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1.4.

98 EN Official Journal of the European Communities C 99/9

STATE AID
C 61/97 (N 771/96, NN 128/96)
Germany

(98/C 99/05)
(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 granted by the German Government to ELPRO AG, Berlin

The Commission has sent the German Government the as to whether any aid was granted to ELPRO
following letter, informing it that it has decided to prior to or during the privatisation, and if so,
initiate proceedings pursuant to Article 93(2) of the EC whether such aid was covered by the
Treaty. THA-regimes or any other approved aid
schemeØ(Ï).

‘1. PROCEDURAL ASPECTS


2.2. DESCRIPTION OF THE PRIVATISATION
By letter dated 15 October 1996, registered the
same day, your Government notified the
Commission of aid for ELPRO AG, Berlin The investors bought ELPRO for a price of
(‘‘ELPRO’’). On 3 December 1996, your DEM 12 million.
Government informed the Commission that the
notification would need amendments — in fact,
more aid would be given — without however The investment group also purchased an
withdrawing the notification formally. By letter industrial site for the price of DEM 37 million.
dated 29 May 1997, your Government was ELPRO’s operational business was transferred to
requested to transmit the complete notification this new site. The property rights to the site
within 20 working days. The additional remained, however, with the investment group,
information has not yet been submitted. At a which had formed a civil-law partnership
meeting held on 30 June 1997 in Berlin, (Gesellschaft des bürgerlichen Rechts). ELPRO
additional information was submitted to the expanded its operations by purchasing two
Commission by your officials. companies directly from the THAØ(Ð) and two
companies after their privatisation by the THA
from their respective owners. Another five
companies were set up by ELPRO itself.
2. BACKGROUND

2.1. HISTORY The privatisation contract relating to ELPRO


provides for an investment obligation of DEM
36 million, which has been carried out. The
ELPRO was taken over by the Treuhandanstalt contract also provides for an obligation to
(THA) from the former state-owned VEB employ 1Ø400 people, non-compliance with
Kombinat Automatisierungsanlagenbau in 1990 which is subject to a penaltyØ(Ñ).
and was incorporated as a legal entity in the
same year. At that time the enterprise had 8Ø000
employees.
(Ï)ÙState aid Nos NNØ108/91, E 15/92 and NØ768/94.
(Ð)ÙAfter the THA had published an open invitation to tender,
The THA published open invitations to tender in ELPRO purchased on 3 June 1992 Technische Gebäudeaus-
1991 and 1992. Finally, in 1992, three interested rüstung Berlin GmbH, which had been taken over by the
parties responded. By contract dated 1/2 June THA from the state-owned VEB Technische Gebäudeaus-
1992, ELPRO was privatised and sold to an rüstung ‘‘Michael Niederkirchner’’ Berlin.
On 30 September 1992 ELPRO purchased as only bidder
investment groupØ(Î) whose offer was considered Lufttechnische Anlagen und Geräte GmbH from the THA;
the best bid. The Commision has no information Lufttechnische Anlagen und Geräte GmbH had been taken
over by the THA from the state-owned VEB Lufttechnische
Anlagen Berlin.
(Î)ÙThree investors: Dr Emans, Dr Eckhardt and Dr Schoss- (Ñ)ÙThe obligation did not include Technische Gebäudeaus-
leitner. rüstung Berlin GmbH.
C 99/10 EN Official Journal of the European Communities 1.4.98

The Commission has no further information equipment and the construction of


concerning contributions by the THA or other production facilities. ELPRO is one of the
public authorities. The Commission does not major suppliers for the planning,
know if aid measures were awarded under the implementing and maintaining of large-scale
THA-regimes or had to be notified and conductor and electronic facilities within the
approved individually. Your Government is also areas of transport technology, the processing
asked to inform the Commission whether the industry and basic materials technology. The
investors have made any further commitments main customers are producers of large-
and whether the two THA enterprises, scale machinery facilities (SMS, KHD,
purchased by ELPRO, received any aid prior to MAN/GHH, Mannesmann), suppliers of
or in the course of their privatisations and energy and water (VEAG, BEWAG) and
whether those measures were covered by the transport services (DB, BVG),
THA-regimes or had to be notified and
approved individually.
—Ùequipment and supply for buildings: ELPRO
The investors financed the purchases as well as is an important regional supplier of
the investments exclusively by means of loans. equipment for buildings such as air-condi-
The lender is a pool of private banks (Bayerische tioning and heating systems and to a large
Hypotheken und Wechsel Bank AG, Berliner extent carries out assembly work. The main
Bank AG and Deutsche Industrie- und customers are real-estate companies, house-
Handelsbank AG). The Commission asks your building associations, construction companies
Government for clarification as to whether these and engineering offices.
loans were secured by any public guarantees or
other aid measures.
ELPRO has been acting as a holding company
2.3. DESCRIPTION OF ELPRO/DEVELOPMENTS and sole shareholder of nine subsidiariesØ(Ò). As
AFTER PRIVATISATION the holding company, ELPRO itself has
refrained from operational business activities.
ELPRO has been active in two main fields: The activities described above are divided
between the nine subsidiaries:
—Ùcontrol wiring systems, automation and
energy technologies for industrial facilities
and transportation services: the activities
include the production of construction and (Ò)ÙThese are the companies purchased and founded by ELPRO
supply technologies and industrial electronic as described above.

