You are on page 1of 12

C 129/6 EN Official Journal of the European Union 3.6.

2003

STATE AID — UNITED KINGDOM

Aid C 21/03 (ex N 474/02) — Waste resources action programme


Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2003/C 129/04)
(Text with EEA relevance)

By means of the letter dated 19 March 2003 reproduced in the authentic language on the pages following
this summary, the Commission notified the United Kingdom of its decision to partially initiate the
procedure laid down in Article 88(2) of the EC Treaty concerning the abovementioned measure.

Interested parties may submit their comments on the measure in respect of which the Commission is
initiating the procedure within one month of the date of publication of this summary and the following
letter, to:

European Commission
Directorate-General for Competition
State Aid Registry
B-1049 Brussels
Fax (32-2) 296 12 42

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY WRAP will administer several aid measures:

1. PROCEDURE
— The WRAP grant funding: this measure is divided in three
By letter dated 9 July 2002, registered on 16 July, the United submeasures:
Kingdom notified, pursuant to Article 88(3) of the EC Treaty,
the Waste resources action programme. By letter dated 2
August 2002, the Commission asked for further information, — a first submeasure provides investment grants to SMEs
which was provided by the British authorities by their letter only (the WRAP SME scheme). It will be implemented
dated 28 August 2002. Following a meeting between the on the basis of Commission Regulation (EC) No
Commission and the British authorities that was held on 29 70/2001 of 12 January 2001 on the application of
August 2002, the British authorities provided further Articles 87 and 88 of the EC Treaty to State aid to
information by letter dated 13 September 2002, registered small and medium-sized enterprises (1) (hereafter ‘Regu-
on 18 September 2002. The Commission sent another lation (EC) No 70/2001’) and does not form part of the
request of information by letter dated 23 October 2002, to present notification,
which the British authorities replied by letter dated 3
December 2002, registered on 6 December 2002. By letter
dated 15 January 2003, registered on 23 January 2003, the
British authorities requested a new meeting with the — a second submeasure, the WRAP regional scheme,
Commission, which was held on 21 January 2003. Following involves aid to large firms in assisted areas and is
that meeting, the British authorities provided supplementary notified on the basis of the guidelines on national
information by a series of letters dated between 24 January regional aid (2) (hereinafter ‘the regional guidelines’),
2003 and 7 February 2003.

— a third submeasure, the WRAP environmental scheme,


2. INTRODUCTION covers cases that do not fall under either Regulation
(EC) No 70/2001 or the regional guidelines. The
The objective of the Waste resources action programme British authorities notified this submeasure on the
(WRAP), a publicly funded body established on behalf of the basis of the Community guidelines on State aid for
British Department of the Environment, Food and Rural Affairs, environmental protection (3) (hereinafter ‘the environ-
is to promote sustainable waste management and efficient mental guidelines’),
markets for waste management, with the view to enabling
the United Kingdom to fulfil the Community targets for
waste recycling set by the Council directive of 26 April (1) OJ L 10, 13.1.2001, p. 33.
1999 on the landfill of waste and the Council directive of (2) OJ C 74, 10.3.1998, p. 9.
20 December 1994 on packaging and packaging waste. (3) OJ C 37, 3.2.2001, p. 3.
3.6.2003 EN Official Journal of the European Union C 129/7

— the WRAP pilot fund (hereinafter referred to as the ‘pilot equipment for the purpose of reprocessing waste materials or
fund’). This is a risk-capital fund that will take equity manufacturing products from those materials.
participations in SMEs that are specialised in waste
recycling activities,

— the WRAP lease guarantee fund (hereinafter referred to as 4. ASSESSMENT


the ‘guarantee fund’). This measure is also divided into three
submeasures:
4.1. The WRAP environmental scheme

— a first submeasure is the SME section of the guarantee Existence of aid


fund, which will provide lease guarantees to SMEs,
This scheme provides an economic and selective advantage to
the beneficiaries in the form of a grant. The waste products
— a second submeasure is the regional section of the that are recycled or the end products that are produced from
guarantee fund, which will provide lease guarantees to the recycled waste can be internationally traded. Therefore this
large firms located in assisted areas, measure may have an effect on competition and may constitute
State aid within the meaning of Article 87(1) of the EC Treaty.
— a third submeasure is the environmental section of the
guarantee fund, which will provide lease guarantees to
cases that are not covered by the regional section or the
SME section of the guarantee fund, Compatibility with the EC Treaty

This aid measure does not appear to be compatible with the


— the support to the Composting Association, common market under Article 87(2), nor under Article
87(3)(a), (b) or (d) of the EC Treaty. Article 87(3)(c) appears
to be the only possible basis of compatibility.
— the Business development service, Exemplar companies
initiative and Advice to composting firms initiative.

The Commission has decided not to raise objections to these The British authorities notified this scheme on the basis of the
aid measures, with the exception of the WRAP environmental environmental guidelines. At this stage, the Commission is of
scheme and the part of the WRAP lease guarantee fund that is the opinion that further investigation is necessary to determine
notified on the basis of the environmental guidelines. whether the investment aid provided under this scheme would
qualify for an assessment under these guidelines, in particular
concerning the following issues.
3. DESCRIPTION

3.1. The WRAP environmental scheme


— Under point 29 of the environmental guidelines, investment
The aim of the WRAP environmental scheme is to subsidise aid may be given on the basis of these guidelines when
investments by private companies in recycling facilities for firms undertake investment in the absence of mandatory
various waste products (plastics, glass, wood, aggregates, Community standards or in order to comply with
compost). The selected firms will commit themselves to national standards that are more stringent than
recycle a certain amount of waste. It is expected that the Community ones. The Commission notes that investment
existence and operation of these recycling facilities will aid granted under this scheme is meant to enable the
encourage the selective collection of waste and will reduce United Kingdom to fulfil the general targets for Member
waste disposal to landfills. The beneficiaries of these grants States set by the EC Landfill Directive and the EC Packaging
will be selected by open tender, with a view to limiting the Directive.
amount of aid.

