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C 83/10 EN Official Journal of the European Communities 18.3.

98

STATE AID
CØ72/97 (ex NN 124/97)
Germany

(98/C 83/07)
(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 concerning aid which the
German Government plans to grant to SKET Verseilmaschinenbau GmbH (Saxony-Anhalt)

By the letter reprinted below, the Commission informed took over the cable-making machinery business of
the German Government of its decision to initiate the SKET Schwermaschinen Magdeburg GmbH (SKET
Article 93(2) procedure. SMM), which had initiated ‘‘Gesamtvollstreckung’’
proceedings (‘‘GVS’’ — the bankruptcy procedure
for firms in the new Länder).

‘By letter dated 19 November 1996, the German auth-


orities notified aid for the companies newly set up
following the initiation of ‘‘Gesamtvollstreckung’’
proceedings (bankruptcy procedure for firms in the new In 1995 (Commision letter of 21 March 1995),
Länder) in respect of SKET Schwermaschinenbau it was decided to initiate proceedings under
Magdeburg. By letter D/53917 of 27 November 1996, ArticleÙ92(3) of the EC Treaty (C 16/95) in respect
the Commission asked the German authorities for of aid to be provided for SKET SMM and its subsi-
further information on the aid. By letters dated diaries Drahtziehmaschinenwerk Grüna GmbH
13 January 1997, 30 January 1997 and 7 March 1997, (DZM) and Entstaubungstechnik Magdeburg
the German authorities sent the Commission the GmbH (ETM) in connection with their privati-
information. On 1 July 1997, the new companies and the sation. By letter dated 12 August 1996, the German
restructuring plans were presented at the companies’ authorities were informed of the Commission’s
premises in Magdeburg, Saxony-Anhalt, in the presence decision to extend the proceedings to include other
of representatives of the Federal Ministry of Economic aid granted in the meantime and the restructuring
Affairs, the ‘‘Bundesanstalt für vereinigungsbedingte plan notified by the German authorities. Those
Sonderaufgaben’’, the relevant company and proceedings were terminated by decision of 26 May
Commission officials. The restructuring plans were 1997 (letter D/5192 of 7 July 1997) on the aid for
forwarded in writing the same day and registered with SMM.
the Commission’s Secretariat-General on 3 July 1997.

The file, initially registered under a single state aid The decision to terminate the proceedings was taken
number NNØ67/97, was subsequently divided up, and following the initiation of ‘‘Gesamtvollstreckung’’
that concerning SKET Verseilmaschinenbau GmbH proceedings on 15 October 1996, at the request of
(‘‘VMB’’) was recorded under number NNØ124/97. the SMM management, before the Magdeburg
Court. At that time, the Bundesanstalt für vereini-
gungsbedingte Sonderaufgaben (BvS) had taken
over the shares of the subsidiaries not involved in
the GVS (DZM/H@B and ETM) with a view to
1. GENERAL DESCRIPTION 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.

1.1. Background

The new companies took over the workforce and


assets they needed for their business from the
SKET VMB was set up in November 1996 (entered company involved in GVS under an agreement
in the commercial register on 8 November 1996). It concluded on 22 November 1996 between the GVS
18.3.98 EN Official Journal of the European Communities C 83/11

administrator and the BvS. Coordination of the (million DEM)


continuation of the five separate companies’ Purpose
business has since then been carried out by a
management comany, SKET Management und Equity capital formation, of which:
Vertrieb GmbH (MuV). The company in question —ÙDEM 2,3 million as purchase price for
here — SKET Verseilmaschinenbau GmbH fixed and current assets
(‘‘VMB’’) — is one of the companies. The others —ÙDEM 2,7 million for the building-up of
are SKET Walzwerkstechnik GmbH, SKET Ölsaa- stocks 5,0
tentechnik GmbH, SKET Maschinenbau-EDV
GmbH and SKET Maschinen- und Anlagenbau Building-up of stocks 0,5
GmbH.
Completion of former contracts with
guarantee cover 2,7

Loan waiver for GVS administrator of SKET


These companies are to be privatised. The BvS has SMM 0,5
asked West Merchant Bank to find investors for the
five new companies and for the two subsidiaries. Building-up of working capital for short-term
order financing 2,3
Two of the companies have already been privatised,
while the others are still the subject of negotiations/ Pre-financing of purchase of materials for
tendering. orders 2,3

Covering of losses 4,8

In the period up to privatisation, financing is the TotalÙ 18,1


responsibility of the BvS. The German authorities
first notified an inital part of the aid; they then
notified further aid together with information on 1.3. The plan presented as a restructuring plan
the restructuring plans.

