Some members of the Riva family previously involved in the management of Ilva have been indicted before the Italian courts for various fraud-related offenses. In May 2013, the national judge seized (sequestro preventivo) EUR […] in liquid assets owned by the Riva family (‘the Riva assets’), pending criminal proceedings against them.

By means of a Decree, on 30 April 2015 the Minister of Economy and Finance issued the State guarantee with a premium of 3,12 % per year.

Following the issuance of the State guarantee, on 27 May 2015, three financing institutions agreed to grant a loan of EUR 400 million to Ilva, broken down as follows: EUR 330 million from CDP, EUR 50 million from Intesa Sanpaolo, and EUR 20 million from Banco Popolare. Intesa Sanpaolo and Banco Popolare are the same two private banks, which were involved in measure 2.

The EUR 400 million loan was disbursed in four successive instalments of EUR 100 million, respectively on 10 June, 9 October, 10 December and 28 December 2015. It bears interest at annual Euribor 6 months + […] payable per semester and it is due to be reimbursed […] after disbursement with an initial […] grace period.

During Ilva's privatisation in 1995, the State-owned IRI agreed under Article 17.7 of the privatisation contract to guarantee future claims for environmental damages that occurred before the privatisation up to LIT […], plus interests (i.e. around EUR […] at that time and EUR […], excluding interests, or EUR […], including interests, on 31 December 2014). The privatisation contract set the final deadline for the quantification of these environmental damages at 31 December 1996. On 16 April 1996, IRI launched an arbitration procedure concerning the sale price. This procedure was concluded in 2000 without settling the dispute over the environmental responsibility. On 6 May 1996, Ilva started a parallel arbitration procedure on the environmental responsibility, which however was not concluded.

In 2002, the State-owned Fintecna became IRI's legal successor. Since 2012, Fintecna is 100 % owned by CDP, which is 100 % owned by the State. Fintecna's financial statements and assets management are subject to checks by a magistrate appointed by the Italian Court of Auditors, who attends the meetings of the management and supervisory bodies pursuant to Articles 7 and 12 of Law No 259/1958.

In the context of the transition from IRI to Fintecna in 2002, the former IRI management decided to set aside an amount of EUR […] as an estimate of the environmental damages due to Ilva.

On 12 June 2008, Ilva and Fintecna signed the minutes of a meeting (verbale di incontro), in which they agreed that the main open environmental issues concerned the plant in Taranto. In that context, the parties agreed that the split of costs between them could only occur once those costs would be determined. In the meantime, through a draft agreement of 3 December 2008, the Ministry of Environment, together with other public entities, planned a settlement on the basis of cost estimates for the clean-up of the underground water and environmental damage. That quantification explicitly excluded the damages deriving from air pollution to third parties.

Ilva sent several notices to Fintecna, the latest on 2 May 2011 and 10 June 2013. Fintecna contested any responsibility, particularly concerning damages to third parties linked to air pollution.

During the preparation of the 2011 financial statements, the competent Fintecna services estimated damages due to Ilva at EUR […], adjusted to EUR […] in 2014.

On 19 December 2013, the Minister of Environment adopted a ministerial act (provvedimento) against Fintecna with an injunction to dispose of waste located on Ilva's premises. The ministerial act was challenged before the Regional Administrative Court (Tribunale Amministrativo Regionale) of Puglia. The ministerial act was annulled on procedural grounds on 14 November 2014. However, the Court concluded, on substance, that the polluting activity certainly predated 1995 and therefore fell within Fintecna's responsibility.

On 12 January 2015, Fintecna hired an independent legal consultant to assist it in the negotiation of the settlement agreement with Ilva. This expert issued its legal opinion on 3 March 2015, in which he confirmed that the settlement of the dispute against the payment of EUR 156 million was within the maximum limit set out in the privatisation contract and also below Fintecna's own estimates.

Fintecna requested a legal opinion from a second consultant concerning (i) any previous payments already made to Ilva in the context of the past arbitration; and (ii) the starting date for the calculation of interests on the guaranteed amount. This opinion was issued on 16 February 2015. According to it, (i) Fintecna did not make any payments to Ilva in the context of past arbitration procedures concerning the application of Article 17.7 of the privatisation contract; and (ii) interests should be due from 1996.