Eligible costs under this scheme will be limited to the cost of — Investment aid approved under the environmental
investment in machinery and plant, from which the British guidelines could be interpreted as aiming only at reducing
authorities will deduct any benefits accruing to the recipient the emissions and pollution caused by the beneficiary in the
of aid over a five-year period. The aid intensities will not course of its production process. The Commission notes
exceed 30 %, plus the extra percentage points allowed under that the environmental objective of this scheme is more
point 34 of the environmental guidelines. indirect: it is expected that the recycling activities of the
beneficiaries will result in a greater selective collection of
waste, in a decrease in waste disposal to landfills and a
3.2. Lease guarantee fund decrease in the use of primary raw materials, according
to the information provided by the British authorities.
The Lease guarantee fund will be an entirely public fund. It will The Commission doubts whether the environmental
grant lease guarantees that cover leases of machinery and guidelines apply to such cases.
C 129/8 EN Official Journal of the European Union 3.6.2003

Even if the environmental guidelines were found to be TEXT OF THE LETTER


applicable, the Commission would still have doubts about the
way in which the British authorities propose to calculate the ‘The Commission wishes to inform the United Kingdom that,
eligible costs under these guidelines. In particular, point 37 of having examined the information supplied by your authorities
the environmental guidelines states that eligible costs must be on the measure referred to above, it has decided to initiate the
strictly confined to the extra investment costs necessary to procedure laid down in Article 88(2) of the EC Treaty.
meet the environmental objectives. In the present case, the
British authorities have included in the calculation of the
I. PROCEDURE
eligible investment costs the entirety of the investments
linked to the recycling activity. From these, they have only (1) By letter dated 9 July 2002, registered on 16 July, the
deducted the benefits to the recipient over a five-year period. United Kingdom notified, pursuant to Article 88(3) EC,
This does not appear to be in line with point 37. the Waste resources action programme. By letter dated 2
August 2002, the Commission asked for further
Finally, the Commission has doubts on whether this aid information, which was provided by the British auth-
measure can be found to be compatible directly on the basis orities by their letter dated 28 August 2002. Following
of Article 87(3)(c) of the EC Treaty, since the British authorities a meeting between the Commission and the British auth-
have not shown that this measure does not adversely affect orities that was held on 29 August 2002, the British
trading conditions to an extent contrary to the common authorities provided further information by letter dated
interest. 13 September 2002, registered on 18 September 2002.
The Commission sent another request of information by
letter dated 23 October 2002, to which the British auth-
orities replied by letter dated 3 December 2002, registered
4.2. The WRAP lease guarantee fund on 6 December 2002. By letter dated 15 January 2003,
registered on 23 January 2003, the British authorities
Existence of aid requested a new meeting with the Commission, which
was held on 21 January 2003. Following that meeting,
This fund enables firms that want to acquire equipment to the British authorities provided supplementary
obtain leases on conditions that are more favourable than information by a series of letters dated between 24
normally available on the market. Therefore the lessees get January 2003 and 7 February 2003.
an economic advantage, which is selective. The products manu-
factured by the firms operating in the sectors of waste
recycling may be internationally traded. This measure may II. DETAILED DESCRIPTION OF THE MEASURE
therefore have an effect on competition and trade between
2.1. Presentation of WRAP and its objectives
Member States and may constitute an aid within the
meaning of Article 87(1) of the EC Treaty. (2) This notification includes several aid measures admin-
istered by the Waste resources action programme, an
entity established on behalf of the Department of the
Compatibility with the EC Treaty Environment, Food and Rural Affairs. Whilst WRAP has
a private corporate form, it functions as a Government
The British authorities partially notified the measure on the body: its operating costs are wholly funded by the
basis of environmental guidelines. The Commission notes Government, and one of the directors in the company's
that the type of investments targeted by the WRAP lease board is appointed by the Secretary of State for
guarantee fund is similar to the ones targeted by the WRAP Environment, Food and Rural Affairs.
environmental scheme. The Commission has already explained
why it has doubts concerning the applicability of the guidelines (3) The legal basis of this program is Section 153 of the
to this type of investment. Furthermore, the British authorities Environmental Protection Act 1990 and the Financial
failed to provide information on the compatibility of the Assistance for Environmental Purposes (No 2) Order
measure with the environmental guidelines, in particular with 2000 (SI 2000:2211).
regard to the calculation of the eligible costs under point 37 of
these guidelines. Therefore, the Commission also expresses (4) Its objective is to promote sustainable waste management
doubts on the compatibility of the measure with the environ- and efficient markets for waste management and
mental guidelines if they are found to be applicable. recycling. In particular, the aim of the British Government
is to fulfil the Community targets for waste recycling set
by the EC Landfill Directive (4), which requires Member
5. CONCLUSION States to reduce the disposal of municipal waste to landfill
and by the EC Packaging Directive (5) which requires
In the light of the foregoing considerations, on the basis of the significant increases in packaging waste recycling by at
information available, and of the preceding preliminary least 2006.
assessment, the Commission decided to initiate the proceedings
according to Article 88(2) of the EC Treaty with the respect to (5) In order to achieve this objective, the Waste resources
the WRAP environmental scheme and the part of the lease action programme will manage the following measures:
guarantee fund that is notified on the basis of the
Community guidelines on State aid for environmental (4) Council Directive 1999/31/EC of 26 April 1999 on the landfill of
protection. In accordance with Article 14 of Council Regu- waste (OJ L 182, 16.7.1999, p. 1).
lation (EC) No 659/1999, all unlawful aid can be subject to (5) Council Directive 94/62/EC, of 20 December 1994 on packaging
recovery from the recipient. and packaging waste (OJ 1994 L 365).
3.6.2003 EN Official Journal of the European Union C 129/9

