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# 31998Y0116(02)

**Approval of State aid pursuant to Articles 92 and 93 of the EC Treaty Cases where the Commission raises no objections N 475/96 - Austria** 
  
*Official Journal C 012 , 16/01/1998 P. 0005 - 0013*

  

Approval of State aid pursuant to Articles 92 and 93 of the EC Treaty Cases where the Commission raises no objections N 475/96 - Austria (98/C 12/03)

(Text with EEA relevance)

Summary of the Commission's decision not to oppose the aid which the Austrian Government intends to provide to BMW Steyr for the purpose of regional development, environmental protection, training and R& D.

'By letter dated 7 June 1996 the Austrian Government informed the Commission of its intention to grant aid to BMW Motoren AG for its engine plant (manufacture and assembly) in Steyr, Upper Austria, for the purposes of regional development, environmental protection, training and R& D.

By letter dated 17 July 1996 the Commission asked for further information. The Austrian authorities submitted some of that information by letter dated 27 September 1996 and provided further details during a visit to the Steyr plant on 23 October 1996.

By letter dated 5 November 1996 the Commission asked for further information so that it could continue its work and referred the Austrian authorities to various rules governing the application of the Community guidelines. The Austrian authorities replied on 9 December 1996.

The Commission asked further questions by letter dated 21 January 1997. On 7 March 1997 a meeting took place with representatives from BMW, the Austrian authorities and the Commission. Lastly, the Austrian authorities submitted a final notification on 22 April 1997.

The Steyr-Kirchdorf area in Upper Austria forms part of a development area within the meaning of Article 92(3)(c) of the EC Treaty; regional aid may be granted there up to a gross grant equivalent of 23 % (or a net grant equivalent of up to 15 %).

The aid recipient is BMW Motoren AG Steyr, a wholly-owned subsidiary of BMW Österreich Holding GmbH, which is in turn a subsidiary of BMW AG München. In 1995 BMW Motoren AG Steyr achieved a turnover of ÖS 14 400 million and employed 2 272 permanent and temporary staff. At the end of 1996 the number of employees was 2 328. According to BMW, the firm contributes indirectly to a further 2 500 jobs. In round figures, the BMW group (including Rover) in 1995 produced 1,1 million vehicles, employed 116 000 people and had a turnover of DM 46 000 million. The object of BMW Motoren AG Steyr is to develop, manufacture and market petrol and diesel engines. In 1995 it manufactured 419 000 engines, comprising: 262 000 four and 137 000 six-cylinder; 315 000 petrol and 104 000 diesel. This represents around 60 % of the BMW group's total production. In 1996 the plant manufactured 440 000 engines. Therefore the sector affected by the proposed aid is engine manufacture for motor vehicles. The project in question is entitled "Phase V", forms part of a series of measures that BMW has been implementing in Steyr for some years now, and is intended to operate over the period 1996 to 2000. Phase IV, which operated over the period 1993 to 1996, was notified in 1994 and approved by the EFTA Surveillance Authority by means of a decision published in Official Journal of the European Communities C 250 of 8 September 1994. While there may therefore be a certain overlap of measures, BMW's internal accounting is such as to exclude confusion of the projects in each individual phase.

The purpose of the plan notified is to enable the BMW group to continue to build up a development centre for diesel engines at the Steyr plant. The work mainly concerns the reduction of environmentally harmful emissions and minimum consumption concepts. BMW also wishes to modernize and extend its petrol and diesel-engine manufacture, particularly in order to meet the growing demand of its assembly plant in Spartanburg (USA) and of Rover.

According to the notification, the objectives set are to be achieved with the help of the following investments and aid:

>TABLE>

The notified aid is based on the following rules: Article 1 b (1) of the Guarantee Law 1977, the General Guidelines on assistance from Land funds, and a Decision on joint funding by Steyr Town Council. In the above-mentioned letter dated 9 December 1996 it was stated that the local authorities had not yet officially decided on the basis for, and amount of, the aid, pending the Commission decision. Accordingly, the maximum amount that the town could allocate was notified.

