(3) of the EEC Treaty lists aid which may be compatible with the common market. Compatibility with the Treaty must be determined in the context of the Community as a whole and not in that of a single Member State. In order to ensure the proper functioning of the common market, and having regard to the principle embodied in Article 3 (f), the exceptions provided for in Article 92 (3) must be construed narrowly when any aid scheme or individual aid award is scrutinized. In particular, they may be invoked only when the Commission is satisfied that, without the aid, market forces alone would be insufficient to guide recipients towards patterns of behaviour that would serve one of the objectives of the said exceptions.
Applying the exceptions to cases which do not contribute to such objectives or where the aid is not necessary for those purposes would amount to conferring advantages on the industries or firms of certain Member States, whose financial position would be artificially strengthened, and to affecting trade between Member States and distorting competition without any justification based on the common interest referred to in Article 92 (3) of the EEC Treaty.
With regard to the applicability of the exceptions provided for in Articles 92 (3) (a) and (c) for aid that promotes or facilitates the development of certain areas, it should be noted that, as stated by the Spanish authorities, the former industrial plants of CCC at Córdoba and Valladolid are situated in assisted areas qualifying for the granting of regional aid pursuant to Article 92 (3) (a), the plants at Trápaga, Galindo and Reinosa are situated in assisted areas pursuant to Article 93 (3) (c) and the plants at Sabadell and Madrid in non-assisted areas.
Consequently, the areas where the plants of Trápaga, Galindo, Reinosa, Sabadell and Madrid are located do not present a standard of living abnormally low or serious under-employment within the meaning of Article 92 (3) (a), for which reason, the exception to incompatibility provided for in this Article is not applicable to aid granted in their respect. For its part, even though the plants of Córdoba and Valladolid are located in Article 92 (3) (a) areas, and the remaining plants, except Madrid and Sabadell, in Article 92 (3) (c) areas, neither of these two exceptions on regional grounds is applicable to the aid elements under assessment, because aid destined to rescue and restructure companies in difficulties, as in the case under discussion, can only benefit from these exceptions when granted under restricted and controlled conditions (see Eighth Report on Competition Policy, point 228) that qualify for the application of the Article 92 (3) (c) exception on sectoral grounds (see below). In particular, the assistance must, inter alia, be strictly linked to the implementation by the beneficiaries of restructuring measures which lead to their being truly viable, without having unacceptable effects on competition conditions within the Community.
Moreover, in addition to the abovementioned reasons for the inapplicability of the Article 92 (3) (a) and (c) exceptions to incompatibility on regional grounds, it should also be noted that the aid measures in question do not concern the application of the regional aid schemes available in the corresponding areas, but rather take the form of ad hoc interventions of the Spanish Government to enable the industrial activities of CCC to continue in operation.
As to the exceptions provided for in Article 92 (3) (b), the facts of the case can provide no grounds whatsoever for considering that the aid in question was intended to promote a project of common European interest or to remedy a serious disturbance in the Spanish economy. Furthermore, the Spanish authorities have not presented such arguments to justify the compatibility of the aid in question.
As regards the exception provided for in Article 92 (3) (c) for aid to facilitate the development of certain economic activities, where such aid does not adversely affect trading conditions to an extent contrary to the common interest, it should firstly be noted that the public assistance granted on the occasion of the sale of the assets of CCC falls under the category of aid to rescue and restructure companies in difficulties, as both the financial position and the financial record of the group had always been precarious. Moreover, as the Spanish authorities have recognized, the CCC group was on the verge of bankruptcy when the public interventions were effected.
Aid to firms in difficulties carries the greatest risk of transferring unemployment and industrial problems from one Member State to another; it acts as a means of preserving the status quo by preventing forces at work in the market economy from their normal consequences in terms of disappearance of uncompetitive firms in their process of adaptation to changing competitive conditions. For this reason, the Commission takes a strict approach in assessing the compatibility of aid for rescuing and restructuring firms in difficulty. In particular, the Commission requires that such public interventions be strictly conditional on the implemen tation of a sound restructuring or conversion programme capable of restoring the long-term viability of the beneficiary, which must also contain a compensatory justification for the aid in the form of a contribution by the beneficiary, over and above the normal play of market forces altered by the aid, to the achievement of Community objectives as established in Article 92 (3) of the EEC Treaty. In practice this means that the Commission must carefully monitor if the characteristics of the restructuring programmes for the activities of companies in difficulties rescued by the State are acceptable in the light of the common interest.