— the WRAP grant funding: this measure is divided in facilities in order to increase the recycling of waste in the
three submeasures: United Kingdom. The selected firms will commit them-
selves to recycling a certain amount of waste per year. As
— a first submeasure provides investment grants to a result, local authorities would have the incentive to set
SMEs only (the WRAP SME scheme). It will be up systems of selective collection of waste since the
implemented on the basis of Commission Regu- existence of these facilities would ensure the reprocessing
lation (EC) No 70/2001 of 12 Januray 2001 on of their selected waste. According to the British auth-
the application of Articles 87 and 88 of the EC orities, the necessity of such aid stems from the uncer-
Treaty to State aid to small and medium-sized tainty of returns on this type of investment, due to the
enterprises (6) (hereafter ‘Regulation (EC) No risks associated with obtaining appropriate waste
70/2001’) and does not form part of the present materials and the difficulty in motivating the purchase
notification, of products with recycled contents.
— a second submeasure, the WRAP regional scheme, 2.2.2. The WRAP SME scheme
involves aid to large firms in assisted areas and is
notified on the basis of the guidelines on national (7) In a certain number of projects, which concern in
regional aid (7) (hereinafter ‘the regional particular wood and aggregates, the British authorities
guidelines’), will directly provide the aid on the basis of Regulation
(EC) No 70/2001. These cases are not part of this notifi-
— a third submeasure, the WRAP environmental cation.
scheme, covers cases that do not fall under
either Regulation (EC) No 70/2001 or the 2.2.3. The WRAP regional scheme
regional guidelines. The British authorities
notified this submeasure on the basis of the (a) Description of the scheme
Community guidelines on State aid for environ-
mental protection (8) (hereinafter ‘the environ- (8) Projects under this scheme will involve investment aid
mental guidelines’), with the view to optimising the recycling of aggregates
(stone, gravel etc. used in construction) and compost
— the WRAP pilot fund (hereinafter referred to as the (processing of organic waste into compost and horti-
‘pilot fund’). This is a risk-capital fund that will take cultural products). The British authorities expect that
equity participations in SMEs that are specialised in this scheme will provide extensive regional benefits, by
waste recycling activities, generating new and increased economic activity in the
development of aggregates recycling and composting in
— the WRAP lease guarantee fund (hereinafter referred to these regions. It is expected that it will encourage other
as the guarantee fund). This measure is also divided companies to involve themselves in these activities. The
into three submeasures: British authorities also consider that these investments
— a first submeasure is the SME section of the will assist the regions concerned in managing their
guarantee fund, which will provide lease guar- construction, demolition or industrial wastes or organic
antees to SMEs, wastes, which will help relieve the pressure on landfills
and contribute to the sustainable development of the
— a second submeasure is the regional section of the region.
guarantee fund, which will provide lease guar-
antees to large firms located in assisted areas, (9) In order to identify the proportional level of aid funding
and to select the recipients of support, WRAP uses open
— a third submeasure is the environmental section of and competitive tenders for each type of products. These
the guarantee fund, which will provide lease guar- tenders are advertised in the specialised press throughout
antees to cases that are not covered by the Europe. Projects are selected on the basis of a certain
regional section or the SME section of the number of criteria: most economically advantageous
guarantee fund, offer, magnitude and relevance of deliverables in relation
to the environmental objectives of the competition,
— the support to the Composting Association, organisational feasibility.
— the Business development service, Exemplar (10) The UK authorities consider that these projects will not
companies initiative and Advice to composting firms lead to over-capacity in the aggregates recycling and
initiative. composting sectors, because these are immature and
under-developed sectors, and because a tender process
Each of these measures is described in detail below.
will be launched only following an assessment of the
2.2. The WRAP grant funding in the wood, plastics, glass, regional needs and existing capacity.
aggregates and compost sectors
(b) Characteristics of the investment aid provided under this scheme
2.2.1. Aim of the measure
(11) This scheme will support initial investment only. In
(6) The purpose of this grant funding programme is to particular, application for aid must be made before
subsidise investments by private companies in recycling work starts on a project. Recipients of the aid under the
scheme will be required to maintain aided investment in
the region for a period of at least five years. The eligible
(6) OJ L 10, 13.1.2001, p. 33. costs will be limited to investment in tangible assets,
(7) OJ C 74, 10.3.1998, p. 9. namely land, buildings and plant/machinery. All projects
(8) OJ C 37, 3.2.2001, p. 3. will fall below the thresholds for assessment under the
C 129/10 EN Official Journal of the European Union 3.6.2003

Multisectoral Framework on regional aid for large selected yet, but the aim of the British authorities is to
investment projects (9). develop reprocessing capacity that will produce very
finely ground glass. This will be a new technology in
(12) This scheme will only apply in regions qualifying for the United Kingdom. It would be environmentally
assistance under Articles 87(3)(a) and (c) of the EC desirable since it would provide a means of recycling
Treaty. The aid intensities in each case will remain waste glass for end markets that do not exist in sufficient
within the applicable limits of the regional aid map for quantity (e.g. for flat glass in windows), and therefore
the United Kingdom currently in force, as approved by increase the overall amount of recycled waste glass in
the Commission until 2006 (10). In each case, recipients the United Kingdom. The proposed intervention is
are required to contribute at least 25 % of the project's expected to recycle an additional 320 000 tonnes of
costs. waste glass. According to the British authorities, current
waste glass processors have not invested in this type of
(13) The British authorities will ensure that no project will
facility as the initial investment costs cannot offset a
receive aid for the same eligible costs from other
potential demand for the final product.
sources if the cumulated aid exceeds the applicable aid
intensities. In order to ensure compliance with this (19) Finally, it is important mentioning that a separate grant
principle, recipients will be asked to provide a declaration award in the paper recycling sector is the subject of
on the other aid applied for. another notification under the environmental guidelines,
which was notified on 20 March 2002, and in respect of
(14) The firms concerned will operate in the aggregate and which a complaint was received. This case has led to an
compost sectors. Therefore no firm involved in the opening of the investigation procedure and is now
sensitive sectors will receive aid. In particular, it is to be registered under C 61/2002.
noticed that the production of compost is not an activity
linked to the production, processing or marketing of (b) Characteristics of the investment aid provided under this scheme
products listed in Annex I of the Treaty. It is estimated
that at least seven, and probably more projects will (20) The British authorities have included in the calculation of
benefit from this scheme. the eligible investment costs all the investment costs
directly associated with the achievement of the environ-
(15) The budget for the WRAP regional scheme is GBP 4,5 mental benefit, i.e. the increase in recycling capacity. As a
million (around EUR 6,75 million). This scheme will result, the total cost of the plant, machinery, equipment
operate until the end of 2006. and where appropriate technology transfers, related to the
reprocessing of the different types of waste are included in
2.2.4. The WRAP environmental scheme the eligible costs.
(a) Description of the scheme (21) For example, in the case of the [. . .] (*) plastics recycling
project, the eligible investment costs will include: the
(16) Under this scheme, aid will be granted to investment equipment and works to enable mixed plastic waste to
projects that will contribute to the optimisation of the be sorted by polymer type and to be decontaminated, as
recycling of various products, including plastics, glass, well as the equipment and works to convert the polymer
possibly wood, aggregates and compost. Projects have separated waste plastics into high quality feedstock
been or will be selected on the basis of an open [. . .] (*).
tendering procedure, which is identical to the one used
under the WRAP regional scheme. In cases where the (22) The British authorities have explicitly confirmed that any
selection of the company has already been completed, benefits accruing to the recipient of the aid will be
the granting of the aid has been made subject to a deducted from these investment costs, as required under
positive decision of the Commission on this notification. point 37 of the environmental guidelines. In particular,
they confirmed that the benefits to be deducted are the
(17) This tender has already been completed in at least one savings over five years of the life of the investment, any
case, which concerns plastics. In the case of plastics, the increase in production during that five year period and
British authorities underlined that in 2001 the United any increased revenue or other benefit to the recipient
Kingdom collected 14 700 tonnes of plastics bottle for during that period. They will also deduct any costs
recycling, which is only 3 % of all British plastic bottle associated with the achievement of mandatory environ-
waste. Analysis has shown that the best way to achieve an mental standards. However, the British authorities did
increase in the recycling of plastics would be to increase not provide any precise indication of how they would
the waste sorting capacity. The [. . .] (*) project will calculate the benefits to be deducted in practice.
consist of creating an entirely new waste plastics sorting
and recycling plant [. . .] (*). The sorting plant will have a (23) The aid intensities will not exceed 30 %, plus the extra
capacity that will allow it to sort 20 000 tonnes of waste percentage points allowed under point 34 of the environ-
plastics per annum for reprocessing. Plastic waste will be mental guidelines for projects involving SMEs and/or
sorted by polymer type, and will be used to produce high located in assisted areas. For instance, in the plastic
quality plastic products [. . .] (*). recycling project, the eligible costs are valued at no
more than GBP 10,8 million (around EUR 16,2 million)
(18) The WRAP environmental scheme will also grant aid to at and the requested support amounts to a maximum of
least one glass recycling project. No bidder has been GBP 2,3 million (around EUR 3,45 million), which
would represent a gross aid intensity of 21,3 %.
(9) OJ C 107, 7.4.1998. (24) No aid will be provided under this scheme to firms whose
(10)Commission Decision of 17 August 2000 in case N 265/2000. activities are linked to the production, processing or
(*) Confidential information. marketing of products listed in Annex 1 of the Treaty.
3.6.2003 EN Official Journal of the European Union C 129/11