The notification supplemented by the letter dated 22 April 1997 provides for aid for industrial research and precompetitive development as well as investment in research equipment in the diesel-engine development centre. The Austrian authorities have referred repeatedly to the fact that the objectives of the R& D programme should make it possible to go significantly further than the mandatory European emission standards. Furthermore, the only work in each phase of the industrial research and precompetitive development which would qualify for support would be that satisfying the additionality criterion stipulated in the Community R& D framework.

The industrial research concentrates on preparatory work for the successor models to the M 47/57 diesel engines, themselves the subject of investment in Phase V, and on the development of minimum consumption concepts.

The applied research element contained in the precompetitive development comprises work on the Lean NOx Catalyst (LNC). The development centre for diesel engines, the only one of its kind within the BMW group, will receive new, higher-performance test beds, which will enable dynamic test technology to be employed for emissions and cold-starting. The requisite investment is directly connected to the research work; but the only aspect qualifying for support are the depreciations carried out during the projects undertaken by the manufacturer in Phase V.

Taking everything into consideration, the Austrian authorities regard part of the product development notified as not receiving support as being precompetitive development. For budgetary reasons no aid was applied for, since the project as notified already used up all the available funds.

Phase V provides for various training measures. The notified aid covers part of the training costs for apprentices at the plant, subsidized at 50 %, and part of the practical training for approximately 1 500 employees at the plant (25 % aid intensity). Wage and salary costs for apprentices are not supported.

Regional investment under Phase V totals ÖS 2 229 million, divided among the following four categories (in ÖS million):

>TABLE>

In a letter dated 9 December 1996 regarding the sub-projects concerned, the Austrian authorities made the following distinction (in ÖS million):

>TABLE>

None of the investment is both mobile and innovative. The elements concerning modernization were excluded from the mobile portion.

The aid notified in the letter dated 22 April 1997 totals ÖS 228,8 million. Since only the mobile investment may be supported by regional aid, the gross grant equivalent is 14,2 %

The total costs of the projects for innovative investment are ÖS 229 million, of which (according to the Austrian authorities' assessment) apparently only ÖS 130 million (plus engineering costs of ÖS 28 million) represent genuine technical innovations at European level.

The project also includes measures for improved environmental protection. Investment for the planned period totals ÖS 18 million, but results in savings of ÖS 3 million. The bulk of the investment is for a non-chemical deburring process.

Since the planned allocations in favour of a particular firm are to be financed by the State or through State resources, State aid is involved.

The aid is intended for a firm that manufactures motor vehicle engines and thus operates in the motor industry within the meaning of the Community framework on State aid to the motor vehicle industry (¹). In addition, the total costs of the assisted project is ECU 17 million (ÖS [. . .] million are equivalent to approximately ECU [. . .] million under the monthly ECU exchange rate applicable at the time of notification [June 1996]).

The programme of support within the meaning of Article 1 b (1) of the 1977 Guarantee Law was approved by EFTA on 28 December 1994, on condition that each project for which aid was proposed had to be notified; this condition has been complied with in the present case. Aid granted in accordance with the Land of Upper Austria's General Guidelines on assistance from Land funds has to be notified on an ad hoc basis. The allocation which according to the Austrian authorities, has been earmarked by the Steyr local authority is likewise aid requiring ad hoc notification.

The Austrian authorities complied with Article 93 (3) of the EC Treaty by notifying the planned aid for the EMW project in Steyr in accordance with the Community framework in State aid to the motor vehicle industry.

For the notified research and development work the following aid intensities apply: 50 % for industrial research and an average (weighted) 27,7 % for precompetitive development. No aid is being granted for product development.

The planned aid for training totals an eligible amount of ÖS 59 million excluding wage and salary costs for apprentices, which may not receive support. The proposed intensity is 50 % for the training of apprentices and 25 % for the training of existing staff in new applications. The weighted intensity is 33,9 %.

The Austrian authorities planned aid with 10 % intensity for innovative investment.

The Austrian authorities' stated regional aid intensity is 14,2 % gross grant equivalent. The Commission has based its assessment on the discounted value of the aid to be paid, i.e. ÖS 202,8 million at a nominal value of ÖS 228,8 million. Taking into account the investment eligible for regional aid, the discounted aid intensity is 13,3 % in an assisted area in which the original maximum aid intensity is 23 % gge.

