REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Third Monitoring report on steel restructuring in Romania
Date: 2010-09-16
Institutions: European Commission
Subjects: Romania, State aid, cessation of trading, control of State aid, industrial restructuring, iron and steel industry

EN 

EN 

   EN 

 
EUROPEAN COMMISSION 

Brussels, 16.9.2010 
COM(2010) 476 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Third Monitoring report on steel restructuring in Romania 

EN 

   EN 

 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Third Monitoring report on steel restructuring in Romania 

1. 

INTRODUCTION 

This report covers the results obtained during the last year of restructuring of Romania’s steel 
industry. It has been prepared in line with the monitoring requirements specified in Annex VII 
of the Treaty of Accession1 of Romania to the EU.  

The  European  Union  agreed  on  transitional  arrangements  for  restructuring  aid  to  allow 
Romania  to  complete  the  restructuring  of  its  steel  industry.  Romania  was  allowed  to  grant 
State aid for restructuring purposes, provided that: 

- it would lead to improved viability of the recipient firms under normal market conditions at 
the end of the restructuring period, 

-  the  amount  and  intensity  of  aid  was  strictly  limited  to  what  was  absolutely  necessary  in 
order to achieve such viability, 

- the total net capacity reduction would be at least 2.05 million tonnes (finished products). 
The  Commission  has  already  adopted  two  monitoring  reports  referring  to  20062  and  20073. 
This third and final monitoring report assesses the results achieved in 2008, based on relevant 
information made available only after 2008.  

2. 

RESULTS OF THE MONITORING OF RESTRUCTURING  

The companies covered by the provisions of Annex VII were: Ispat Sidex Galati (now Arcelor 
Mittal  Galati),  Siderurgica  Hunedoara  (now  Mittal  Steel  Hunedoara),  COS  Targoviste  (now 
Mechel  Targoviste),  CS  Resita (now  TMK  Resita),  IS  Campia  Turzii  (now  Mechel  Campia 
Turzii)  and  Donasid  Siderca  Calarasi  (now  Tenaris  Donasid).  In  2008  these  companies 
accounted for more than 90 % of Romanian crude steel production. 

2.1.  Monitoring of the key restructuring benchmarks 

State aid 

Annex VII to the Treaty of Accession sets a ceiling for the amount  of State aid that can be 
granted  to  Romanian  steel  companies  and  forbids  granting  public  support  to  any  other 
company in the steel sector not listed in Appendix A to Annex VII. The maximum State aid 
amount allowed was 49 985 billion ROL (1.2 billion EUR).  

This aid was focused primarily on financial restructuring (debt for equity swaps, debt write-
off for utility suppliers) and a minor extension to tax exemptions (VAT and corporate income 
tax).  The  amount  of  aid  granted  was  determined  on  the  basis  of  the  approved  National 
Restructuring  Programme  (NRP)  and  those  Individual  Business  Plans  (IBPs)  in  which 
investment  played  a  central  role  in  reducing  costs  and  improving  the  quality  of  finished 
products. Most of the amount was granted in 2003 and 2004. 

1 
2 
3 

OJ L 157, 21.06.2005, p. 3. 
COM/2008/511. 
COM/2009/146. 

EN 

2 

   EN 

                                                 
No further State aid was granted or paid after 2004, either to listed companies or to any other 
steel producer in Romania. 

The Commission has concluded that, on the basis of the available information, Romania has 
complied with its obligations on State aid. 

Capacity reduction 

To  compensate  for  the  competitive  advantage  gained  by  companies  receiving  restructuring 
aid,  Appendix  A  of  Annex  VII  to  the  Treaty  of  Accession  required  several  production 
facilities to be closed. As a result, the net capacity reduction to be achieved by Romania for 
finished products during the period 1993-2008 was set at 2 050 000 tonnes. 

Monitoring  has  shown  that  all  closures  were  executed  in  conformity  with  the  relevant 
Commission  decision4.  In  addition,  Romanian  steel  companies  decided  to  voluntarily 
liquidate  some  inefficient  capacities  including  blooming  and  rolling  mills,  light  profile  and 
wire rolling mills. 