(25) The budget for the WRAP environmental scheme will be 2.3.3. Eligible companies
GBP 14 million (around EUR 21 million). The Scheme
will operate until the end of 2006. (31) The pilot fund will only invest in the equity of SMEs (11)
that have difficulty in obtaining private funding to invest
2.3. WRAP pilot fund initiative (the pilot fund) in waste recycling facilities. The primary focus of the fund
will be small enterprises, or medium-sized enterprises in
2.3.1. Aim and justification of the pilot fund their start-up or early stages. In exceptional cases, the
fund may invest in medium-sized enterprises that are
(26) The pilot fund will invest in the equity of SMEs that are past their start-up phase, but that are expanding into
specialised in recycling activities and that have difficulties recycling for the first time or experimenting with a new
in obtaining private funding to invest in this type of process.
activities. Its main objective is to promote the devel-
opment of recycling activities in the United Kingdom, (32) Investments will be limited to firms concerned with the
and by doing so to improve the environment. collection and reprocessing of waste paper, plastic, glass,
wood, aggregates, compost and ceramics. No firms
(27) According to the British authorities, the recycling markets involved in the sectors explicitly excluded from the
that the pilot fund will target are too risky to attract application of the Communication on State aid and risk
sufficient commercial equity investment. Market failure capital (12), like shipbuilding or the ECSC sectors, will
in the recycling sector is due to a number of factors: benefit from the Fund's interventions. No firm whose
the lack of information and market transparency, the activity is linked to the production, processing or
fact that these market sectors are not well-established, marketing of products listed in Annex I of the Treaty
the high level of regulation, the lack of technological will receive aid under the scheme.
and market understanding amongst the investors, the
lack of management capability in the sector and the 2.3.4. Nature of the investments of the Fund
relatively small transaction sizes. As a result, there is no
(33) All investments will consist of equity or equity-type
commercial investment fund specifically focused on the
participation in the share capital of eligible SMEs.
recycling industry. A study carried out by ESYS
Investment by the Fund per individual company will be
Consulting Ltd also showed the lack of interest from
capped at EUR 500 000 in non-assisted areas,
mainstream funds in investing in this type of sectors:
EUR 750 000 in Article 87(3)(c) regions, and EUR 1
no member of the British Venture Capital Association
million in Article 87(3)(a) regions. The maximum
identified environment as a preferred sector for
investment in medium sized firms beyond start-up and
investment in early stage/expansion SME projects. The
early stages will be GBP 500 000 (around EUR 750 000).
pilot fund is meant to address this market failure.
There is an exit mechanism for the Fund's investment.
2.3.2 Characteristics and mechanisms of operation of the pilot 2.3.5. Cumulation and reporting
fund
(34) The British authorities have undertaken that where
(28) The pilot fund will start with a GBP 5 million public grant companies have received investment from the pilot
(EUR 7,5 million). At least 20 % of the capital of the Fund fund, they will be eligible for regional and SME aid at
will come from private investors. These private investors only 50 % of the level of intensity otherwise allowed by
will be sought through a process of competitive tender. the Commission, for a period of three years from the date
No person eligible to invest in the Fund will be debarred of the initial investment by the Fund.
from doing so. These investors will be afforded a waiver
of the entrance fees and administrative costs. [. . .] (*). (35) They also committed themselves to provide an annual
report on the operation of this Fund. In particular, this
(29) The pilot fund will be managed by a manager who is report will show the actual level of participation of
selected through competitive tender. He will be remun- private investors in the fund.
erated on the basis of a fixed management fee, which will
be subject to negotiation with the successful tenderor and 2.4. WRAP lease guarantee fund (the guarantee fund)
will not exceed 5 % of the fund's value capital. He will 2.4.1. Aim and general features of the guarantee fund
also receive a performance-related remuneration,
equivalent to 20 % of the profits of the fund. According (36) Like the WRAP grant funding and the WRAP pilot fund,
to the British authorities, the fund will be independent the guarantee fund supports investments in reprocessing
from WRAP in its investment decisions. In particular, a activities and aims, in this manner, to contribute to an
majority of the board of the fund, including the fund increase in the waste recycling capacity in the United
manager will be drawn from the private sector and will Kingdom.
be experienced market operators. WRAP will have no
power of veto over investment decisions. (37) The guarantee fund will be managed by a third party
agent, selected following a competitive tender by
(30) Investment decisions will be based on an assessment of a WRAP, which is a public body, and its resources will
business plan submitted by the applicants. The applicants come from the State.
will have to provide evidence that the project will
generate a clear environmental gain. The fund will look (38) It will provide guarantees that will cover leases of
positively on schemes, which have already been turned machinery and/or equipment for the purposes of repro-
down for funding by the private sector. The fund may
not invest in competition with the private sector, but (11) As defined in Annex I to Commission Regulation (EC) No
when private funds are insufficient, the fund may 70/2001.
co-invest alongside private funding. (12) OJ C 235, 21.8.2001, p. 3.
C 129/12 EN Official Journal of the European Union 3.6.2003

cessing recyclable materials or manufacturing products record or credit rating. Exceptionally, the guarantee fund
from those materials. Only leases that have a duration may grant guarantees to large enterprises.
of at least five years will be eligible.
(44) The guarantee fund will guarantee a maximum of GBP 8
(39) According to the British authorities, leasing companies are million (around EUR 12 million) in residual values over a
very reluctant to provide leases for waste recycling five year period (it will operate until 31 December 2006).
equipment. This is due to the perceived low re-sale The likelihood of default in respect of these residual
value of the specialist equipment used in the recycling values is calculated at approximately 30 %, which means
sector. As a result, leasing contracts for such equipment that the size of the fund will be GBP 2,4 million (around
are regarded by leasing companies as very high-risk and EUR 3,6 million).
are therefore disproportionately expensive, especially in
cases involving start-up companies. 2.4.2. The SME section of the guarantee fund