The environmental-protection investment enables significant improvement in protection in fields where there are no legal standards. The nominal intensity of the aid was set at 30 %.

The aid for BMW planned by the Austrian authorities satisfies the criteria laid down in Article 92 (1) of the EC Treaty and Article 61 (1) of the EEA Agreement. The notified aid, which constitutes a not inconsiderable part of the project funding, threatens to distort competition in the EU by granting BMW more favourable treatment than other firms not receiving aid. In addition, there is extensive trade between the Member States on the market for motor vehicle engines.

Article 92 (2) stipulates certain types of aid that are compatible with the EC Treaty. If the nature, geographical location and objectives of the aid are taken into consideration, none of the subparagraphs of that Article can be applied to the project.

In order to be able to assess whether the planned aid is compatible with the common market on the basis of one of the derogations contained in Article 92 (3), the notification must be examined in accordance with the Community framework on State aid to the motor vehicle industry and with the Commission's assessment criteria depending on the objectives being pursued, i.e.:

- as regards research and development, in accordance with the Community framework for State aid for research and development (²),

- as regards training, in accordance with the Community framework on State aid to the motor vehicle industry,

- as regards regional assistance, in accordance with the criteria for regional aid, whereby the mobile investment is examined, on the basis of a cost-benefit analysis, to see whether the proposed aid intensity is in proportion to the disadvantages of the recipient's location,

- as regards innovative investment, in accordance with the Community framework on State aid to the motor vehicle industry,

- as regards environmental protection, in accordance with the Community guidelines on State aid for environmental protection (³).

In the Community framework on State aid to the motor vehicle industry the Commission declares that it will adopt a positive attitude towards R& D aid. Within the meaning of the Community framework for State aid for research and development, it is above all essential to distinguish between basic research, industrial research and precompetitive development; the risk of the aid distorting competition increases the closer the R& D is to the market.

Under points 5.3 and 5.5 of the Community R& D framework, the acceptable gross aid intensities for industrial research and precompetitive development are, respectively, 50 % and 25 % of eligible costs.

The aid for the project has a gross intensity of 50 % for the industrial research and of 30 %, 25 % or 0 % for the work categorized by the Austrian authorities as precompetitive development.

Under point 5.10.2 of the Community framework for State aid for research and development, a 5 % bonus is possible, up to the ceilings stipulated in point 5.10.6, if the research project is undertaken in an area as defined in Article 92 (3) of the EC Treaty. The Steyr area is categorized as such an area. Consequently, the permissible maximum intensities are increased to 55 % for the industrial research and 30 % for the precompetitive development. This is in accordance with the limits set in point 5.10.6. Thus the proposed intensities are in accordance with the Community framework for State aid for research and development.

As far as the aid for industrial research is concerned, the eligible costs are in accordance with Annex II of the Community R& D framework. After scrutinizing the details of each subproject notified as industrial research, the Commission, assisted by its independent experts, has concluded the these projects correspond to the definition contained in the Community R& D framework, since the research to be undertaken is thorough and structured and aimed at achieving significant technological progress in each subproject.

With regard to the aid for precompetitive development (formerly applied research), the eligible costs likewise satisfy Annex II of the Community R& D framework. The Commission interprets precompetitive development as meaning the shaping of the results of industrial research into a plan, arrangement or design for new, altered or improved products, processes or services, whether they are intended to be sold or used, including the creation of an initial prototype which could not be used commercially. The details provided by the Austrian authorities in a letter dated 9 December 1996 and supplemented during the visit to Brussels on 7 March 1997 demonstrate that the subprojects specified in the notification enable the results of previous research work to be converted into new products and processes, up to and including the production of a prototype not suitable for commercial use.

The eligible costs of the investment in the development centre also satisfy Annex II to the Community R& D framework. However, some items of equipment have a lifespan that extends beyond the period of the project. Consequently, the Commission takes the view that only the depreciations made in Phase V of the R& D work are compatible with the EC Treaty. The ÖS 130 million investment in the development centre is directly linked to the industrial research and precompetitive development projects described above.

