Commission Decision
of 20 November 2007
on the State aid C 36/A/06 (ex NN 38/06) implemented by Italy in favour of ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche
(notified under document number C(2007) 5400)
(Only the Italian version is authentic)
(Text with EEA relevance)
(2008/408/EC)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,
Having regard to the Agreement of the European Economic Area, and in particular Article 62(1)(a) thereof,
Whereas:
In framework of case C 13/06 (ex N 587/05) — Preferential Electricity Tariff in Sardinia, the Commission became aware of the extension of two measures granting a preferential electricity tariff. The extension was granted by virtue of Article 11, paragraph 11 of decreto-legge No 35/2005, converted into Law 80 of 14 May 2005 (hereinafter Law 80/2005) and was implemented without prior notification to the Commission. The beneficiaries are the aluminium producer Alcoa and the three successor companies of Società Terni: Terni Acciasi Speciali, Nuova Terni Industrie Chimiche and Cementir (hereinafter ‘the Terni companies’).
By letter dated 23 December 2005 the Commission requested information from Italy, which replied by letter dated 24 February 2006. By letters dated 2 March 2006 and 27 April 2006, Italy provided additional information.
By letter dated 19 July 2006, the Commission informed Italy that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of both schemes (Case C 36/06).
Italy submitted observations by letter dated 25 October 2006. Further information was submitted by letters dated 9 November 2006 and 7 December 2006.
The Commission received comments from interested parties. It forwarded them to Italy, which was given the opportunity to react. Italy’s comments were received by letter dated 22 December 2006.
By letter of 20 February 2007, the Commission requested further information, which was provided by Italy by letters dated 16 April 2007, 10 May 2007 and 14 May 2007.
On 18 September 2007 the file was split into part A, which deals with the three companies resulting from the splitting of Società Terni (the Terni companies) and part B, which concerns Alcoa. This decision concerns exclusively the extension of the preferential tariff in favour of the Terni companies.
The exchanges of correspondence which concern Alcoa are not quoted here.
Article 11, paragraph 11 of Law 80/2005 provides for the extension in time of two measures granting reductions of the general electricity tariff. The beneficiaries of these two measures, which are different in nature and will be dealt with separately, are aluminium-producer Alcoa on the one hand, and three companies resulting from the splitting up of Società Terni, on the other.
Italy nationalised its electricity sector by law No 1643 of 6 December 1962 (hereinafter the nationalisation law). The law provided for the transfer of Italy’s existing power plants to the newly created State-owned company ENEL, which was to hold a monopoly in the production, distribution and supply of electricity.
At the time of nationalization, Società Terni was a State-owned company active in the manufacturing of steel, cement, and chemicals. The State exercised effective control over the company via a majority stake in its capital, held by the State holding IRI and the State-owned Finsider group. Società Terni also owned and operated a hydropower plant. Most of the electricity produced was tused to power the company’s manufacturing processes.
By Presidential Decree No 1165/63, Italy granted the company compensation for the transfer of its electricity assets. The compensation took the form of a preferential electricity tariff which was to apply from 1963 to 1992.
In 1964, Società Terni was split up into three companies: steel-maker Terni Acciai Speciali, chemical manufacturer Nuova Terni Industrie Chimiche and cement manufacturer Cementir. These undertakings were later privatized and acquired by ThyssenKrupp, Norsk Hydro and Caltagirone, respectively.
As indicated in point (1) of this decision, these successor undertakings will be collectively referred to as ‘the Terni companies’ whereas the original company will be referred to as ‘Società Terni’. The tariff applicable to Società Terni first, and to the Terni companies later, will be referred to as ‘the Terni tariff’.
The preferential tariff continued to apply, under the same conditions, to the three Terni companies. The main beneficiary (in terms of the quantity of subsidized electricity, both in absolute terms and also as a proportion of the company’s total electricity consumption) is ThyssenKrupp.
In 1991 Italy extended existing hydroelectric concessions until 2001 by Law No 9 of 9 January 1991‘Implementing provisions for the new National Energy Plan: institutional aspects, hydro power plants and networks, hydrocarbons and geothermal energy, self-producers and fiscal provisions’ (hereinafter Law 9/1991). By virtue of Article 20, paragraph 4 of Law 9/1991, Italy also prolonged until 2001 the preferential tariff for the Terni companies. Over the subsequent six years (2002-2007) the quantities of subsidized electricity supplied to the Terni companies were to be gradually reduced (phased-out), so that the tariff advantage would disappear by the end of 2007.
The conditions of Società Terni’s preferential tariff were established in Articles 6, 7 and 8 of Presidential Decree No 1165/63 Transfer to Ente Nazionale per l’Energia Elettrica of the assets used for the activities mentioned in Article 1(1) of Law No 1643 of 6 December 1962 carried out by ‘Terni-società per l’Industria e l’Elettricità S.p.A.’ (hereinafter DPR 1165/1963). DPR 1165/1963 laid down that ENEL would supply Società Terni with a fixed amount of electricity (1 025 000 MWh a year) which was the equivalent of the company’s electricity consumption in 1961, plus an extra amount (595 000 MWh a year) which corresponded to its additional expected consumption resulting from investments undertaken but not yet completed in 1962.
