2008/830/EC: Commission Decision of 30 April 2008 on State aid C 21/07 (ex N 578/06) which Hungary is planning to implement in favour of IBIDEN Hungary Gyártó Kft. (notified under document number C(2008) 1342) (Text with EEA relevance)
Date: 2008-04-30
Institutions: European Commission
Subjects: Hungary, State aid, control of State aid, location of industry, motor vehicle industry, motor vehicle pollution

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

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 30 April 2008

on State aid C 21/07 (ex N 578/06) which Hungary is planning to implement in favour of IBIDEN
Hungary Gyártó Kft.

(notified under document number C(2008) 1342)

(Only the Hungarian text is authentic)

(Text with EEA relevance)

(2008/830/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Whereas:

1. PROCEDURE

(2)

(3)

(4)

(5)

Multisectoral Framework on regional
investments projects 2002 (2) (hereafter: MSF 2002).

aid for

large

The Commission requested additional
information by
letters of 13 October 2006 (D/58881) and 13 March
2007 (D/51161).

By letters registered at the Commission on 14 November
2006 (A/39085), 3 January 2007 (A/30004), 15 January
2007 (A/30441) and 27 March 2007 (A/32641) the
Hungarian authorities asked the Commission to extend
the deadline for providing additional information, which
the Commission accepted.

The Hungarian authorities submitted additional
mation by letters
31 January 2007 (A/30990)
(A/34072).

infor­
the Commission on
and 15 May 2007

registered at

On 11 December 2006 and on 25 April 2007, meetings
were held between the Hungarian authorities and the
also representatives of
Commission services where
IBIDEN Hungary Gyártó Kft. were present.

(1)

same day at

By electronic notification dated 30 August 2006,
registered the
the
Hungarian authorities notified a case of application of
existing regional aid schemes in favour of an initial
investment project by IBIDEN Hungary Gyártó Kft. The
notification was made pursuant to the individual notifi­
cation requirement laid down in paragraph 24 of the

the Commission,

(1) OJ C 224, 25.9.2007, p. 2.

(2) Communication from the Commission — Multisectoral framework
on regional aid for large investment projects (OJ C 70, 19.3.2002,
p. 8) as modified by the Commission communication on the modi­
fication of the Multisectoral Framework on regional aid for large
investment projects (2002) with regard to the establishment of a
list of sectors facing structural problems and on a proposal of
appropriate measures pursuant to Article 88 paragraph 1 of the
EC Treaty, concerning the motor vehicle sector and the synthetic
fibres sector (OJ C 263, 1.11.2003, p. 3).

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L 295/35

(6)

(7)

(8)

(9)

(10)

By letter dated 10 July 2007, the Commission informed
Hungary that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid.

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

The Commission received four comments from interested
parties:

(a) by letter dated 25 October 2007, registered at the

Commission on the same day (A/38842);

2. DETAILED DESCRIPTION OF THE AID

2.1. Objective of the measure

(11)

The Hungarian authorities intend to promote regional
investment aid to
development by providing regional
IBIDEN Hungary Gyártó Kft.
for the setting up of a
new manufacturing plant for the production of ceramic
substrates for Diesel Particulate Filters in the Duna­
region of Central
varsány Industrial Park,
Hungary (Pest County), which is an assisted area in
accordance with Article 87(3)(a) of the EC Treaty with
an aid intensity ceiling of 40 % Net Grant Equivalent
(NGE) for the period 2004-2006 (4).

in the

(b) by letter dated 22 November 2007, registered at the
Commission on 24 November 2007 (A/39732);

(12)

(c) by letter dated 23 November 2007, registered at the

Commission on the same day (A/39711);

(d) by letter dated 26 November 2007, registered at the
Commission on 27 November 2007 (A/39740).

(13)

By letter dated 4 December 2007 (D/54826),
Commission forwarded the observations
Hungary which was given the opportunity to react.

the
received to

The opinion from Hungary to the
comments of
interested parties was received by letter dated 4 January
2008, registered at the Commission on the same day
(A/151).

2.2. The beneficiary

The aid beneficiary is ‘IBIDEN Hungary Gyártó Kft.’ (here­
inafter: IBIDEN HU). The aided project aims to set up the
second production plant within IBIDEN’s
ceramics
division of ceramic substrates
for Diesel Particulate
Filters in the European Union, besides IBIDEN DPF
France S.A.S. in France (set up in 2001).

(Japan).

IBIDEN European Holdings B.V.

IBIDEN HU was established on 5 May 2004 by IBIDEN
European Holdings B.V. (The Netherlands) and IBIDEN
Co., Ltd.
is
100 % owned by IBIDEN Co., Ltd., which in turn is a
joint-stock company with many proprietors: companies
(e.g. banks) and private entities.
IBIDEN HU is 99 %
owned by IBIDEN European Holdings B.V. and 1 % by
IBIDEN Co., Ltd.
IBIDEN DPF France S.A.S. has been
owned by IBIDEN European Holdings B.V. by 100 %
since the end of 2005.

(3) Cf. footnote 1.

(4) Commission letter of 9 July 2004, C(2004) 2773/5 concerning HU
12/2003 — Regional aid map of Hungary for the period from
1 May 2004 until 31 December 2006.

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(14)

shares

in the 2005 annual

The parent company IBIDEN Co., Ltd. is a multinational
company that was established in 1912, as a company
generating electric power, and has its headquarters in
Its operations can be divided into five
Gifu,
Japan.
sales
segments whose
turnover were the following: 50 % for the electronics
division, 22 % for the ceramics division, 16 % for the
housing materials division, 4 % for
the construction
materials division and 8 % for other small divisions
information services, synthetic
(such as oil products,
resin,
and fishery processing
agriculture,
departments). According to the Annual Report of
2006 (5), the IBIDEN Group consists of 47 subsidiaries
and one affiliated company, which is not active in the
ceramic sector. In 2006 consolidated net sales were Yen
319,0 billion, operating income was Yen 43,6 billion,
In the same
and net
year,
in its
the group counted 10 115 employees
business representations and factories all over the world.

income was Yen 27,2 billion.

livestock

(17)

The Hungarian authorities indicate that the two phases of
the investment by IBIDEN HU in the Dunavarsány
Industrial Park have to be considered as a single
investment project within the meaning of paragraph 49
of the MSF 2002: the two investment phases concern the
same production site,
the same
product and they were started within a period of three
years.

the same company,

(18) According to the information provided by the Hungarian
authorities on the two investment phases, the production
of ceramic substrates for Diesel Particulate Filters will
take place in two newly built buildings of 24 000 m2
the Dunavarsány
and
Industrial Park. By 2007, four production lines will be
installed in building I and five lines will be installed in
building II.

30 900 m2

respectively

in

2.3. Investment project

(19)

By 2007 the project will create a total of 1 100 new
direct jobs in Dunavarsány.

(15)

(16)

2.3.1. The new investment project of IBIDEN HU in Duna­

varsány

the second phase of an
The notification concerns
investment project, which aims to set up a plant
to
produce ceramic substrates for Diesel Particulate Filters
in the Dunavarsány Industrial Park.

By letter dated 1 April 2005 the Hungarian authorities,
in line with paragraph 36 of the MSF 2002 (6), informed
the Commission about the State aid granted to IBIDEN
HU for the first phase of the investment project.