ELPRO AG, Holding

Control wiring systems, automation and energy technologies


Equipment and supply for buildings
for industrial facilities and transportation services

1 LET GmbH 3 BLA GmbHØ(*) (air-conditioning, heating


systems)
activities:
4 TGA GmbHØ(*) (technical equipment for
—Ùenergy/environment buildings)
—Ùraw materials 5 KSE GmbH (electronic communications)
—Ùtransport 6 EGL GmbH (construction technology)
7 HKS GmbH (consultancy)
2 EFL GmbH
8 EGM GmbH (real-estate management)
activities:
9 EEK GmbH (construction of communication
—Ùelectrical equipment and control facilities)
wiring systems

(*)Ùpurchased directly from the THA.


1.4.98 EN Official Journal of the European Communities C 99/11

In 1996, the control wiring systems branch been infringed. Any failure to enforce the
accounted for approximately 48Ø% of the penalty provided for in such an eventuality may
consolidated turnover of the ELPRO group, be presumed to be aid. The Commission
while equipment and supply for buildings therefore asks your Government to submit
accounted for 52Ø%. information explaining and describing the
circumstances and whether the penalty has been
enforced.
Except for one company, which is located in
Leipzig, all the companies are based in East
Berlin. Both regions are eligible for regional aid
under Article 92(3)(a) of the EC Treaty. In ELPO’s consolidated turnover amounted to
1996, the group had a total of 1Ø325 employees DEM 282,5 million in 1993, DEM 307 million
and its capacity utilisation was 85Ø%. Since in 1994, DEM 390 million in 1995 and DEM
ELPRO is obliged under the privatisation 278 million in 1996. Losses amounted to DEM
contract to employ 1Ø400 people, the 21,1 million in 1993 and DEM 18,6 million in
Commission must assume that this obligation has 1995.

Overview:

(in DEM millions)


1993 1994 1995 1996Ø(*)

turnover 282,5Ù 307,2ÙÙ 390,1ÙÙ 278,1

operating result –Ø22,28 –Ø7,258 –Ø20,349 –Ø27,2

annual profit/loss –Ø21,1Ù +Ø0,2ÙÙ –Ø18,6ÙÙ +Ø38,1

consolidated balance sheet total 262,6ÙÙ 168,1


(*)Ùestimated, the annual profit or loss includes the BvS’s contribution.

The company has mainly been operating in the —Ùover-large and over-costly business site,
German market. Only 10Ø% of business relating
to the control wiring systems branch has been
with the CIS and other Eastern European
—Ùthe buildings-equipment branch has
countries. ELPRO claims to have a 7Ø% share of
produced substantial losses, since business is
the German market.
predominantly assembly work and the level
of wage costs was therefore very high,
According to the notification, ELPRO has been
facing severe liquidity problems since the
beginning of 1996. Its consolidated losses for the —Ùprofit has decreased due to a collapse in
period 1993-95 totalled some DEM 40 million, prices and a slump in the building industry,
and equity capital was down to 5Ø% of total
liabilities. It was therefore evident that ELPRO
was in difficulties. In view of the substantial
losses and the fact that large sums were spent on —Ùsubstantial restructuring of the company has
restructuring, it is indeed surprising that liquidity not been possible due to differences within
problems did not emerge earlier. The the management and mismanagement in
Commission must assume the ELPRO had large general,
cash reserves available, which raises the question
of why the firm had to resort to outside help
and whether it can really be considered to be a —Ùoperations are capital-intensive and eat up
firm in difficulty. financial resources due to the high costs of
anticipatory financing and credit extended by
way of guarantee,
The main reasons for the company’s critical
situation were as follows:
—Ùthe shrinking of the market within the CIS
—Ùlarge amount of credits, and thus high and the consequent collapse of large-scale
interest payments, projects have produced substantial losses.
C 99/12 EN Official Journal of the European Communities 1.4.98

2.4. DESCRIPTION OF THE RESTRUCTURING —Ùcosts for materials and other overhead costs
are to be cut,
2.4.1. Restructuring measures
—Ùactivities will be shifted toward the
The financial measures in support of ELPRO production and installation of electric and
were notified to the Commisison as restructuring technical automation devices for the steel
measures. The Federal Government, the Land and building materials industry, power
and the BvS (Bundesanstalt für vereinigungs- plants, water and sewage facilities, gas and
bedingte Sonderaufgaben, successor of the THA) chemical plants, electricity supply plants for
are involved in the measures. The BvS has the railways, assembly of high-voltage facilities
task of monitoring the privatisation contracts and control and high-voltage facilities for
and bringing the former state-owned company long-distance and local transport services,
to successful business operation under market
conditions (Vertragsmanagement).
—Ùthe workforce is to be reduced to a total of
612 employees.
The main object of the measures is financial and
corporate consolidation and the closing-down of
most of the loss-making activities within the
buildings-equipment and supply branch. 2.4.2. Financial needs
Although investment has already been carried
outØ(Ó), further investment is planned, such as the (in DEM)
purchase of the premises, and profitability is to Overview of overall costs
be increased by rationalising and restructuring
the group. Costs of divesting activities
(supply and equipment for
buildings) 58Ø200Ø000
The Commission is currently informed of the Operating cash 71Ø000Ø000
following restructuring steps:
Increase in equity capital some 40Ø000Ø000

