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C 79/4 EN Official Journal of the European Communities 14.3.

98

STATE AID
C 69/97 (ex NN 122/97)
Germany

(98/C 79/06)
(Text with EEA relevance)

(Articles 92 to 94 of the Treaty establishing the European Community)

Commission notice pursuant to Article 93(2) of the EC Treaty concerning aid which
the German Government plans to grant to SKET Maschinen- und Anlagenbau GmbH
(Saxony-Anhalt)

By the letter reprinted below, the Commission informed vollstreckung’’ proceedings (‘‘GVS’’ — the bank-
the German Government of its decision to initiate the ruptcy procedure for firms in the new Länder).
Article 93(2) procedure.

In 1995 (Commission letter of 21 March 1995),


it was decided to initiate proceedings under
‘By letter dated 19 November 1996, the German auth-
Article 92(3) of the EC Treaty (CØ16/95) in respect
orities notified aid for the companies newly set up
of aid to be provided for SKET Schwermaschi-
following the initiation of ‘‘Gesamtvollstreckung’’
nenbau Magdeburg GmbH (SMM) and its sub-
proceedings (bankruptcy procedure for firms in the new
sidiaries Drahtziehmaschinenwerk Grüna GmbH
Länder) in respect of SKET Schwermaschinenbau
(DZM) and Entstaubungstechnik Magdeburg
Magdeburg. By letter D/53917 of 27 November 1996,
GmbH (ETM) in connection with their privati-
the Commission asked the German authorities for
sation. By letter dated 12 August 1996, the German
further information on the aid. By letters dated
authorities were informed of the Commission’s
13 January 1997, 30 January 1997 and 7 March 1997,
decision to extend the proceedings to include other
the German authorities sent the Commission the
aid granted in the meantime and the restructuring
information. On 1 July 1997, the new companies and the
plan notified by the German authorities. Those
restructuring plans were presented at the companies’
proceedings were terminated by decision of 26 May
premises in Magdeburg, Saxony-Anhalt, in the presence
1997 (letter D/5192 of 7 July 1997) on the aid for
of representatives of the Federal Ministry of Economic
SMM.
Affairs, the ‘‘Bundesanstalt für vereinigungsbedingte
Sonderaufgaben’’, the relevant company and
Commission officials. The restructuring plans were
forwarded in writing the same day. The decision to terminate the proceedings was taken
following the initiation of ‘‘Gesamtvollstreckung’’
proceedings on 15 October 1996, at the request of
the SMM management, before the Magdeburg
The file, initially registered under a single state aid Court. At that time, the Bundesanstalt für vereini-
number NNØ67/97, was subsequently divided up, and gungsbedingte Sonderaufgaben (BvS) had taken
that concerning SKET Maschinen- und Anlagenbau over the shares of the subsidiaries not involved in
GmbH (‘‘MuA’’) was recorded under number the GVS (DZM/H@B and ETM) with a view to
NNØ122/97. their subsequent privatisation and had decided to
continue five of SMM’s branches of activity with
future potential in the form of five new companies.

1.ÙØÙGENERAL DESCRIPTION
The new companies took over the workforce and
assets they needed for their business from the
1.1. Background company involved in GVS under an agreement
concluded on 22 November 1996 between the GVS
administrator and the BvS. Coordination of the
continuation of the five separate companies’
SKET Maschinen- und Anlagenbau was set up in business has since then been carried out by a
November 1996 (entered in the commercial register management company, SKET Management und
on 8 November 1996). It took over the mechanical Vertrieb GmbH (MuV). The company in question
engineering business of SKET Schwermaschinen here — SKET Maschinen- und Anlagenbau GmbH
Magdeburg GmbH, which had initiated ‘‘Gesamt- (‘‘MuA’’) — is one of the companies. The others are
14.3.98 EN Official Journal of the European Communities C 79/5

