EC, December 13, 2000, No 2001-521

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 on the European Economic Area, and in particular Article 62 (1) (a) thereof, Having regard to Council Regulation (EC) No 659-1999 of 22 March 1999 laying down dtailed rules for the application of Article 93 of the EC Treaty, Having called on interested parties to submit their comments pursuant to the provisions cited above (1), Whereas:

I. PROCEDURE

(1) Since 1994 various complaints have drawn the Commission's attention to cases of aid granted to manure-processing projects in the Netherlands under the "Bijdrageregeling Proefprojecten Mestverwerking" (BPM) scheme. With the Commission's approval, the scheme had operated until 1994 (2). The complainants allege that aid was granted after that date.

(2) By letter dated 15 July 1999 (SG (99) D/5241), the Commission enjoined the Dutch authorities to provide, within 20 working days of receiving the injunction, all relevant information enabling it to determine whether the aid measures concerned were covered by the BPM scheme, as approved by the Commission, and to disclose if any other aid had been granted to such projects.

(3) By letters dated 15 October (A/37878) and 26 October 1999 (A/38181), the Dutch authorities forwarded a number of documents. However, they did not answer the questions raised in the Commission's injunction.

(4) By letter dated 17 May 2000 (SG (2000) D/103702), the Commission informed the Dutch authorities that it had decided to initiate the procedure laid down in Article 88 (2) of the EC Treaty in respect of six cases in which aid had been paid after the scheme had expired.

(5) The Commission's decision to initiate the procedure was published in the Official Journal of the European Communities (3). The Commission invited the interested parties to submit their comments on the aid measure.

(6) The Commission received no comments from interested parties.

II. DETAILED DESCRIPTION OF THE AID

(7) The Commission approved the BPM scheme (N 137-89) on 6 July 1989 for one year (1989 to 1990). By Decision of 14 December 1990, the scheme was extended until the end of 1994 (C 17-90, ex N 88-90). The Dutch authorities were thus authorised to grant investment aid of up to 35 % of eligible costs for about 20 large-scale manure-processing plants.

(8) The scheme was designed to stimulate the creation of useful outlets for the manure surplus in the Netherlands. The Dutch authorities focused mainly on aid to prevent overproduction of manure and on environmentally friendly ways of disposal of surplus manure.

(9) As regards manure processing, investment aid was allocated to pilot installations (where new manure-processing methods are tested), test plants (comprising all the processing phases, from manure to a saleable product), pre-purification installations (where relatively pure effluents are extracted), and large-scale storage and processing facilities for poultry dung (which is often piled up in the open, emitting ammonia).

(10) After the BPM scheme had expired, the Dutch authorities granted State aid amounting to EUR 2501089 to the manure-processing companies Ferm-o-Feed BV, Fleuren Compost BV, Vloet Oploo BV, Smith Markelo, Arev Venhorst and Memon KPI.

(11) Lastly, one company, Ferm-o-Feed, benefited twice from State aid; there is no evidence that the aid was for two different pilot projects.

Amounts granted after expiry of BPM scheme

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(12) The Commission initiated the procedure laid down in Article 88 (2) of the EC Treaty because it had serious doubts as to whether the six cases were covered by the BPM scheme and whether they were caught by Article 87 (2) and (3) given that neither of the exceptions set out there appeared to apply. With regard to the first part of the derogation in Article 87 (3) (c), the Commission took the view that the Community guidelines on State aid for environmental protection (4), hereinafter referred to as the "environmental guidelines", did not apply since no evidence had been produced that the investment aid had made it possible to achieve significantly higher levels of environmental protection and since the planned aid intensities were in excess of the thresholds indicated in the guidelines. The Community guidelines on State aid for small and medium-sized enterprises (5) (referred to hereinafter as the "SME guidelines") did not appear to apply either, given that aid for large enterprises in excess of the aid intensity thresholds indicated in the guidelines had not been ruled out.