(20)

(21)

confirm that no other
The Hungarian authorities
products
investment
project will be produced at the aided facility for five
years after the completion of the investment.

concerned by the

than those

In addition, the Hungarian authorities confirm that the
beneficiary accepted to maintain the investment at the
site for a minimum period of
the
completion of the investment.

five years after

2.3.2. Timing of IBIDEN HU investment project in Dunavarsány

(22)

The works on the investment project have already started in October 2004. Production linked to the
project started in August 2005 in building I and in May 2006 in building II. Full capacity linked to
the project was expected to be reached in April 2007. Table I provides further details on the timing
of the project:

Table I

Timing of the investment project

Start of project

Start of
production

End of project

Full production capacity

Phase I

6.10.2004

1.8.2005

1.1.2006

Phase II

20.6.2005

3.5.2006

31.3.2007

1.5.2006
(1,2 million units annually)

1.4.2007
(a further 1,2 million units annually)

(5) Financial year ended 31 March 2006.
(6) In order to ensure transparency and effective monitoring on regional
aid to large investment projects, paragraph 36 of the MSF 2002
‘transparency mechanism’. Under the trans­
provides for a special
parency mechanism Member States must provide information in a
standard format whenever aid is granted under the MSF 2002 for
non-notifiable projects with eligible costs exceeding EUR 50 million.

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2.4. Costs of the investment project

(23)

The total eligible investment costs of the project are HUF 47 570 933 882 (EUR 190,83 million) in
nominal value. In present value this amount is HUF 41 953 072 670 (EUR 168,30 million) (7). Table
II provides a breakdown of the total eligible costs by year and category.

Eligible investment costs (Phases I and II) nominal value in million HUF

Table II

Land

Infrastructure

Buildings

Utility

Machinery

Eligible Investment

2004

[…] (*)

[…]

[…]

[…]

[…]

[…]

2005

2006

2007

Total

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

47 571

Phase
I

[…]

Phase
II

[…]

Phase
I

[…]

Phase
II

[…]

Phase
I

[…]

Phase
II

[…]

Phase
I

[…]

Phase
II

[…]

(*) Covered by the obligation of professional secrecy.

2.5. Financing of the project

(24)

The Hungarian authorities confirmed that
contribution by the beneficiary exceeds 25 % of
eligible costs, which is free of any public support.

the own
the

2.6. Legal basis

(25)

The financial support to IBIDEN HU is granted on the
basis of the following two legal basis:

(a) The Ministry of Economy and Transport will give a
grant on the basis of the scheme ‘HU 1/2003 —
Investment Promotion’ (8).
Earmarked Scheme for
This scheme has as its legal basis ‘Decree 1/2001
(I.5.) of the Minister of Economy on the Earmarked
Scheme for Entrepreneurship’ and ‘Decree 19/2004
(II. 27.) of the Minister of Economy and Transport

(7) Calculated,

in accordance with the rules of

the underlying aid
scheme, on the basis of an exchange rate of 249,28 HUF/EUR
(applicable on 31 August 2004) and a reference rate of 8,59 %.
(8) HU 1/2003 ‘Earmarked Scheme for Investment Promotion’ was
submitted under
the interim procedure and accepted by the
Commission as existing aid within the meaning of Annex IV,
the Treaty of
Chapter 3, paragraph (1)(c)
Accession of
Latvia,
Lithuania, Hungary Malta, Poland, Slovenia and Slovakia to the
European Union.

the Czech Republic,

(under Article 22) of

Estonia, Cyprus,

on Detailed Rules of Certain Aid Schemes of the
Ministry’.

(b) The Ministry of Finance will grant a tax allowance
based on the scheme ‘Development Tax Benefit’ (9).
This scheme was established by ‘Act LXXXI of 1996
on Corporate Tax and Dividend Tax’
and by
‘Government Decree 275/2003 (XII.24.) on the
Development Tax Benefit’.

2.7. Aid amount and aid intensity

(26)

The total nominal aid amount is HUF 15 591 223 750
(EUR 62,55 million), which corresponds
to HUF
in present value.
9 793 809 933 (EUR 39,29 million)
indicated in
On the basis of
paragraph 23 above,
to an aid
intensity of 22,44 % in net grant equivalent (NGE) (10).

corresponds

eligible

costs

this

the

(9) HU 3/2004 ‘Development Tax Benefit Scheme’ was submitted
under the interim procedure and accepted by the Commission as
existing aid within the meaning of Annex IV, Chapter 3, paragraph
(1)(c) (under Article 22) of the Treaty of Accession of the Czech
Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary Malta, Poland,
Slovenia and Slovakia to the European Union. The amendment of
the scheme was notified to the Commission (case number N
504/2004) and approved by the Commission on 23 December
2004 (ref. C(2004) 5652).

(10) In this decision, the net grant equivalent (NGE) is calculated on the
the standard corporate tax rate applicable in Hungary

basis of
(16 %).

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(27)

(28)

is making a grant with a total amount

The aid is being provided in the form of the following
two aid instruments. First, the Ministry of Economy and
Transport
in
nominal value of HUF 3 592 000 000 (EUR 14,41
million) dispersed over the years of 2005 till 2007.
a
Second,
at HUF
corporate
11 999 223 750 (EUR 48,14 million) in nominal value
disbursed over the years 2007 until 2016. The grant in
present value amounts to HUF 3 118 450 763 (EUR
12,51 million) and the tax allowance in present value
is HUF 6 675 359 170 (EUR 26,78 million).

the Ministry of

allowance (11)

is providing

estimated

Finance

tax

The Hungarian authorities
specified that aid in the
amount of HUF 7 411 828 735 (EUR 29,73 million) in
present value (HUF 11 745 422 640 or EUR 47,12
million in nominal value) had already been granted to
IBIDEN HU on the basis of the existing regional aid
schemes (12) up to the individual notification threshold
established in paragraph 24 of the MSF 2002. For the
first phase of
the Ministry of
the investment project
Finance granted aid on 25 February 2005 in the
amount of HUF 4 832 595 058 (EUR 19,39 million) in
(HUF 8 773 422 640 or EUR 35,20
present value
million in nominal value) and the Ministry of Economy
and Transport granted aid on 3 March 2005 in the
amount of HUF 1 875 354 000 (EUR 7,52 million) in
present value (HUF 2 142 000 000 or EUR 8,60 million
the
the
in nominal value).
investment
the Ministry of Economy and Transport
granted aid in the amount of HUF 703 879 677 (EUR
2,82 million)
in present value (HUF 830 000 000 or
EUR 3,33 million in nominal value) on 22 December
2006.

second phase of

For

(29)

the aid
Thus, according to the Hungarian authorities,
amount, which is subject
is the
to the notification,
difference between the total amount of aid and the
support already granted,
i.e. HUF 2 381 981 198 (EUR
9,56 million)
in present value (in nominal value this
amount is HUF 3 845 801 110 or EUR 15,43 million).

(30)

Regarding the remaining aid amount to be granted for
the second phase of the investment, the Hungarian auth­
orities have suspended the decision-making process until
the decision of
the
authorisation of the notified aid is subject to Commission
approval.

the European Commission. Thus,

(34)

(11) The tax allowance is capped in terms of its overall present value.
(12) HU 1/2003 ‘Earmarked Scheme for Investment Promotion’ and
N 504/2004 (ex HU 3/2004) ‘Development Tax Benefit Scheme’.

(31)

The Hungarian authorities confirm that the aid for the
project cannot be cumulated with aid received for the
same eligible costs from other local, regional, national
or Community sources.

(32)

The Hungarian authorities confirm that the aid appli­
the investment project
cations for the first phase of
were submitted on 5 December 2003 at the Ministry
of Economy and Transport and on 16 September 2004
at the Ministry of Finance. The aid applications for the
second phase of the investment project were submitted
on 28 March 2005 and on 31 May 2005 respectively.
Therefore, the respective aid applications had been made
before work started on the first phase on the project on
6 October 2004 and on the second phase of the project
on 20 June 2005.