In the CCC case, the Commission is obliged to monitor the characteristics of the restructuring programmes that the buyers of the assets of CCC could potentially have drawn up for these industrial facilities, since the companies of the CCC group are no longer responsible for their industrial operations.
It should be noted in this respect that Article 92 (1) of the EEC Treaty is intended to prevent distortions of competition created by State aid 'that favour certain undertakings or the production of certain goods', in the latter case regardless of the legal entity that performs that production.
Preventing the Commission from checking aid plans for rescuing and restructuring industrial activities where the industrial facilities linked to those activities are transferred by the economic agents concerned to another legal entity would amount to depriving Articles 92, 93 and 94 of their content in certain situations, creating a loophole to avoid EEC Treaty provisions. This would be the case if companies were allowed to avoid the monitoring of the Commission in the restructuring of their industrial activities by transferring assets to another legal entity. On these occasions, the EEC Treaty principle of ensuring that competition in the common market is not distorted to an extent contrary to the common interest, which is embodied in
Articles 3 (f) and 92 and whose application is entrusted to the Commission, must prevail over any legal form or cover that could prevent it from being effectively applied.
In the case at issue, the Spanish authorities did not initially provide the Commission with the evidence that the aid elements involved in their interventions were linked to an acceptable restructuring programme for the industrial facilities purchased by the ABB subsidiaries (see Section IV).
The Commission has subsequently maintained contacts with the Spanish authorities in April, May and July 1991, and March 1992, with the view to obtaining both detailed information that made it possible to quantify precisely the identified aid elements to ABB, and a precise description of the future restructuring measures envisaged by ABB for the former industrial facilities of CCC.
Unfortunately, despite these contacts, the Commission's attempts to pursue the discussions further along the abovementioned proposed lines produced no results, in view of the Spanish authorities' insistence that the public interventions under assessment did not involve State aid elements.
In these circumstances, the Commission was obliged to continue the assessment of the case without the effective cooperation of the Spanish authorities in connection with the abovementioned essential discussion points proposed to the Spanish authorities. It should also be noted that at the same time the Commission presented its observations to the Court of Justice within the framework of the proceedings initiated as a result of the application introduced by the Spanish Government for annulment of the Commission's decision of 25 July 1990 to initiate the procedure under Article 93 (2).
By letter dated 12 June 1992, a law firm acting on behalf of ABB Asea-Brown Boveri Ltd (Zurich/Switzerland) requested the opportunity to present observations to the Commission on the decision that the Commission was discussing.
By letter dated 8 July 1992, ABB presented its initial observations.
By letter dated 16 November 1992, ABB submitted to the Commission a document titled 'Report on the fairness of the price paid by the subsidiaries of ABB for the acquisition, on 3 July 1990, of certain assets of CCC in Spain'. This report, drawn up by Price Waterhouse, concluded that the price paid by ABB for the CCC net assets was in excess of the estimation of the higher end of a fair market valuation range.
By letter dated 23 November 1992, ABB submitted information on the restructuring programme carried out with respect to the businesses formerly owned by CCC. ABB submitted additional information by letters dated 27 January 1993 and 10 February 1993.
ABB submitted this information 'with the explicit caveat that ABB does not accept the allegation that any State aid was granted in the context of acquisition of CCC assets, and that ABB supports the position of the Spanish Government that the Commission is not entitled to carry out the current investigation'.
This information shows that ABB has carried out a very tight restructuring programme after having acquired certain assets formerly owned by the CCC companies. As part of the restructuring programme, ABB has reduced production capacity and rationalized production, transferred technology and carried out an extensive investment programme.