SKET Verseilmaschinenbau GmbH is an engin-


1.2. Financial measures eering company specialising in design, consultancy
cooperation and construction management for the
manufacture of cable-making machines and all
the associated customer services (assembly,
The German authorities notified the aid for SKET disassembly, distribution etc.). The firm is engaged
VMB as restructuring aid. The last notification was in all the activities involved in the manufacture of
accompanied by information on a restructuring plan machinery and plants for the production of wire and
for the period 1997-98. cable, with the exception of actual manufacture. For
actual manufacture, it has to rely on the services of
a mechanical engineering firm. This may be SKET
Maschinen- und Anlagenbau GmbH, one of the
The plan provides for financial measures amounting other companies set up following the initiation of
to DEM 18,1 million, of which DEM 9,6 million is GSV proceedings in respect of SKET SMM, but it
in the form of loans and DEM 8,5 million in the may also be another firm.
form of non-repayable grants. However, a part of
the loans is subsequently to be converted into
non-repayable grants. DEM 6 million (June 1997)
has already been paid, including DEM 5 million in The plan comprises research and development
the form of grants for the purchase of fixed and projects relating to steel wire production and the
current assets and materials. construction of cable-making machinery, with the
aim of further improving these products.

The plan also provides for a guarantee framework


totalling DEM 18,3 million. Of this, DEM 2,7 As regards purchases and production, experience
million has already been granted for the completion during the first few months of business shows that
of contracts taken over from the former company. SKET VMB can have manufacturing work carried
out by SKET MuA on competitive terms. In the
case of some parts and electronic components,
SKET VMB plans to establish its own purchasing
The aid is intended to cover the following items: arrangements.
C 83/12 EN Official Journal of the European Communities 18.3.98

SKET VMB has taken over a series of contracts It must be examined whether any of the derogations
that had been concluded with SKET SMM. In May provided for in Article 92(3) of the EC Treaty is
1997, the order book was already full and turnover applicable to the aid.
for 1997 142Ø% assured and planned turnover for
1998 100Ø% assured. Projects to be carried out in
1999 are currently being negotiated; the turnover
forecasts are, according to the German authorities,
realistic (however, the figures were not As regards aid to promote the economic devel-
communicated to the Commission). opment of areas where the standard of living is
abnormally low or where there is serious underem-
ployment (Article 92(3)(a) of the EC Treaty), the
Commission’s decision of 18 December 1996
In the case of five of the contracts which have been (NØ613/96) should be borne in mind. In that
taken over, the BvS has to provide cover for losses decision, it was reaffirmed that the new Länder are
(in the case of some of these contracts, payments deemed to be areas covered by Article 92(3)(a) of
have already been made to SKET SMM). The the EC Treaty. This must be taken into
German authorities argue that completion of the consideration here.
contracts is justified because, if they were not
completed, costs would in any case be incurred by
the BvS because of guarantees taken over.