—Ùincrease in equity capital, TotalÚ 169Ø200Ø000

—Ùconcentration of business within one


The costs of closing down the subsidiaries (such
company, closing-down of the other eight
as redundancy payments etc.) are estimated at
subsidiaries and partial transfer of their
DEM 58,2 million. A detailed overview of the
activities to the remaining companyØ(Ô).
expenditures has not been submitted.
ELPRO will thus divest itself of the loss-
making activities, and its subsidiaries which
are active within the field of supply and By the end of 1996, ELPRO allegedly had a
equipment for buildings will be either sold or liquidity requirement amounting to DEM 71
shut down, million. Details concerning the nature of the
expenditures, amounts etc. have not been made
available to the Commission.
—Ùtwo of the three investorsØ(Õ) will opt out of
the holding company and transfer their
shares to the third member of the investment In order to raise equity coverage to 29Ø%, an
group, Dr Emans, thus putting an end to amount of some DEM 40 million is needed.
friction within the management,

2.4.3. Financial commitment by ELPRO/investor


—Ùone of the key steps will be the search for a
new industrial partner in order to support
The investor and ELPRO are supposed to
ELPRO financially by injecting new capital,
contribute to the restructuring. ELPRO is
making a DEM 163,5 million contribution: the
company had purchased shares in the E-Plus
NetzØ(Ö) at a price of DEM 27 million. These
(Ó)ÙAmounting to DEM 36 million, see above point 2.2.
shares were sold for DEM 163,5 million.
(Ô)ÙBLA GmbH, TGA GmbH, KSE GmbH, EGL GmbH, HKS
GmbH, EGM GmbH, EEK GmbH, EFL GmbH will be
closed down; parts of the acitivities of EEK GmbH and EFL
GmbH will, however, be integrated within the remaining
LET GmbH, see also chart under point 2.3. (Ö)ÙPrivate network for mobile telephones, providing satellite
(Õ)ÙSee above point 2.1. connection, owned by Mannesman.
1.4.98 EN Official Journal of the European Communities C 99/13

DEM 25,2 million of this amount are to be used 2.5. DESCRIPTION OF THE AID MEASURES
for investment, while the rest has been trans-
ferred to the banks for debt relief. The money is
also to be used to raise ELPRO’s equity capital 2.5.1. Financial commitment by the BvS
and finance the acquisition of the business
siteØ(ÎÍ), which has only been rented from the
Amounts of new aid:
investment groupØ(ÎÎ). However, the Commission (in DEM)
has been informed neither of the exact amounts
Overview of financial commitment by the BvS
of the financial transactions nor of their conse-
quences for the investors and ELPRO nor of
any financial contributions by the investor, Dr Loan 20Ø000Ø000
Emans, himself. Grant 9Ø000Ø000
25Ø% counter-guarantee 7Ø500Ø000
(Rückbürgschaft)
Transfer of claims 4Ø600Ø000

TotalÙÙ 41Ø100Ø000
ELPRO will also contribute DEM 22 million by
means of bank loans, thus increasing its
contribution to a total of DEM 185,5 million.
The Commission must check, however, whether —ÙThe BvS proposes to grant a DEM 20
the money is used in accordance with the million interest-bearing loan (2-3Ø% above
restructuring plan and for which purposes. FIBOR) until 31 December 1998. The
Commission does not have any further
information on how the money is to be used,
and your Government has not specified the
conditions of the contract (repayment,
security). At the time of the notification, an
Dr Emans will take over the shares from the amount of DEM 4,5 million had been made
other two investors and will eventually hold available to ELPRO without awaiting the
100Ø% of the shares of the holding company. Commission’s approval.
The second step will be the sale of 75,1Ø% of the
shares to a new investor. Any profit (up to DEM
—ÙYour Government notified a grant of DEM
6 million) resulting from this sale will be shared
9 million. The money is to be used for
between Dr Emans, the banks and the BvS. The
financing expenditure in connection with the
BvS’s claim will be secured by a bond to pay
site. However, the Commission does not
when able (Besserungsschein), valid until 31
have any information on the nature of the
December 1998Ø(ÎÏ). Profits exceeding DEM 6
expenditure and the exact amounts.
million will be shared only between Dr Emans
and the banks. Since the Commission does not
have any information as to the investors’ —ÙThe BvS is providing a counter-guarantee
reciprocal obligations, the banks’ and the BvS’s covering 25Ø% (DEM 7,5 million) of the
participation in the transaction and the financial above-mentioned credit extended by way of
and legal consequences, it is not able to assess guaranteeØ(ÎÐ) (DEM 30 million) by the
whether this measure must be regarded as aid. banks.