It should be noted that ABB confirmed that 'there were substantial overcapacities in the heavy electrical equipment sector prior to the acquisition of the CCC assets and the restructuring carried out by ABB'. According to ABB, 'these overcapacities were all the more burdensome for the sector since after the accession of Spain to the EEC, imports into the Spanish market became more important. This exercised additional competitive pressure on the business'.
The reduction in the former production capacity has been carried out in different ways: closure of an entire factory; reduction of parallel production lines from two or three lines per product to only one line per product; reduction of production areas, by closing factory buildings; reduction of production equipment by scrapping and disposal of machinery and installations; reduction of personnel.
The Erandio plant has been closed entirely. Outdated equipment of the Erandio plant has been scrapped. Part of the equipment, in particular more recent production machines, have been transferred to the Galindo plant, in order to replace old machines there, which, in turn, have been scrapped. In very few instances, the machines from Erandio have been used to complement the existing Galindo equipment, so as to have the required minimum facilities available which are needed for a viable production of the new production programme.
In addition, the production of industrial motors, of traction equipment and of transformers in the Sabadell plant has been phased out.
An important part of the remaining machinery and equipment acquired from the CCC companies has been removed, scrapped or destroyed, in order to reduce production capacity to a level which allows a profitable production.
As part of the restructuring programme, ABB has reorganized the previous production pattern. This has involved, in particular, the concentration of activities, so that no more than one company engages in activities for a specific product. ABB has also reduced the number of previously existing production lines, and concentrated the production of the different goods in one production line, eliminating parallel efforts and activities.
The results of the various measures taken are evident when looking at the production capacity figures before and after the restructuring. The information on reductions in production capacity submitted by ABB is summarized in the following tables (6):
TABLE A
Business line
Capacity before acquisition
Direct hours
MW
Capacity after restructuring
Direct hours
MW
Power generation
Industrial motors
Traction (including motors)
Transformers (7)
(HV switchgear) (8)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
TABLE B Reduction in capacity
Business line
Direct hours
%(decrease)
MW
%(decrease)
Power generation
Industrial motors
Traction (including motors)
Transformers
(. . .)
(. . .)
(. . .)
(. . .)
-63,4
-60,7
-42,4
-51,7
(. . .)
(. . .)
(. . .)
(. . .)
-63,3
-60
-36,3
-53,3
-51,5
(average) - 55,7
(average) (9)
The information can also be compared with the data submitted on total demand and production capacity in Spain.
TABLE C
Business line MW
Market demand
Total capacity
Spain 1990
Capacity
CCC 1990
Capacity CCC
after restructuring
Power generation
Industrial motors
Traction (including motors)
Transformers
2 000
450
700
3 500
4 107
880
518
7 500
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
(. . .)
As an important part of the restructuring programme, ABB has taken many steps in order to rationalize production, in order to make it more productive and viable.
The rationalization measures include: the introduction of a new 'process-flow' layout of the factories; introducing new planning methods, like just-in-time supplies, and no intermediate stocks; improvement of production quality; reduction of factory space; improvement of service.
The above measures are only part of a complex rationalization programme not yet completed. However, they have already produced important results: labour productivity has been increased by over (. . .) %; factory through-put time has been reduced by (. . .) %; factory inventory has been reduced by (. . .) %; the failure rate in testing has been reduced from a previous level of (. . .) % failures, to a present level of (. . .) % failures only; on-time deliveries have been increased from (. . .) to (. . .) %; factory space has been reduced by (. . .) % (10).
As regards technology transfer, the total value of the technology transfer to the businesses which are being restructured using the assets acquired from CCC has an arm's-length value in excess of US$ 250 million.
As regards the investment programme, whereas the original plan, and the commitment which formed part of the transaction under which ABB acquired certain assets from CCC, envisaged investment of some Pta 5 600 million, the revised investment plan which is currently being implemented provides for a total of Pta 10 523 million of investment.
The information sent to the Commission by ABB was submitted to the Spanish authorities for comment by letters dated 18 December 1992 and 9 March 1993.