The German authorities have notified the aid being


examined as restructuring aid. They do not regard it
as aid granted for regional development purposes,
1.4. Sector
but as ad hoc aid to restore the viability of a firm in
difficulty in an economically weak area. This would
mean that the aid could qualify for the derogation
According to the German authorities, the world provided for in Article 92(3)(c) of the EC Treaty.
market for cable-making machines amounts to
DEM 500 million. Of this, DEM 300 million is for
machinery for steel wire production and DEM 200
million for machinery for copper wire production.
This market has a 3Ø% growth rate, mainly because If the derogation provided for in Article 92(3)(c) of
of growth in the South East Asian market. the EC Treaty is to be applied, the aid must be
examined in the light of the guidelines on State aid
for rescuing and restructuring firms in difficulty. As
a first step, the applicability of the guidelines must
Concentration of demand is evident on the be examined.
customer side. However, on the supplier side, the
market is not dominated by large producers. The
market does not seem to suffer from excess
capacity.
SKET Verseilmaschinenbau GmbH was set up in
November 1996 following the initiation, and
subsequent enforcement, of GVS proceedings
against SKET SMM. The firm has taken over, with
2. ASSESSMENT part of the existing workforce, part of SKET
SMM’s activities, namely the construction of cable-
making machinery (engineering, services, etc.). It is
carrying out some of the contracts that SMM had
In the mechanical engineering industry, there is when the GVS proceedings were initiated and has
substantial trade between Member States. The purchased the fixed and current assets required for
granting of financial assistance to a firm in this its activities.
sector in particular therefore constitutes State aid
within the meaning of Article 92(1) of the Ec Treaty
and Article 61(1) of the EEA Agreement.
In principle, the Community guidelines on State aid
for rescuing and restructuring firms in difficulty do
The Commission regrets that the German auth- not apply to newly set-up firms that take over the
orities did not fulfil their obligation under assets of bankrupt firms. An exception is made for
ArticleÙ93(3) of the EC Treaty and Article 61(3) of firms in the new Länder because of the particular
the EEA Agreement in that they granted part of the difficulties they face as a result of the transition
aid to the relevant firm without awaiting the from a planned economy to a market economy. This
Commission’s decision. special situation together with the specific role
18.3.98 EN Official Journal of the European Communities C 83/13

played by the BvS in the transition makes it possible, AVOIDANCE OF UNDUE DISTORTIONS OF
in some cases, to treat as restructuring aid aid for a COMPETITION
firm taking over the assets of another firm involved
in GSVØ(Î). In previous cases, the private investors
taking over the new firms made a substantial
contribution to the restructuring. In the case in Adverse effects on competitors must be offset as far
point, no private investor has yet been found, and as possible. The guidelines accordingly require that,
the BvS is therefore performing a dual role as the in sectors where there is excess capacity, production
sole shareholder of the firm involved in GVS capacity must be reduced in proportion to the
(SKET SMM) and of the new firm (SKET VMB). amount of aid received.
This fact raises serious doubts as to the possibility of
treating the aid for SKET VMB as restructuring aid
within the meaning of the guidelines. An assessment The plan does not contain any figures on existing
of the matter in the light of those guidelines rein- production capacities and anticipated trends. The
forces these doubts. figures available to the Commission do not indicate
any excess capacity on the market for cable-making
machines. The figures will have to be checked and
examined as part of the proposed proceedings.
Under the guidelines, restructuring aid must be
linked to a realistic and coherent restructuring plan
designed to restore the long-term viability of the The firm is an SME within the meaning of the
firm. The plan must meet the requirements set out Community definitionØ(Ï) which is situated in an
in point 3.2 of the guidelines if it is to be approved area covered by Article 92(3)(a) of the EC Treaty;
by the Commission. in the case of such areas, the Commission takes a
less strict attitude regarding the requirement that
production capacity should be reduced where there
is excess capacity.

RESTORING VIABILITY
LIMITING THE AID TO THE STRICT MINIMUM
NEEDED

The first condition is that the restructuring plan


must restore the long-term viability and health of The aid must be limited to the strict minimum
the firm within a reasonable time-scale and on the needed to enable restructuring to be undertaken. It
basis of realistic assumptions as to its future must be in proportion to the restructuring costs and
operating conditions. The plan must be capable of benefits and must not provide the company with
putting the company into a position of covering all surplus cash which could be used for an aggressive
its costs. pricing policy.