SKET Walzwerkstechnik GmbH, SKET Ölsaaten- turing process. The GVS proceedings are in fact to
technik GmbH, SKET Maschinenbau-EDV GmbH be regarded as an instrument which helped to make
and SKET Verseilmaschinenbau GmbH. restructuring possible by reducing SMM to a
slimmer and more flexible structure. The BvS
decided to continue business activities with future
These companies are to be privatised. The BvS has potential in the form of smaller units. This is clearly
asked West Merchant Bank to find investors for the in line with the task which the BvS (as the successor
five new companies and for the two subsidiaries. to the Treuhandanstalt) has to perform, namely
Two of the companies have already been privatised, facilitating the conversion from a planned economy
while the others are still the subject of negotiations/ to a market economy by privatising firms deemed
tendering. capable of regaining competitiveness. This is an
unusual situation which accordingly, in certain
cases, requires unusual restructuring instruments.
In the period up to privatisation, financing is the
responsibility of the BvS. The German authorities
first notified an initial part of the aid intended to
allow business to be continued through the
taking-over of orders from SMM. They then
notified further aid together with information on SKET Maschinen- und Anlagenbau GmbH has
the restructuring plans. taken over only SMM’s heavy machinery
production activities and works solely on the basis
of designs to customer orders. The firm offers the
production and distribution of machinery,
1.2. Financial measures equipment and plants of all types together with
the associated services, including consultancy,
planning, assembly, commissioning, coordination,
The restructuring plan provides for an amount of construction management, disassembly and resale. It
DEM 79,2 million, of which DEM 19,1 million is is certified under ISO 9001 and its workforce has
currently in the form of loans with a maturity to the many years of experience in the construction of
end of 1998, though this can be extended until oilseed machinery, machinery for the production of
privatisation if privatisation occurs later. As from wire and cables and the manufacture of cranes,
April 1997, an interest rate of 5,5Ø% is charged on crushers and rolling mills. The restructuring plan
the loans. The rest of the financing is to be provided notified is at present based on MuA’s independence
in the form of non-repayable grants. Provision is from the other SKET successor companies. The
also made for a waiver of repayment of the loans. other SKET companies set up are potential
customers, but MuA is also open to other
customers. The tendency for mechanical engineering
A guarantee framework of DEM 2 million is to be companies to invest less in their own stock of
provided for contract financing. Of this, DEM machinery and to rely more on outsourcing means
1 million has already been guaranteed for the that MuA has a promising market to exploit.
contracts taken over from SMM. The guarantees
are to be transferred with the contracts taken over.

Of this total, DEM 51,3 million has already been


disbursed (position as at June 1997). DEM 43,7 Thanks to substantial investment (DEM 61 million
million was provided in the form of grants (DEM over the last six years) under the restructuring plan
25 million as equity capital). This was used to for SMM, MuA now has a very modern stock of
purchase fixed and current assets amounting to machinery which was acquired from the assets
DEM 40 million from the GVS administrator. DEM involved in the GVS. The machines are highly
3,6 million was provided in the form of loans; DEM automated, high-precision machine tools for boring,
4 million had been granted in the form of loans milling, turning, slotting, cutting and polishing.
when the company was set up and was then
converted into non-repayable grants.

1.3. Restructuring as claimed by the German authorities


Greater standardisation amongst suppliers and strict
selection criteria are expected to bring about a
SMM was no longer viable because of its structure reduction in production costs. Purchases will in
and its size, as was borne out by the initiation of future be made on a just-in-time basis so as to
GVS proceedings after a long and difficult restruc- reduce product inventories.
C 79/6 EN Official Journal of the European Communities 14.3.98