By letters dated 18 January and 20 April 1993, the Spanish authorities, while reaffirming that, in their view, the interventions covered by the investigation do not contain State aid elements, also informed the Commission that they endorsed the restructuring programme presented by ABB, with a view to benefiting from the potential application of the exception to incompatibility provided for in Article 92 (3) (c) of the EEC Treaty.
In the light of the information submitted by ABB and of its endorsement by the Spanish authorities, the Commission has arrived at the following conclusions:
As regards the report on the fairness of the price paid by ABB for certain assets of CCC, the Commission must however observe that the fact that ABB bought CCC for a fair market value, as the report in question intends to demonstrate, is not a sufficient reason to conclude that the interventions of the Spanish authorities in the rescue of the businesses of CCC did not involve State aid elements at all.
The fact that a buyer pays a reasonable price for a company - that is to say a price based on reasonable expectations of recoupment of the investment at reasonable return rates and within a reasonable period - only demonstrates that he has behaved as a reasonable market economy private investor. But this behaviour of the buyer does not exclude the possibility that the State, for its part, grants an aid, if it does not act as a market economy private investor in respect of the participants in the acquisition (buyer and seller). In particular, in the CCC case, the State did not act as a market economy private creditor would have done in the same position and circumstances (see section VI of this Decision).
In the case at issue, it should be noted once more that the existence of aid in favour of ABB seems clearly substantiated by the fact that the State, in spite of the securities held, did not recover any monies in respect of the assets bought by ABB, and that ABB actively participated in the negotiations that took place before and after the acquisition, on condition that the State assumed substantial restructuring costs for which, as creditor of the companies, it was not at all responsible.
However, even if the interventions of the Spanish authorities have contained aid within the meaning of Article 92 (1), the aid may be declared compatible by the Commission under Article 92 (3) (c) if, as previously explained, it is linked to a restructuring programme for the aided activities which might be judged as acceptable from the Community point of view.
Consequently, as the Commission repeatedly indicated to the Spanish authorities, the analysis of the case must be focused on the existence of sufficient compensation for the distortion of compentation caused by the aid.
In view of the fact that the aid in question was granted for the rescue and restructuring of businesses in difficulties, the Commission must verify that the aid is linked to the implementation by the beneficiaries of restructuring programmes that return them to viability, without having adverse effects on competition conditions form the Community point of view. In this latter respect, the Commission normally expects that the beneficiaries close down unprofitable production lines and/or reduce production capacities.
In this respect, following the intervention of ABB in the course of the procedure, the Commission has for the first time obtained detailed information on the restructuring measures implemented by ABB.
This information indicates that the restructuring programme that ABB will apply for the aided businesses will reduce production capacity in all business lines with an average reduction of 51,5 % in terms of direct hours or 55,7 % in MW (see Table B). This action has removed excess capacity in the Spanish market, eliminating competitive tensions in this sector at Community level. It also makes it possible for competitors to gain market shares in the relevant segments.
Moreover, the restructuring appears to be intended to create productive, profitable and viable activities integrated in the structure of the ABB group in Spain. To this end ABB has contributed substantial funds and know-how to put them back on a viable footing.
The Commission must also take into consideration that the restructuring programme implemented will secure jobs in areas with specific problems of underdevelopment and industrial decline. It should be noted in this respect that 63 % of the workforce of CCC was located in regional assisted areas (20 % in Article 92 (3) (a) regions).
In view of the foregoing considerations, the Commission therefore concludes that the former industrial activities of CCC, currently under ABB's ownership and responsibility, will be restructured according to a plan which may be considered satisfactory from the Community point of view.
Consequently, the State aid elements involved in the interventions of the Spanish authorities on the occasion of the sale by CCC of certain selected assets to ABB subsidiaries may benefit from the exception to incompatibility provided for in Article 92 (3) (c) of the EEC Treaty, as they do not appear to distort competition within Community to an extent contrary to the common interest,
HAS ADOPTED THIS DECISION:$e$