(40) To remedy this problem, the guarantees provided by the (45) When applicable, the British authorities grant the guar-
guarantee fund will cover the residual value of the antees on the basis of Regulation (EC) No 70/2001 and
equipment, which, under an operating lease, will remain have committed themselves to respect all its provisions.
the lessor's asset and which the lessor will sell at the end 2.4.3. The regional section of the guarantee fund
of the lease-period or earlier, in the case of bankruptcy of
the lessee. Before the lease contract is signed, the (46) In a limited number of cases, the guarantee fund will
management agent will set a residual value of the asset provide lease guarantees for initial investments
concerned in negotiation with a panel of lessors. The undertaken by firms in areas covered by Article 87(3)(a)
guarantee fund will be obliged to acquire this asset for or Article 87(3)(c) of the EC Treaty. In such cases, the
the agreed residual value in two circumstances: either if, British authorities have confirmed that the guarantees will
during the lease period, the lessee goes bankrupt or if the be provided under the following conditions:
residual value of the assets falls short of the guaranteed
value at the end of the lease period. The residual value — guarantees will only be granted to leases of equipment
that is guaranteed will normally be set at a maximum of that correspond to initial investments. Application for
20 % of the initial value of the investment but may the aid will have to be made before the purchase of
sometimes be set at a slightly higher percentage. the machinery which is the subject of the guarantee.
Recipients will be further required to maintain aided
(41) According to the British authorities, these guarantees will investments in the region for a period of at least five
reduce the risk-element of lease contracts for waste years,
recycling equipment and enable SMEs to obtain such
leases at a reasonable cost. The guarantee fund's — eligible costs will be limited to investment in tangible
guarantee will be well below the 80 % of the value of assets, namely machinery/equipment,
the lease. — the aid intensities will remain within the applicable
(42) In order to calculate the net grant equivalent, the British limits of the regional aid map for the United
authorities have used the method laid down in the Kingdom, currently approved by the Commission
Commission's Notice on State aid in the form of guar- until 2006. The recipients will be required to
antees (13) which states the grant equivalent is equal to contribute to at least 25 % of the investment's costs,
(guaranteed sum × risk) — premium. In the case of a — the economic sectors to benefit from this initiative
GBP 100 000 investment, the guaranteed residual value will be those concerned with the reprocessing of
would typically be GBP 20 000. According to the United waste paper, plastic, glass, wood, aggregates,
Kingdom, a normal commercial asset finance portfolio has compost and ceramics. The sectors which could use
a risk basis of a 10 to 20 % default rate. Given the higher those recycled materials to manufacture products may
risk profile of the risk recycling activities covered by the also benefit. No firms involved in the sensitive sectors,
guarantee fund, the British estimates that it would be such as shipbuilding, car manufacturing, synthetic
appropriate to apply a higher default rate, namely 30 %. fibres, the ECSC sectors or activities linked to the
The grant equivalent for a GBP 100 000 investment production, processing or marketing of products
would therefore be GBP 20 000 × 30 % = GBP 6 000. listed in Annex I to the Treaty will be eligible for aid,
There are unlikely to be deductible premiums paid to
WRAP. It means that the aid intensity for this aid will — the British authorities will ensure that no project will
be 6 000/100 000 = 6 %. The calculation of this aid receive aid for the same eligible costs from other
intensity is based on the assumption that the guaranteed sources if the cumulated aid exceeds the applicable
residual value is set at 20 % of the value of the aid intensities. In other to ensure compliance with
investment. This will be the average level of the this principle, recipients will be asked to provide a
guarantee. In some cases, this guaranteed residual value declaration on the other aid applied for,
could exceed 20 %. In such cases, the calculation of the
aid element will vary accordingly. — they will send an annual report on the activity of the
lease guarantee fund.
(43) The majority of the beneficiaries of the guarantees will be
SMEs as defined in Annex I of Regulation (EC) No 2.4.4. The environmental section of the guarantee fund
70/2001, and especially small companies or (47) In exceptional cases that do not fall under Regulation (EC)
medium-sized companies at a start-up or early stage. No 70/2001 or the regional guidelines (e.g. guarantees to
The beneficiaries will not have significant financial track large companies outside Article 87(3)(a) or Article 87(3)(c)
regions), the guarantees will be granted under the
(13) OJ C 71, 10.3.2000, p. 14. environmental section of the guarantee fund. The British
3.6.2003 EN Official Journal of the European Union C 129/13

authorities ask for exemption of this submeasure on the (54) Following discussions with the Commission, the British
basis of the environmental guidelines. However, they have authorities have agreed to provide aid under the three
not provided any further information that would enable above programmes in conformity with Commission Regu-
the Commission to assess the compatibility of this lation (EC) No 69/2001 on de minimis aid.
submeasure with the said guidelines.
III. ASSESSMENT OF THE AID MEASURE
2.5. Support to the composting association
3.1. Legality of the aid measures
(48) WRAP is also responsible for developing markets for
compost products in the United Kingdom. WRAP has (55) The British authorities notified these aid measures to the
identified that appropriate standards are critical to Commission before implementing them and have
increasing confidence in compost products and thus therefore complied with their obligation on the basis of
increasing their use. As a result, it has sought to Article 88(3) of the EC Treaty.
identify an organisation best placed to prepare an appro-
priate quality standard for the production of compost, to 3.2. Assessment of the WRAP grant funding
achieve accreditation of that standard with the British
Standards Institute, to liase with the industry and set up 3.2.1. Assessment of the WRAP regional scheme
an accreditation system.
Existence of aid
(49) WRAP concluded that the Composting Association, a (56) This measure is provided through State resources. It gives
non-profit, member-funded trade association, was a selective economic advantage to certain firms in the
uniquely placed to provide this service, since it has form of a grant. The use of a competitive tender
already elaborated a preliminary standard and an outline procedure can ensure that the amount of the subsidy is
accreditation process for composted products. Under the limited to the minimum necessary, but this does not
contract with WRAP, WRAP will assume the intellectual remove the aid character of the measure. Furthermore,
property rights to all the further work carried out on both it is possible that the recycled products, like compost,
the standard and the accreditation process and will make are internationally traded: this scheme may therefore
that work generally available to all interested parties. affect competition and trade between Member States.
For these reasons, it constitutes a State aid within the
(50) In order to develop this standard and encourage industry meaning of Article 87(1) of the EC Treaty.
wide implementation of the standard, the Composting
Association will receive a grant of GBP 95 000 (around Compatibility of the aid with the EC Treaty
EUR 142 000).
(57) The Commission notes that the British authorities have
2.6. Business Development Service, Exemplar Companies structured the scheme on the basis of the regional
Initiative and Advice to Composting Firms Initiative guidelines and in particular that:

(51) The Business Development Service aims at providing — the scheme will support initial investment only, which
business advisory services to firms operating in the the beneficiary will have to keep in the region for at
recycling sectors, such as advice on market research least five years,
practices and quality, on business plan development, on
— the aid is limited to the minimum amount thanks to
management and technical issues. These services will
the use of an open tender to select the beneficiary and
normally be delivered by WRAP staff. According to the
the amount of the aid,
type of service provided and the extent to which it is
tailored to the need of the company, WRAP has valued — the scheme will apply only in regions qualifying for
them from GBP 165 (around EUR 247,5 for general assistance under Article 87(3)(a) and (c) of the EC
information) to GBP 18 934 (around EUR 28 400) for Treaty as defined in the regional aid map for the
assistance in the preparation of business plans, market United Kingdom and the aid intensities will remain
research information and similar services. About 600 within the limits set in that map. All projects will
companies will benefit from this form of support. fall below the thresholds for assessment under the
Multisectoral Framework on regional aid for large
(52) The Exemplar Company Initiative will encourage the use investment projects,
of recycled products. Under that program, WRAP will
provide advisory support to companies that commit — eligible costs will be limited to tangible assets,
themselves to improve their performance with regard to
the procurement of recycled products. This support is — no firm operating in any sensitive sector will be
valued by WRAP at a maximum of GBP 15 000 eligible for assistance,
(around EUR 22 500), with a maximum number of
— the rules on cumulation will be respected,
companies to receive support evaluated at 30.
— the British authorities undertook to report annually on
(53) The advice to composting companies will consist of the implementation of this scheme.
providing consultancy to companies producing compost
in order to help them to test various processes over a (58) For these reasons, the Commission concludes that the
period of two years. The average value of the services to WRAP regional scheme is in line with the regional
the recipient companies is expected to be less than guidelines and that it can be considered to be compatible
GBP 6 000 (around EUR 9 000). with the common market.
C 129/14 EN Official Journal of the European Union 3.6.2003

3.2.2. Assessment of the WRAP environmental scheme greater selective collection of waste,a decrease in waste
disposal to landfills and a decrease in the use of
Existence of aid primary raw materials, according to the information
provided by the British authorities. As in case C
(59) This measure is provided through State resources. It gives 61/2002, the Commission doubts whether the
a selective economic advantage to certain firms in the environmental guidelines apply to such cases.
form of a grant. The use of a competitive tender
procedure can ensure that the amount of the subsidy is
limited to the minimum necessary, but this does not (62) Even if the environmental guidelines were found to be
remove the aid character of the measure. Furthermore, applicable to the present scheme, the Commission
the waste products that are recycled can be internationally would still have doubts about the way in which the
traded. For instance, the British authorities indicated that United Kingdom proposes to calculate the eligible costs
up to 25 % of British waste plastics is exported. Also the under the scheme. Point 37 of the environmental
end products that are produced from the recycled waste, guidelines states that ‘eligible costs must be confined
like flat glass, can be internationally traded. For these strictly to the extra investment costs necessary to meet
reasons, the WRAP Environmental Scheme may have an the environmental objectives’. Under the WRAP environ-
effect an competition and trade between Member States mental scheme, the British authorities have included in
and may constitute a State aid within the meaning of the calculation of the eligible costs the entirety of the
Article 87(1) of the EC Treaty. investments linked to the recycling activity. That does
not seem to be in line with the principle laid down in
Compatibility of the aid with the EC Treaty point 37 of the environmental guidelines. The British
authorities have indicated that they will deduct from
(60) The WRAP environmental scheme does not appear to be these eligible investment costs any benefits accruing to
compatible under Article 87(2) of the EC Treaty. Neither the recipients of the aid over a five-year period.
does it appear to fall within the scope of Article 87(3)(a), However, they have provided no clear explanation on
(b) or (d) of the EC Treaty, since it is not limited to areas the way these benefits will be calculated in practice. For
where the standard of living is abnormally low or where these reasons, at this stage and based on the information
there is serious underdevelopment, and since it does not available, the Commission has doubts whether the defi-
concern projects of common European interest or the nition of the eligible costs is in conformity with point 37
promotion of culture and conservation. The only of the environmental guidelines.
possible basis of compatibility appears to be Article
87(3)(c) of the EC Treaty. On that point, the Commission (63) The British authorities structured the scheme on the basis
first notes that this aid measure has been notified on the of the environmental guidelines, and at this stage, no
basis of the environmental guidelines. other legal basis for compatibility seems to be applicable,
apart from a direct application of Article 87(3)(c) of the
(61) The Commission agrees that encouraging the devel-
EC Treaty. Under this Article, aid can be considered to be
opment of waste recycling activities and therefore
compatible with the common market when it is meant to
increasing waste recycling is an environmental objective.
facilitate the development of certain economic activities or
However further investigation is necessary to determine
of certain economic areas, where such aid does not
whether the investment aid provided under this scheme
adversely affect trading conditions to an extent contrary
would fall under the environmental guidelines, in
to the common interest. At this stage, the Commission is
particular concerning the following issues:
of the opinion that the direct application of Article
— under point 29 of the environmental guidelines, 87(3)(c) of the EC Treaty to the WRAP environmental
investment aid may be given on the basis of these scheme should be done in the light of the principles on
guidelines when firms undertake investment in the environmental aid laid down in environmental guidelines.
absence of mandatory Community standards or In particular, the Commission notes that, as underlined in
where they have to undertake investment in order to points 14 to 18 of these guidelines, the best policy in
comply with national standards that are more favour of the environment is the internalisation of costs
stringent than Community ones. The Commission and State aid is only a temporary second-best solution.
notes that investment aid granted under the present The British authorities have indicated that they have taken
scheme is actually meant to enable the United some measures in the sense of an internalisation of costs,
Kingdom to fulfil the general targets for Member including a tax on landfill disposal. However, they have
States set by the EC Landfill Directive and the EC not sufficiently explained why these measures are not
Packaging Directive, sufficient and need to be complemented by State aid
under the present aid measure in order to encourage
— as already stated in its decision of 2 October 2002 on waste collection and recycling. They have not shown
case C 61/2002 (ex N 196/2002) on the aid granted either that this aid does not adversely affect trading
to Shotton Paper under the WRAP Environmental conditions to an extent contrary to the common
Scheme, the Commission has generally interpreted interest. Therefore, at this stage, the Commission doubts
that investment aid approved under the environmental whether this scheme could be considered compatible
guidelines aims at reducing the emissions and directly on the basis of Article 87(3)(c) of the EC Treaty.
pollution caused by the beneficiary in the course of
its production process. The Commission notes that the 3.3. Assessment of the WRAP pilot investment fund
objective of the present measure is not to make
recycling activities less polluting. Its environmental (64) The assistance provided under the pilot fund will take the
benefits are more indirect: it is expected that the form of investments in the equity of SMEs. The
operation of these recycling activities will result in a Commission has therefore examined this scheme in the
3.6.2003 EN Official Journal of the European Union C 129/15