After the conversion into law of Law Decree No 1/2015, on 4 March 2015, Fintecna's Board of Directors decided to settle the dispute, taking into account the legal opinions of the two consultants. The Board of Directors stressed the final character of the settlement also vis-à-vis third parties (e.g. vis-à-vis Ilva's creditors in case of bankruptcy and other potential environmental claims towards Fintecna) and the fact that the maximum exposure deriving from the privatisation contract would correspond to EUR […], excluding interests, or EUR […], including interests. The Board of Directors' decision took note of the favourable opinion of Fintecna's shareholder CDP, in compliance with point 8.3.2 of the Regulation for the exercise of the controlling activity in the CDP group (Regolamento per l'esercizio dell'attività di direzione e coordinamento sulle società participate del gruppo CDP).

Fintecna therefore settled the dispute with Ilva on 5 March 2015. On 6 March 2015, EUR 156 million were transferred to Ilva.

As explained in recital 14, on 4 December 2015 the Italian authorities informed the Commission of the adoption on the same day of Law Decree No 191/2015. In addition to provisions concerning the sale of Ilva's assets, this Law Decree in its Article 1, paragraph 3, authorised the State to grant a EUR 300 million loan to Ilva by means of a Ministerial Decree, at an annual interest rate of Euribor 6 months + 300 basis points, with a view to support Ilva's urgent liquidity needs. Pursuant to the Law Decree, the loan would have to be repaid by the acquirer of Ilva's assets, 60 days after the declaration by the competent national court of the cessation of Ilva's activity pursuant to Article 73 of Law Decree No 270/99, following the final divestiture of the company's assets.

The Ministerial Decree granting the loan to Ilva was adopted on 15 December 2015 and the amount was paid out on 23 December 2015. The Ministerial Decree specified that the loan was granted to Ilva's extraordinary administration.

In the Opening Decision, the Commission preliminarily considered that all measures object of the in-depth investigation had the potential to distort competition and affect trade between Member States due to the presence of competitors on the steel markets where Ilva is active and the levels of intra-Union trade on steel products, to which Ilva contributes.

The Commission's preliminary assessment of the other State aid criteria (imputability to the State, State resources, selectivity, and economic advantage) is summarised, measure by measure, in Sections 2.3.1.1 to 2.3.1.5 .

As the Commission did not see any grounds on which State aid in favour of Ilva would be compatible with the internal market, it invited Italy to substantiate any such grounds and indicate to the Commission the relevant legal basis, if any.

In recital 107 of the Opening Decision, the Commission recalled that in case of economic continuity between the recipient of aid that the Commission declares incompatible with the internal market and its acquirer, the latter may be called to pay it back.

The final scope of the sale may still evolve as a result of the ongoing merger review referred to in recital 15 above. Italy and Peacelink have submitted their observations on the issue of economic (dis)continuity between the current Ilva and the buyer of Ilva's assets, however at this stage it would be premature for the Commission to take a final view and this issue is therefore not further assessed in this Decision.

In recital 114 of the Opening Decision, the Commission clarified that it would not oppose to any immediate action, which the Italian authorities may consider necessary in order to protect the health of citizens due to the officially recognised environmental and health emergency situation in Taranto portrayed in recital 11. Therefore, the opening of formal proceedings was without prejudice to any public support to expenditure on works needed to clean up Ilva's site and the surrounding areas, to the extent that such works would be urgently necessary to cope with existing pollution and to guarantee public health in the city of Taranto, pending the identification of the polluter to requisite standard in compliance with the applicable rules.

In this respect, the Commission noted in recital 115 of the Opening Decision that the Italian authorities had taken the necessary steps to identify the polluter. Pending the outcome of the judicial proceedings, the Commission considered that the Italian State was justifiably acting with a view to ensuring that pollution accumulated so far would not harm the health of citizens and the environment in the area of Taranto. The Commission clarified that, in case any polluter were to be identified in the ongoing judicial proceedings, it should reimburse with interests, in compliance with applicable rules establishing or implementing the ‘polluter pays’ principle, the amounts already spent by the State for clean-up.

Since the Italian judicial authorities are taking appropriate steps to identify the polluter and the financial responsibilities derived from its actions, this Decision is without prejudice to financial consequences as to allocation of costs that were incurred to remedy existing pollution already borne between the State or other public or private entities and the polluter(s) in application of the polluter pays principle set out in Article 191(2) of the TFEU. As regards future clean-up costs, the Commission notes that EUR 1,1 billion of funds transferred by the current shareholders of Ilva are earmarked by law to the Environmental Plan (recital 21), in addition to any further investments for upgrading the environmental performance of the Taranto plant which the possible future owner and manager may implement (see recitals 15 and 63).

