94/260/ECSC: Commission Decision of 12 April 1994 concerning aid to be granted by Germany to the steel company Sächsische Edelstahlwerke GmbH, Freital/Sachsen (Only the German text is authentic)

COMMISSION DECISION of 12 April 1994 concerning aid to be granted by Germany to the steel company Saechsische Edelstahlwerke GmbH, Freital/Sachsen (Only the German text is authentic) (94/260/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,
After 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 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 United States of America 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  On 18 January 1993, Germany notified the Commission of a plan of the Treuhandanstalt, a public body in charge of the privatization of the State-owned enterprises of the former German Democratic Republic, to grant aid to its steel company Saechsische  Edelstahlwerke GmbH, Freital/Sachsen (hereinafter referred to as 'SEW Freital') in the framework of its privatization, with a request for the application of Article 95 of the ECSC Treaty in respect of the aid measures that cannot be approved under  Commission Decision No 3855/91/ECSC (1) (Steel Aid Code, hereinafter referred to as 'the SAC').
The company in question was founded in the 19th century and is held by the Treuhandanstalt since the German economic, monetary and social unification in June 1990. The undertaking was offered for sale in an unconditional and open bidding procedure. Five  applicants demonstrated interest in the acquisition of SEW Freital. Following talks between the Treuhandanstalt and those five applicants, concrete contractual negotiations were conducted until October 1992 with three of them. While one of the remaining  three withdrew its offer in August 1992, the proposal of the second was considered not to be backed by a reliable financial plan. The private West-German Boschgotthardtshuette O. Breyer GmbH (hereinafter referred to as 'BGH') remained as sole bidder. The  purchase contract was signed in December 1992, inter alia, subject to approval by the Commission. Through is contract, SEW Freital has been taken over by SEW Edelstahl GmbH and Co Holding, which is entirely owned by BGH.
The plan of the purchaser provides for a reduction of the hot-rolling capacity of the company by at least 160 kt/y (47 %) and a reduction of the crude-steel capacity by 100 kt/y (33 %) compared to the situation on 1 July 1990. The comany will close down  all existing hot-rolling facilities and replace them by a merchant-bar mill with a capacity of 180 kt/y of which some parts will be provided to the company by BGH for free. It will close down all of its remaining crude-steel facilities and replace them  by an electric arc furnace with a capacity of 200 kt/y. The capacity reduction will be accompanied by a substantial reduction in the workforce, namely by 49 %.
The privatization provisions include aid elements that are incomptible with the ECSC Treaty and with the provisions of the SAC. According to the Commission's estimates, this aid amounts to a maximum of DM 274 million, serving the following purposes:
- a maximum amount of DM 34 million has been accorded to cover social charges relating to the release of 1 056 of 2 166 employees,
- a maximum amount of DM 189 million is to cover debts accumulated until privatization,
- a maximum amount of DM 42 million which the Treuhandanstalt will pay to the company for repair and maintenance of installations,
- a maximum amount of DM 9 milion by which the Treuhandanstalt guarantees the valuation of certains assets.
Additional investment aid up to a maximum of DM 47,8 million, a tax allowance of DM 12,8 million and a guarantee covering up to 80 % of the investment loans of DM 100,8 million has been approved by the Commission under the SAC.
III  The restructuring plan on which the purchase agreement is based is considered viable by the Commission since a private investor experienced in the steel sector is prepared to risk a considerable amount of own capital. The investor, chosen after an  open and unconditional bidding procedure, has demonstrated his willingness to assume the risk for the company's future viability without further aid than that covered by the purchase contract.
IV  The extremely difficult Community steel market situation has endangered the sector in several Member States, including Germany. The aim of providing the steel industry in the territory of the former German Democratic Republic with a sound and  economically viable structure contributes towards the achievement of the objectives of the Treaty, in particular Articles 2 and 3. The Commission considers that the public financial assistance measures proposed by Germany 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 had 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  As regards the capacity reductions envisaged under the plan, 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, 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 set out in the restructuring plan is complied with.
VI  It is not only necessary to ensure during the whole restructuring period that the aid approved enables the company to return to viability, the aid must also be kept to the amount strictly necessary. In that context, it must also be ensured that the  company does not, as a result of the financial restructuring measures, obtain an unfaire 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. 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 up and until the end of 1998.
In order to carry out this monitoring effectively, the Commission will require the full and close collaboration of Germany, on whom clear and strict reporting obligations will be imposed.
In particolar, the following elements will require close attention:
- the reduction of capacity,
- the granting of aid under the present privatization plan and the source, terms and conditions of any further financing over and above that period for in the plan,
- the investments carried out,
- reductions in the workforce,
- production and the effects on the market,
- financial performance.
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 Article 47 of ECSC Treaty, in order to verify the informations  provided and in particular the 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 underprice, 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 decision 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 Germany, 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 application of the ECSC Treaty.  Should the monitoring reports indicate substantial deviations 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). Inview 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 1997, should be regarded as final. Should a return to viability not be achieved by that  date, Germany shall not request any further derogation pursuant to Article 95 for the company,