- (a)
Alternative 1 was based on the average electricity price paid by Società Terni’s manufacturing branches to the company’s electricity branch (corresponding to the production cost of Terni’s own hydroelectric plant);
- (b)
Alternative 2 was linked to ENEL’s reference price for a customer having the same profile (self-producer) as Società Terni.
In practice, the first method was used until 2000, when changes in the Italian tariff structure due to the liberalization of the electricity market made it necessary to switch to the second method.
In 1997 began the overhaul of the tariff structure, with the introduction of a structured tariff consisting of two parts: Part A representing fixed and general costs and Part B reflecting variable costs. As of 1 January 2000, the Terni tariff was awarded in the form of a compensatory component (componente compensativa) calculated as the sum of all components of the tariff which Terni, as a (virtual) self-producer, was not required to pay (the whole of part B and a fraction of part A). This method corresponds to the second of the alternative methods described in Decree 1165/63.
Year | GWh | MW |
|---|---|---|
2001 | 1 620 | 270 |
2002 | 1 389 | 231 |
2003 | 1 157 | 193 |
2004 | 926 | 154 |
2005 | 694 | 116 |
2006 | 463 | 77 |
2007 | 231 | 39 |
The second extension of the tariff is the measure on which the Commission has opened the formal investigation procedure pursuant to Article 88(2) of the Treaty and which is the object of this decision.
Law 80/2005 laid down that, until 2010, the Terni companies will benefit from the same treatment they enjoyed on 31 December 2004 in terms of quantities supplied (926 GWh for the three Terni companies) and prices (1,32 eurocents/kWh). The quantities of supplied electricity are currently broken down as follows: Thyssen-Krupp 86 %, Nuova Terni Industrie Chimiche 10 % and Cementir 4 %.
Law 80/2005, as interpreted and implemented by the AEEG, also introduced an indexation mechanism whereby, as of 1 January 2006, the preferential tariff would increase yearly in line with price increases recorded on the European Power Exchanges of Amsterdam and Frankfurt, subject to a 4 % cap.
The Terni preferential tariff was initially managed and paid for by the State-owned company ENEL, which held a monopoly position in the generation, transmission, import, distribution and supply of electricity in Italy.
After the Commission initiated the formal investigation procedure, the AEEG, by Delibera 190/06, made payments under Law 80/2005 conditional upon the provision, by the Terni companies, of a guarantee to cover the risk of recovery of the aid.
In the same Delibera, the AEEG foresaw, as an alternative, the possibility to pay out in 2006 as an advance the amounts of aid which would have become due until the end of the previous arrangement (2007) on the basis of Law 9/1991. For these amounts, the AEEG did not request a guarantee. This option was taken up by the Terni companies and implemented by the AEEG.
With the exception of the advance payments mentioned in paragraph (34) above, all other payments made to the companies by Cassa Conguaglio under Law 80/2005 are covered by a guarantee.
The Commission Decision to initiate a formal investigation was based on the grounds described in points (37) to (41).
The Commission expressed doubts as to whether the tariff could be considered a compensatory measure, since Società Terni was a State-owned undertaking at the time of nationalization. Given that the State cannot expropriate itself, the Commission had doubts that the transfer of Società Terni’s assets to ENEL could be construed as an expropriation entitling Società Terni to compensation, and formulated the hypothesis that such transfer could in fact be regarded as a mere restructuring of the State’s own assets.
The Commission took the view that, even if the compensatory nature of the measure were to be conceded, doubts would still persist as regards the proportionality of this compensation with regard to the financial damage suffered by Società Terni. The Commission in particular expressed doubts that compensation could still be justified after 44 years.
The Commission pointed out that the nature of the tariff appeared to have changed when ENEL stopped administering the scheme and bearing the financial burden arising from it.
Most of the observations submitted by the Terni companies on Società Terni’s functioning as ente pubblico economico, the nature of the operation leading to the transfer of the company’s assets, the compensatory nature of the tariff, the interpretation of the ECSC decision and ECJ ruling as well as the role played by Cassa Conguaglio are largely equivalent to those made by Italy, which are summarized in points (52) to (69). Therefore, only the main thrust of the Terni companies observations and any additional elements submitted will be reported here in points (43) to (51).
According to the Terni companies, the tariff is the legitimate compensation to which Società Terni was entitled following the expropriation of its assets and cannot therefore be qualified as State aid.