2.8. General commitments

(33)

The Hungarian authorities committed themselves
submit to the Commission:

to

— within two months of granting the aid, a copy of the
the

signed
granting authority and the beneficiary;

aid/investment

contract(s)

between

— on a five-yearly basis, starting from the approval of
the aid by the Commission, an intermediary report
(including information on the aid amounts being
paid, on the execution of the aid contract and on
any other investment projects started at the same
establishment/plant);

— within six months after payment of the last tranche
of the aid, based on the notified payment schedule, a
detailed final report.

3. GROUNDS FOR INITIATING THE FORMAL INVESTI­
GATION PROCEDURE

The notified project concerns the production of ‘ceramic
substrates for diesel particulate filters’ (hereafter: DPF), which
are installed in diesel passenger cars and light duty
trucks. The ceramic part, which is produced by IBIDEN
HU, is an intermediate product (TIER 3), which is then
sold under market conditions to independent companies,
which apply a precious metal coating of the substrate to
form a coated DPF (TIER 2). The coated DPFs are then
sold to exhaust manifold producers (TIER 1), which are
the direct suppliers of car assembly factories.

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(35)

(36)

(37)

(38)

The Commission, in the Decision to initiate the formal
investigation procedure indicated that
the Hungarian
authorities suggested a broad definition of the relevant
market, covering both key parts of
the exhaust gas
system of diesel engine vehicles, namely
treatment
Diesel Oxidation Catalysts (hereafter: DOC), which treat
gases (i.e. CO and HC) and to a certain extent the soluble
organic fraction (SOF) of particulate matter (PM); and
Diesel Particulate Filters (hereafter: DPF) (13), which are
effective in treating the insoluble fraction of particulate
matter, i.e. soot. They argue these devices are very similar
to each other,
since both aim to reduce harmful
substances from emissions, and therefore belong to the
same
the
production processes and technologies to manufacture
the two components are very similar.

relevant market. They

also argue

that

The Commission, in the Decision to initiate the formal
investigation procedure in the present case, noted that it
had doubts on the compatibility of the aid with the
common market based on Article 87(3)(a) of the EC
Treaty and on the MSF 2002. The Commission also
noted that the approach of the Hungarian authorities
with regards
to the relevant market was also not
supported by the two independent market studies (the
study by Frost & Sullivan Ltd (F&S) (14) and by AVL List
GMBH (AVL)) (15), which were
the
Hungarian authorities.

submitted by

In particular, the Commission expressed doubts whether
DOC and DPF can be considered as substitutes, which
belong to the same relevant product market of after-
treatment devices and, at the moment of the initiation
investigation procedure, the Commission
of the formal
considered that
relevant product market was
narrower and covered only substrates of Diesel Parti­
culate Filters to be fitted in diesel exhaust systems.

the

First, the Commission noted that the DPF’s main function
is to treat solid inorganic and insoluble particulate matter
(i.e. soot), while the DOC aims to clean hazardous gases
and the soluble organic fraction (SOF) contained in parti­
culate matter, without being able to collect soot. While it
there is some overlap between the two
is true that
the coated DPF treats as well
functions

insofar as

(13) Differences in the intended use between the end products, DPF and
DOC, are a reflection of
their respective
substrates. Therefore, hereafter in the decision DPF will be used
alternatively to substrate of DPF.

the different uses of

(14) ‘Strategic analysis of the European market for Diesel Particulate
Filters’, October 2006. The firm Frost & Sullivan is active in
market/industry consulting and research.

(15) ‘Market survey on PM reduction after-treatment devices’, March
2007. AVL List is closely involved with the design and development
of
internal combustion engines. The AVL study, which was
commissioned by IBIDEN HU for the present case, argues that
both DOC and DPF belong to the same relevant product market,
however, the data and analysis presented in the AVL study do not
confirm this argument,
i.e. various elements/information in the
study indicate the absence of substitutability, and not the opposite.

(39)

(40)

(41)

harmful gases to a certain extent, this does not eliminate
the need for a separate DOC in the exhaust gas treatment
system. Both components will continue to co-exist and
have to be installed together
in the period to be
considered (i.e. until 2008). For future Euro 5-6 tech­
nologies DOCs will continue to be used for oxidation
of CO, HC and SOF. Thus, the Commission noted that
there appeared to be no substitutability on the demand
side, as these are two separate and complementing
devices.

The Commission also noted in the decision to initiate the
formal investigation procedure that, according to one of
the studies, a truly multi-functional product, which inte­
grates on one ceramic monolith the functions of both
DOC and DPF, had recently been introduced by the
company Eberspächer and it was used in the Volkswagen
the Commission doubted whether
Passat. However,
IBIDEN HU’s product is suitable for such a complete
multi-functionality.

Second, the Commission noted that the substitutability
on the supply side was also questionable. No concrete
evidence of substrates for DOCs producers, which are
also capable of producing substrates for DPFs with the
same equipment without major additional
investment
costs, or vice versa, were provided. Furthermore, substi­
tutability is also doubtful because the price of the DPF is
around four times higher than the price of the DOC.

is below 25 % as

Finally,
the Commission observed that while the aid
appears to meet the conditions of the Guidelines on
national regional aid 1998 (16),
the Commission had
doubts whether the market share of the beneficiary in
the relevant market
required by
paragraph 24(a) of the MSF 2002. The market studies
submitted by the Hungarian authorities indicate that the
share in volume terms of IBIDEN in the DPF market in
Europe substantially exceeds the 25 % threshold both
before and after the investment. Thus the condition
under paragraph 24(a) of MSF 2002 is not respected if
the DPF is regarded as the relevant market. However, in
the combined market of the DPF and DOC, which is
considered as relevant by the Hungarian authorities,
IBIDEN’s market share would remain below 25 % both
before and after the investment in volume terms.

4. COMMENTS FROM INTERESTED PARTIES

(42)

In response to the publication of its Decision to open the
formal investigation procedure in the Official Journal of the
European Union, the Commission received observations by
the following interested parties:

(a)

the aid beneficiary IBIDEN Hungary Gyártó Kft.;

(16) OJ C 74, 10.3.1998, p. 9.

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Official Journal of the European Union

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(b) Aerosol & Particle Technology Laboratory, Thermi-
Thessaloniki, Greece, a centre for research and tech­
nology;

impact on the DOC, and vice versa, which means that as
one device becomes more sophisticated, the other device
has to correspond to these changes.

(c) Saint-Gobain Industrie Keramik Rödental GmbH,
Rödental, Germany, a competitor (hereafter: Saint-
Gobain);

(47)

(d) an interested party, which, pursuant to Article 6(2) of
the Council Regulation (EC) No 659/1999 (17),
requested the Commission to withhold its identity.

(43)

The arguments put
interested parties can be summarised as follows.

forward by the above-mentioned

technologies in one unit,

Both IBIDEN HU and Aerosol & Particle Technology
Laboratory refer to a trend in the technological develop­
ment of DOC and DPF leading to a new generation of
filters, which could incorporate the advantages, characte­
ristics and former
thereby
combining the DOC and DPF on the same monolith
substrate
already
instance, Volkswagen
introduced fourth generation after-treatment components
to its Passat model, using just one DPF with no DOC).
IBIDEN HU however indicated that it currently produces
the ‘third generation’ (18) DPF and carries out continuous
product improvement so that it can be converted into
the ‘fourth generation’ DPF capable of fully incorporating
the functionalities of the DOC.

(for

has

4.1. Relevant product market according to IBIDEN
HU and Aerosol & Particle Technology Laboratory

(48)

(44)

The aid beneficiary IBIDEN HU and Aerosol & Particle
Technology Laboratory are in favour of taking a broad
market definition, which would cover all components
(mainly DOC and DPF)
in the exhaust gas treatment
system of diesel engine vehicles. They observe that
DOC and DPF are very similar to each other, since
both aim to reduce harmful substances from emissions,
and therefore belong to the same relevant product
market.

formal

IBIDEN HU also indicated that, although the Commission
in the Decision to open the
investigation
procedure suggests the opposite,
in reality the price of
IBIDEN’s product is not four times more than the price
of a DOC.
IBIDEN HU manufactures a semi-finished
product, and therefore the final product (coated DPF) is
much more expensive than IBIDEN HU’s semi-finished
industry experience shows that
product. The current
the market price of
the coating,
the device after
canning and application of the mat is 2,5 times higher
than that of the substrate, the product of IBIDEN Group:
for example, in 2007 the market price of a DPF was EUR
453 and the price of the substrate (semi-finished product)
was only EUR […], while the market price of a DOC was
EUR 102 in 2007 (19).