As regards capacities and the number of employees, There is strong competition from countries with low
the construction side of SKET SMM underwent wage costs such as Poland and the Czech Republic.
drastic cutbacks following reunification (1989: 3Ø037 However, there is growing demand for quality and
employees, 1993: 969 employees, 1995: 553 on-time production of complex plants in close
employees, 1997 with MuA: 115 employees). proximity to customers, and these are taking on
Expressed in terms of hours, the construction increasing importance. SKET MuA has therefore
branch had, at the end of 1995/beginning of 1996, focused on this market segment in which quality,
with 891 employees, a capacity of 834Ø000 service, logistics and the meeting of deadlines are
production hours. The new company now has a key factors. MuA produces the following product
capacity of 172Ø000 production hours with 115 groups in particular:
direct employees.
—Ùplant and equipment for rolling mills and
steelworks,
MuA has purchased from SKET SMM i.GV.
machinery, land, buildings, office equipment, —Ùmetal-forming machinery, e.g. presses,
data-base proprietary rights and software amounting
to DEM 34 million.
—Ùmachine tools and other production equipment,

—Ùturbines, generators, motors,


The adaptation process presented by the German
authorities as restructuring will require the
following expenditure and investment: —Ùmaterials handling technology,

—Ùshipyard and offshore equipment,


—Ùfinancing the rearrangement of the production
plant following the separation of the various —Ùlarge pumps and fittings.
units into separate and independent companies
(repair and maintenance work, relocation for the
purposes of concentration and stock integration,
vacation of a production hall, separation of
energy and telephone facilities so as to have 2.ÙØÙASSESSMENT
separate billing): DEM 18 million. The BvS
intends to provide this amount as a grant,
In the mechanical engineering industry, there is
substantial trade between Member States. The
granting of financial assistance to a firm in this
—Ùinvestment in productive equipment amounting sector in particular therefore constitutes State aid
to DEM 3,58 million is also planned, including within the meaning of Article 92(1) of the EC
DEM 3 million in the form of loans from the Treaty and Article 61(1) of the EEA Agreement.
BvS.

The Commission regrets that the German auth-


orities did not fulfil their obligation under
1.4. Sector Article 93(3) of the EC Treaty and Article 61(3) of
the EEA Agreement in that they granted aid to the
relevant firm without awaiting the Commission’s
MuA operates on the market for job-order heavy decision.
mechanical engineering and the assembly of heavy
machine equipment. Its customers are industrial and It must be examined whether any of the derogations
engineering firms in various branches of activity provided for in Article 92(3) of the EC Treaty is
which require components or complete plants to be applicable to the aid.
manufactured on the basis of plans, designs and
specifications. The firm is at present mainly active
on the German market. According to the As regards aid to promote the economic devel-
information provided by the German authorities, the opment of areas where the standard of living is
construction of different types of machines, rather abnormally low or where there is serious underem-
than specialisation in specific machines for a specific ployment (Article 92(3)(a) of the EC Treaty), the
branch of industry, makes production at competitive Commission’s decision of 18 December 1996
prices possible, even though the machinery and (NØ613/96) should be borne in mind. In that
equipment required by MuA includes highly capital- decision, it was reaffirmed that the new Länder are
intensive machinery whose purchase and main- deemed to be areas covered by Article 92(3)(a) of
tenance are profitable only if there is sufficient the EC Treaty. This must be taken into
capacity utilisation. consideration here.
14.3.98 EN Official Journal of the European Communities C 79/7

In this instance, the aid is not aid granted for of the matter in the light of those guidelines rein-
regional development purposes, but ad hoc aid to forces these doubts.
restore the viability of a firm in difficulty in an
economically weak area. The aid could therefore
qualify for the derogation provided for in Article
92(3)(c) of the EC Treaty.
Under the guidelines, restructuring aid must be
linked to a realistic and coherent restructuring plan
designed to restore the long-term viability of the
firm. The plan must meet the requirements set out
The aid was notified as restructuring aid for a firm in point 3.2 of the guidelines if it is to be approved
in difficulty. If the derogation provided for in by the Commission.
Article 92(3)(c) of the EC Treaty is to be applied,
the aid must be examined in the light of the
guidelines on State aid for rescuing and restruc-
turing firms in difficulty. As a first step, the applica-
bility of the guidelines must be examined.
RESTORING VIABILITY