Concerning the adequacy of the compensation, the Terni companies retrace the history of the tariff, pointing out that all the extensions of the Terni tariff beyond 1991 were concomitant with the general renewal of the hydroelectric concessions for other generators, and thus in line with the principle that there should be no discrimination between Terni and other self-producers who had not been expropriated and who could therefore continue to produce and consume electricity at very low cost.
The Terni companies also point out that the financial amounts received in the form of lower electricity tariffs never exceeded the difference between the cost of acquiring energy on the market and the cost of self-produced electricity.
- (a)
Cementir: In its Spoleto plant (the plant which benefits from the tariff) Cementir produces and markets mainly cement, which is used the construction industry. Cement is difficult to substitute with other products. Since it is uneconomical to transport, the geographic market for cement is regional or multi-regional. Imports of cements are negligible in Italy, since they account for 5 % of overall demand in Italy and Cementir markets all the production of its Spoleto plant in central Italy;
- (b)
Nuova Terni Industrie Chimiche: The plant which benefits from the tariff produces ammonia and nitric acid. Ammonia can be economically transported only by sea and provided ports are suitably equipped for its storage. There are no such storage plants in central Italy. The same applies to nitric acid. Therefore, the Terni companies claim that the geographic market is at best national. National demand is fully met by domestic production and there are no trade flows;
- (c)
ThyssenKrupp: the Terni companies claim that the market for the distribution (not the production or sale) of steel products is national. In particular, ThyssenKrupp’s Terni plant markets only 6 % of its production in the European Union.
- (a)firstly, the Italian authorities had explicitly confirmed, in a letter to the AEEG, that the nature of the tariff was compensatory and that the extension of the existing tariff scheme was not subject to prior notification to the Commission under the State aid rules13;
- (b)
secondly, the Commission had not called the measure into question, either when it was first prolonged by Law 9/1991 (approved in the context of case NN 52/1991), or when information on the second extension was submitted in the context of another State aid procedure (C 13/06).
The Terni companies underline that their good faith is substantiated by the fact that, in case of doubts on the compatibility of the tariff, ThyssenKrupp would certainly not have launched large-scale investments in the Terni area.
Concerning the Deggendorf case-law, ThyssenKrupp states its willingness, in principle, to repay the aid, subject to agreement being found on the amount to be recovered.
Italy submits that Terni’s generating assets were nationalized as an exception to the general rule set out in the nationalization law, according to which self-producers would not be subject to expropriation. The nationalization law of 1962 was based on Article 43 of the Italian Constitution, according to which certain undertakings which carry out services of fundamental public interest or in the energy sector may be transferred to the State by way of expropriation, provided compensation is granted.
Concerning the Commission’s doubts as to the possibility to expropriate assets belonging to a State-owned company, Italy submits that neither Article 42, nor Article 43 of the Constitution limit the notion of expropriation to privately owned property. The expropriation of Società Terni’s electrical branch was legally required, according to Italy, because Terni was controlled by an ‘ente pubblico economico’, which, unlike an ‘ente pubblico’ was obliged to operate according to market principles. The nationalization law did not envisage any compensation for undertakings managed by public entities strictu sensu, but it did for Terni in view of its different status and mode of functioning.
As regards Terni’s ownership structure, Italy underlines that Terni was a joint stock company (società per azioni) where the State had a majority stake, but equity was also owned by a large number of private investors. Italy has provided documentation showing that that Terni’s capital was also partly in private hands and that the company was quoted on the stock exchange.
According to Italy, depriving Terni of the same right to adequate compensation to which a private company would be entitled would have constituted a breach of the principle of neutrality of ownership enshrined in Article 295 of the EC Treaty.
Italy quotes a number of rulings by the Corte di Cassazione and the Consiglio di Stato whereby these Courts confirmed that the logic of the tariff for Terni was to put the company on the same footing as self-producers of electricity from renewable sources of energy, and therefore the tariff could not be raised by means of supplements which would not apply to self-producers.
As regards other electricity producers who were also expropriated, Italy submits that, with the exception of Terni, all expropriated producers were undertakings exclusively or primarily active in the production, import or supply of electricity. As a general rule, the compensation paid by the State reflected the market value of the assets, which was calculated in different ways according to the type of company. The net accounting value of the assets was taken as reference value, but was corrected on the basis of other factors which Italy did not identify in detail. For hydropower producers, the Italian observations suggest that the residual duration of the concession played a role in the calculation of the compensation.
As regards the State aid clearance of Terni’s tariff, Italy underlines that Law 9/1991, laying down the first extension of the tariff, was duly notified to the Commission and approved by it. The subsequent extensions in time of the tariff, which are concomitant with the extensions of hydroelectric concessions for hydropower producers, follow the same logic, which was never challenged by the Commission. Therefore, according to Italy, the Terni tariff should be considered an existing non-aid measure.
Italy submits that it has thus always acted in good faith. It did not notify under Article 88(3) the contested extension of the tariff arrangement for Terni since, in its view, it did not constitute State aid. Italy underlines that the Commission was informed of the existence of this measure (Report of November 2005 and letter of February 2006).