III. COMMENTS FROM THE NETHERLANDS

(13) According to the Dutch authorities, the "steunverlening" (grant) or the "beslissing omtrent toekenning van een bijdrage" (decision to grant a contribution) is the legally binding act whereby State aid is granted. By this decision the government undertakes to pay aid to the applicant for the specified maximum amount, on condition that the recipient complies with all the conditions of the scheme. The decision had to be taken before 31 December 1994 and the recipients were informed of it by a "toekenningsbrief" (grant letter).

(14) At a later stage in the proceedings the Dutch authorities argued that the State aid granted after the BPM scheme had expired also formed part of the scheme in so far as the ("bevestigingsbrief" (i.e. confirmation letter) to confirm the receipt of the application for a grant had been issued before the scheme expired.

(15) Moreover, the Dutch Government held that only large-scale manure-processing projects required individual notification and that it had not notified the projects in question for that reason.

(16) Finally, regarding Ferm-o-Feed, the Dutch Government pointed out that the scheme did not prevent the authorities from providing aid to two different projects proposed by the same company.

IV. ASSESSMENT OF THE AID

A. Applicability of the BPM scheme

(17) In order to determine whether the aid for the six companies in question had to be classified as existing aid, the Commission first examined to what extent the BPM scheme applied to the aforementioned projects.

(18) The main legal question in these six cases is the difference in interpretation as to what constitutes the legally binding act granting the aid. Although the Dutch Government argues that the legally binding act by which the competent authorities undertake to grant aid is the grant letter, it takes the view that all the grants for which a grant letter was issued after 31 December 1994 are covered by the scheme because the letter of confirmation was sent before that deadline.

(19) Having scrutinised the documentation on the administrative procedure in the relevant cases, the Commission takes the view that the legally binding act is the grant letter. The letter of confirmation was merely an acknow1edgement of receipt of the aid application without any prior examination of whether the conditions of the aid scheme had been met. Furthermore, the granting of aid was conditional on an evaluation by an advisory committee comprising representatives of various ministries. Only after this committee had made an assessment at national level did the Ministry of Agriculture, Nature Management and Fisheries, which is competent in this matter, issue a grant letter indicating the amount of the eligible costs, the amount of the aid and the conditions under which it was granted. The analysis of the procedural steps showed that the aid was not granted automatically to all applicants, but on the basis of a discretionary decision by the competent authorities.

(20) The Commission therefore considers that the date on which the aid was granted is the date on which the grant letter was sent, as confirmed by the Dutch authorities in the first instance. Accordingly, the aid granted to the six manure-processing companies was not covered by the scheme and should be regarded as unlawful aid which was implemented in breach of Article 88 (3).

B. Aid within the meaning of Article 87 of the EC Treaty

(21) The investment aid granted by the Dutch Government was designed to allow and promote investment in manure facilities and hence favoured the companies in question. Processed animal manure is sold primarily as dry organic fertiliser in the form of manure pellets. The manure-processing plants are in competition with other manufacturers of organic and chemical fertilisers. Because this financial incentive strengthens those plants' financial position, it threatens to distort competition within the European Union in that farmyard manure used as fertiliser competes with other organic fertilisers.

(22) According to a study on the sales potential in other countries for Dutch processed animal manure (6) carried out for the Dutch ministry in question in 1990, animal and vegetable fertilisers compete not only on a local basis but also on the French, Spanish, Portuguese, Italian and Greek markets. From 1988 to 1990 the Dutch share of total intra-Community trade in those products amounted to between 44 % and 60 %. Dutch exports of processed animal manure to other Member States can be expected to increase, primarily as a result of the aforementioned projects.

(23) In spite of the information injunction, the Dutch authorities failed to provide the requisite details on the market situation of the individual companies. Such details would have made it possible to assess each company's impact on the manure-processing and fertiliser markets. For that reason, the Commission based its assessment on data for the market as a whole, as indicated above.

(24) Consequently, the aid is likely to affect trade between Member States in the sector concerned and thus constitutes State aid within the meaning of Article 87 (1).