SKET Maschinen- und Anlagenbau GmbH was set


up in November 1996 following the initiation, and The first condition is that the restructuring plan
subsequent enforcement, of GVS proceedings must restore the long-term viability and health of
against SKET SMM. The firm has taken over, with the firm within a reasonable time-scale and on the
part of the existing workforce, the production side basis of realistic assumptions as to its future
of SKET SMM’s activities. It is carrying out some operating conditions. The plan must be capable of
of the contracts that SMM had when the GVS putting the company into a position of covering all
proceedings were initiated and has purchased the its costs.
fixed and current assets required for its activities. It
is an independent firm that was set up with four
other companies to take over the various branches
of activity of SKET SMM i.GV.
The restructuring plan for SKET Maschinen- und
Anlagenbau GmbH presented by the German auth-
orities at the end of June 1997 covers the period
1997-1998. Privatisation of the firm is to take place
In principle, the Community guidelines on State aid by the end of 1997.
for rescuing and restructuring firms in difficulty do
not apply to newly set-up firms that take over the
assets of bankrupt firms. An exception is made for
firms in the new Länder because of the particular
difficulties they face as a result of the transition The information communicated to the Commission
from a planned economy to a market economy. This on the restructuring plan is still too summary and is
special situation together with the specific role too imprecise as regards the proposed restructuring
played by the BvS in the transition makes it possible, measures and the future management of the firm.
in some cases, to treat as restructuring aid aid for a For these measures, the plan provides for DEM 18
firm taking over the assets of another firm involved million to finance improvements to the roof and
in GVSØ(Î). In previous cases, the private investors relocations designed to concentrate production.
taking over the new firms made a substantial However, no details are provided on the measures
contribution to the restructuring. In the case in and the associated costs.
point, no private investor has yet been found, and
the BvS is therefore performing a dual role as the
sole shareholder of the firm involved in GVS
(SKET SMM) and of the new firm (SKET MuA).
This fact raises serious doubts as to be possibility of Few figures are provided, and the plan does not
treating the aid for SKET MuA as restructuring aid contain any forecasts beyond 1998. The
within the meaning of the guidelines. An assessment Commission does not have any current or forecast
balance sheets; furthermore, it has received only a
(Î)ÙSee Commission decisions of 16 April 1997 and 30 April simplified provisional profit and loss account for
1997: State aid NØ874/96 and NNØ139/96 for Union Werk- 1997 and 1998. The profit and loss account trans-
zeugmaschinen GmbH — Commission letter D/3428 of mitted shows planned losses amounting to DEM 4,3
2 May 1997; State aid NØ892/96 for Foron Haus- und
Küchentechnik GmbH — Commission letter D/4047 of million for 1997, but a profit of DEM 0,6 million
28 May 1997. for 1998.
C 79/8 EN Official Journal of the European Communities 14.3.98

The information provided seems to be too imprecise Commission to make a definite assessment of all the
to show whether the firm can become viable again possible effects on competition.
in the long term, whether it can cover all its costs
and whether the plan is based on realistic
assumptions. LIMITING THE AID TO THE STRICT MINIMUM
NEEDED

AVOIDANCE OF UNDUE DISTORTIONS OF The aid must be limited to the strict minimum
COMPETITION needed to enable restructuring to be undertaken. It
must be in proportion to the restructuring costs and
benefits and must not provide the company with
Adverse effects on competitors must be offset as far surplus cash which could be used for an aggressive
as possible. The guidelines accordingly require that, pricing policy.
in sectors where there is excess capacity, production
capacity must be reduced in proportion to the
amount of aid received. The information provided on the restructuring plan
indicates a financing requirement of a total of DEM
79,2 million plus guarantees amounting to DEM
SKET MuA produces heavy machinery and machine 2 million. All these measures are being financed by
tools to order in accordance with customer specifi- the BvS. Of the DEM 79,2 million, DEM 19,1
cations. The firm’s product range covers all million are under the current plans to be provided in
branches of industry. With the trend evident the form of loans, with an interest rate which the
amongst mechanical engineering firms to invest less German authorities regard as a market rate
in their own stock of machinery and to rely more (currently 5,5Ø%). The funds are needed for the
on outsourcing and to concentrate increasingly on following items:
project management and engineering, there are
good market prospects for SKET MuA. (million DEM)
Competition from low-wage countries (Poland and
the Czech Republic) is evidently having less impact, Purpose
since customers are focusing more on quality,
service and on-time production as far as high-tech- Equity capital (purchase price for fixed and
nology and high-precision machines are concerned. current assets) 25
Prices are thus tending to fall into line with one
another, and geographical proximity to customers is
working in SKET MuA’s favour. Grant (DEM 9,8 million for the purchase of
other fixed assets and DEM 18 million for
restructuring measures) 27,8