At present, no investor is contributing to the


The information currently available to the financing of the restructuring measures, and the
Commission on the plan is too imprecise regarding firm itself does not have the financial resources to
the proposed restructuring measures to allow it to contribute to the restructuring. The BvS, which
conclude that the plan is coherent and appropriate already held 100Ø% of the shares in SKET SMM,
as required by the guidelines. The forward estimates set up SKET VMB and is holding all its shares until
are too limited, and, given the lack of forecasts, it privatisation. The German authorities anticipate
cannot be assumed that the firm’s long-term viability possible financing problems on privatisation, but the
will be restored. notification does not contain any undertaking that
this is the last restructuring aid to be granted to
SKET VMB. The lack of figures for the period after
1998 makes it impossible to assess the propor-
tionality of the aid and the benefits of the State
funding.
(Î)ÙSee Commission decisions of 16 April 1997 and 30 April
1997: State aid NØ874/96 and NNØ139/96 for Union Werk-
zeugmaschinen GmbH — Commission letter D/3428 of
2 May 1997; State aid NØ892/96 for Foron Haus- und
Küchentechnik GmbH — Commission letter D/4047 of (Ï)ÙCommission recommendation of 3 April 1996 concerning
28 May 1997. the definition of small and medium-sized enterprises.
C 83/14 EN Official Journal of the European Communities 18.3.98

The taking-over of a number of contracts — even needed to enable the viability of the firm to be
though their completion meant losses for SKET restored.
VMB — has been justified by reference to the guar-
antees incumbent on the BvS, which mean that any For the reasons set out above, the Commission has
costs that would be incurred by the BvS would be therefore decided to initiate proceedings under
just as high as the cost of covering the losses. A Article 93(2) of the EC Treaty in respect of the aid
more detailed analysis of these costs is needed. for SKET Verseilmaschinenbau GmbH.

As part of the proceedings, the Commission hereby


Other items were not presented in detail — for calls upon your authorities to submit their comments
example, research and development projects — and and any information they consider relevant within
the Commission is therefore not able to assess one month of receiving this letter.
whether the amounts of aid correspond to the strict
minimum needed. This raises doubts as to whether The Commission would remind you of the
the aid is in proportion to the anticipated restruc- suspensory effect of Article 93(3) of the EC Treaty
turing benefits and as to whether the aid is limited and would draw your attention to the communi-
to the strict minimum needed. cation published in the Official Journal of the
European Communities C 318 of 24 November 1983,
page 3, and to the communication published in the
In view of these considerations and on the basis of Official Journal of the European Communities C 156
the information so far available to it, the of 27 June 1995, page 5, in which it was made clear
Commission therefore considers that there are that any aid granted unlawfully may have to be
doubts as to the compatibility of the restructuring recovered.
aid with the common market within the meaning of
Article 92(1) of the EC Treaty. The Commission hereby requests the German
Government to inform the recipient firm without
delay of the initiation of proceedings and of the fact
At the present stage, the Commission doubts that that it may have to repay any aid unlawfully
the guidelines on State aid for rescuing and restruc- received.
turing firms in difficulty are applicable to this aid
for a newly set-up firm which is acquiring the assets Any negative decision on the aid will mean in
of a company in GVS and in which the BvS is principle that the recipient firm must repay the aid
performing the dual role of the sole shareholder of in accordance with the procedures and provisions
the company in GVS and of the newly set-up laid down by German law, including interest
company. These doubts are further reinforced by an calculated at the reference rate used for regional aid
assessment of the aid in the light of the above- and with effect from the date on which the aid was
mentioned guidelines. The restructuring plan does granted.’
not, on the basis of the information provided, seem
to comply with the requirements of the guidelines The Commission hereby gives other Member States and
given the absence of any evidence that long-term interested parties notice to submit their comments on the
viability will be restored, the lack of figures and measures within one month of the date of publication of
details on the measures, the lack of any contribution this notice in the Official Journal of the European
from a private investor, the lack of any undertaking Communities, to:
that the restructuring plan will be fully imple-
mented, and the lack of any evidence that the plan European Commission
will avoid undue distortions of competition and will Directorate-General for Competition (DG IV)
contribute to lasting regional development. Rue de la Loi/Wetstraat 200
Furthermore, the amount of aid and the conditions B-1049 Brussels.
under which it is granted could apparently still
change, and no evidence has been provided that the The comments will be communicated to the German
notified aid corresponds to the strict minimum Government.