(45) According to this opinion, both DOC and DPF would be
regarded as PM removal components, although IBIDEN
HU acknowledges that DOC is ineffective in treating the
insoluble part of PM (i.e. soot). The interested parties
argue that due to the fact that IBIDEN HU’s product is
able to filter HC and CO in addition to its main function
of filtering soot, it belongs to the same market as DOC.
is up to car manufacturers to decide whether to
It
construct
from inde­
the exhaust gas treatment part
pendent components for detoxifying gaseous harmful
substances and for treating the particle substances or to
use the multifunctional component.

(49) Moreover, regarding the supply side substitution, IBIDEN
HU indicates that the production technologies of DOC
and DPF are very similar: the only main differences are
that in the case of DPF a plugging process is added to
that of DOC’s and the phase of cutting is earlier than in
the case of DOC.

(46) Nevertheless, IBIDEN HU acknowledges in its submission
that in spite of the additional function of IBIDEN HU’s
DPF that helps cleaning gases (HC and CO) more effi­
ciently, the combined use of DPF and DOC is necessary
to ensure compliance with emission regulations. A high
quality, well-developed DPF can reduce the size and
sophistication of the DOC that car manufacturers need
in their cars, thus, the DPF has had a huge
to install

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

(50)

Furthermore, IBIDEN HU claims that according to several
studies, including a document by Johnson Matthey Japan,
there are manufacturers that produce both DOC and
DPF, so the distinction between DOC manufacturers
and DPF manufacturers is blurred.

(18) The concept of subsequent generations of the product is used by

IBIDEN HU to refer to the evolution of the technology.

(19) However, as regards the DOC's market price of EUR 102, as
provided in the AVL study,
it seems that it refers to the DOC
price after coating at TIER 2 as well, and therefore the price of
the DOC substrate would need to be adjusted downwards the same
way as IBIDEN adjusted DPF's substrate prices.

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(51)

(52)

4.2. Relevant product market according to Saint-
Gobain and the interested party whose identity is
withheld

Two of the four interested parties — Saint-Gobain and
the party whose identity is withheld — supported the
Commission’s doubts expressed in the Decision to open
the formal investigation procedure. According to them,
DOC and DPF cannot be considered as substitutes and
thus they do not belong to the same relevant product
market. Therefore, they argue that in the present case the
DPF market alone is
the relevant product market.
According to these parties, the main reasons for this
are the following:

4.2.1. No demand side substitution

The interested parties indicate that the main characteris­
tics of the substrates for a DOC and a DPF are different: a
DOC substrate is usually made
from non porous
cordierite which must
resist 400 °C temperatures or
from stainless metal foil. A DPF substrate is in general
made of porous
resist
1 000 °C (resistance to such high temperature is needed
to burn-off soot and avoid blockage of the coated filter).
Thus, due
characteristics,
customers cannot switch between substrates for DPF
and substrates
relative price
for DOC in case of
increase for one of the products.

silicon carbide which must

to very different

thermal

(53) According to Saint-Gobain, since the materials used for
the substrates for DPF are higher performance materials,
there is also a difference in prices between the two
the cost of catalyst
components: a substrate (without
coating and canning) of a DPF on average costs EUR
120, while a substrate of a DOC on average costs
the cost of
between EUR 12-EUR 20 (also without
catalyst
as Saint-
coating and canning). Therefore,
Gobain claims, DPF manufacturers can obviously not
switch to a DOC substrate for technical reasons (which
they would otherwise do given the price difference) and a
DOC producer would not substitute a DOC substrate
with a DPF substrate as he/she would get a much more
expensive product without
an oxidation function
comparable to a DOC substrate.

(54)

Saint-Gobain and the party with withheld identity also
emphasize the differences in the use of a DOC and a
DPF (20): the primary purpose of a DOC is to oxidise
certain gases by way of chemical reaction, while the
primary function of a DPF is to filter out soot by way
of mechanical process. While, under certain circum­
stances, a DPF performs — as a collateral effect —
some of
full
oxidation effect cannot be achieved without the instal­
lation of both devices. Even the coated DPF that uses the

functionality of

the DOC,

the

the

(20) Differences in the intended use between the end products, DPF and
their respective

the different uses of

DOC, are a reflection of
substrates.

substrate produced by IBIDEN HU does not have the full
functionality of a DOC, since it only serves the purpose
of providing sufficient temperature for the burning-off
it does not have the same purification
the soot, but
that,
effect as a full-function DOC. They indicate
according to the expectations of many car manufacturers
and automotive suppliers, a DOC and a DPF will remain
separate devices installed next to each other in the gas
exhaust line.

4.2.2. No supply side substitution

cordierite used for

the DOC substrate

Further, Saint-Gobain and the party with withheld
identity also indicate that the production process of the
the non
DOC and DPF substrates are very different:
porous
is
sintered in the air at 400 °C temperature. While silicon
carbide, the material used for a DPF substrate (which is
IBIDEN HU’s substrate), must be
also the material of
prepared at very high temperature (above 2 000 °C) in
of
the
temperature alone is so vital
the most
essential and costly production elements cannot be
used to produce both types of product.

atmosphere. This

that one of

difference

oxygen

free

Further, a substrate for the DOC is always a single block
honeycomb cylinder,
the channels of which are not
plugged. A substrate for the DPF is normally formed
by gluing several filtering elements, and channels of the
DPF are plugged. For the manufacture of DPF substrates a
non-oxide high temperature sintering furnace, gluing and
plugging equipment are needed, which are not necessary
for the production of substrates for DOC. Thus,
the
interested parties argue that
is not possible to
produce DPF on the DOC’s production lines or vice
versa.

it

(55)

(56)

5. COMMENTS FROM THE HUNGARIAN AUTHORITIES

(57)

The Hungarian authorities support the view of Aerosol &
Particle Technology Laboratory and IBIDEN Hungary
Gyártó Kft. in relation to the relevant product, market,
price, demand side and supply side specificities.

is based on the

(58) According to the Hungarian authorities, modern diesel
integration of
emission control
different functionalities at system level. The close inter-
dependency of all sub-units (such as DOC and DPF) in a
diesel emission control system, has led to multi-player
linking substrate, coating and exhaust
supply-chains,
system manufacturers, and the performance characteris­
tics of each individual sub-unit create challenges to the
entire supply-chain. Therefore the diesel emission control
system or diesel after-treatment system should be defined
as the relevant product.

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(59)

(60)

(61)

(62)

They also argue that the product of IBIDEN HU is a
multifunctional part fitted into the exhaust pipe system.
The combination of this product and a DOC creates the
third generation after-treatment device. Furthermore, the
product of IBIDEN HU is a semi-finished product due to
the fact that it will be coated at a further level. Without
coating the product is not fully-functional and may not
be classified as a finished product in terms of third-
generation DPF. This is also supported by the fact that
the final product is much more expensive than IBIDEN
HU’s semi-finished product: currently the market price of
the final device is 2,5 times higher than that of the filter
produced by IBIDEN HU.

indicate that,

the Hungarian authorities

Further,
in
practice, DPFs are installed in most diesel-engine cars,
and manufacturers that need a DOC also need a DPF.
The demand creates a common market for the products,
as the same manufacturers use the same methods, infra­
structure and efforts to obtain the products. On the
supply side, DOC and DPF manufacturers usually use
the same manufacturing processes, production tech­
nology and materials. In terms of materials, both DOCs
and DPFs use cordierite. In production they undergo the
same processes, such as material preparation, mixture,
finishing and firing.
tempering, and moulding, drying,
The only differences between the production process of
the two products are an extra stage (plugging) and the
rescheduling of another stage (cutting). Consequently, the
same manufacturers will be involved with supply, and
DOC and DPF compete with each other in the exhaust
gas after-treatment market.