As regards the absence of overcompensation, Italy makes the following observations. If Terni had retained its generating assets, it would have been able to sell part of its energy to third parties, thus obtaining additional profits. The damage suffered by Terni was compounded by the sharp increase, over the years, of electricity prices. The still incomplete process of liberalization of the energy markets has not yet delivered results in terms of competitive electricity prices, and therefore the need to continue compensating Terni persists. The Terni companies are currently paying a price (between 40 and 72 EUR/MWh) which is largely in line with electricity prices paid by companies with an equivalent consumption profile in the EU. In fact, if Terni had retained its assets, it would be paying between 5 and 7 euros per MWh of self-produced electricity. Italy thus concludes that the tariff does not involve any overcompensation.
- (a)
Actualised value (2006) of Terni’s assets: EUR 1 687 745 045,19;
- (b)
Tariff advantage (also actualized to 2006): EUR 1 400 895 446,9.
The study therefore contends that there has been no overcompensation of Terni’s losses. A prospective calculation of the tariff advantage accruing to Terni until 2010 would also show the absence of overcompensation.
Concerning ECSC Decision 83/396 and ECJ ruling C-99/92, Italy makes the following factual clarifications. The ECSC Decision does not concern either Cementir or Nuova Terni, which were never active in the steel sector. The ECSC Decision referred to the compatibility of of State aid granted in the form of reimbursement of a component of the tariff, the sovrapprezzo termico to the plant belonging to Terni’s steelmaking branch, but located in Lovere, in Lombardy, not in the Terni area. This aid could be granted only to private steelmakers. The ECSC Decision ruled that, since Terni was State-owned, the Lovere plant could not benefit from the aid. The preliminary ruling of the Court of Justice concerned the issue of possible discrimination between private and State-owned producers. It confirmed the ECSC Decision in that it stated that it was not discriminatory to envisage different aid measures for private versus State-owned producers.
Therefore, the Terni group submits that both the ECSC Decision and the Court ruling are irrelevant to the case at hand, in that they concern the sovrapprezzo termico paid by the Lovere plant, not the special global tariff granted to the three plants in the Terni area.
Italy also underlines that the contested extension of the tariff laid down in Article 11, paragraph 11 of Law 80/2005 is linked to a wide-ranging program of investments which ThyssenKrupp is carrying out in the Terni-Narni industrial area. Under this action plan, new generating capacity will be developed in the area. The tariff is therefore meant as temporary solution until such generating capacity is in place, and its abolition would jeopardise the investments currently underway.
On the Deggendorf case-law, Italy informs the Commission that it is carrying out the pending recovery order in respect of ThyssenKrupp, and that the company has set aside EUR 865 538,0 on a blocked account in view of final recovery, subject to agreement being found on the amount.
Compensation granted by the State for an expropriation of assets does not normally qualify as State aid. In the assessment of this measure, it is therefore necessary to ascertain first of all whether the transfer of Società Terni’s hydropower assets to ENEL gave rise to an obligation to provide compensation, or whether it should be construed as a mere reorganisation of public assets. If the answer is that compensation was justified, the Commission must then determine until what date and/or what amount the Terni preferential tariff can be considered a commensurate compensatory measure.
In 1962, when its hydropower assets were transferred to ENEL, Società Terni was a State owned company, controlled by an ente pubblico economico. According to the Italian authorities, such entities had to be managed according to market principles. The State was the majority shareholder in Società Terni, but part of the capital was also held by private investors and the company was quoted on the Stock exchange. The nationalization law did not foresee compensation for enti pubblici‘strictu sensu’, but did so for enti pubblici economici such as Società Terni. This reflects the different principles which govern the functioning of these entities. Moreover, other ‘pure’ electricity producers were expropriated during the same period and also received compensation (although on the basis of different criteria).
The Commission notes that the removal of Società Terni’s assets without compensation would have damaged the interests of the company, and in particular those of its private shareholders. In the light of the principle of equality of treatment between private and public undertakings, and also in view of the need to protect the constitutional rights of Società Terni’s private shareholders to receive compensation, the Commission considers that Italy’s decision to treat Terni in the same way as a privately-owned company in the same position, and to grant it compensation for the removal of its assets, can be considered justified.
In 1962, Italy decided not to compensate Società Terni up to a fixed amount based on the market value of the expropriated assets (contrary to what was done in the case of ‘pure’ electricity producers). Instead, the compensation took the form of the provision of a fixed amount of electricity at the price the company would have paid if it had retained its generating assets. It should be noted that this method made economic sense: the treatment of Società Terni as a ‘virtual self-producer’ of electricity had the advantage of neutralising the risk of additional damage that might have arisen to Terni, over the years, in case of an increase in energy prices, for example.