C. Compatibility of the aid with Article 87 of the EC Treaty

(25) The aid has not been covered by an approved and currently applicable aid scheme since the BPM scheme expired in 1994. Therefore, in contrast to the arguments put forward by the Dutch Government, the aid granted to the manure-processing companies in question required individual notification, regardless of their size. The Dutch authorities failed to meet their obligations pursuant to Article 88 (3). The Commission considered the measure to be new aid pursuant to Article 88 (3) and applied the principles set out in Article 87.

(26) The proposed aid could be regarded as compatible with the common market only if either Article 87 (2) or Article 87 (3) applied.

(27) For the following reasons, the derogations in Article 87 (2) and (3) (a), (b), (c) (7) and (d) do not apply in the present case:

(28) The aid does not have a social character, was not granted to individual consumers, was not used to make good the damage caused by natural disasters and was not granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany. The derogations in Articles 87 (3) (a) do not apply to the present case either, because the aid was not designed to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment. As far as the derogation in Article 87 (3) (b) is concerned, the Commission takes the view that the aid was clearly not intended to promote an important project of common European interest or to remedy serious disturbance in the economy of a Member State. The regional aspect of the derogation in Article 87 (3) (c) does not apply since the companies are not located in assisted areas. Nor is the aid designed to promote cultural and heritage conservation within the meaning of Article 87 (3) (d).

(29) The Dutch authorities did not attempt to justify the aid on the grounds enumerated above.

D. Compatibility of the aid with Article 87 (3) (c) of the EC Treaty

(30) As regards the first part of Article 87 (3) (c), namely aid to facilitate the development of certain economic activities, the Commission based its assessment on the fact that the 1989-90 BPM scheme was designed primarily to help medium-sized companies set up pilot manure-processing facilities so as to provide for the environmentally friendly disposal of manure surpluses in accordance with Dutch legislation, which has restricted manure production since 1987, and with Council Directive 91-676-EEC of 12 December 1991 concerning the protection of waters against pollution caused by nitrates from agricultural sources (8) (the "Nitrates Directive").

(31) The Commission approved the extension of the BPM scheme in 1990 on an exceptional basis to allow the Dutch Government to provide incentives for the introduction of innovative technology. The successful outcome of these projects depended on the willingness of farmers to pay for the manure produced on their farms to be processed. When it gave its approval, the Commission pointed out that, if these projects turned out not to be viable, it would a priori take a negative attitude towards further aid for manure processing in the Netherlands (9). It was thus made clear to the Dutch authorities that the Commission had fundamentally reviewed its approach to the BPM scheme. The Dutch authorities could not, therefore, expect new projects based on the same conditions as the BPM scheme to be regarded as being compatible with Article 87.

(32) The Commission first assessed the compatibility of the aid in the light of the SME guidelines.

(33) Pursuant to point 4.2.1 of these guidelines, the Commission may approve aid for SMEs outside areas qualifying for domestic regional aid on condition that the aid intensity does not exceed 15 % in the case of small enterprises or 7,5 % in the case of medium-sized enterprises. This means that the SME guidelines do not apply in five of these cases. Even if the companies meet the criteria set out in point 3.2 of the guidelines, the aid granted far exceeds the authorised ceilings.

(34) Only in the case of Fleuren Compost BV was the aid intensity below the ceiling laid down in the SME guidelines. However, in spite of the doubts expressed by the Commission regarding the size of the companies concerned in the information injunction which accompanied its decision to initiate proceedings, the Dutch authorities failed to show that the company complied with the criteria set out in point 3.2 of those guidelines.

(35) The Dutch authorities did not therefore provide evidence that the six companies complied with the SME criteria laid down in the guidelines or justify the aid on that basis. Nor did they provide evidence that the general principles enshrined in point 4.1 of the guidelines had been respected. The Commission therefore takes the view that the SME guidelines do not apply.

(36) The Commission also assessed the projects in the light of the environmental guidelines.

(37) Firstly, the Commission examined whether the measures in question complied with the conditions governing the granting of investment aid set out in point 3.2 of the guidelines.

(38) The Commission takes the view that this point is not applicable because the environmental obligations resulting from the Nitrates Directive apply to farmers with a view to limiting manure production, whereas the aid recipients are not the parties concerned by these obligations.