According to the Italian authorities, measure 1 does not involve State resources. The Italian authorities provided a first set of arguments before the settlement agreement between the Riva family and Ilva, referred to in recital 21 above, was reached. Those arguments are presented in recitals 73-77. After the settlement agreement, the Italian authorities complemented their observations with additional arguments to demonstrate the absence of State resources (see recital 78).

According to Italy, those conditions are not met in the case of measure 1, as the EUR 1,1 billion belonged to Ilva's main shareholders and former management. In other words, the law at issue merely imposed a certain use of assets that were owned by Ilva's main shareholders and former management and not by the State.

Allegedly, the measure does not qualify as an expropriation in favour of the State. It would be a mere implementation of a general rule of law from article 2497 of Civil Code which provides for liability of the parent company vis-à-vis shareholders and creditors of its subsidiaries, in case of maladministration (‘responsabilità patrimoniale dell'impresa-holding’), as stated in a judicial decree of 28 October 2014 rendered on the matter).

Furthermore, the Fondo Unico di Giustizia is a mere custodian (custode ex lege) who is bound to respect the applicable legal provisions (e.g. the Ministerial Decree of 30 July 2009) and the indications from the judicial authority. It does not have the amounts at its free disposal. The sum in question will be used solely for restoring the environmental damage caused, in line with the ‘polluter pays’ principle.

In addition, the initial owners of the seized assets will not lose their property rights since, in case of acquittal, they receive the bonds and a relevant right to cash-in the relevant value plus interests.

After the settlement agreement referred to in recital 21 was signed, the Italian authorities presented the following additional arguments. Through the settlement agreement, the members of the Riva family formally gave their consent to making the seized amounts (still held by them in Switzerland) definitely available to Ilva, including in case of acquittal. As a result, the amounts have been voluntarily transferred from the Riva family to Ilva, once and for all, without the Fondo Unico di Giustizia exercising any control on them.

First, there is no reason to believe that, in a counterfactual scenario, the seized amounts would have been invested in State bonds and not simply deposited on a bank account held by the Fondo Unico di Giustizia.

Second, the Commission has not demonstrated a sufficiently direct link between the decision not to invest the seized amounts in State bonds and a potential negative effect on the State budget.

Therefore, the Italian authorities conclude that measure 1 does not have any negative effect on the State budget. On the contrary, it may have a positive effect on it.

Italy also argues that no selective advantage has been conferred to Ilva.

The amounts at issue are intended to be placed in a separate account and dedicated to the Environmental Plan, including the works prescribed in the Reasoned Opinion. Therefore, the measure merely complies with the ‘polluter pays’ principle by striking the correct balance between constitutional interests of protection of health, employment and environment. In fact, it aims at: (i) facilitating Ilva's extraordinary administration by putting at its disposal the funds necessary to comply with the works that the Commission itself imposed on Italy in the Reasoned Opinion; and (ii) preserving the legal rights of the individuals undergoing the criminal investigation.

More generally, in light of its peculiar nature, the measure at issue cannot be considered as conferring a selective advantage for at least two reasons. First, Member States are free to decide how they manage the situation pending the conclusion of criminal proceedings (res controversa), this issue being outside the Commission's scrutiny under State aid rules. Second, the anticipation on the provisional basis of the outcome of the pending criminal proceedings is a general principle shared by a large part of the European legal systems and cannot as such confer a selective advantage on the undertaking that benefits from this anticipation.

Last, as to the financial conditions of the bonds issued by Ilva, the Italian authorities explain that the bonds would be issued at the average interest rate applied to accounts in the name of the Fondo Unico di Giustizia, for instance […] in the year 2015. They also stress that it is not unusual for undertakings in difficulty or placed under extraordinary administration to issue bonds to cover their financial needs.

According to Italy, the legislative provision in question merely implements a general principle of law that allows for the pre-deductibility status of credits if this is necessary to preserve the value of an undertaking and the management of its assets. The sacrifice imposed on certain creditors is compensated by the preservation of the undertaking's assets. No other undertaking has benefitted from this provision yet only because this legislative provision was introduced recently.

In addition, the measure has no negative impact on the State budget also with respect to State credits vis-à-vis Ilva.