The Commission can accept the principle of this method. However, compensation for an expropriation cannot consist in an open-ended arrangement, but must be clearly and predictably established at the time of the expropriation, subject to the possibility for the expropriated company to challenge the proposed amount. Once accepted, a compensatory package cannot be reopened at a later stage.
The Commission has assessed whether, in view of its mechanism and duration, the original compensatory arrangement could be considered adequate.
In Italy, the operation of a hydropower plant is subject to a concession, the duration of which is such as to allow the company to amortize the investment. When the concession expires, the company loses, in principle, the right to exploit its assets. Considering Terni’s compensatory method, it made economic sense that the provision of electricity at production cost should not overrun the residual duration of the company’s concession. And, indeed, this appears to be the rationale of the original provision of Italian law limiting the duration of the preferential tariff to 1992. While Terni’s own concession would have expired already a few years earlier, it is conceivable that the Italian authorities intended to align the expiry of the Terni tariff with the general expiry of hydroelectric concessions in Italy in 1992. Moreover, Società Terni had been granted a particularly long concession (60 years instead of 30), and therefore, at the time of expropriation, the company had already had thirty years to amortize its investment.
In conclusion, the Commission considers that the original compensatory package was commensurate and by no means penalized for the company.
The crucial issue here is whether the repeated extensions of this tariff arrangement can still be considered part and parcel of the compensation. The Commission takes the view that this cannot be the case. When the State expropriates, it establishes ex-ante either an absolute amount of compensation or, as in the case at hand, a compensatory mechanism. Any ex-post revision of the amounts or the mechanism necessarily changes the nature of the measure, which can no longer be considered compensatory insofar as it departs from the original arrangement. To admit the contrary would result in the exclusion of this type of measures from the scope of State aid control.
A Member State may, however, notify the Commission of its intention to grant further advantages to an expropriated company. Such notification will be examined by the Commission on its merits in the light of the State aid rules and taking into account the specific circumstances invoked.
The study referred to in paragraph (63) purports to show that the compensation granted to Società Terni and its successor companies over the years did not fully cover the market value of the expropriated assets, and that therefore there was no overcompensation and the beneficiaries never de facto enjoyed an advantage.
As a preliminary remark, the Commission would like to underline that an analysis of the adequacy of the compensatory agreement can only be carried out ex ante, that is, at the time of expropriation. In that context, it should be noted that the mechanism chosen by the Italian authorities aimed to put Società Terni in the same position as if its power plant had not been expropriated, by granting it access to electricity at cost price throughout the duration of its concession. Therefore, the argument that, under this arrangement, the Terni companies may have obtained less that what they were legitimately entitled to is difficult to follow. Besides, the Commission contends that, even if the findings of the study were substantiated (which is not the case, as demonstrated in points (88) to (92), that circumstance would be irrelevant for the purpose of establishing whether the tariff gave the beneficiaries an advantage.
It should be recalled that, at the time of the expropriation, Italy could have chosen to compensate Terni by paying a fixed financial amount based on the value of the expropriated assets. However, Italy opted for a different method, which consisted in treating Società Terni as a virtual self-producer. This method made perfect economic sense, and it is within this reference framework that the presence of an advantage should be assessed. Following this approach, one must conclude that, until the expiry of the original compensatory tariff arrangement (and only until that date) the beneficiaries did not receive an advantage. This conclusion cannot be called into question as a result of applying alternative benefit and loss calculations, especially where these are carried out retrospectively.
Using a different method retrospectively (ex-post) would lead to conflicting or even illogical results, as the following example will illustrate. Suppose that, due to an explosion in energy prices, the financial amounts received by the beneficiaries had already exceeded the market value of Terni’s plant within the first 10 years of the tariff arrangement, following the study’s methodology, it should be concluded that there was an overcompensation, even though the expropriation package foresaw that the tariff would last 30 years. This would be an obvious fallacy, since it would not take into account the ratio of the original arrangement. The same conclusion must apply a contrario, in the hypothesis that the actual amounts received fell short of covering the assets' value.
Besides, in the context of an expropriation, an ex-post recalculation of benefits and losses is totally out of place. The long-term economic outcome for the expropriated company, which is unpredictable at the time of the expropriation, cannot be the object of revision, many decades later, in order to justify further tranches of compensation.
Therefore, the study can be dismissed as irrelevant.
The Commission has nevertheless examined the data and findings of the study. This analysis has shown that the study is methodologically flawed. As will be shown below, it systematically underestimates the tariff advantage for the Terni companies, and in all likelihood overestimates the value of the expropriated assets.
In order to calculate the tariff advantage for the period 1963-1999, the study compares the price paid by Terni (Alternative 1-the cost of self-produced electricity) to the ordinary price paid by a comparable customer, meaning a self-producer who was exempt from certain tariff components (Alternative 2). The advantage is thus calculated as the difference between the two alternative preferential treatments foreseen as compensation for Terni. The Commission notes that, to calculate the tariff advantage, Terni’s actual tariff should have been compared with the ordinary tariff payable by a non self-producer with Terni’s consumption profile. The study therefore underestimates Terni’s tariff advantage.