light of its Communication on State aid and risk capital pilot fund makes its investments would not be acceptable
(hereafter ‘the communication’) (14). to a private investor in a market economy. Therefore, the
firms invested in by the fund will get an economic
3.3.1. Existence of aid advantage, which is selective since the interventions of the
Fund are limited to certain types of projects and firms.
(65) The large majority of the capital of the Fund is provided Finally, these firms will be specialised in the recycling of
by WRAP, which is a public funded body. Consequently, various types of waste products. Some of them, like glass,
this measure is financed by State resources within the plastics and especially paper, are clearly the object of
meaning of Article 87(1) EC. According to the Communi- trade between Member States, which may therefore be
cation, the presence of aid must be assessed at three affected by this measure. For these reasons, this measure
levels: the private investors in the fund, the fund and also constitutes an aid within the meaning of Article 87(1)
the firms invested in. EC to the enterprises invested in by the fund.
(66) As far as the private investors are concerned, the 3.3.2. Compatibility of the measure with the EC Treaty
Commission notes that they will receive some economic
advantages, in particular a waiver of the entrance fee. (69) According to point VI.5 of the Communication, the
[. . .] (*). Furthermore, it is not certain that the conditions Commission requires provision of evidence of market
of selection of these investors will guarantee that all failure before being prepared to authorise risk capital
potentially interested investors will be aware of the possi- measures which fall outside the scope of existing rules.
bility to invest in the Fund. It implies that the economic The Commission is however prepared to believe this is
advantage received by the investors may also be selective. the case where each tranche of finance for an enterprise
Finally, investment in risk capital is an activity that is the will not exceed EUR 500 000, or EUR 750 000 in
object of considerable trade between Member States. regions qualifying for assistance under Article 87(3)(c)
Consequently, this measure affects trade between Member or EUR 1 million in regions qualifying for assistance
States. For these reasons, this measure constitutes an aid under Article 87(3)(a). These conditions are fulfilled
within the meaning of Article 87(1) EC to the investors. under the present case, which enables the Commission
to conclude that the WRAP pilot will focus on areas
(67) As far as the fund is concerned, according to the where there is a market failure.
Communication, a risk capital fund may have the
character of an independent beneficiary of aid, in (70) Furthermore, point VIII lays down a certain number of
particular when it is an existing fund. This is not the other criteria of appreciation of compatibility:
present case. This fund may be an independent legal (71) Types of companies invested in: The fact that the fund will
entity but it can be considered as a mere vehicle of aid. essentially focus on small firms or medium-sized enter-
(68) As far as the enterprises invested in are concerned, the prises in their early stages is a positive element. The fund
Communication provides that existence of an advantage may occasionally provide finance to medium-sized enter-
to these enterprises depends on whether the terms on prises beyond their early stages, but only when they
which the pilot fund makes its investments would be expand into recycling for the first time or test a new
acceptable to a private investor in a market economy. process, which may regarded as acceptable under the
According to the British authorities, investment Communication.
decisions will be profit driven, and it is not excluded (72) Limits on the total funding per enterprises. The total funding
that they will not be, in certain cases, at pari passu. But available to a single enterprise from all risk capital funds
even then, the Commission must take into account the which contain State aid will be set at EUR 500 000 in
possibility any advantage granted to the investors in the non-assisted areas, EUR 750 000 in regions qualifying for
Fund is passed on to the enterprises invested in. In the assistance under Article 87(3)(c), and EUR 1 million in
present case, the advantages that will be granted to the regions qualifying for assistance under Article 87(3)(a).
investors (see point 66) will reduce the risks and/or This is in conformity with the Communication. The
increase the rewards that these investors will obtain British authorities also indicated that the total funding
from making a particular investment. As a result, the for medium-sized companies beyond their start-up or
investors may no longer be considered to be operating early stages will be capped at GBP 500 000
as a normal market operator. In this context, the (approximately EUR 750 000). The same limit for
Commission notes that there is general lack of interest investments in this type of companies was already
of risk capital investors in investing in the sectors on accepted by the Commission in its decision of 20
which this fund will be focussed, as clearly appears December 2001, in case N 722/2000, Coalfields
from the submissions of the British authorities. Enterprise Fund (UK) and can therefore be allowed in
Furthermore, it appears that the pilot fund's investment the present case.
decisions will be subject to non-market constraints in
order to ensure that the environmental objectives of the (73) The measure should be focused on risk capital measure. The
Fund are achieved. Amongst these constraints, one can Commission notes that the Funds' investments will take
mention the fact that the pilot fund will only be able to the form of equity or quasi-equity participation in the
invest in SMEs concerned with waste recycling, or the fact suitable SMEs, which is regarded as a positive indication
that the it will have to consider positively projects which that the measure is focussed on a risk capital market
have been turned down for funding, in part or in full, by failure.
the private sector. On the basis of these elements, the (74) Decisions to invest should be profit driven. Under the
Commission can conclude that the terms on which the communication, this is assumed to be met when there
is a significant involvement of market economy investors'
(14) OJ C 235, 21.8.2001, p. 3. capital. Provision of 50 % of a fund's capital by private
C 129/16 EN Official Journal of the European Union 3.6.2003

investors is taken to constitute ‘significant involvement’, 3.4. Assessment of the WRAP lease guarantee fund
or 30 % in assisted areas. The pilot fund will operate all
over England, including in non-assisted areas. A 50 % 3.4.1. Existence of aid within the meaning of Article 87(1) EC
private participation would therefore be expected.
During the course of the notification process, the British (79) The lease guarantee fund will be entirely funded by
authorities did market research to assess the likelihood of WRAP. This measure can therefore be considered as
finding private investors for the fund. The research being financed by State resources within the meaning of
demonstrated the total lack of interest from private Article 87(1) of the EC Treaty.
investors in investing in a fund targeting the recycling
sector. The United Kingdom therefore proposed that the (80) The Commission notes that the guarantee fund provides
pilot fund would be entirely publicly funded. Following guarantees that cover leases of machinery and equipment
discussions with the Commission, they finally committed for the purpose of reprocessing recyclable materials or
themselves to ensure a 20 % private participation in the manufacturing products from those materials. It enables
fund. This level of participation is lower than what is firms that want to acquire this equipment to obtain a
recommended by the Communication for funds lease on conditions that are more favourable than
operating in assisted areas. However, on the basis of the normally available on the market. Since the lessees do
information provided by the British authorities, the not pay any premium for this guarantee, they clearly
Commission accepts that there is a serious market get an economic advantage from this measure. This
failure in the provision of risk capital in the waste economic advantage is specific, since only firms
recycling sector. Furthermore, as already stated, the operating in the sectors of waste recycling will benefit
Commission accepts that the development of waste from the application of this Fund. Furthermore, the
recycling activities could make a positive contribution to products manufactured by these companies may be inter-
the achievement of environmental objectives. In the same nationally traded, so this aid measure may therefore have
way that a lower private participation is allowed for the an effect on competition and trade between Member
objective of regional development (the Communication States. For these reasons, the Commission can conclude
allows for a lower private participation in risk capital that this aid measure constitutes an aid within the
funds operating in assisted areas), the Commission meaning to Article 87(1) EC to the lessees.
believes that, mutatis mutandis, a lower level of partici-
pation could be allowed for this Fund, given its (81) The Commission notes that the lease guarantees are given
contribution to environmental objectives. In this context, ex ante, and not ex post. It therefore concludes that the aid
given the specificity of this case and the efforts made by beneficiary is the lessee, not the lessor.
the British authorities to seek some level of private
participation in the pilot fund, the Commission believes 3.4.2. Compatibility of the aid measure with the EC Treaty
that this 20 % participation constitutes a sufficient
involvement of the private sector. Finally, the Commission (82) Having established that this aid measure constitutes aid
also notes that the fund manager's remuneration will be within the meaning of Article 87(1) of the EC Treaty, the
linked to the performance to the fund. For all these Commission needs to consider whether this scheme can
reasons, the Commission concludes that the decisions be found to be compatible with the common market.
taken by this Fund will be sufficiently profit driven.
(83) Since State aid provided by this fund is under the form of
guarantees, it must first be analysed on the basis of the
(75) The level of distortion of competition between investors should
Commission notice on State aid in the form of guarantees
be minimised. This is guaranteed by the fact that the
(hereafter ‘the notice’) (15). The Commission notes that the
selection of the private investors and the determination
fund's lease guarantee will not exceed 80 % of the lessee's
of the preferential terms they will get will be done by
exposure and is expected to be much lower than that,
open tender.
which is in conformity with point 3.4 of the notice.
The Commission also notes that the WRAP lease guar-
(76) Sectoral focus. This fund will focus on specific sectors, i.e. antees will only be mobilised if specific contractual
sectors specialised in the recycling of various types of conditions are satisfied, i.e. if the lessee becomes
waste. Nevertheless, these sectors appear to be sufficiently bankrupt or if the asset realises less than the residual
diversified, since they involve very different types of value being guaranteed. This again is in conformity with
products (glass, paper, wood, plastics, etc.). In any case, point 5.3 of the notice.
a sectoral focus is allowed under the Communication if it
has a public policy logic. This is the case of this fund (84) Furthermore, point 3.2 of the notice states that the cash
which fulfils an environmental objective. grant equivalent of the loan guarantee can be taken to be
the difference between the outstanding sum guaranteed,
(77) Rules on cumulation. The commitments in terms of cumu- multiplied by the risk factor and any premium paid. The
lation made by the British authorities on that case are Commission notes that the British authorities have based
identical to those already accepted by the Commission, the calculation of the grant equivalent of the specific type
for example in case N 606/2002 Community Devel- of guarantees granted under this scheme on this method
opment Venture Capital Fund, and can therefore be and have applied a relatively high default rate (30 %). For
regarded as satisfactory. these reasons, the Commission considers that the calcu-
lation of the grant equivalent, and consequently the calcu-
(78) For these reasons, the Commission can conclude that this lation of the aid intensity of this guarantee are correct.
aid measure fulfils the criteria to the considered
compatible under Article 87(3)(c) of the EC Treaty. (15) OJ C 71, 11.3.2000, p. 16.
3.6.2003 EN Official Journal of the European Union C 129/17