In this case, the link is inexistent. First, the State does not waive any resources, from whatever source (taxes, contributions or others), which should be paid by Ilva to the State. Second, the measure does not reduce the possibility for the State to collect its credits and it does not disadvantage State credits more than other credits. On the contrary, by safeguarding Ilva's assets the measure had positive effects on all creditors, including the State, who will satisfy their claims from those assets.

The Italian authorities are of the opinion that the conditions of the loan are normal market conditions for a loan granted with low collateral. The loan granted by the financing institutions has an interest rate of Euribor 3 months + […] basis points per year. The duration of the loan is from 11 September 2014 to 28 February 2015. The contract has all the usual conditions. Since in the meantime Ilva entered into extraordinary administration, during which creditors are not entitled to enforce their claims, the loan was not reimbursed at its expiry. During the extraordinary administration all debts have to be reimbursed according to the applicable rules.

As to the question whether the granting of the loan was made possible through the granting of a pre-deductibility, the Italian authorities claim that the recognition of the pre-deductible nature will only occur after the competent national court verifies that the loan complies with all the conditions required by Article 12, paragraph 5, of Law Decree No 101/2013, following the procedure to complete the list of creditors (accertamento del passivo). Therefore, at the time of granting the qualification of the credit as pre-deductible was merely hypothetical.

According to the Italian authorities, the use of State resources does not derive from the fact that State guarantees put State resources at risk in case they are called. Instead, State resources are only impacted if the potential loss for the State is not properly remunerated.

In this respect, the Italian authorities consider that the 3,12 % guarantee premium is a market oriented one, for several reasons.

1. (a)

   the credit risk of the borrower was analysed through a model allowing the assignment of a credit score on the basis of the available information;

2. (b)

   considering that credit score, a benchmarking analysis was carried out to select a reasonable range of market values for the guarantee premium on the basis of the various methodologies used by the international practice;

3. (c)

   the results obtained were further corroborated with additional evaluation criteria;

4. (d)

   the result was Euribor 6 months + a range between 2,5 % to 3,12 %;

5. (e)

   the highest percentage was selected.

Second, the guarantee premium and the loan interest rate paid by Ilva overall fall within the range indicated at recital 90 of the Opening Decision (i.e. that the margin for a loan to a technically insolvent company with a rating below CCC would be between 400 and 1 000 basis points). In this respect, the pre-deductible nature of the guaranteed loan should be taken into account when assessing the credit risk attached to it.

In summary, Italy believes that: (i) the guarantee is remunerated at market conditions; and (ii) the risk taken by the State as guarantor is economically rational and coherent with the overall profitability objectives of the State.

Last, Italy stresses that it is not uncommon that credit institutions already exposed to a company undergoing insolvency proceedings provide additional pre-deductible interim financing to this company, even in cases where such financing is not backed by any State guarantee. Therefore, the behaviour of the banks Intesa Sanpaolo and Banco Popolare with respect to measure 3 is not unusual. These banks as well as other banks already exposed to Ilva have been keeping credit lines open for the benefit of Ilva, despite the lack of State guarantees on these credit lines.

The Italian authorities are of the opinion that the conditions of the loan are normal market conditions. The loan granted by the State bears interest at the annual rate of Euribor 6 months + 300 basis points. One working day before the granting of the loan, Euribor 6 month was at – 0,04 %. Therefore, the interest rate was set at 2,96 %.

Italy submits that this rate is in line with the […] opinion prepared for the purpose of granting measure 3 (see recital 98). The […] opinion indicates that an interest rate in the range of 2,50 % to 3,12 % would be market conform. In the absence of significant changes in Ilva's situation between the granting of measure 3 and the granting of measure 5 (April 2015 v December 2015), the Italian authorities consider that the […] opinion can be used to assess the market conformity of measure 5.

In addition, Italy stresses that the loan is pre-deductible — an important additional fact that the Commission should take into account when assessing the credit risk attached to it.

Furthermore, Italy submits that measure 5 serves the purpose of facilitating the sale process of Ilva and guarantees in the meantime the operations in a way compatible with the requirements of environmental protection, health and employment.

Finally, Italy recalls that on 9 June 2016, Law Decree No 98/2016 amended the repayment obligation of the loan transferring it from the acquirer of Ilva's assets to Ilva itself. Furthermore, due to changes in the sale process and to avoid postponing the final repayment date of the loan beyond the final divestiture of Ilva's assets, Article 1(1)(a) of Law Decree No 243/2016 changed the loan repayment date to 60 days after the final divestiture of Ilva's assets, thereby disconnecting it from the decree declaring the cessation of Ilva's activity.