For the period 2000-2006, the advantage is, again, taken to be the difference between the two preferential treatments, the only difference being that the actual price paid by Terni corresponds to Alternative 2 (and no longer Alternative 1, which was no longer possible after the reform of the tariff). Using this method, for some years the advantage even turns out to be negative, which demonstrates the flaws in the methodology, considering that the Terni companies always paid a tariff below the market price. In principle, for this period, the tariff advantage should have been simply equivalent to the compensatory component paid by Cassa Conguaglio. Therefore, the advantage is, again, very significantly underestimated.
In conclusion, the study can be dismissed altogether.
As regards the extensions in time of the Terni tariff, the Commission appreciates that their rationale was to retain the parallelism in treatment with those hydropower producers who had seen their concessions renewed. However, such parallelism, which lies at the heart of the compensatory mechanism, was foreseen in the expropriation arrangement only for 30 years, not indefinitely. Therefore, for the reasons already explained in paragraphs (73) to (78) above, these extensions did not have a compensatory nature.
This conclusion is even more obvious for the second extension of the tariff. This extension interrupted a phasing-out mechanism intended to ease the companies' transition to the full tariff, which signalled the Italian authorities' conviction that the companies had been fully compensated for. Italy itself has, indeed, extensively explained the reasons which led to this second extension, and which are related to industrial policy alone (see Italy’s comments in paragraph (61) above).
In the light of the above, the Commission considers that the Terni tariff can be considered compensatory until 1992. Until that date, the measure does not qualify as State aid. All further extensions of the tariff, however, must be examined in the light of the State aid rules.
The Commission has therefore assessed whether the preferential tariff granted to the Terni group after 1992, and in particular as of 1 January 2005, date of entry into force of Article 11, paragraph 11 of Law 80/2005, which is the object of these proceedings, constitute State aid within the meaning of Article 87(1) of the EC Treaty.
In this context, the Commission takes note of the Italian clarifications as regards the irrelevance of the ECSC Decision 83/396 and Court judgment C 99/92 and can agree that such decisions have no bearing on the assessment of the State aid nature of the tariff granted to the three plants in the Terni area.
A measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty if the following conditions are cumulatively fulfilled: the measure (a) confers an economic advantage to the beneficiary; (b) is granted by the State or through State resources and is imputable to the State; (c) is selective; (d) has an impact on intra-community trade and is liable to distort competition within the EU.
In the light of the reasoning developed in points (73) to (94), the Commission has come to the conclusion that the preferential tariff for Terni did not provide an advantage to the beneficiaries throughout the duration of the original compensatory package, that is, until 1992. Therefore, only the extensions of the tariff have to be assessed in order to ascertain the presence of an advantage.
There can be no doubt that the provision of electricity at lower prices compared to the ordinary electricity tariff constitutes a clear economic advantage for the beneficiaries, who see their production costs reduced and their competitive position strengthened.
Since this particular tariff arrangement applies only to the Terni group, the measure is selective.
As regards the financing through State resources, it should be noted that, as of 2002, the financial burden arising from the tariff is borne by all electricity consumers in Italy by means of a parafiscal levy collected by Cassa Conguaglio via the A4 component of the electricity tariff. Such levy is obligatory as it imposed by means of Delibere of the AEEG which implement national legislation. Cassa Conguaglio is a public body established by law, which carries out its functions on the basis of precise instructions laid down in the Delibere of the AEEG and the relevant legislative and regulatory provisions.
In the Preussen-Elektra case, also quoted by Italy in paragraph (68) above, the Court considered that a purchase obligation imposed on private electricity supply undertakings to purchase electricity from renewable sources at minimum prices higher than the real economic value of that type of electricity did not constitute State aid because the measure did not involve any direct or indirect transfer of State resources.
Here again, the substance of the cases is clearly different. In Preussen Elektra, the resources required to finance the measure were provided directly by the electricity suppliers without any public body being involved, not even as a passive vehicle for the transit of such monies. In that case, no transfer of State resources could be identified. In the case at hand, however, the monies come from the general public via a parafiscal charge which transits through a public body before being channelled to the final beneficiaries. This is therefore a classic case of involvement of State resources.
In the light of the above, therefore, the parafiscal levy used to finance the Terni tariff constitutes State resources.
As regards the last criteria of Article 87(1) — impact on trade between Member States and distortion of competition — the Commission can dismiss the arguments put forward by the Terni companies in paragraph (46) on the basis of the considerations developed in points (109) to (116).
The beneficiaries' main substantive argument is that the plants which benefit from the tariff are not active in intra-community trade as they sell most of their products on the domestic market.