—ÙPrior to the notification, the BvS granted a


guarantee of DEM 8 million in anticipation
of the measures by the Land and the Federal
Government as described below. This
guarantee bridges the period until the
(ÎÍ)ÙYour Government described transactions between the granting of the guarantee by the Federal
banks, the investment group and ELPRO concerning the
premises which have been the property of the investment Government/Land. Your Government has
group and will be sold to ELPRO for a price of DEM 19 not met the notification requirement
million. In return, the banks waive an amount of DEM 27,9 provided in Article 93(3) of the EC Treaty.
million of their claims against the investors for repayment
of loans.
(ÎÎ)ÙSee above point 2.2. —ÙThe purchase price has been disputed
(ÎÏ)ÙThe BvS receives, in anticipation of the profit share, a between the investors and the BvS. The
prepayment of DEM 2 million from the banks. The BvS
will pay back the amount due if its share is below DEM 2
million or if the total proceeds from the sale are less than
DEM 6 million. (ÎÐ)ÙSee point 2.5.
C 99/14 EN Official Journal of the European Communities 1.4.98

investors estimate the value at well below notification, a total of DEM 12,5 million (loan:
DEM 12 million and therefore expect part of DEM 4,5 million, guarantee: DEM 8 million)
the purchase price to be refunded by the BvS. had been granted. In the meantime, according to
Furthermore, penalty paymentsØ(ÎÑ) and the information provided by your officials on 30
repayment of funds diverted from their June 1997 in Berlin, your authorities have paid a
proper use have been a matter of dispute. total of some DEM 41 million without
The BvS estimates the total amount at some informing the Commission thereof pursuant to
DEM 5,6 million. In order to avoid lengthy Article 93(3) of the EC Treaty. Your authorities
procedures and costly experts’ reports, the have not informed the Commission as to the
BvS has assigned its claims to the banks and nature of the measures, their conditions or the
Dr Emans in exchange for a payment of exact amounts.
DEM 1 million, which leaves a balance of
DEM 4,6 million. The Commission needs
further details as far as the claims and the
circumstances are concerned in order to 2.6. MARKET ANALYSIS
assess whether these measures contain any
aid element.
After the planned restructuring, ELPRO’s
activity will comprise production and installation
of electrical equipment and technical automation
2.5.2. Financial commitment by the Land and the
for the steel and building industries, for power
Federal Government
plants, water and sewage facilities, gas and
chemical plants, power plants for railways and
other transportation and assembly and control of
The Federal Government and the Land of Berlin high-voltage installations for transportation
are providing two guaranteesØ(ÎÒ). The first, a networks.
deficiency guarantee, covers 80Ø% (DEM 29
million) of the DEM 36 million bank loan. The
second, a counter-guarantee, covers 25Ø%
(DEM 7,5 million) of the guarantee credit It has been difficult to obtain detailed
granted by the banks (DEM 30 million). The information on ELPRO’s different fields of
Commission does not have any further activities. However, sector specialists within the
information concerning conditions, expiry date, Commission have been able to provide data on
interest rates, etc. the sectors in question. This has led to the
following assessment.

Although the guarantees are based on an


European industrial plant constructors are
approved aid scheme, your Government has
estimated to have won orders to the value of
agreed to notify aid individually to the
about ECU 60-65 billion in 1995, while
Commission where the recipient is a large
production of railway rolling stock — including
enterprise. ELPRO does not meet the
electrical signalling and safety and control
requirements that would allow it to be regarded
devices for transportation systems — amounted
as an SMEØ(ÎÓ). The measures therefore
to ECU 7,581 billionØ(ÎÔ) in 1995 and ECU
constitute new aid, and the Commission must
7,960 billionØ(ÎÕ) in 1996 (DG III, Panorama of
assess the guarantees individually in accordance
EU Industry 1997, NACE 35.2, 45.4).
with Articles 92 and 93 of the EC Treaty.

The European industrial plant construction


2.5.3. Summary industry has some 230Ø000 employees. There is
fierce price competition, so that European
companies have in recent years been looking for
Your government notified aid measures totalling supplies from trading partners located in less
DEM 77,6 million, of which, at the time of the expensive coutries. However, with low capital-
market interest rates worldwide, there is hope
that, after the 1991-93 recession, overall demand
will pick up again. Nevertheless, a slackening of
(ÎÑ)ÙThe BvS is claiming DEM 261Ø000 since ELPRO has not
met its employment obligation. economic activity is observable in nearly all
(ÎÒ)ÙLegal basis: programme for state guarantees in favour of industrialised countries. In addition, growth in
private enterprises initiating projects in the five new Länder Western Europe is being slowed down
and East Berlin (Programm für unmittelbare Bundesbürg-
schaften in den neuen Bundesländern einschließlich Berlin-
Ost), approved aid schemes Nos NØ297/91, NØ81/93 and
EØ24/95. (ÎÔ)ÙEUROSTAT estimates for EUR-15.
(ÎÓ)ÙOJ C 213, 23.7.1996, p. 4. (ÎÕ)ÙRounded DRI Europe forecasts for EUR-15.
1.4.98 EN Official Journal of the European Communities C 99/15

by the race to comply with the Maastricht distorts or threatens to distort competition and
criteria. Impetus from major trading partners, therefore falls within the scope of Article 92(1)
especially North America and Japan, is dimin- of the EC Treaty and Article 61(1) of the EEA
ishing or failing to materialise. Due to financing Agreement.
difficulties, Eastern Europe’s huge requirements
have not, or at least not to the extent expected,
led to actual demand.
3.1. EARLIER AID MEASURES PRIOR TO PRIVATI-
SATION