According to the information available to the


Commission, as regards this type of producer manu- Loan waiver vis-{-vis the GVS administrator
facturing machines on a highly flexible basis for a of SKET SMM for SKET MuA 4
very wide range of industries, the market is not one
with excess capacity.
Building-up of stocks 3,3

It should be borne in mind that, in the branch in


which SKET MuA now operates, a substantial Building-up of working capital for short-term
reduction in capacity has taken place as compared order financing 6Ø(*)
with the final restructuring phase of SKET SMM
before the initiation of GVS proceedings. The
reductions were necessary in order to reduce the Investment 3Ø(*)
firm to a size that would make it flexible and
adaptable enough to be able to continue. SKET
MuA is now an SME within the meaning of the Pre-financing of purchase of materials for
Community definitionØ(Ï) which is situated in an orders 8Ø(*)
area covered by Article 92(3)(a) of the EC Treaty;
this must be taken into account in assessing the
competition-distorting effect. However, the restruc- Covering of start-up losses 2,1Ø(*)
turing plan does not contain any indication as to the
planned trend of capacity of the firm in connection
with the new aid. It is therefore difficult for the TotalØ 79,2

(Ï)ÙCommission recommendation of 3 April 1996 concerning (*)ÙCurrently to be provided in the form of loans by the BvS.
the definition of small and medium-sized enterprises.
14.3.98 EN Official Journal of the European Communities C 79/9

The notification refers to the need to take account Commission takes the view that there are doubts as
of the financing problems that will result from the to the compatibility of the restructuring aid with the
uncoupling of the firm from the BvS when it is common market within the meaning of Article 92(1)
privatised. The German authorities therefore think of the EC Treaty.
that financing problems may arise that might affect
the figures on the amount of state aid. The loans are
supposed to run to the end of 1998, but there is the
possibility that they will be extended until privati-
sation. Repayment of the loans will then be waived At the present stage, the Commission doubts that
so as to consolidate the firm financially. Of the the guidelines on State aid for rescuing and restruc-
DEM 79,2 million in aid, DEM 51,3 million has turing firms in difficulty are applicable to this aid
already been granted (June 1997). The restructuring for a newly set-up firm which is acquiring the assets
plan includes on the one hand capitalisation and on of a company in GVS and in which the BvS is
the other the financing of the rearrangement of the performing the dual role of the sole shareholder of
production sites. No financial contribution to the the company in GVS and of the newly set-up
restructuring is provided for on the part of the company. These doubts are further reinforced by an
recipient firm. Without more detailed financial assessment of the aid in the light of the above-
information, it is not possible to assess the cost mentioned guidelines. The restructuring plan does
effectiveness of the State’s contribution. not, on the basis of the information provided, seem
to comply with the requirements of the guidelines
given the absence of any evidence that long-term
viability will be restored, the lack of figures and
details on the measures, the lack of any contribution
In addition to the DEM 79,2 million, guarantees are from a private investor, the lack of any undertaking
required for the purposes of contract financing. Of that the restructuring plan will be fully imple-
the DEM 2 million, a guarantee of DEM 1 million mented, and the lack of any evidence that the plan
relates to the continued financing of orders which will avoid undue distortions of competition and will
had been placed with SKET SMM. The amounts of contribute to lasting regional development.
aid may subsequently change (at the time of privati- Furthermore, the amount of aid and the conditions
sation), and no provision is made for any under which it is granted could apparently still
contribution to the restructuring on the part of the change, and no evidence has been provided that the
recipient firm. It is at present not possible for the notified aid corresponds to the strict minimum
Commission to assess the proportionality of the aid needed to enable the viability of the firm to be
and to say whether the aid is limited to the strict restored.
minimum needed for the restructuring of SKET
MuA.