(39) However, even if the environmental guidelines were to apply, aid may, pursuant to point 3.2.3(B) concerning aid to encourage firms to improve on mandatory environmental standards, be authorised only for investment that allows significantly higher levels of environmental protection to be attained than those required by mandatory standards. The Dutch authorities did not produce any evidence that this was the case for the measures in question. The Commission doubts whether the manure-processing plants can help to attain higher targets than those set out in Directive 91-676-EEC, given that at least four of the pilot plants which received aid when the scheme was still operating have since been closed. The Commission does not therefore believe that the aid paid out after the scheme expired can be justified on the same grounds as those that led to its exceptional extension.

(40) The Commission also scrutinised the measures as aid to help firms adapt to new mandatory standards. On the basis of the information available, it takes the view that the requirements set out in point 3.2.3(A) of the environmental guidelines have not been met. The guidelines indicate that aid may be authorised up to a level of 15 % gross of the eligible costs, for a limited period and only in respect of a plant which has been in operation for at least two years when the new standards enter into force. In violation of these conditions, aid was granted to new manure-processing plants with an aid intensity of up to 35 %.

(41) With regard to the two grants of aid to Ferm-o-Feed BV, the Commission considers that the granting of aid the second time was at variance with the principle laid down in the BPM scheme that aid should be granted only to pilot projects aimed at promoting environmentally friendly processing of manure. It bases its assessment on the fact that, according to an article published in Agrarisch Dagblad on 26 November 1997, Ferm-o-Feed BV's environmental permit was withdrawn by the competent Dutch authorities on the ground that the company did not comply with Dutch environmental legislation. Aid was nevertheless paid out without checking whether the conditions set out in the grant letter were still met.

(42) In addition, according to the relevant files, the second grant of aid was designed to enable the pilot plants built with the aid granted in 1988 to renew and expand their production capacity. The Dutch authorities were unable to produce any evidence that the second project represented an innovation in comparison with the first one.

(43) Accordingly, the Commission takes the view that the second grant of aid to Ferm-o-Feed BV is not compatible with the environmental guidelines for the same reasons as already elaborated with regard to the other cases in which aid was paid out after the scheme had expired.

(44) Secondly, the Commission examined whether point 3.4 of the environmental guidelines applied. One of the conditions for approving operating aid for environmental protection is that it should compensate for extra production costs by comparison with traditional costs. In addition, aid should be temporary and in principle degressive. When the Commission decided in December 1990 not to raise any objection to the Dutch authorities' plan to grant investment aid of 35 % for the construction of large-scale manure-processing plants up to the end of 1994, this decision was based on the environmental objectives and the high commercial risks associated with the project.

(45) As regards the commercial risks, the Commission points out that the investments in large-scale manure-processing plants were regarded as pilot projects designed to provide a special incentive for those plants to be built within the time-frame laid down and to demonstrate their viability.

(46) The Commission is aware of the fact that the Dutch authorities' most important objective in granting aid to the manure-processing plants in question related to environmentally friendly processing of manure with a view to avoiding external costs - mainly in the form of water pollution, gas emissions and residual heavy metals. The mere fact that not enough projects could be approved during the life of the BPM scheme highlights the difficulties associated with setting up viable manure-processing plants. It should be noted here that manure processing is not in itself a profitable activity and that the viability of such plants depends on the willingness of farmers to supply the manure and to pay for it to be processed. These uncertainties in connection with the economic viability of large-scale manure-processing plants have been confirmed by a complaint (10) and written questions by a member of the European Parliament(11). The suggestion is that manure processing is too costly and is permanently dependent on subsidies.

(47) A number of plants met with financial difficulties which could be overcome only with the help of additional operating aid. In line with its well-established negative view on operating aid, the Commission in 1992 took a final decision prohibiting such aid for manure processing (12).

(48) Four manure-processing plants subsidised under the BPM scheme had to be closed because they were not viable. The Commission therefore considers that projects to which aid was granted after the scheme expired for the purpose of introducing the same technology as under the scheme are dependent on ongoing aid in order to sustain production, which means that the aid cannot be temporary and degressive. Accordingly, neither of the conditions laid down in point 3.4 of the environmental guidelines is met.