The Hungarian authorities emphasize that IBIDEN HU is
able to produce substrates for particulate filters with the
same equipment without any significant investment, as
any manufacturer with the same production technology
could. As the DPF is a form of developed DOC, the cost
of
in
another product line, but an essential development of
production assets.

the modification is not an initial

investment

filters which could incorporate

In addition,
the Hungarian authorities indicate that a
clear trend can also be seen in the technological devel­
opment of DOC and DPF, which is leading to a new
generation of
the
advantages, characteristics and former technologies in
one unit, thereby combining a DOC and a DPF. When
defining the relevant market and calculating the market
share, the DOC should also be taken into account as it
constitutes a combined after-treatment device with a DPF,
and together they ensure compliance with the regu­
lations.

(64)

(65)

(66)

(67)

devices market, including both DPF and DOC. According
to the study prepared by an independent market research
company AVL, IBIDEN’s market share in the diesel after-
remains below 25 % both
treatment devices market
fulfilling the
the investment,
before and after
condition in paragraph 24(a) of MSF 2002. Therefore,
the Hungarian authorities consider that the Commission
should terminate the Article 88(2) procedure by a
positive decision.

thus,

6. ASSESSMENT OF THE AID

6.1. Existence of State aid in the meaning of
Article 87(1) of the EC Treaty

In the Decision to initiate the formal
investigation
procedure, the Commission concluded that the financial
support given by the Hungarian authorities to IBIDEN
Hungary Gyártó Kft. on the basis of
the existing
regional aid schemes (HU 1/2003 ‘Earmarked Scheme
for Investment Promotion’ and N 504/2004 ‘Develop­
ment Tax Benefit’)
in the form of a grant and a tax
credit constitutes State aid within the meaning of
Article 87(1) of the EC Treaty. The Hungarian authorities
have not contested that conclusion.

6.2. Notification requirement, legality of the aid, and
applicable law

By notifying the measure in 2006, the Hungarian auth­
orities
notification
the
requirement of paragraph 24 of the MSF 2002.

complied with

individual

In line with paragraph 63 and footnote 58 of
the
Guidelines on national regional aid for 2007-2013 (21),
the Commission assessed the aid measure under the
provisions of
the Guidelines on national regional aid
1998 (hereafter: RAG) and the MSF 2002.

6.3. Compatibility of the aid with the RAG

investigation
In the Decision to initiate the formal
procedure,
the aid is
the Commission indicated that
granted in conformity with the existing regional aid
schemes (22) and concluded that the standard compati­
bility criteria laid down in the RAG (such as compati­
bility criteria concerning initial investment in the region
eligible for regional aid, eligible costs, own contribution,
incentive effect, maintenance of the investment, cumu­
lation) are respected.

(63)

In view of the above arguments, the Hungarian auth­
orities consider that the only supportable definition of
the relevant market is the whole diesel after-treatment

(21) OJ C 54, 4.3.2006, p. 13.
(22) HU 1/2003 ‘Earmarked Scheme for Investment Promotion’ and N
504/2004 (ex HU 3/2004) ‘Development Tax Benefit Scheme’.

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6.4. Compatibility of the aid with the MSF 2002
provisions

6.4.1. Single investment project

and the applicable standard regional aid ceiling is 40 %
(NGE),
the adjusted maximum aid intensity in NGE
resulting from the scaling down mechanism of para­
graphs 21 and 22 of the MSF 2002 is 23,34 %.

(68)

investment project’

Paragraph 49 of the MSF 2002 states that an investment
project should not be artificially divided into sub-projects
in order to escape the provisions of the framework. A
‘single
fixed
investments on a production site in a period of three
years (23). A production site is an economically indivisible
series of fixed capital items fulfilling a precise technical
link, and
function,
linked by a physical or functional
which have
the
production of a defined product.

identified aims,

such as

includes

clearly

the

all

(69) As IBIDEN HU already received regional aid in the past
for the first phase of the investment project on the same
location and as the notification refers to the second
is necessary to
phase of
establish whether
the
same single investment project.

the two phases form part of

the investment project,

it

(70)

In this regard the Commission observes that the two
investment phases concern the same production site
(the Dunavarsány Industrial Park, the region of Central
Hungary), the same company (IBIDEN HU), the same
product (ceramic substrates for Diesel Particulate Filters)
and the start of works on each project were commenced
within a period of three years (the first phase started in
2004, while the second phase started in 2005). Conse­
quently, the Commission considers that the criteria of the
definition of a ‘production site’ in paragraph 49 of the
MSF 2002 are fulfilled and that the two phases of the
investment
the same single investment
project.

form part of

(71)

In addition, the Commission observes that the Hungarian
authorities agree that the two phases of the investment
by IBIDEN HU in the Dunavarsány Industrial Park have
to be considered as a single investment project.

(74)

Since the aid intensity for the project is 22,44 % NGE
and thus is below the maximum aid intensity allowed
under the scaling down mechanism (23,34 % NGE), the
proposed intensity of the overall aid package complies
with the adjusted regional aid ceiling.

(75)

(76)

6.4.3. Compatibility with the rules under paragraphs 24(a)

and (b) of the MSF 2002

Since the total aid amount of HUF 9 793 809 933 (EUR
in present value exceeds the individual
39,29 million)
notification threshold of EUR 30 million, the compliance
of the notified aid with paragraph 24(a) and (b) of the
MSF 2002 has to be assessed.

The Commission’s Decision to allow regional aid to large
investment projects falling under paragraph 24 of the
MSF 2002 depends on the market share of the bene­
the investment and on the
ficiary before and after
capacity created by the investment. To carry out
the
relevant tests under paragraph 24(a) and (b) of the MSF
2002, the Commission has first to identify the product(s)
concerned by the investment, and to define the relevant
product and geographic markets.

6.4.3.1. P r o d u c t c o n c e r n e d b y t h e
i n v e s t m e n t p r o j e c t

(77) According to paragraph 52 of the MSF 2002,

envisaged by

‘product
concerned’ means
the
the product
investment project and, where appropriate, its substitutes
considered to be such, either by the consumer (by reason
of the product’s characteristics, prices and intended use)
or by the producer (through flexibility of the production
installations). When the project concerns an intermediate
product and a significant part of the output is not sold
on the market, the product concerned will be deemed to
include the downstream products.

6.4.2. Aid intensity

(72) As the first and second phases of the investment are
considered to form a single investment project,
they
both are taken into account to calculate the maximum
aid intensity of the project.

(78)

The notified project concerns the production of ‘ceramic
substrates for diesel particulate filters (DPF)’. DPF is an auto­
motive part, which is
fitted into the exhaust gas
treatment system of diesel engine vehicles and which
engine
gas
cleans
combustion (24).

generated

exhaust

the

by

(73) Given that the planned eligible expenditure in present
value is HUF 41 953 072 670 (EUR 168,30 million)

(23) Because investment projects may continue over several years, the
three year period is calculated, in principle, from the start of works
on each project.

(24) DPF is not yet required by the current European legislation, but is
already installed in certain motor vehicles. From September 2009
onwards, new limit values will become mandatory for new types of
diesel passenger cars (category M1) and light duty commercial
vehicles (category N1 class I) with a reference mass not exceeding
2 610 kg (these limits will apply for classes II and III of N1 and N2
vehicles as from September 2010). This will in practice result in the
instalment of DPFs in order to fulfil the limit values.