Therefore, the Commission has examined whether, in general terms, there is intra-community trade in the sectors concerned.
In the light of the above, the Commission has come to the conclusion that the preferential tariff granted to the Terni companies as of 1 January 2005 constitutes State aid within the meaning of Article 87(1) of the EC Treaty and can only be authorized if it can benefit from one of the derogations laid down in the Treaty.
The measure cannot be considered existing aid for the reasons explained in points (119) to (133).
The original provision of Law 9/1991 which is considered to be covered by a State aid authorisation was modified in 2005 by Article 11(11) of Law 80/2005.
It should be noted that the substance of the implicitly approved tariff and that of the tariff introduced by Law 80/2005 are only apparently similar.
A more detailed analysis shows, however, that the differences between the two measures are much more substantive.
Before the entry into force of Law 80/2005, the Terni price (and its annual update) was still based on the original parallelism in treatment with self-producers. Law 80/2005 intervenes by severing this link and effectively decoupling Terni from self-producer treatment. The price set for 2005 happens to coincide with the 2004 price, but the price formation mechanism is fundamentally altered, since the new price is updated in line with average increases in energy prices, with a guarantee that, however high such price increases may be, the tariff will not rise by more than 4 % yearly.
The level of aid is also raised due to the increase in the quantities supplied at the preferential price. The degressivity element is eliminated altogether.
Therefore, the Commission considers that the measure referred to as ‘second extension’ is in fact a fully new aid scheme in that it is substantially altered compared to that covered by the 1991 Decision.
Only measures which are duly notified pursuant to Article 88(3) and are not implemented before a Commission Decision can benefit from the procedural time limits set out in Regulation 659/99. In the case as issue, it is undisputed that Article 11(11) of Law 80/2005 was not notified.
Besides, according to Article 4, paragraph 6 of Regulation 659/99, where the Commission fails to take a decision within the two months' procedural time limits, the aid is deemed to have been authorized provided the Member State gives prior notice of its intention to implement the measure, and unless the Commission takes a decision within a period of 15 working days following receipt of the notice. In the case at hand, no prior notice was given by Italy. Therefore, even if the Terni’s companies allegation was substantiated, which is not the case, as explained in paragraphs (129) and (130) above, Article 4, paragraph 6 of Regulation 659/99 would not be applicable.
Since Italy failed to notify Article 11(11) of Law 80/2005, the aid is unlawful.
Even though this procedure concerns only the second extension of the tariff, the Commission deems it appropriate to make a number of considerations on the first extension and its approval under the State aid rules.
Given such scant information, it is unfortunately impossible to trace back the reasoning followed in that case, and in particular to know whether the Commission had examined and intended to approve the Terni tariff.
However, since Italy notified the entire law and the approval decision also refers to the entire law, the extension of the Terni tariff should be considered covered by the 1991 Commission Decision.
In derogation from the general prohibition of State aid laid down in Article 87(1) of the EC treaty, aid may be declared compatible if it can benefit from one of the derogations enumerated in the Treaty.
The State aid granted to the Terni companies pursuant to Article 11(11) of Law 80/2005 can be classified as operating aid.
Exceptionally, operating aid may be granted in assisted areas eligible for aid under the derogation of Article 87(3)(a) of the EC Treaty. Throughout the period considered, Region Umbria was not eligible for aid under Article 87(3)(a) of the Treaty.
In 2005, however, at the time Law 80/2005 was adopted, the process of structural adjustment in Umbria had already largely taken place. In the proposed regional aid map for the period 2007-2013, Umbria will lose the status of assisted region altogether. Therefore, while it is difficult to know whether Regional development considerations may have played a role in the original approval decision, it is nevertheless certain that the Commission cannot rely on any such considerations in assessing the second extension of the tariff.
Italy has in fact extensively explained the industrial policy reasons for the second prolongation of the Terni tariff (see paragraph (61)). The main thrust of Italy’s argument in favour of the tariff is that energy intensive companies in other Member States can also benefit from reduced energy prices and the tariff is required as a transitional measure to avoid delocalization outside the EU pending the full liberalization of the energy market and the improvement of infrastructure. Incidentally, these explanations contradict the Italian claim that the Terni tariff would still be compensatory and certainly offer no justification for a revision of the expropriation package.
As regards the conclusions of the High Level group mentioned in point (61), they are irrelevant as they reflect the outcome of general political debate and do not constitute legally binding provisions. It should be noted, incidentally, that the solutions proposed by the group and quoted by Italy do not involve the granting of State aid.
Since the aid cannot benefit of any of the derogations laid down in Article 87 of the EC Treaty, the second extension of the preferential tariff in favour of the Terni companies should be declared incompatible with the common market.
In substance, the beneficiaries plead that Italy had given them assurances about the non-aid character of the measure, and that the Commission had not called the measure into question, either when it was first extended, or when information on the second extension was submitted.