The Austrian authorities have pointed out several times that, in their opinion, part of the product development is actually precompetitive development, but without substantiating this claim in detail. They add that, for purely budgetary reasons, no subsidy was planned for this. The Commission considers the activities described under "product development" to be competitive work, since it mainly concerns the adaption of new engines [. . .] to vehicles. The work goes beyond the stage of precompetitive development and pilot or demonstration projects. Consequently, under the Community R& D framework no aid may be granted for this product development work. Moreover, the Commission takes the view that the competitive work undertaken in Steyr during Phase V does not contain any innovative aspects, since it is a logical continuation of the precompetitive development work undertaken during Phase IV. The Austrian authorities have never maintained that individual elements of innovation are integrated into the competitive work.

Point 6.1 of the Community R& D framework stipulates that State aid must constitute an incentive for the firm to undertake R& D that is in addition to its normal day-to-day operations.

According to the Austrian authorities, the number of staff and the expenditure at the development centre in Steyr are being considerably increased between 1995 (end of Phase IV) and 1997 (Phase V) [. . .]. As a percentage of turnover with diesel engines, R& D expenditure [. . .].

The letter dated 22 April 1997 lists individually all R& D projects that the BMW group is carrying out in Steyr. In agreement with its independent experts, the Commission considers that the projects connected directly and exclusively with adaption to the EU-3 standards have been taken out of the eligible costs because they do not satisfy the additionality criterion. While the work on the further development of a lightweight component (ÖS 16 million) and the adaption to [. . .] diesel engines with the aim of devising a minimal consumption [. . .] concept (ÖS 11 million) contribute indirectly to a reduction in harmful exhaust gases, they have a more widespread effect than just adaption to the EU-3 standards since they are intended to enable the weight and consumption of vehicles to be reduced. BMW is not required to undertake such research work, but is carrying it out in addition to the R& D work occurring in the course of its day-to-day operations.

Moreover, under point 6.2 of the Community R& D framework proposed aid may also be permissible if it contributes towards the realization of a research project that would have been less ambitious without aid. The development of the Lean NOx Catalyst (costing ÖS 106 million) is clearly aimed at going beyond the EU-3 standards and considerably anticipating future environmental-protection objectives. Consequently, in the Commission's view BMW could not carry out an equally ambitious precompetitive development project without State aid. After all, the work being carried out by BMW carries special risks owing to its ambitious objective, since some of the subprojects being supported might not lead to findings that can be applied practically in the motor industry.

Consequently, the Commission considers that the incentive effect required under point 6 of the Community R& D framework is present in the R& D measures undertaken by BMW as part of industrial research and genuine precompetitive development.

In the following table the compatible R& D aid for the individual categories is listed once again, with BMW's classification being followed for the sake of simplicity, although it no longer corresponds to the current Community framework for State aid for research and development. The applied research and the investment in the development centre count as precompetitive development. In the Commission's opinion, the product development work constitutes competitive activity that is not eligible for R& D subsidies.

>TABLE>

The R& D aid of ÖS 76,6 million qualifies for the derogations contained in Article 92 (3) (c) of the EC Treaty and Article 61 (3) (c) of the EEA Agreement, since it is in accordance with the Commission's policy on aid for R& D and for the motor industry.

The Commission has a generally positive attitude towards training, retraining and conversion programmes. However, aid for such programmes must be examined in order to ensure that it does not simply alleviate the cost burden which companies would normally have to bear. In particular, the Commission must ensure that the training measures correspond to genuinely qualitative changes in the required qualifications of the labour force and relate to a significant proportion of the workers, so that it can be assumed that the measures are intended to safeguard employment and develop new employment possibilities for persons at risk of unemployment.

In particular from the information supplied by the Austrian authorities in letters dated 9 December 1996 and 22 April 1997, it can be inferred that (a) the planned training results in a genuine improvement in the employees' skills, as shown by the programme submitted to the Commission, and (b) a considerable proportion of the employees at the Steyr plant are affected, since 1 500 of the total workforce of around 2 200 are receiving additional training.

The wages and salaries of the staff to be trained are rightly excluded from the basis for support and the costs are broken down by type of training measure: ÖS 21 million for the training of apprentices and ÖS 38 million for practical training. The Commission has satisfied itself that the training programmes correspond the the qualifications described.