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(79)

it

The ceramic part, which is produced by IBIDEN HU, is
an intermediate product. After having produced it in the
factory (TIER 3),
is sold under market conditions
through IBIDEN Deutschland GmbH (25) to independent
companies (the main customers are […], […] and […]),
which perform the precious metal coating of
the
substrate, and thus the DPF becomes a coated DPF
(TIER 2). The coated DPFs are then sold to exhaust
manifold producers
(TIER 1), which are the direct
suppliers of car assembly factories. The end users of
ceramic substrates are diesel passenger cars and light
duty trucks.

(84)

(b) emission control technologies using ‘after-treatment’
of engines exhaust gas (only the latter is relevant for
the present case).

such as

The exhaust gas of diesel engines contains hazardous
significant amounts of particulate matter
substances:
(‘PM’,
and Soluble Organic Fraction
(SOF) (26)), and hazardous gases (such as hydrocarbons
(HC), carbon oxides
(NOx)).
These materials are treated by the exhaust gas treatment
system installed in vehicles.

(COx), nitrogen oxides

soot

(80) No other products for sale on the market or use by other
IBIDEN Group’s plants will result from the investment
project. The Hungarian authorities confirmed that no
other products than those notified and assessed will be
produced at the aided facility for five years after the end
of the project/full production.

(81)

Following the above, the Commission will consider the
ceramic substrate for DPF, which is installed in diesel
passenger cars and light duty trucks as the product
envisaged by the investment project.

(82)

6.4.3.2. R e l e v a n t p r o d u c t a n d g e o g r a p h i c

m a r k e t s

The definition of the relevant product market requires the
examination of what other products could be considered
as substitutes to the product envisaged by the investment
project within the meaning of paragraph 52 of the MSF
2002. In this regard and, having taken into account the
comments from the interested parties and the Hungarian
authorities, the Commission has looked which products
could be considered as substitutes for DPF. The summary
of this analysis is presented below.

1. General overview of

the exhaust gas treatment

system

(83)

Emission reduction is a complex area with many inter­
actions between technologies, impact on fuel economy,
driving performance, durability and costs. Emission
reduction measures can be divided into two main areas:

(a) combustion system developments to reduce engine-

out emissions; and

(25) The Hungarian authorities confirmed that

IBIDEN Deutschland
GmbH is a trade and marketing company, and it does not
produce exhaust gas treatment parts. No other IBIDEN Group's
company carries out
any further processing on the parts
produced by IBIDEN HU.

(85) Accordingly,

there are certain components within the
system which clean hazardous substances.
In general,
these can be devices: (1) which clean the gas components
and (2) which clean the particulate matter (including
two emission after-treatment
soot). The
devices, which are relevant
for the present case, are
used in diesel passenger cars and light duty trucks:

following

(a)

composed of

‘DOC’ — Diesel Oxidation Catalyst, which is intended
to suppress hazardous gases (mainly hydrocarbons
(COx)) and, as a collateral
(HC), carbon oxides
effect,
it also eliminates to a certain extent SOF
(soluble organic fraction of particulate matter), but
which cannot
treat soot. A DOC, similarly to a
an inner-solid substrate
is
DPF,
through which the exhaust gases are channelled.
When flowing through the channels,
the exhaust
gas enters into chemical reactions with the catalysers
(platinum and palladium) deposited on the wall of
the
been
introduced in practically all diesel passenger car
models
to comply with more
stringent emission norms, with regard to the limits
of harmful gases in the emissions.

Since 2000 DOCs

in EEA in order

substrate.

have

(b) ‘DPF’ — Diesel Particulate Filter, which is intended to
the particulate
retain the insoluble fractions of
matter,
i.e. soot. This is achieved by mechanical
filtering. The exhaust gas flows into the channels of
the DPF honeycomb structure and is forced to flow
through the walls since the channels are alternatively
plugged. The substrate serves as a filter and the soot
is deposited on its walls. However, the DPF becomes
saturated with soot and in order for it to remain
functional
to be eliminated by
burning it (regeneration of the filter).

the soot needs

(26) SOF: soluble organic fraction like organic material derived from

engine lubricating oil and from fuel.

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(86) DPFs first appeared in series production in 2000 in the
Peugeot 607 diesel car and have since become more and
more widespread, witnessing a tremendous growth in the
last 3-4 years. This growth is due partly to the tax
incentives offered on diesel vehicles equipped with
DPFs in several countries, partly to the more environ­
mental conscious approach of the consumers, and also
to the
tightening emission norms,
notably, with regard to PM limits (in the EEA emission
reduction is regulated by the ‘Euro’ emission standards). It
is expected that before Euro 5 (27) comes into effect in
2009, an increasing share of diesel cars will already be
equipped with DPF. This trend will ensure a further
expanding market for DPFs in the coming years.

anticipation of

(for

the filter

the material of

(87) Different types of DPFs can be distinguished on the basis
instance, ceramic,
of
cordierite or metal) and the filter regeneration strategy.
Regeneration is necessary in order to eliminate (i.e. burn-
off) the accumulated particles. In practice this is achieved
either through an additive mixed with the fuel which
lowers the oxidation temperature (the latter is known
as an ‘uncoated DPF with fuel borne catalyst’) or
through a precious metal coating covering the walls of
the substrate which helps in the burn-off process (the
referred to as a ‘coated DPF’ or as an
latter
‘impregnated catalysed DPF’).

is

(88) Due to the precious metal coating, this type of coated
DPF also treats, to a limited extent, HC and CO gases by
IBIDEN HU’s
way of a chemical oxidation process.
product belongs
is a ceramic
It
to this category.
substrate which is subsequently coated at TIER 2, and
then integrated into the exhaust manifold system at
TIER 1.

2. The definition of

relevant product market
following the interested parties’ and Hungarian
authorities’ comments

the

(89)

(90)

investigation
In the Decision to open the
procedure,
the Commission expressed several doubts,
which have been summarised above, whether DOC and
DPF can be considered as substitutes, which belong to
the same relevant product market.

formal

that

The Commission considers
the arguments put
forward by the aid beneficiary IBIDEN HU, the interested
party Aerosol & Particle Technology Laboratory and by
the Hungarian authorities do not dispel the initial doubts
of
the Commission, which were confirmed by the
comments of Saint-Gobain and the interested party

(27) Regulation (EC) No 715/2007 of the European Parliament and of
the Council of 20 June 2007 on type approval of motor vehicles
with respect to emissions from light passenger and commercial
vehicles (Euro 5 and Euro 6) and on access to vehicle repair and
maintenance information (OJ L 171, 29.6.2007, p. 1).

whose identity is withheld. In particular the Commission
observes the following:

(91)

The substrates of DPF and DOC do not belong to the
same relevant product market as their product characte­
ristics are different, as a consequence of which there is
neither demand side nor supply side substitution between
the two products.