Other key restructuring benchmarks 

2.1.1.  Viability and financial performance 

At the end of the restructuring period in 2008 all beneficiary companies were obliged to pass 
the Commission’s  viability test  as outlined in  Annex  VII5.  They  achieved  EBITDA  ranging 
from  8.5 %  to  21.6 %,  the  target  being  10.0 %,  and  EBIT  between  4.6 %  and  19.5 %,  the 
target  being  1.5 %.  Only  one  company,  Mechel  Campia  Turzi,  showed  an  insufficient 
EBITDA  score.  This  is  in  line  with  their  new  investment  Development  Programme  which 
runs until 2011 (NDP) as acknowledged by the Commission. The deviation from target is not 
critical  and  the  company  demonstrated  constant  and  strong  improvement  in  both  viability 
benchmarks throughout the restructuring period. The EBITDA score of Mechel Campia Turzi 
in  2008  was  three  times  higher  than  that  envisaged  in  NDP,  despite  the  fact  that  the  crisis 
severely affected the company during the last quarter of 2008. 

2.1.2.  Productivity and employment 

In 2008 the number of jobs lost in Romania’s steel sector was higher than forecast (average 
annual  employment  level  of  33 200  compared  with  NRP  target  of  43 308)  pointing  to  a 
workforce optimum of over 14 200 employees throughout the restructuring period 2004-2008. 
This result was mostly achieved by outsourcing, early retirement and a voluntary redundancy 
scheme. 

Despite improvements in labour efficiency, productivity ratios at the end of the restructuring 
period are, in some of the companies receiving aid, below the IBP targets and well below EU 
steel  industry  levels  indicated  in  Annex  VII  to  the  Accession  Treaty.  Lower  production 
volumes  in  2008  led  to  a  drop  of  the  country’s  actual  total  productivity  ratio  following 
continuous growth in the period 2004-2008. Individual company results differ substantially.  

4 
5 

Decision 3010/91/ECSC, OJ L 286, 16.10.1991, p. 20. 
OJ C 244, 1.10.2004, p. 2.  
The companies should achieve: 
- a gross operating result of turnover: i.e. the % EBITDA (earnings before interest, tax, depreciation and 
amortisation) of turnover of at least 10 % for non-integrated steel companies and 13.5 % for integrated 
mills); 
- a return of turnover on capital, i.e. the % EBIT (earnings before interest and taxes) of turnover of at 
least 1.5 %. 

EN 

3 

   EN 

                                                 
 
 
Arcelor Mittal’s subsidiaries — Galati and Hunedoara — show non-compliance with IBP and 
European benchmarks. However this can be explained by lower than planned production due 
to the crisis, which had a huge impact on their results. While the productivity levels in Galati 
and Hunedoara almost met the IBP target in the first half of 2008, they deteriorated heavily in 
the second half of 2008 due to the global lack of demand. With staff reductions completed in 
2009,  these  subsidiaries  almost  managed  to  reach  the  IBP  targets  despite  the  impact  of  the 
market downturn. 

In Tenaris Donasid and Mechel’s subsidiaries, Targoviste and Campia Turzi, the productivity 
results are almost in line with IBP targets and show a positive upward trend throughout the 
restructuring  process.  In  TMK  Resita  the  productivity  ratio  is  only  about  50 %  of  the  IBP 
target. But if only the workforce directly related to steel operations is taken into account, the 
company has exceeded its plan. 

2.1.3.  Cost reduction 

While  the  results  obtained  at  individual  company  level  differ  considerably,  they  all  show 
certain  types  of  action  taken  to  reduce  operating  costs.  In  some  areas,  the  necessary  cost 
reductions  for  all  companies  could  only  be  achieved  in  the  long  term  through  new 
investments. In addition, all companies reached their investment targets (as approved in their 
respective IBPs). The companies invested between 150 % and 330 % of the amounts planned. 
However, the effects of the investments were not immediately visible in all companies. 