As a rule, in the motor industry the Commission permits aid intensities of 50 % for apprentice training and 25 % for practical training.

>TABLE>

Consequently, the ÖS 20 million notified by the Austrian authorities is compatible with the EC Treaty.

The Commission is aware that the extension of existing industrial facilities in disadvantaged areas can contribute towards regional development. It therefore has a generally positive attitude towards investment aid that is granted in order to help overcome structural handicaps in such areas of the Community. When assessing regional aid proposals, the Commission must have the opportunity to weigh up the regional development benefits (such as a contribution to the sustained development of the region through the creation or retention of long-term jobs and economic integration at local and Community level) against any adverse effects on the sector as a whole (such as the creation or retention of considerable overcapacity). The purpose of this assessment is not to call into question the fundamental importance of regional aid for cohesion in the Community, but rather to ensure that other aspects of the Community interest, such as the development of the sector at Community level, are likewise taken into account.

The investment project will enable around 250 jobs (the number of jobs in the mobile workshops) to be safeguarded, out of a total of approximately 2 300 jobs at the Steyr plant. In addition, Phase V contributes towards guaranteeing the plant's economic viability for a number of years. BMW's investment thus constitutes an important contribution towards the economic development of the assisted area. The Commission concludes from this that the aid for the partial funding of this project will assist the development of the Steyr area.

The costs for mobile investment notified by the Austrian authorities are eligible for regional aid according to the Community framework.

The investment mainly concerns new products, linked with an increase in productivity, above all due to additional supplies to Rover and to the plant in Spartanburg (USA). The aspects concerning the modernization of existing products were excluded, since they proved to be not mobile.

When examining regional aid to the motor industry, the Commission's usual practice is to proceed as follows (4):

- first, it examines whether regional aid may be granted, i.e. whether the area concerned is eligible for aid under Community law (normally within the framework of existing rules on State aid) and whether the investor has the option of choosing an alternative location for his project, so that the need for aid can be substantiated by the mobility of the project,

- second, with reference to the mobile parts of the project the Commission satisfies, itself that the amount of aid is in proportion to the regional difficulties to whose resolution it is intended to contribute. The tried-and-tested method of cost-benefit analysis is applied here. Through a comparison of the costs incurred by the investor in the course of implementing his project in the assisted area concerned with the costs in a central, non-assisted area, the area-specific disadvantages are ascertained. The Commission's usual practice hitherto has been to accept all regional aid that at least corresponds to the locational disadvantages connected with investment in the assisted area,

- third, it examines, where applicable, whether top-ups may be granted. These consist of increases in aid intensity designed to serve as an additional incentive for the investor to invest in the assisted area concerned. These top-ups are normally approved where the investment does not contribute towards worsening capacity problems in the sector concerned. In such a case, the aid is strictly limited to net compensation for the regional disadvantages,

- the sum of the amounts ascertained in the last two steps constitutes the total amount of aid that can be approved by the Commission. The amount is normally discounted and expressed as a percentage of the investment eligible for support, in order to be able to compare it with the gross grant equivalent.

This procedure was explained to the representatives of the BMW group when the Commission representatives visited Steyr on 23 October 1996.

The BMW plant in Steyr is located in the Steyr-Kirchdorf area, Upper Austria, an assisted area within the meaning of Article 92 (3) (c) of the EC Treaty. In that area, regional aid with a gross grant equivalent of up to 23 % may be approved. The cumulative regional aid notified by the Austrian authorities amounts to a gross grant equivalent of 14,2 % (or 13,3 % after discounting) and therefore lies below the admissible maximum.

In order to substantiate the need for regional aid, the Austrian authorities had to prove the mobility of the project, i.e. show that there is an economically viable alternative location for the project or parts thereof. If the planned investment cannot be carried out at another new or previously existing plant of the group, then the firm is compelled to carry out the project at the only possible location, with or without aid. However, where appropriate, innovation aid may be granted for the non-mobile parts of a regional investment.

Accordingly, the Austrian authorities divided up the investment into the following categories: mobile; non-mobile but innovative; neither mobile nor innovative. The Austrian authorities did not categorize any mobile part of the project as innovative. The investment that is neither mobile nor innovative is not eligible for aid.

