decision is addressed to Poland.

Article 3

Done at Brussels, 11 December 2007.

For the Commission

Neelie KROES
Member of the Commission