(92)

the Commission
From the demand side perspective,
observes that there are significant differences in product
characteristics, intended use and price between substrates
for DPF and substrates for DOC:

(a) As demonstrated by the

interested parties,

to ensure the soot

the
substrates for DOC are mostly made of the non-
porous cordierite. The material used for the DOC
substrate must
temperature of
resist an internal
approximately 400 °C present inside the DOC. The
reference material used for the substrates for DPF is
silicon carbide. The DPF substrate must be porous in
filtration. Due to the
order
the substrate must
necessary regeneration of DPF,
be made of material
to very high
temperatures (approximately 1 000 °C in case of a
coated DPF) and to repeated thermal shocks. Thus,
characteristics,
due
customers will be unable
to switch between
substrates for DPF and substrates for DOC in the
event of price increase for one of the products.

different

resisting

thermal

their

to

is

furnace

sintering

example,

the use of

(b) As far as the price is concerned, the Commission
supports the view of Saint-Gobain and the interested
party with withheld identity in this
regard and
observes that there is a big price difference between
substrates of DOC and DPF, since the materials used
for the substrates for DPF are higher performance
materials whose production implies higher costs
a non-oxide high
(for
temperature
required).
According to the submission from the interested
parties, the average price per unit of the substrate
for DPF ranges between EUR 120-180 (without the
cost of the catalyst coating and the canning cost),
whereas the price of the substrate for DOC ranges
between EUR 12 and EUR 20 (also without the cost
of the catalyst coating and the canning cost). Such a
price difference indicates that substrates for DPF do
not belong to the same market as substrates for
DOC, because DPF TIER 2 manufacturers cannot
switch to purchasing a DOC substrate for technical
reasons (otherwise they would do so because of a big
price difference) and a DOC producer would not
substitute a DOC substrate with a DPF substrate as
s/he would get a more expensive product without an
oxidation function comparable to a DOC substrate.

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(c) As far as the intended use is concerned, on the basis
of the submissions from the interested parties, the
Commission observes that the primary purpose of a
DOC is to oxidise certain gases contained in the
diesel exhaust into less harmful substances by way
of a chemical reaction. The primary function of a
DPF is to filter out soot by way of a mechanical
filtering process. While, under certain circumstances,
a DPF performs — as a collateral effect — some of
the functionality of the DOC, the full oxidation effect
cannot be achieved without the installation of both
devices. Moreover, a DOC device does not fulfil any
functionality of a DPF, as it does not filter soot.
According to the expectations of car manufacturers
and automotive suppliers, DOC and DPF will remain
separate devices installed next to each other in the
gas exhaust line (28).

(93)

(d) The oxidation performed by the catalysts of IBIDEN
HU DPF substrate serves the purpose of providing
sufficient temperatures for the burning of the soot,
but it does not have the same purification effect as a
full-function DOC. As has been pointed out in the
submissions from the interested parties, the so-called
multi-functional product by IBIDEN HU does not
eliminate the need for a separate DOC in the
exhaust gas treatment system. The Hungarian auth­
orities and the aid beneficiary also admit that, due to
the current legislation, IBIDEN HU’s so-called multi-
functional product still needs to be installed together
with the DOC.

(e) The Commission observes that the belief expressed
by the IBIDEN HU and the Hungarian authorities
concerning the tendency to use a combined single
solution (of DOC and DPF) might reflect the future
trend of the emission control technologies, however,
the current situation, which is
it does not reflect
to the Commission’s analysis. Thus both
subject
DPF and DOC will continue to co-exist and will be
installed together in the period to be considered
(from 2003 to 2008 i.e. one year before the start
of and one year after
the
investment project). As illustrated by market data
estimates in one of the studies, DOCs remain the
major emission control component to be installed
in all diesel cars in the period concerned. The study
also confirms that for future Euro 5 and Euro 6
technologies DOCs will continue to be used for
oxidation of CO, HC and SOF.

completion of

full

(f)

the Commission observes

In addition,
the
market study by Frost & Sullivan, which is an inde­
pendent industry consultant and researcher, analyses

that

(28) This trend, as illustrated by Saint-Gobain,

is underlined by the
various presentations given during various expert forums in 2007
by General Motors, DaimlerChrysler, Johnson Matthey, Hyundai and
Arvin Meritor.

only DPF as a stand alone product to treat particulate
matter and it does not refer to DOC.

and at

resistance,

the material

Further,
there are
from the supply side perspective,
differences in the production processes of the DOC and
DPF substrates. Since the DPF substrate must have high
(mostly silicon
temperature
carbide) must be prepared at very high temperatures
and under oxygen free atmosphere. The
cordierite
which is predominantly used for the DOC substrate is
sintered in the air
relatively much lower
the substrate for DOC is a
temperature. Moreover,
single block honeycomb cylinder whereas
the DPF
substrate is formed by gluing several filtering elements
and the channels of the DPF are plugged, which is not
the case for DOC. It follows then that the production of
substrate necessitates
a non oxide high
the DPF
system and
gluing
furnace,
temperature
plugging machines
are not
equipments
and these
necessary for the production of the DOC substrate. It
appears therefore that it is not possible to produce DPF
and DOC substrate on the same production lines without
significant additional costs.

sintering

(94) As regards, the argument put forward by IBIDEN HU and
the Hungarian authorities that there are manufacturers
that produce both DOC and DPF and that the distinction
between DOC manufacturers and DPF manufacturers is
thus blurred, the Commission considers that it is not
relevant whether the same manufacturer can produce
or not both products. What is relevant is whether the
same equipment can be used for the production of both
substrates without significant additional costs. This was
not demonstrated by the interested parties or
the
Hungarian authorities. Notably, no concrete evidence of
DOC substrate
produce
substrates for DPFs with the same equipment without
major additional
investment costs, or vice versa, was
provided.

producers, which would

(95)

the

in the

arguments,

the NOx

components

exhaust gas)

to each other

above-mentioned

together with the other

In view of
the
Commission considers that although a DOC and a DPF
(for
belong,
instance, Lean NOx Trap, the purpose of which is to
to a diesel
reduce
passenger car’s or light duty truck’s after-treatment/diesel
emission control system, the mere fact that they exist
line or
next
influence each other’s development does not make
them substitutes from the demand side and/or supply
side viewpoint, as these are two separate components
with different characteristics, prices and intended use.
Moreover, as regards substitutability on the supply side,
there are differences in the production processes of the
DOC and DPF substrates, leading to the conclusion that
there is no substitutability between DOC substrates and
DPF substrates on the supply side.

in the same exhaust

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L 295/47

(96) On the basis of the above and for the purpose of this
Decision,
the relevant
product market covers only substrates for Diesel Parti­
culate Filters to be fitted in the exhaust systems of diesel
passenger cars and light duty trucks.

the Commission considers that

(102) The Hungarian authorities have provided market data
from the following sources: Frost & Sullivan Ltd. and
AVL List GmbH. The market shares of IBIDEN Group
on DPF market before the start and after completion of
the project in volume terms for Europe are given in
Table III below.

(97)

3. Relevant geographic market

In the Decision to initiate the formal
investigation
procedure the Commission considered that the relevant
geographical market should be EEA-wide due to the
differences
in emission regulation and fuel quality
standards compared to third countries and the lower
share of diesel vehicles
in other major automotive
markets (29). At present demand seems to be very low
for after-treatment devices for diesel light duty vehicles in
markets other than EEA. With the development of more
for diesel vehicles,
advanced after-treatment devices
which will
the requirements
regarding exhaust-gas emission in some third countries,
the market
for after-treatment devices is expected to
expand geographically only after 2008.

then be able to meet

(98) None of the interested parties or the Hungarian auth­
orities have contested this conclusion. On the basis of
the above and for the purpose of
the
Commission considers that
the relevant geographical
market for DPF is EEA-wide.

this decision,

6.4.3.3. M a r k e t s h a r e

(99) According to paragraph 24(a) of the MSF 2002, an indi­
vidually notifiable investment project will not be eligible
for investment aid if the aid beneficiary accounts for
more than 25 % of the sales of the product concerned
before the investment or will, after
the investment,
account for more than 25 %.

(100) To examine whether

is compatible with
the project
paragraph 24(a) of the MSF 2002, the market share of
the aid beneficiary at group level before and after the
investment has to be analysed. As the investment of
IBIDEN HU started in 2004 and the full capacity
production of 2,4 million units per year was expected
to be achieved in 2007, the Commission examined the
market shares in 2003 and 2008.

(101) The Hungarian authorities confirmed that there are no
joint-ventures and long-term marketing arrangements
between IBIDEN and other companies in the ceramic
division.