The Terni companies claim that the measure was not called into question in 1991, when the Commission approved Law 9/1991. It should be pointed out that the 1991 Commission Decision covers only the measure laid down in Law 9/1991, so that the approval of that measure cannot give rise to legitimate expectations concerning the lawfulness or compatibility of the new aid measure introduced by Law 80/2005. Even if the Commission had explicitly stated that the 1991 measure did not constitute aid, quod non, the beneficiaries could not assume that the 2005 measure would also automatically qualify as non-aid, since there are many circumstances that may transform a non-aid measure into a State aid.
Moreover, the wording of the Commission Decision as notified to Italy, which declares compatible the aid measures contained in Law 9/1991 and 10/1991 would, if anything, suggest the opposite, that the Terni measure did constitute aid.
Therefore, the Commission Decision could not possibly have given the beneficiaries precise assurances as to the non-aid character of the tariff, but — at best — a legitimate expectation that the 1991 extension of the tariff was compatible. No expectations could be entertained, however, in respect of the 2005 extension. Therefore, this argument should also be dismissed.
As regards the Commission’s alleged failure to act diligently when it received information on the second extension of the tariff, this claim is manifestly unfounded. Italy allegedly mentioned the Terni tariff in the 2005 State aid Report. Detailed information on the measure provided for in Article 11(11) of Law 80/2005 was provided, however, only in February 2006, on request by the Commission, in the context of the State aid investigation on Article 11(12) of the same Law (State aid C 13/06). The formal investigation procedure was opened by the Commission in July 2006.
Considering the short time elapsed between the submission of information and action by the Commission, it is manifest that the Commission acted diligently.
In the light of the above considerations, the Commission has concluded that there are no extraordinary circumstances which could have led the Terni companies to entertain legitimate expectations as to the lawfulness of the contested measure.
It should be recalled, in this context, that the purpose of recovery is to restore the beneficiary’s competitive situation prevailing before the grant of the incompatible aid. In establishing what was the competitive situation of the Terni companies before the introduction of Law 80/2005, account should be taken of the existence of the existing aid measure laid down in Law 9/1991, which was cleared under the State aid rules until 2007.
Therefore, the Commission considers that the residual amounts of aid to which the beneficiaries would have been entitled under Law 9/1991 in 2005, 2006 and 2007 if Law 80/2005 had not been implemented may be deducted from the sums to be recovered, if Italy considers that the beneficiaries are entitled to them under national law.
The Commission finds that Italy has unlawfully implemented, in breach of Article 88(3) of the EC Treaty, the provision of Article 11, paragraph 11 of Decreto-legge 80/05, converted into Law 80/2005, providing for the modification and extension in time until 2010 of the preferential electricity tariff applicable to the three Terni companies. The Commission considers that such measure, which constitutes pure operating aid, is not eligible for any derogation under the EC treaty, and is therefore incompatible with the common market. Therefore, the parts of the above measure that have not yet been granted or paid must not be implemented. The aid already paid has to be recovered. The amounts to which the beneficiaries would have been entitled in 2005, 2006 and 2007 under Law 9/1991 may be deducted from the total amount to be recovered,
HAS ADOPTED THIS DECISION:
Article 1
1.
The State aid which Italy has implemented in favour of ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche is incompatible with the common market.
2.
The State aid which Italy has granted but not yet paid out to ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche is also incompatible with the common market and may not therefore be implemented.
Article 2
1.
Italy shall recover from the beneficiaries the aid referred to in Article 1(1).
2.
The sums to be recovered shall include interest for the entire period running from the date on which they were put at the disposal of the beneficiaries until the date of their recovery.
3.
The interest shall be calculated on a compound basis in conformity with Regulation (EC) No 794/2004.
Article 3
1.
Italy shall take all necessary measures to recover from the beneficiary the illegal and incompatible aid referred to in Article 1.
2.
Recovery shall take place without delay and in accordance with the procedures under national law provided that they allow the immediate and effective execution of the decision.
3.
Italy shall ensure that the present decision is implemented within four months of the date of notification.
Article 4
1.
Italy shall keep the Commission informed of the progress of the national proceedings to implement this decision until these proceedings have been completed.
2.
Within two months of notification of this decision, Italy shall submit information specifying the total amounts (principal and interest) to be recovered from the beneficiaries and a detailed description of the measures already taken or planned to comply with the present decision. By the same deadline, it shall send to the Commission all the documents demonstrating that the beneficiaries have been ordered to repay the aid.
3.
After the period of two months referred to in paragraph 2, Italy shall submit, on a simple request by the Commission, a report on the measures already taken or planned to comply with this decision. This report shall also provide detailed information on the amounts of aid and interest already recovered from the beneficiaries.
Article 5
This Decision is addressed to Italy.
Done at Brussels, 20 November 2007.
For the Commission
Neelie Kroes
Member of the Commission