In the case of BMW Steyr, part of the investment is apparently not mobile since from a technical and financial point of view it would be inappropriate to choose a location other than Steyr. As explained in the letter of 9 December 1996, five subprojects, with an investment allocation of ÖS 618 million, are classified as non-mobile: modernization of existing production facilities for diesel engines (e.g. for the manufacture of housings), investment in connection with four-cylinder petrol engines, two programmes for six-cylinder petrol engines [. . .] and a structural measure (new conveyor system). The remaining subprojects are mobile; they could also be carried out in Regensburg, Munich or Landshut. This was confirmed by the Commission's independent experts (PLI - Price Waterhouse).

The Regensburg plant, which belongs to the same group and is located in a non-assisted area, was chosen by BMW, with the Commission's agreement, for the purpose of comparison, because this project could most clearly be carried out in Regensburg. The Commission also noted that Regensburg, Landshut and Munich are located in Bavaria. In the Commission's view, the additional costs arising due to the structural weaknesses in the Steyr-Kirchdorf assisted area can best be ascertained by comparing the project with an identical project carried out in a non-assisted area.

Accordingly, the Commission asked its independent experts to ascertain, by means of a detailed cost-benefit analysis, the net extra costs that would arise if the mobile workshops provided for in the project were set up in Steyr instead of in Regensburg. Such additional costs can be traced back both to additional investment costs and to additional operating costs in the first three years of operation (familiarization with new work and increasing the work tempo) (5). In the case in question, the disadvantage assessed by the Commission and its independent experts concerns the investment costs, since the Regensburg plant has a better infrastructure for the implementation of the project than the Steyr plant. However, labour costs are lower at the Steyr plant. The resulting advantage is seen once the investment disadvantages have been subtracted. The final results show that the discounted cost disadvantages amount to 14,2 % of the investment.

Since the discounted cost disadvantages, at 14,2 % of the investment, are higher than the discounted aid intensity of 13,3 %, no additional payment is necessary.

The Commission considers that the regional aid concerned is compatible with the EC Treaty on the basis of Article 92 (3) (c), since the aid intensity provided for by the Austrian authorities does not exceed the regional cost disadvantage and the project therefore has only a limited effect on the sector.

In accordance with the Community framework on State aid to the motor vehicle industry, the Commission adopts a strict attitude to modernization and innovation aid. In particular, proposed aid for innovation is examined to determine whether it really relates to the introduction of genuinely innovative products or processes at Community level.

In accordance with the Austrian authorities' two letters of 9 December 1996 and 22 April 1997, aid is proposed to fund material investment in order to support BMW in its innovation effort. The projects in question are the three "crack process" projects, cold-testing of six-cylinder petrol engines and an integrated production planning system, for which a total amount of ÖS 130 million is earmarked.

The Commission asked its independent experts to assess the technical aspects of the project classified as innovative by the Austrian authorities and to compare them with the current state of the art in the European motor industry. The independent experts concluded that the integrated production planning system part, involving an investment of ÖS 69 million, is based on innovative techniques; moreover, the express aim of this subproject is to pass on the results of the work to all partners of SAP. As regards the equipment for cold-testing of six-cylinder petrol engines, the Commission likewise acknowledges the innovative character of the project owing to the novelty of such tests and the risks connected with the project. Cracking steel connecting rods using laser-perforated fracturing grooves constitutes a genuine innovation, since the process enables steel components to be worked instead of castings (as practised by some manufacturers). This change in material constitutes a major further development of the process. All the specified investment entails engineering or process-development costs (ÖS 8 million). The maximum admissible aid intensity for innovation is 10 %.

>TABLE>

For the purposes of innovation, investment aid of ÖS 15,8 million is compatible with the EC Treaty on the basis of the derogations contained in Article 92 (3) (c) of the EC Treaty and Article 61 (3) (c) of the EEA Agreement.

Within the meaning of the Community framework on State aid to the motor vehicle industry, the development of less polluting and energy-saving vehicles is a standard requirement for the industry, partly imposed by Community legislation, and should therefore be financed from the company's own resources. Aid for general pollution control, for example, granted under the terms of the environmental aid framework, may still be acceptable under the existing aid schemes.