The railway rolling stock sector as a whole The Commission does not have any information
employed 68Ø400 in 1994. The EU is a larger to verify the amount of aid given to ELPRO
producer, consumer and exporter of railway either prior to or in connection with the privati-
rolling stock than either the United States or sation. Normally, companies held by the THA
Japan. Exports to non-EU countries amounted received loans and guarantees. In order to be
to ECU 1,1 billion and the trade surplus to ECU able to assess the present restructuring measures
544,5 million in 1994. The prospects for demand and the impact on competition, the Commission
appear healthy. However, a recognised excess needs to obtain a complete picture of all the
capacity in sources of supply exists. The future measures. Your Government is therefore asked
of the railway rolling stock industry as a whole to submit all information concerning aid
is largely dependent upon external and often measures awarded prior to, during and after
unforeseeable factors. For example, changes in a privatisation, specifying their amount, their legal
country’s political climate or budgetary situation basis and whether they were covered by the
may lead to the cancellation of long-standing respective THA-regimes.
contracts. Future demand is expected to come
from growth in urban rail transit sysem,
resulting from concerns about road congestion
and motor vehicle pollution, and the increased 3.2. AID WITHIN THE MEANING OF ARTICLE 92(1)
focus on high-speed railways as an alternative to OF THE EC TREATY
air travel. In addition to suppliers’ ability to
produce innovative and less expensive
equipment, much depends upon the railway There is no doubt that the loan of DEM 20
operators’ ability to attract public and private million, the outright grant of DEM 9 million,
financial support. The opening-up of public the guarantee amounting to DEM 8 million and
procurement in previously excluded markets is the 25Ø% counter-guarantee covering the banks’
likely to lead to increased competition in the guarantee credit of DEM 30 millionØ(ÎÖ),
medium term. The former Soviet Union offers constitute State aid in the meaning of Article
EU manufacturers a potentially vast market 92(1) of the EC Treaty, since the measures are
assuming that funds are available. derived from State resources, threaten to distort
competition and affect trade between Member
States. A private investor would not have
granted these benefits to a company in technical
Electrical engineering as a whole is a mature illiquidity, since ELPRO cannot provide any
industry with slow growth in real terms. There is security, and the measures therefore confer an
no overcapacity in the EU as a whole, but advantage which the enterprise would not have
installed capacities are well used and prospects acquired without the help of the public auth-
for small market entrants are limited. There is orities.
fierce global competition in this sector and trade
between Member States. Automation ought to
have slightly brighter prospects than electrical At the present stage the Commission is inclined
engineering as a whole. However, railway elec- to take the same view as regards the BvS’s
trical automation is only a small part of total waiver of the uncertain claim (DEM 5,6 million)
industrial electrical automation (0,36Ø%, judging in return for the payment of DEM 1 million,
by the relative size of the user markets). leaving an amount of DEM 4,6 million
outstanding. Such an out-of-court settlement
under which the reciprocal rights and obligations
of the parties are redefined may well be
3. ASSESSMENT

(ÎÖ)ÙIt should be noted that ELPRO is a company in difficulties


and that the guarantee therefore confers a financial
advantage it would otherwise not have acquired. The
The granting of state resources to an under- guarantee is to be regarded as 100Ø% aid for the covered
taking in the above-mentioned sectors either amount, i.e. DEM 7,5 million.
C 99/16 EN Official Journal of the European Communities 1.4.98

regarded as the way a private investor would Measures under the scheme ‘‘Programm für
behave when a legal and/or financial appraisal unmittelbare Bundesbürgschaften in den neuen
suggests the need for such a compromise. In the Bundesländern einschließlich Berlin-Ost’’ are
case of ELPRO, the BvS’s position seems to be ranked as aid pursuant to Article 92(1) of the
uncertain and in the event of bankruptcy EC Treaty. The scheme was approved under the
proceedings or a judgment in favour of the BvS, derogation provided for in Article 92(3)(a) of
it cannot be excluded that the banks’ claims the EC TreatyØ(ÏÍ) but with a specific proviso
would be given preferential treatment, with the regarding aid for large enterprises. Your
BvS obtaining only a very small portion for its Government undertook to notify individually aid
claims. In such a case, the BvS’s behaviour of granted to any large enterprise. The measure
risk avoidance could be considered in line with must therefore be classified as new aid and as
what a prudent private party would do to solve such assessed under Articles 92 and 93 of the EC
this commercial conflict. The BvS’s behaviour Treaty.
would not then constitute aid. However, the
proportion of claims waived as compared to the
payment acquired is fairly high. Also, the banks
have acquired the claim in such a manner as to It follows from the above that the following
suggest a higher value than that of the agreed financial measures constitute aid within the
payment of DEM 1 million. The Commission meaning of Article 92(1) of the EC Treaty.
therefore doubts whether waiving the claims can
actually be considered in accordance with the
private investor principle. It believes it is
necessary to analyse this matter in more detail.
(ÏÍ)ÙApproved aid scheme No NØ297/91, NØ81/93, and
EØ24/95; the scheme provides for measures in support of
The company also receives aid on the basis of firms in difficulty and it is provided that the Länder
approved aid schemes (DEM 36,5 million). participate in the measures.