As explained in recital 21, on 24 May 2017 the Riva family and Ilva reached a settlement agreement, through which the ongoing dispute between Ilva's extraordinary administration and the members of the Riva family was resolved.

The settlement agreement is purely an agreement between private parties, namely certain Riva family members acting in their capacity as shareholders of Ilva and the current management of Ilva under extraordinary administration. […]. Ilva is not a party to those criminal proceedings. The amounts to be transferred to Ilva under the settlement agreement include: (i) the Riva assets held by the Riva family on their foreign bank accounts, which are to be made definitely available to Ilva in the legal form provided for by Article 3, paragraph 1, of Law Decree No 1/2015, i.e. in the form of bonds to be subscribed by the Fondo Unico di Giustizia, without the bonds having to be returned to the Riva family members even in case of their acquittal; and (ii) a further amount of EUR 145 million.

As compared to the situation at the time of the Opening Decision, this settlement agreement constitutes a new fact that needs to be taken into account in the Commission's final assessment of measure 1, in particular as regards the possible advantage granted to Ilva and the imputability of the measure to the State.

The existence of this private settlement agreement and the fact that the situation only unlocked after this agreement was reached, constitute evidence that the decision to transfer the Riva assets to Ilva was eventually (i) part of a broader deal that was reconciling the private interests of both the Riva family and Ilva; and (ii) in the hands of the Riva family and Ilva (not of the State). This has to be taken into account to determine whether the Commission's initial doubts that the transaction would confer an economic advantage on Ilva and be imputable to the State remain.

As regards the imputability to the State of the transfer to Ilva of the Riva assets, the Commission takes note that this transfer took place as part of a broader deal which was decided by the Riva family and Ilva. Again, it is not disputed that the initial intention to transfer assets from the Riva family to Ilva before the end of the criminal proceedings was that of the Italian authorities. Nevertheless, the final decision was made by the Riva family by means of the settlement agreement, in implementation of which a letter from the Riva family instructing the foreign banks to release the funds effectively allowed the transfer to Ilva. Therefore, the basis for the transfer of the Riva assets to Ilva is the private settlement agreement between the Riva family and Ilva, which is not imputable to the State.

In addition, the Commission observes, as regards the existence of an economic advantage, that in the settlement agreement with the Riva family Ilva does not appear to have received any benefit that it would not have been able to receive under normal market conditions. The Riva family had an incentive to enter into settlement negotiations as it was exposed to the risk of owing Ilva up to EUR […] in damage claims under the assumption that all of Ilva's claims would be upheld by the national judge. On its side, Ilva was in rather urgent need for liquidity, be it to finance current operations or the clean-up measures defined in the Environmental Plan. Ilva therefore agreed to renounce to any future claims (potentially worth up to EUR […]) in exchange for the immediate transfer of ca. EUR 1,2 billion, part of it being the Riva assets targeted by Law Decree No 1/2015. This behaviour reflects the fact that prudent loss-averse operators may prefer to settle a dispute amicably rather than resorting to a judge or arbitrator after continued litigation. Against this background, nothing indicates that the settlement agreement reached by Ilva and the Riva family was not decided in the mutual interests of both private parties. Therefore, since the settlement agreement as a whole has taken place under normal market conditions between Ilva and its shareholders and thus does not confer any economic advantage on Ilva, the transfer of the Riva assets which is part of this global settlement does not confer any economic advantage on Ilva either.

In light of the above, the Commission considers that the transfer to Ilva of the Riva assets in the legal form provided for by Law Decree No 1/2015 neither confers an economic advantage to Ilva, nor is imputable to the Italian State.

In the Opening Decision the Commission took the preliminary view that the dispute settlement agreed between Fintecna and Ilva is imputable to the Italian State and involves State resources. The Commission also raised doubts as to whether by accepting to settle a long dispute in March 2015, just after Ilva was declared insolvent, Fintecna took a rational decision that a market economy operator would have taken in a similar situation.

Based on the observations received during the formal proceedings, the Commission first assessed whether the decision to settle the dispute was indeed rational from a market operator point of view, i.e. whether this decision confers an economic advantage on Ilva.