In  Arcelor  Mittal  Galati  the  general  cost  reduction  strategy  employed  throughout  the 
restructuring period has focused on the liquid phase and hot rolling area. This outcome was 
achieved  by  major  investments.  In  spite  of  these  measures,  the  cost  reductions  were 
insufficient.  Nonetheless,  the  company  has  made  a  significant  effort  throughout  the 
restructuring programme to cut costs. 

In  2008  the  company  started  to  implement  a  strategy  aimed  at  improving  productivity  and 
reducing  the  high  specific  consumption  affecting  operating  costs.  However,  current  market 
conditions  have  forced  the  company  to  temporarily  suspend  these  plans  until  the  market 
recovers.  The  correct  implementation  of  this  strategy  will  further  enhance  the  performance 
levels achieved.  

In  2008  Mittal  Steel  Hunedoara  temporarily  suspended  the  implementation  of  a  New 
Development Programme, but it was re-started in early 2010. Its aim is to further reduce costs 
(by  increasing  productivity  and  reducing  specific  consumption)  and  to  improve  energy 
efficiency.  The  expected  results  would  represent  significant  improvements,  showing  a 
positive progress towards further cost reduction. 

In the remaining four companies, performance shows continuous progress in cost reduction, 
for  the  most  part  complying  with  IBP  objectives  and  evolving  towards  international  steel 
industry  performance  benchmarks.  But  there  is  still  a  need  for  improvement,  especially 
regarding  the  specific  consumption  of  raw  materials,  the  proportion  of  downgrades,  and 
energy efficiency. 

2.2. 

Environmental protection 

The  Treaty  of  Accession  specified  a  transitional  regime  and  gave  a  list  of  installations 
exempted  from  compliance  with  the  IPPC  directive6  until  December  2014.  The  integrated 
permits  issued  for  steel-making  facilities  in  the  sector  have  included  the  environmental 
investment  programmes  to  be  undertaken.  Mittal  Steel  Hunedoara  and  TMK  Resita  did  not 

6 

Council Directive 96/61/EC, OJ L 257, 10.10.1996, p.26. 

EN 

4 

   EN 

                                                 
achieve  their  individual  IBP  targets  for  environmental  investments,  but  the  actual  spending 
was  adjusted  to  the  integrated  permits.  In  the  case  of  Arcelor  Mittal  Galati,  the  investment 
programme agreed under the permit was not fully implemented in 2008 but the total amount 
of environmental investment for the period 2004-2008 exceeded the IBP target. 

3. 

CONCLUSIONS  

This is the last of the monitoring reports on the restructuring of the steel industry in Romania. 
In  the  light  of  the  results  achieved,  the  Commission  is  of  the  view  that  the  requirements  of 
Annex VII to the Treaty of Accession have been met: 

•  the  total  restructuring  aid  granted  to  the  recipient  companies  was  below  the  maximum 

permitted levels, 

•  the net capacity reduction was achieved, 

•  the  restructuring  benchmarks  as  set  out  in  Appendix  A  to  Annex  VII  (viability, 

productivity and cost reductions) were mostly achieved. 

The Commission concludes that the restructuring carried out in the transitional period (2004-
2008)  was  acceptable.  Unfortunately  during  the  last  year  of  restructuring,  the  global  crisis 
severely impacted on the operations of these companies. A major decline in demand for steel 
products resulted in lower than planned performance indicators. It has to be noted, however, 
that  the  results  achieved  by  companies  over  the  whole  restructuring  period  (especially 
improvements  in  profitability)  have  allowed  them  to  cope  with  particularly  challenging 
market conditions in 2008. 

Further efforts are still required for full achievement of sustainable viability, to enable these 
firms to cope with any future uncertainties on the markets. This can only be achieved in the 
long term by continuous implementation of the cost reduction strategies and the development 
of coherent strategies for the future. 

EN 

5 

   EN