Measures Granted by DEM millions

Loan BvS 20,0

Grant BvS 9,0

25Ø% counter-guarantee BvS 7,5

Waiver of claim BvS 4,6

80Ø% deficiency guarantee Federal Government/Land 29,0

25Ø% counter-guarantee Federal Government/Land 7,5

Total 77,6

Consequently, the State aid for the restructuring 3.3. DEROGATIONS


of ELPRO amounts to a total of DEM 77,6
million, of which DEM 36,5 million is based on Certain derogations from the general principle
the above-mentioned programme. of the incompatibility of State aid under Article
92(1) of the EC Treaty are contained in Article
92(2) and (3) of the EC Treaty.

The Commission regrets the fact that your auth- 3.3.1. General state aid rules
orities have failed to fulfil their obligations
under Article 93(3) of the EC Treaty by
granting parts of the aid without awaiting the In the case of ELPRO, the aid can be
Commission’s decision. The aid has therefore in considered for a derogation only under Article
part been awarded illegally to ELPRO. 92(3)(c) of the EC Treaty, which covers ‘‘aid to
1.4.98 EN Official Journal of the European Communities C 99/17

facilitate the development of certain economic plan capable of restoring the long-term viability
activities, where such aid does not affect trading and health of the firm within a reasonable time-
conditions to an extent contrary to the common scale. The restructuring aid must be linked to a
interest’’, since the main objective of the aid is viable restructuring or recovery programme
not the promotion of regional development, submitted in all relevant detail to the
which is covered by Article 92(3)(a) of the EC Commission.
Treaty, but the restructuring of a firm in
difficulty. Such aid may be considered
compatible with the common market. ELPRO is
a company in difficulties. The exemption The information submitted to the Commission
provided for in Article 92(3)(c) of the EC Treaty so far does not establish that the aid was granted
can then apply only if the criteria set out in the as part of a coherent restructuring plan that
guidelines on state aid for rescuing and restruc- contains specific operational measures and
turing firms in difficulty are complied withØ(ÏÎ). allows the Commission to identify the positive
financial results to be achieved by the measures.
As far as the Commission is aware, the comany
has already modernised its facilities. Investment
The Commission is also taking into to improve the comany’s production facilities is
consideration the fact that the company is not provided for. It is assumed that turnover and
situated in a region to which Article 92(3)(a) of annual profits will improve through the consoli-
the EC Treaty applies. The Commission dation of ELPRO’s corporate structure and the
decisions of 1994 and 1996Ø(ÏÏ) established that shifting of activities towards the production and
the new Länder in Germany are to be included installation of electrical and technical auto-
among the Article 92(3)(a) assisted areas, i.e. mation equipment.
those where the standard of living is abnormally
low and where there is serious underem-
ployment. The unemployment rate in Berlin
(West: 15,9Ø%, East: 14,9Ø%) is considerably ELPRO’s reaction to its financial situation is to
higher than the Community average of 10,8Ø% seek a new investor and lay off staff. 75,1Ø% of
(Eurostat publications, August 1996). the holding company’s shares are now to be sold
to a new investor. Furthermore, it is not clear
whether and how the company intends to
control its cost sturcture and high financial
charges.
The guidelines require that such aid measures be
conditional on the implementation of a viable
restructuring plan. The amount and intensity of
the aid must be limited to a strict minimum The German authorities did not provide the
during the restructuring phase, and the costs to Commission with precise information after the
which the aid relates must not exceed the request for a new notification was made. The
anticipated benefits. The restructuring must information provided is fragmentary as to oper-
restore the long-term viability of the companies ational restructuring measures and the credibility
in question, and undue distortions of of ELPRO’S economic development.
competition must be avoided. The restructuring
has to be in the Community interest. Only in this
way can the restructuring programme accom-
panying the aid contribute to the overall
improvement of the market situation and The restoration of viability depends primarily on
sufficiently offset the distortive effect of the aid. finding a new investor who is able to inject
In principle, aid may be granted only once. money. A crucial weakness is that, to the
Commission’s knowledge, no buyers have turned
up although the search has now been going on
for almost a year.

