94/258/ECSC: Commission Decision of 12 April 1994 concerning aid to be granted by Spain to the public integrated steel company Corporación de la Siderurgia Integral (Only the Spanish text is authentic)

COMMISSION DECISION of 12 April 1994 concerning aid to be granted by Spain to the public integrated steel company Corporaciรณn de la Siderurgia Integral (Only the Spanish text is authentic) (94/258/ECSC)
THE COMMISSION OF THE EUROPEAN  COMMUNITIES
,
Having regard to the Treaty establishing the European Coal and Steel Community, and in particular the first and second paragraphs of Article 95 thereof,
Afte consulting the Consultative Committee and with the unanimous assent of the Council,
Whereas:
I  The Community steel industry is currently experiencing its most difficult period since the first half of the 1980s. This is due to the general slowdown in the economy, which has had a significant effect on industrial activities in general, and on the  steel industry in particular, leading to a serious imbalance between supply and demand, accompanied by a collapse in prices. In addition, the international market generally has been weak: there is pressure from imports and there has been a trade dispute  with the USA affecting substantial Community exports to that market. All of these factors have combined to aggravate the financial situation of almost all steel companies in the Community.
II  In April 1992, Spain notified the Commission of a plan to restructure the Spanish public integrated steel company Corporaciรณn de la Siderurgia Integral (CSI) (incorporating Ensidesa and Altos Hornos de Vizcaya (AHV)) and the associated financing by  which it intends to support this plan.
The restructuring plan submitted, as subsequently revised, envisages that AHV and Ensidesa would cease to operate and their activities would be taken over by a new company, to whom their assets and certain liabilities would be transferred; and includes  a number of industrial, commercial, social and financial restructuring measures, which would be completed by the end of 1998.
The plan provides for the definitive closure by the end of 1995 of all AHV's steel-making facilities including the hot-strip mill at Ansio, which together with closures at Ensidesa's plant will involve a total capacity reduction of 2,33 million tonnes  (35 %) in pig iron, 1,423 million tonnes (20 %) in liquid steel and 2,3 million tonnes (50 %) in hot-rolled coil.
A new company with majority private sector participation is envisaged to take forward a proposed investment in a compact-strip production unit at Sestao (with a capacity of 1 million tonnes), partially to replace the Ansio hot-strip mill.
The plan envisages a reduction in the workforce of 10 347 persons from 24 489 in 1991 to 14 142 in 1998, i.e. a reduction of 42 %.
The financing of the plan, as revised, includes aid elements that are incompatible with the ECSC Treaty and with the provisions of Commission Decision No 3855/91/ECSC (1) (Steel Aid Code). According to the Commission's estimates this aid amounts to a  maximum of Pta 437,8 billion, serving the following purposes:
- a capital injection of up to a maximum of Pta 276,7 billion in the new company by the former public shareholders of AHV and Ensidesa,
- social aid up to a maximum of Pta 54,519 billion,
- up to a maximum of Pta 35,5 billion in the form of capital conversion of an INI credit for that amount to Ensidesa,
- up to a maximum of Pta 9,4 billion to cover contingencies,
- up to a maximum of Pta 61,654 billion in the form of loss compensation to cover additional operating losses and financial charges in 1992 and 1993 over and above those originally forecast in the plan, and reduced turnover arising from bringing forward  the Ansio closure.
Additional social aid up to a maximum of Pta 47,35 billion, is being authorized separately by the Commission as compatible with Article 4 (1) of Decision No 3855/91/ECSC.
III  The Commission, assisted by external experts, has assessed the viability of the restructuring plan, applying the same criteria as those imposed by the Commission during the previous restructuring of the Community steel industry. The viability if  the plan without the Sestao investment has also been assessed. On the basis of the consultants' findings, the Commission has concluded that, provided the restructuring plan as revised is implemented strictly, the new company should achieve viability,  under normal market conditions, by the end of 1996.
IV  The extremely difficult Community steel market situation has endangered the sector in several Member States, including Spain. The aim of providing the Spanish public integrated steel industry with a sound and economically viable structure  contributes towards the achievement of the objectives of the ECSC Treaty, in particular Articles 2 and 3. The Commission considers that the public financial assistance measures proposed by Spain are necessary to achieve these aims. The Commission  therefore finds itself faced with a situation not specifically provided for in the Treaty. In these exceptional circumstances recourse must be made to the first paragraph of Article 95 of the Treaty, so as to enable the Community to pursue the  objectives set out in the initial Articles thereof.