For the reasons set out above, the Commission has


therefore decided to initiate proceedings under
FULL IMPLEMENTATION OF THE
RESTRUCTURING PLAN
Article 93(2) of the EC Treaty in respect of the aid
for SKET Maschinen- und Anlagenbau GmbH.

The restructuring plan submitted to the Commission


must be fully implemented. Otherwise, the As part of the proceedings, the Commission hereby
Commission may take steps to require the recovery calls upon the German authorities to submit their
of the aid. comments and any information they consider
relevant within one month of receiving this letter.

The restructuring plan as submitted to the


Commission is still too summary and imprecise.
Some aspects have evidently not yet been finalised. The Commission would remind you of the
Consequently, the German authorities cannot yet suspensory effect of Article 93(3) of the EC Treaty
meet the requirement of ensuring that the notified and would draw your attention to the communi-
plan is implemented. cation published in the Official Journal of the
European Communities CØ318 of 24 November 1983,
page 3, and to the communication published in the
Official Journal of the European Communities CØ156
of 27 June 1995, page 5, in which it was made clear
In view of these considerations and on the basis of that any aid granted unlawfully may have to be
the information so far provided to it, the recovered.
C 79/10 EN Official Journal of the European Communities 14.3.98

The Commission hereby requests the German The Commission hereby gives other Member States and
Government to inform the recipient firm without interested parties notice to submit their comments on the
delay of the initiation of proceedings and of the fact measures within one month of the date of publication of
that it may have to repay any aid unlawfully this notice in the Official Journal of the European
received. Communities, to:
European Commission
Any negative decision on the aid will mean that the Directorate-General for Competition (DG IV)
recipient firm must in principle repay the aid in Rue de la Loi/Wetstraat 200
accordance with the procedures and provisions laid B-1049 Brussels.
down by German law, including interest calculated
at the reference rate used for regional aid and with The comments will be communicated to the German
effect from the date on which the aid was granted.’ Government.

STATE AID
CØ5/96
France

(98/C 79/07)

(Text with EEA relevance)

(Articles 92 to 94 of the Treaty establishing the European Community)

Commission notice pursuant to Article 93(2) of the EC Treaty to other Member States and
interested parties concerning aid which France plans to grant to Saab-Scania

The Commission has sent the French Government the —Ùit could not be excluded that some items of expen-
following letter, informing it that it has decided to diture for which the aid had been granted did not
terminate proceedings previously initiated under Article qualify for aid under the Commission’s criteria,
93(2) of the EC Treaty.

—Ùthe apparently high aid intensity for a project


‘By letter No SG(96) D/2460 of 22 February 1996, involving extension of capacity on the European bus
published in the Official Journal of the European and truck market could have given rise to unjustified
Communities on 21 March 1996, the Commission distortions of competition,
informed the French Government of its decision to
initiate the procedure provided for in Article 93(2) of the
EC Treaty in respect of aid of FRF 24,7 million in
favour of Saab-Scania. The Commission’s decision was
based on the following grounds: —Ùthe French authorities had not presented enough
evidence to justify the aid by reference to the
structural and economic problems which Saab-Scania
faced as a result of its investments in Angers. The
—Ùthe aid had not been notified to the Commission in overall aid intensity could have been dispropor-
accordance with the procedure provided for in tionately high and incompatible with the criteria laid
Article 93(3) of the EC Treaty before being paid to down in the Community framework for state aid to
the recipient, the motor vehicle industry.

—Ùthe aid intensity could have exceeded the regional aid


ceiling for the region where the plant was to be The amount of aid (FRF 24,7 million) represents the
constructed (Angers), difference between the aid paid in 1992 in the form of a