(29) According to the market study by AVL, modern exhaust after-
treatment systems need sulphur free diesel fuel to ensure effective
and durable performance. Low sulphur diesel fuel was introduced in
the EU in 2005 and will be mandatory in 2009.

Table III

Market share of IBIDEN at group level in Europe

Sales by IBIDEN group

(Data in units)

2003

[…]

2008

[…]

Total DPF market

702 000

6 340 000

Share in DPF market

[…] %

[…] %

Source: Frost & Sullivan Ltd. (30).

(103) The studies

submitted by the Hungarian authorities
demonstrate that the market share of IBIDEN at Group
level
the
in the DPF market both before and after
investment amounts to […] % — […] % in Europe in
volume terms (31) and therefore substantially exceeds
the
in
condition
paragraph 24(a) of the MSF 2002 is not respected.

25 % threshold (32).

Thus

the

(30) Data compiled by AVL reflect a somewhat smaller market than F&S
and would result in inconsistencies as the volume of the benefi­
ciary's sales in Europe before the investment (i.e. in 2003) is higher
then total sales estimated by AVL. Therefore for the DPF market
figures contained in the F&S study were used where no such incon­
sistencies arose. Moreover, taking the higher F&S data is in favour
of the beneficiary, but even in this scenario, market shares are well
above 25 %. The F&S study directly refers to the number of DPFs
sold or expected to be sold on the market taking into account all
manufacturers of DPFs. It should also be noted that although the
in
studies refer to DPF,
practice the volume of substrates sold equals the number of DPFs
sold.

i.e. the ready-made downstream product,

(31) IBIDEN HU's ceramic substrate is an intermediary product which is
subject to further processing (i.e. coating, canning) at subsequent
levels of the value chain (carried out by independent companies).
Since data in value terms contained in the submitted studies refer
only to the ready made DPF whose price is substantially higher that
that of
IBIDEN's product, and since no reliable data has been
submitted as regards the price of the intermediary product, the
Commission considers
in
if IBIDEN sells DPF
volume terms should be used. In any event,
substrates at close to the average market price, market shares in
value terms would be comparable.

in the case at hand, analysis

that

terms

(32) According to data provided by Saint-Gobain, even in a hypothetical
market comprising substrates for both DPF and DOC (DPF + DOC
market), IBIDEN's market share is above 25 % in value terms in the
EEA. However, this argument is not confirmed by the AVL study
(which was commissioned by the beneficiary), as it
indicates
substantially higher prices of DOCs and thus a market share in
value
combined market
(however, as regards the market price of the DOC as provided in
the AVL study, it would seem that this refers to the DOC price after
coating at TIER 2, which would explain the significantly higher
price compared with the one indicated for the substrate by Saint-
Gobain). Therefore, on the basis of the available information it
cannot be concluded whether
in such a hypothetical market
IBIDEN's market share would be above or below 25 % in value
terms in the EEA.

remains below 25 % in the

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4.11.2008

6.4.3.4. P r o d u c t i o n c a p a c i t y i n c r e a s e / G r o w i n g m a r k e t

t e s t

(104) Paragraph 24 of the MSF 2002 provides that individually notifiable projects will not be eligible for
investment aid if one of the conditions stipulated in paragraph 24 is not fulfilled. Although, as
indicated above, the condition in paragraph 24(a) of the MSF 2002 is not respected, the Commission
has also examined whether the investment project complies with another condition stipulated in
paragraph 24(b) of the MSF 2002. According to paragraph 24(b) of the MSF 2002, the individually
notifiable investment project will not be eligible for investment aid if the capacity created by the
project is more than 5 % of the size of the market measured using apparent consumption data of the
product concerned, unless the average annual growth rate of its apparent consumption over the last
five years is above the average annual growth rate of the European Economic Areas’s GDP over the
same period.

(105)

In this context the Commission observes that, as shown in Table IV below, the average annual
growth of the apparent consumption (measured as total sales) in Europe of DPF over the last five
years is substantially above the average annual growth rate of the EEA’s GDP (33).

Table IV

Growing market test

2001

2002

2003

2004

2005

2006

CAGR (*)

(Sales in units)

DPF

29 000

290 000

702 000

1 169 000

1 791 000

2 957 000

152,17 %

GDP (millions of EUR in constant 1995
prices) (EU 27)

(*) CAGR: Compound annual growth rate.

8 197 605,0

8 295 193,5

8 402 482,6

8 610 427,6

8 765 680,7

9 027 663,9

1,95 %

(106) Consequently, the Commission concludes that the aid under scrutiny is in conformity with paragraph
24(b) of the MSF 2002, however, as shown above, the aid is not in conformity with paragraph 24(a)
of the MSF 2002.

6.5. Negative effects of the aid and conclusion

(107)

In accordance with the rules on regional aid, aid amounting to HUF 7 411 828 735 (EUR 29,73
million) in present value (HUF 11 745 422 640 or EUR 47,12 million in nominal value) had already
been granted to IBIDEN HU on the basis of the existing regional aid schemes (34) up to the individual
notification threshold established in paragraph 24 of the MSF 2002. The aid amount, which is subject
to the present notification, is the difference between the total amount of aid and the support already
granted, i.e. HUF 2 381 981 198 (EUR 9,56 million) in present value (in nominal value this amount
is HUF 3 845 801 110 or EUR 15,43 million).

(108) Paragraph 24 of the MSF 2002 provides that individually notifiable projects will not be eligible for
investment aid if one of the conditions stipulated in paragraph 24 is not fulfilled. As demonstrated
above, the aid under the scrutiny does not comply with paragraph 24(a) of the MSF 2002 because
the market share of IBIDEN at group level in the DPF market in Europe both before and after the
investment substantially exceeds the 25 % threshold.

(33) For practical reasons, EU-27 GDP figures were considered.
(34) HU 1/2003 ‘Earmarked Scheme for Investment Promotion’ and N 504/2004 (ex HU 3/2004) ‘Development Tax

Benefit Scheme’.

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(109) The high market share of IBIDEN reflects the prevailing position of the company in the DPF market.
According to the study by Frost & Sullivan Ltd (F&S) (35) and comments provided by the interested
parties, IBIDEN enjoys an outstanding position in the European market for DPF, as it is one of the
two major filter substrate manufacturers in the world (the other main manufacturer being NGK). The
Commission observes that the DPF market in Europe has experienced tremendous growth over the
last years, as all vehicle manufacturers adopt the technology to meet the Euro emission limits. It is a
highly profitable market the future strong development of which also seems to be secured. The aid
subject to the notification would even more strengthen the leading position of IBIDEN in this market,
making it more difficult for new entrants to consolidate their position in this market. The aid subject
to the notification is thus susceptible to create substantial distortion of competition.

(110) On the basis of the foregoing considerations, the Commission concludes that the aid subject to the
notification is not compatible with the common market. As the aid of HUF 2 381 981 198 (EUR
9,56 million) in present value (in nominal value this amount is HUF 3 845 801 110 or EUR 15,43
million) has not been granted, there is no need for its recovery,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which the Republic of Hungary is planning to implement for IBIDEN Hungary Gyártó Kft.
amounting to HUF 2 381 981 198 in present value (HUF 3 845 801 110 in nominal terms) is incompatible
with the common market.

The aid may accordingly not be implemented.

Article 2

The Republic of Hungary shall inform the Commission, within two months of notification of this Decision,
of the measures taken to comply with it.

This Decision is addressed to the Republic of Hungary.

Article 3

Done at Brussels, 30 April 2008.

For the Commission

Neelie KROES
Member of the Commission

(35) ‘Strategic analysis of the European market for Diesel Particulate Filters’, October 2006. The firm Frost & Sullivan is

active in market/industry consulting and research.