At the same time, however, it is essential to ensure that the aid approved is limited to what is absolutely necessary and that it does not adversely affect trading conditions within the Community to an extent contrary to the common interest,  particularly given the current difficulties on the Community steel market. It is therefore important that there should be adequate counterpart measures, commensurate with the amount of aid being exceptionally approved, so that a major contribution is  made to the structural adjustment required in the sector.
V  The proposed creation of new hot-rolling capacity at Sestao (partially to replace the hot-strip mill at Ansio) is regarded as delinked from the aided restructuring plan through the creation of a new company, with majority private sector  participation, to take forward the project. However, it must be ensured that the majority private sector participation is genuine and unconditional, unsupported by State aid. The authorization of aid in this case will therefore be contingent on the  Commission obtaining the necessary verifications in due course.
As regards the capacity reductions envisaged under the plan, as revised, it is necessary to require that all the closures are definitive and irreversible so that the capacity concerned no longer depresses the Community steel market. The closed  installations must therefore be scrapped or sold for use outside Europe. In addition, there should be no increase in remaining capacity for crude steel and hot-rolled finished products under the aided restructuring plan, other than resulting from  productivity improvements, for a period of at least five years starting from the date of the last capacity closure, or of the last payment of aid in respect of investments under the plan, whichever is the later, in order to ensure a long-term and real  effect on reducing the current imbalance between supply and demand on the Community steel market. It is also essential that the timetable for closures in complied with. In particular the closure of the hot-strip mill at Ansio must be achieved at the  very latest by 31 December 1995, although Spain should use its best endeavours to bring forward the closure even sooner if possible.
VI  It is not only necessary to ensure during the whole restructuring period that the aid approved enables the company to return to viability by the end of 1996, the aid must also be kept to the amount strictly necessry. In that contextx, it must also  be ensured that the company does not, as a result of the financial restructuring measures, obtain an unfair advantage over other companies in the sector by being provided at the outset with net financial charges below 3,5 % of annual turnover, which is  the current average for Community steel companies. It is also appropriate to require that the company or its legal successor is not allowed to claim or be granted tax reduction or relief on past losses covered by aid under the restructuring and that all  proceeds from the sale of shares in the new company to the former public shareholders of AHV and Ensidesa are used to repay the remaining debts of the dormant companies as provided for in the restructuring plan. Furthermore any additional loans must be  on normal commercial conditions and no preferential treatment accorded to any fresh public debts incurred.
VII  The implementation of this Decision requires strict monitoring by the Commission during the whole restructuring period and up until the end of 1998.
In order to carry out this monitoring effectively, the Commission will require the full and close collaboration of Spain, on whom clear and strict reporting obligations will be imposed.
In particular the following elements will require close attention:
- the reduction of capacity,
- the investments carried out,
- reductions in the workforce,
- compliance with the timetable for closures,
- production and the effects on the market,
- financial performance,
- privatization,
- the creation of new enterprises,
- the guenine character of the majority private sector participation and the absence of State aid to finance the Sestao project,
- the source, terms and conditions of any further financing (including treatment of further debts, credit facilities, etc). over and above that provided for in the plan,
- progress towards viability.
The Commission will submit six-monthly reports to the Council to keep it informed of developments.
It is also necessary to ensure that the aid is not used for the purpose of unfair competition practices. In addition the Commission may require on-the-spot checks made in accordance with the Article 47 of the ECSC Treaty, in order to verify the  information provided and in particular compliance with the conditions attached to the authorization of the aid. In that context, should a Member State make a complaint to the Commission that State aid is enabling the company to under-price, the  Commission will initiate an investigation pursuant to Article 60 of the ECSC Treaty in particular.
Furthermore, should the Commission, on the basis of the information provided, find that the conditions laid down in its decisions pursuant to Article 95 had not been met, it may require the suspension of payments of aid or the recovery of aid already  paid. In the event of a Member State's failing to comply with such decision, Article 88 of the ECSC Treaty shall apply.
The Commission may decide that all reports should be on a quarterly basis. It may also decide to mandate an independent consultant, selected with the agreement of Spain, to assist it in its monitoring task.
The Commission will, by exercising all its powers, ensure that the aided company fulfils the conditions of this Decision, including the necessary progress towards viability and its other obligations resulting from the financial data on which the  viability assessment has been made, the Commission may require appropriate measures to be taken to reinforce the restructuring measures.
VIII  A decision pursuant to Article 95 of the ECSC Treaty to authorize State aid is extraordinary in character given the provisions of Article 4 (c). In view of all the above, the Commission can exceptionally authorize the aid proposed in this case  subject to observance of the conditions and requirements it lays down. However, the aid involved, which is intended to restore the company to viability by the end of 1996, should be regarded as final. Should a return to viability not be achieved by that  date, Spain shall not request any further derogation under Article 95 for the company,