3.3.1.1. Restructuring plan

The value added per employee is supposed to


increase by 23Ø% from 1996 to 1999. However,
no provision is made for investment or restruc-
The granting of restructuring aid requires a turing measures which would improve and
feasible, coherent and far-reaching restructuring consolidate ELPRO’s profitability and pro-
duction facilities. On the contrary, the funds are
(ÏÎ)ÙOJ CØ268, 23.12.1994. to be used for divestment and for alleviation of
(ÏÏ)ÙNØ464/93, NØ613/96, valid until the end of 1999. ELPRO’s cash flow shortage.
C 99/18 EN Official Journal of the European Communities 1.4.98

ELPRO expects to achieve a turnover of DEM EU markets served by the aid recipient shows
183,1 million and an operating result of DEM that overcapacities exist or that the industry
6,3 million in 1997. By 1999, the turnover is must at least be regarded as mature. At the
expected to rise to DEM 227 million and the present stage, the Commission is not in a
operating result to approximately DEM 10 position to evaluate the contribution made by
million. However, the German authorities have the recipient by reducing capacities. Your
not submitted convincing evidence of any Government has not specified which companies
decrease in costs at production level. The will be irreversibly closed down and which will
Commission must therefore assume that the plan be continued.
relies on the presumption of an increase in
capacity and turnover. A presumption that an
increase in capacity would be sufficient to
increase turnover is an optimistic assumption. 3.3.1.3. Absolute minimum
This casts doubt on the reliability of the very
optimistic estimates for 1997-1999.
The amount and intensity of the aid must be
limited to the strict minimum needed to enable
restructuring to be undertaken and must be
Furthermore, the Commission has learnt from related to the benefits anticipated from the
the German authorities that the company has Community’s viewpoint. The investor must
been continually awarded aid (a total of DEM therefore make a contribution to the restruc-
41 million) in order to prevent bankruptcy, turing plan from his own resources.
though this has not brought about any
substantial improvement in ELPRO’s financial
situation. Your authorities have thus repeatedly
awarded aid without taking account of the According to the Commission’s information,
extraordinary character of this kind of recurrent ELPRO is contributing DEM 47,2 million of the
aid, which is restricted to exceptional situations overall costs of DEM 169,2 millionØ(ÏÐ). This
caused by external factors that the company means that 72,1Ø% of the costs are to be covered
cannot foresee. by State aid and 27,9Ø% by ELPRO and its
banks, which can certainly be deemed to be a
substantial contribution, given that ELPRO is to
be regarded as the investor.
The information submitted is therefore insuf-
ficient to prove the long-term viability of
ELPRO. Since ELPRO itself is acting exclusively as the
holding company, the Commission supposes that
the recipients of the aid must be the subsidiaries.
However, your Government has not sufficiently
3.3.1.2. Effect on competitors
clarified either the exact amount of ELPRO’s or
Dr. Emans’ contribution. Moreover, the role of
Dr. Emans in the overall context is not clear, i.e.
The restructuring of ELPRO must contain the Commission cannot distinguish who has to
measures taken to offset as far as possible be considered to be the investor, Dr. Emans or
adverse effects on competitors, otherwise the aid ELPRO as the holding company.
involved is contrary to the common interest and
ineligible for exemption under Article 92(3)(c) of
the EC Treaty. Furthermore, the way in which the aid is granted
must be such as to avoid providing the company
with surplus cash which would be used for
Large companies operating on markets with aggressive, market-distorting activities not linked
structural overcapacities must make an appro- to the restructuring process. As it is not known
priate contribution of their own proportionate to how the company is going to operate in the
the amount of aid received by reducing or future and who the recipient of the aid is, it
cutting capacities irreversibly. cannot be determined whether the aid will be
used for the above-mentioned activities.
Moreover, the Commission does not know
whether the funds will be used only for restruc-
While the restructuring plan entails the sale and turing purposes and, if so, for which measures.
shut-down of the branch ‘‘equipment and supply
for buildings’’, the plan also seems to be based
on a capacity increase as far as the automation
and electrical engineering branch is concerned.
The demand and supply situation on the relevant (ÏÐ)ÙSee above points 2.5.1 and 2.5.2.
1.4.98 EN Official Journal of the European Communities C 99/19

3.3.2. Conclusion communicate to it, within one month of


receiving this letter, all the necessary documen-
tation, information and data for assessing the
compatibility of the aid granted to ELPRO AG
On the basis of the information at its disposal, with Article 92 of the EC Treaty, including
the Commission has doubts as to the compati- specific information on the recovery plan and
bility with the common market of the unnotified answers to the questions set out in the annex to
aid which was unlawfully disbursed before the this letter. Germany shall also enclose any other
Commission had taken its decision. The same information that is deemed relevant for the
applies to the aid measures which were notified assessment of this case.
to the Commission. According to the
information currently available, the aid does not
satisfy the criteria laid down in the Community
Should Germany not comply with this decision
guidelines on State aid for rescuing and restruc-
and fail to provide, within that period of one
turing firms in difficulty, since the Commission
month, all the necessary information for
was not given sufficient information establishing
assessing the compatibility of the aid, the
that the aid was granted as part of a coherent
Commission will be entitled, in accordance with
restructuring plan that would restore ELPRO’s
the settled case-law of the Court of Justice, to
long-term viability and that the company is
take a final decision on the matter on the basis
reducing capacities irreversibly.
of the information then available to it.