(49) Given that the measures in question did not comply with the SME guidelines or with the environmental guidelines, they cannot be regarded as contributing to the development of economic activities without affecting trade between Member States to an extent contrary to the common interest. In so far as the derogation in Article 87 (3) (c) is not relevant, the principle of prohibition of Article 87 (1) is fully applicable. The Dutch authorities have not provided any evidence that the aid is compatible with the EC Treaty.

(50) If aid is deemed incompatible with the common market, the Commission is obliged, under the judgments handed down by the Court of Justice in Case 70-72 (13), upheld in Cases 310-85 (14) and C-5-89 (15), to require the Member State to recover from the recipient all aid granted unlawfully. Repayment is necessary in order to revert to the previous situation by withdrawing all the financial benefits which the firm receiving the unlawful aid has improperly enjoyed since the date on which the aid was paid. Recovery of the incompatible and unlawful aid is an obligation imposed on the Commission by Regulation (EC) No 659-1999.

(51) The aid must be repaid without delay and in accordance with the procedures laid down by Dutch law, in so far as they allow the immediate and effective implementation of the Commission's decision. The amount repayable includes interest calculated from the date on which the aid was granted until the date on which it is actually recovered. Interest is calculated on the basis of the reference rate used to calculate the grant equivalent of regional aid.

E. Conclusions

(52) The aid paid out to the six manure-processing companies in question constitutes aid which distorted competition and affected trade within the meaning of Article 87 (1). The derogation in Article 87 (3) (c) is not applicable because the conditions laid down in the Community guidelines on State aid for environmental protection or in the Community guidelines on State aid for small and medium-sized enterprises are not met.

(53) The aid is therefore incompatible with the common market. The Commission finds that the Kingdom of the Netherlands has unlawfully implemented the aid in breach of Article 88 (3). The aid must be recovered,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which the Kingdom of the Netherlands has implemented in favour of the manure-processing companies Ferm-o-Feed BV, Fleuren Compost BV, Vloet Oploo BV, Smith Markelo, Arev Venhorst and Memon KPI, amounting to EUR 2501089, is incompatible with the common market.

Article 2

1. The Kingdom of the Netherlands shall take all necessary measures to recover from the recipients the aid referred to in Article 1 and unlawfully made available to them.

2. Recovery shall be effected without delay and in accordance with the procedures of national law provided that they allow the immediate and effective execution of the decision. The aid to be recovered shall include interest from the date on which it was at the disposal of the recipients until the date of its recovery. Interest shall be calculated on the basis of the reference rate used for calculating the grant equivalent of regional aid.

Article 3

The Kingdom of the Netherlands shall inform the Commission, within two months of notification of this Decision, of the measures taken to comply with it.

Article 4

This Decision is addressed to the Kingdom of the Netherlands.

(1) OJ C 272, 23.9.2000, p. 22.

(2) Scheme approved on 6 July 1989.

(3) See footnote 1.

(4) OJ C 72, 10.3.1994, p. 3.

(5) OJ C 213, 23.7.1996.

(6) Booz-Allen & Hamilton: "Afzetmogelijkheden voor verwerkte dierlijke mest", The Hague, 1990.

(7) Derogation for regional aid.

(8) OJ L 375, 31.12.1991.

(9) Aid C 17-90 (OJ C 82, 27.3.1991, p. 3).

(10) "Stichting Natuur en Milieu" (Foundation for Nature and the Environment) lodged a complaint in a letter dated 30 November 1994.

(11) Written questions E-2746-94 and E-2782-94 by Nel van Dijk (OJ C 103, 24.3.1994).

(12) Decision 92-316-EEC (OJ L 170, 25.6.1992, p. 34).

(13) Case 70-72 Commission v Germany [1973] ECR 813.

(14) Case 310-85 Deufil v Commission [1987] ECR 901.

(15) Case C-5-89 Commission v Germany [1990] ECR I-3437.