European Commission decides that CE Hunedoara has to repay EUR 60 mln in incompatible state aid

Razvan Zamfir 08/11/2018 | 14:16

The European Commission has found that the energy company Hunedoara Energy Complex (CE Hunedoara) has received incompatible aid from the Romanian state, amounting to approximately EUR 60 million, through four publicly funded loans. Currently, Romania has to recover the illegal aid and related interest.

”A government can support a company that has financial difficulties if the company has a robust restructuring plan, contributes to the costs of its restructuring and if the distortion of competition is limited. In the case of Hunedoara, these conditions were not fulfilled – we found that the loans from Romania’s public sources granted to Romania to EC Hunedoara gave it an undue economic advantage. This means that the state aid was illegal. Now, Romania needs to recover the illegal aid to society,” Margrethe Vestager, Commissioner responsible for competition policy, said.

On 21 April 2015, the Commission approved, under the EU state aid rules, a temporary rescue aid of EUR 37.7 million (RON 167 million) for the CE Hunedoara, a producer of electricity and heat from owned by the Romanian state. The company has been in financial difficulty since 2013.

In the context of that decision, Romania has committed to present a restructuring plan aimed at ensuring the future viability of CE Hunedoara in the event that the company would not be able to repay the aid within six months. As a result of the non-recovery of the rescue aid by CE Hunedoara and in the absence of a credible restructuring plan or effective measures towards the liquidation of the company, in March 2018 the Commission opened a thorough investigation.

In the course of the investigation, the Commission examined compliance with the EU state aid rules for the five loans financed or supported by public funds granted to CE Hunedoara. Together, on 30 June 2016, the loans amounted to approximately EUR 73 million (RON 337 million).

Under State aid rules, state interventions in enterprises are not considered state aid when they are carried out under conditions that a private investor would have accepted in a similar situation, operating under market conditions (the investor principle in the market economy).

The Commission found that no private market economy operator would have granted, guaranteed or prolonged any of the five loans granted to the CE Hunedoara in view of the deterioration of the company’s financial situation since 2013. Therefore, the support measures from public money granted by Romania have given CE Hunedoara an undue economic advantage to its competitors and therefore constitute State aid within the meaning of EU rules.

Subsequently, the Commission examined whether these measures could be considered compatible with EU State aid rules. EU State Aid rules allow the State to intervene in support of an enterprise in financial difficulty only under specific conditions and require that the firm should be subject to a robust restructuring plan, contribute to the costs of its restructuring and that any possible distortions of competition would be limited.

The Commission found that the restructuring plan submitted by Romania in October 2015 and modified in January 2016 does not ensure the long-term viability of CE Hunedoara without the continuation of state aid, and that in any case, this plan was not applied by the enterprise.

In addition, the Commission concluded that the company did not have any notable own contribution to the restructuring costs and that Romania did not propose any measures to limit the possible distortions of competition resulting from significant state support.

The Commission concluded that four of the five loans, totaling around EUR 60 million plus the related interest, are incompatible with EU State aid rules and Romania needs to recover them. The fifth loan is an existing aid granted before Romania’s accession to the EU and therefore does not need to be recovered.

Recovery of incompatible aid

EU State Aid rules require, as a matter of principle, the immediate recovery of incompatible state aids in order to eliminate the distortion of competition created by the aid. EU State Aid rules do not provide for fines and recovery is not intended to penalize the undertaking concerned but simply to restore equal treatment with other businesses.

The Commission has received assurances from Romania that if CE Hunedoara company goes into liquidation and its assets are sold, the national legislation will contain provisions to avoid a sudden interruption of the supply of electric and thermal energy in the region served by CE Hunedoara power plants.

In this context, Romania may also take appropriate and proportionate measures to avoid any sudden interruption of the services provided. Therefore, today’s decision is without prejudice to the adoption of such measures in the future. The Commission is fully committed to supporting Romania in its efforts to reform the energy sector, while addressing the socio-economic consequences of the energy transition.

CE Hunedoara is a state-owned producer of electricity and heat from Romania, which operates two power plants (at Deva and Paroseni) and four coal mines, for the supply of its power plants, all coming from state-owned enterprises bankruptcy (Electrocentrale Paroseni and Electrocentrale Deva, and later, the National Company of Huile Petrosani SA).

CE Hunedoara currently owes EUR 547 million to the various state bodies in Romania, including the money received through the five loans that are the subject of the State aid investigation concluded today. The company, which has approximately 6,500 employees, has been losing money since 2013 and has temporarily entered the formal insolvency procedure under Romanian law, suspended in January 2016.

Under State aid rules, state interventions in enterprises may be considered not to constitute State aid when they are carried out under conditions that a private operator operating under market conditions would have accepted (the principle of private economic operator in the market economy). If this principle is not respected, public interventions constitute State aid within the meaning of Article 107 of the Treaty on the Functioning of the European Union, since it confers on the beneficiary an economic advantage which his competitors do not have.

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