The SME section of the guarantee fund 3.5. Assessment of the support to the Composting
Association
(85) When Regulation (EC) No 70/2001 is applicable, the
British authorities have undertaken to ensure that the (90) The Composting Association will receive GBP 95,000 in
conditions laid down in this regulation will be respected. order to develop a quality standard for compost products
It is understood that the large majority of projects that and accreditation process, and to encourage the industry
will benefit from the assistance of the guarantee fund will to make a wide implementation of the standard. This
concern SMEs and the regional and environmental section standard will be made generally available by WRAP
of the Guarantee assessed below will be ancillary. which will assume the intellectual property rights to all
further work carried out by the Composting Association
The regional section of the guarantee fund on the standard and accreditation process. In this circum-
(86) When the beneficiaries are large firms in areas covered by stances, the Commission considers that the development
Article 87(3)(a) or Article 87(3)(c) of the EC Treaty, the of the publicly available standard and accreditation
Commission notes that the British authorities have process does not constitute an economic activity that is
structured the scheme on the basis of regional guidelines likely to fall within the scope of Article 87(1) of the EC
and in particular that: Treaty and therefore, the aid provided to Composting
Association does not constitute aid within the meaning
— these guarantees will cover leases of machinery and/or of that article.
equipment that have a duration of least five year and
3.6. Assessment of the Business Development Service,
can therefore be considered as investment aid. The
Exemplar Companies Initiative and Advice to
British authorities undertook that only initial
Composting Firms Initiative
investment will be aided,
— the British authorities undertook to respect all the (91) The British authorities have agreed to provide aid under
conditions laid down in regional guidelines concerning these three programs on the basis of Commission Regu-
aid intensities, eligible costs, cumulation, the lation (EC) No 69/2001 on de minimis aid. Therefore, this
requirement that the investment should be maintained assistance does not constitute State aid within the
for at least five years in the region concerned, meaning of Article 87(1) of the EC Treaty.

— furthermore, the Commission notes that firms


IV. CONCLUSION
operating in sensitive sectors will be excluded.
(87) The Commission can conclude the regional section of the (92) In the light of the foregoing considerations, the
guarantee fund is in conformity with the regional Commission decides that:
guidelines — the support to the Composting Association, the
The environmental section of the guarantee fund Business Development Service, Exemplar Companies
Initiative and the Advice to Composting Firms
(88) When the aid does not fall under either Commission Initiative do not constitute State aid,
Regulation (EC) No 70/2001 or the regional guidelines — the WRAP regional scheme, the WRAP pilot
(for instance when it is provided to large firms in investment fund and the part of the WRAP lease
non-assisted areas), the British authorities propose to guarantee fund that is notified on the basis of
grant the aid on the basis of the Guidelines on State aid Commission Regulation (EC) No 70/2001 or on the
for environmental protection. The Commission notes that basis of the Guidelines on national regional aid are
the types of investments targeted by this Fund are similar compatible with the EC Treaty.
to the ones targeted by the WRAP environmental scheme.
Under point 3.2.2 of this decision, the Commission has (93) With respect to WRAP environmental scheme and the
already explained why it has doubts concerning the appli- part of the lease guarantee fund that is notified on the
cability of the environmental guidelines to this type of basis of the Guidelines on State aid for environmental
investment aid. For the same reasons, at this stage, the protection, the Commission, acting under the procedure
Commission has doubts on the applicability of these laid down in Article 88(2) of the EC Treaty, requests the
guidelines to the guarantee fund. Furthermore, the United Kingdom to submit its comments and to provide
British authorities have not provided any information all such information as may help to assess the measure,
on the compatibility of the aid measure with the environ- within one month of the date of receipt of this letter. It
mental guidelines, and in particular on the conformity of requests the United Kingdom authorities to forward a
the eligible costs of this measure with point 37 of the copy of this letter to the potential recipients of the aid
environmental guidelines. Therefore, the Commission also measure immediately.
expresses doubts on the compatibility of the measure with
these guidelines if they are found to be applicable. (94) The Commission wishes to remind the United Kingdom
that Article 88(2) of the EC Treaty has suspensory effect,
(89) To conclude, the Commission can conclude that this aid and would like to draw attention to Article 14 of Council
measure fulfils the criteria to be considered compatible Regulation (EC) No 659/1999, which provides that all
under Article 87(3) of the EC Treaty, except when it is unlawful aid that is found to be incompatible with the
applied on the basis of the environmental guidelines. common market may be recovered from the recipient.’