In the case of investment aid to reduce or eliminate pollution and nuisances or to adapt production methods in order to protect the environment, the eligible costs must, in accordance with the Community guidelines on State aid for environmental protection (6), be strictly confined to the extra investment costs necessary to meet environmental objectives. General investment costs not attributable to environmental protection must be excluded.

Aid for investment that allows significantly higher levels of environmental protection to be attained than those required by mandatory standards may be authorized up to a maximum of 30 % gross of the eligible costs under the Community guidelines. In fields in which there are no mandatory standards or other legal obligations on firms to protect the environment, firms undertaking investment that will considerably improve on their environmental performance or match that of firms in other Member States in which mandatory standards apply may be granted aid at the same levels and subject to the same condition of proportionality as for going beyond existing standards, i.e. up to a maximum of 30 % gross of the eligible costs.

In this context the Commission asked its independent experts to examine the following:

- whether the costs of the investment aimed at environmental protection contain no general expenditure;

- whether the expected improvements result in mandatory national or Community standards being met or surpassed.

The independent experts concluded that the planned investment will significantly improve environmental protection in an area in which no mandatory standards exist.

The Community guidelines on State aid for environmental protection also stipulate, however, that the cost savings resulting for the investor from the project must be taken into account (7). These are to be deducted from the nominal extra costs, in order to arrive at the net extra costs and hence the eligible costs. This aspect was explained to the Austrian representatives and BMW at the meeting on 7 March 1997 in Brussels. In the letter of 22 April 1997 the net value of this investment is given as ÖS 15 million, taking into account the savings made during a seven-year lifecycle of the equipment [. . .]. After detailed examination, the Commission and its independent experts are convinced that this assessment is satisfactory and that it also substantiates the need for aid, since the investment is not covered by the savings in operating costs alone. Consequently, the eligible costs amount to ÖS 15 million with a maximum aid intensity of 30 %.

Consequently, the Commission considers that the environmental-protection aid of ÖS 4,5 million specified by the Austrian authorities in the notification of the BMW Steyr case is compatible with the implementing provisions of the relevant Community guidelines.

Since the eligible costs, aid intensity and observance of the specific criteria set out in the relevant Community guidelines correspond to Commission policy on State aid, it can be assumed that the aid concerned does not adversely affect trading conditions to an extent contrary to the common interest and hence may be eligible for application of the derogations contained in Article 92 (3) (c) of the EC Treaty and Article 61 (3) (c) of the EEA Agreement.

Third parties who prove sufficient interest may obtain a copy of this letter. Accordingly, the Commission should be informed within seven days of receiving this letter if it is thought that it contains any sensitive information that should not be passed on, and this is to be substantiated. If the Commission receives no comments within the stipulated period, it will assume agreement to the publication of the full text of this letter. Any request should be addressed to:

European Commission,

Rue de la Loi/Wetstraat 200,

B-1049 Brussel.

(¹) OJ C 123, 18.5.1989; OJ C 36, 10.2.1993; and C 284, 28.10.1995 (latest version).

(²) OJ C 45, 17.2.1996, p. 5.

(³) OJ C 72, 10.3.1994.

(4) See, for example, the following cases: Ford/VW (OJ C 257, 3.10.1991; Opel Eisenach, (OJ C 43, 16.2.1993, p. 14; Fiat Mezzogiorno (OJ C 37, 11.2.1993, p. 15); Jaguar (OJ C 201, 23.7.1994, p. 4); FASA Renault (OJ C 267, 14.10.1995, p. 13); Ford Genk, OJ C 5, 10.1.1996, p. 5; VW Sachsen (OJ L 308, 29.11.1996, p. 46).

(5) The Commission's assessment of the regional disadvantages is based on information from BMW and independent sources.

(6) OJ C 72, 10.3.1994, p. 3.

(7) This point is also referred to in the DG IV working paper on the revision of those Community guidelines tabled at the multilateral meeting on 15 January 1997: cost savings or other advantages derived by the capital provider on the basis of the investment are to be excluded.`

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