The Commission has accordingly decided to The Commission would remind you of the
initiate proceedings under Article 93(2) of the suspensory effect of Article 93(3) of the EC
EC Treaty in respect of the aid. Treaty and would draw your attention to the
communication published in the Official Journal
of the European Communities CØ318 of 24
November 1983, page 3, and CØ156 of 27 June
In accordance with the Treaty establishing the 1995, page 5, in which it was stipulated that any
European Community, and in particular aid granted unlawfully, i.e. without prior notifi-
pursuant to Article 5 thereof, which requires cation or without awaiting the Commission’s
Member States and the Community institutions final decision under the procedure provided for
to provide appropriate mutual co-operation and in Article 93(2) of the EC Treaty, may have to
support, and pursuant to Articles 92 and 93, the be recovered from the recipient.
Commission hereby declares, in view of the
above considerations, that the German auth-
orities have not provided sufficient information The abolition of the aid shall include its
to enable it to assess the compatibility of the aid repayment, in accordance with the procedures
with Article 92 of the EC Treaty. and provisions of German law, with interest,
based on the interest rate used as reference rate
in the assessment of regional aid schemes,
starting to run on the date on which the
In view of the foregoing and having regard to unlawful aid was granted. This measure is
the judgment of the Court of Justice of 14 necessary in order to restore the status quo by
February 1990 in Case C-301/87 Boussac, removing all the financial benefits which the
upheld in its judgment of 13 April 1994 in firms receiving the unlawful aid have improperly
Joined Cases C-324/90 and C-342/90, Pleuger enjoyed since the date on which the aid was
WorthingtonØ(ÏÑ), which concerned an paid.
infringement of Article 93(3) of the EC Treaty,
the Commission is empowered to require the
relevant Member State, Germany in this
instance, to provide it with all such documen- The Commission also requests your Government
tation, information and data as are necessary in to inform the recipient firm without delay of the
order that it may examine the compatibility of initiation of proceedings and the fact that it
the aid with the common market. might have to repay any aid improperly received.

The Commission hereby informs your


The Commission has therefore decided to Government that it will be publishing this letter
require the Federal Republic of Germany to in the Official Journal of the European
Communities and the EEA Supplement to the
(ÏÑ)Ù[1994] ECR I-1173, at I-1205. Official Journal giving the other Member States
C 99/20 EN Official Journal of the European Communities 1.4.98

the EFTA States belonging to the EEA and European Commission,


other parties concerned notice to submit their Directorate-General for Competition (IV),
comments.’ Directorate for State Aid,
rue de la Loi/Wetstraat 200,
The Commission hereby gives other Member States and B-1049 Brussels.
interested parties notice to submit any comments on the
aid within one month of the date of publication of this The comments will be communicated to the German
notice, to: Government.

Authorisation for State aid pursuant to Articles 92 and 93 of the EC Treaty


Cases where the Commission raises no objection

(98/C 99/06)
(Text with EEA relevance)

Date of adoption: 16.12.1997 Objective: To promote SMEs in the tourism sector

Member State: Finland (Assisted regions)


Legal basis: Orden por la que se regula el procedimiento
para la mejora de la competitividad de las empresas y del
Aid No: NØ496/97 sector turòstico andaluz

Title: Regional aid map


Budget: ESP 440 million (approximately ECU 2,63
Objective: Regional development million) per year

Legal basis: Aid intensity:


—ÙLaki alueiden kehittämisestä (annettu Helsingissä —ÙInvestment aid: 30Ø% gge
10.12.1993), nro. 1135
—ÙAsetus alueiden kehittämisestä (annettu Helsingissä —ÙTraining aid: 50Ø% gge
17.12.1993), nro. 1315
—ÙOperating aid: 30Ø%, 20Ø% and 10Ø% in the first,
—ÙLag om utveckling av stödområden (antagen i Hel- second and third year respectively
singfors, den 10.12.1993), nr 1135
—ÙFörordning om utveckling av stödområden (beslutad Duration: 1997-1999
i Helsingfors, den 17.12.1993), nr 1315

Aid intensity:
—ÙModulated between 35Ø% gross grant equivalent Date of adoption: 5.2.1998
(GGE) and 20Ø% GGE (large enterprises)
—ÙMaximum intensity for SMEs: 37Ø% GGE Member State: Spain (Andalusia)
Duration: 1.1.1998-31.12.1999
Aid No: NØ153/97

Title: Changes to the investment aid scheme (N 348/95)


Date of adoption: 4.2.1998 for promoting industry

Member State: Spain (Andalusia)


Objective: Regional development
Aid No: NØ422/97
Legal basis: Orden de la Consejeròa de Industria,
Title: Aid scheme for SMEs in the tourism sector Comercio y Turismo, de 4 de diciembre de 1995, por la