Anita Gyürkés State Aid Monitoring Office Ministry of National Development, Hungary 13 November 2013

1. Definitions  Aid scheme  Individual aid 2. Practical examples  Aid scheme  Individual aid

Council Regulation No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 (now Art. 108) of the EC Treaty (latest amendment: Council regulation 734/2013) Aid measure:  Aid scheme - Art. 1 d)  Individual aid – Art. 1 e)

Aid scheme  any act on the basis of which - without further implementing measures being required - individual aid awards may be made to undertakings defined within the act in a general and abstract manner, and  any act on the basis of which aid which is not linked to a specific project may be awarded to one or several undertakings for an indefinite period of time and/or for an indefinite amount.

Aid scheme = L egal act and/or call for applications based on a law - name of the aid grantor - purpose of aid - form of aid - maximum intensity / amount of the aid - identification of the beneficiary - level of own contribution - eligible costs - scope, duration - exclusions - other data required by the state aid law applied

COM examines the scheme  Directly by reference to the Treaty articles  By reference to the secondary law (frameworks, guidelines) COM approves the scheme no need to notify every single aid granting for COM (the enforcement of the compatibility with the COM decision is the responsibility of the aid grantor)

General notification rule (Art. 7. (1) of Gov. Decree 37/2011. on state aid procedure and regional aid map) – call for applications based on aid scheme have to be notified to SAMO SAMO controls the compatibility with the scheme

Controlling the compatibility aid scheme vs. individual aid based on the scheme  ex officio, or  based on complaint non compatibility = misuse of aid illegal aid

Controlling the compatibility aid scheme vs. developments of the single market (Appropriate measures procedure – Art. 108 (1) TFEU, Art Reg. 659/1999)  ex officio (modified secondary law always contains commitment for appropriate measures)  based on complaint

MS accepts the remedies MS does not accept the remedies aid scheme not/no longer compatible appropriate measures scheme continues in the modified form formal investigation procedure scheme has to be abolished within certain period but no recovery!!! further implementation = new/illegal aid

Individual aid  aid that is not awarded on the basis of an aid scheme and (GBER – ad hoc aid)  notifiable awards of aid on the basis of an aid scheme

Notifiable awards  Set out in COM’s decision  Defined in the secondary law (if the gross grant equivalent exceeds…) GBER Consultancy aid for SMEs2m €/U/p Aid for SMEs for participation in fairs2m €/U/p Aid for R&D project and feasibility studies - Fundamental research 20m €/U/p Aid for R&D project and feasibility studies - Industrial research 10m €/U/p Aid for R&D project and feasibility studies - other7,5m €/U/p

Training aid2m €/U/p Aid for the recruitment of disadvantaged workers 5m €/U/p Aid for the employment of disabled10m €/U/p Aid for the additional costs of employing disabled: 10m €/U/y Regional investment aid for large investment projects: total amount of aid exceeds 75 % of the maximum amount of aid an investment with eligible costs of EUR 100 million could receive, applying the standard aid threshold in force for large enterprises in the approved regional aid map on the date the aid is to be granted.

Individual Aid = Law and/or aid contract based on a law - name of the aid grantor - name of the beneficiary - purpose of the aid - form of the aid - maximal intensity / amount of the aid - amount of own contribution - definition of eligible costs - duration - other data required by the state aid law applied

Establishing compatibility Aid schemeAd hoc aid notificationGBERnotificationGBER De minimisXX Regional investment and employment aid XXXonly to supplement aid granted on the basis of max. 50 % of the total aid Aid for newly created SEs XXX SME investment and employment aid XXXX Aid for environmental protection XXXNot in the form of reduction of environmental taxes Aid for SME consultationXXXX SME participation in fairsXXXX

Aid schemeAd hoc aid notificationGBERnotificationGBER Risk capitalXX R&D&I aidXXXX Training aidXXXX Aid for disadvantaged and disabled workers XXX SGEI (decision and framework) XXXX R&RXX NO AID - MEIPX NO AID - AltmarkX

JEREMIE Hungarian Risk capital scheme N 355/2008, SA (2012/N), SA (2013/N)

 Notified July 2008  Date of decision: 10 December 2008  Assessed on the basis of the Risk capital Guidelines (RCG)  Aim of the scheme – provision of risk capital support + management services to SMEs in early stages (seed and start up) and expansion stage

 Structure ◦ 7 Joint Funds – established by the state owned Holding Fund (max. 70%) and private investors ◦ 1 Co-investment Fund – Holding Fund establishes an Own Fund which invest into target enterprises jointly with private investors  Budget: EUR million (85% from Structural Funds)  Aid grantor: Managing Authority of the Economic Development Operational Program  Duration: 5 years investment+5 years exit

 Beneficiaries – aid amount, form of aid ◦ SMEs – EUR 1.5 million equity financing in 12 months  Registered in Hungary  Not older than 5 years  Annual net turnover less than EUR 6 million  Not in difficulty  Excluded industries: shipbuilding, coal, steel, export ◦ Private investors – yield restriction and loss mitigation  Measure open for any investor independent from the target SME

 Yield restriction and loss mitigation Entitled for profit Bear of losses (e.g. 20% loss, 70% public – 30% private participation) Public investorBelow the actual reference rate (3.82) First 5% of the loss equaling the highest subscribed capital of the fund reduced by the operating costs Any further loss allocated according the participation 5% + (15% * 0.7) = 15.5% Private investorAbove the actual reference rate (3.82) Losses above 5 % allocated according the participation 15% * 0.3 = 4.5

Fund managers  Open tender procedure ◦ Independent entity, ◦ References, ◦ Following the best practices, ◦ License for managing a risk capital fund  Manager fee ◦ Fix fee (not more than 3% of prevailing share capital) and ◦ succes fee (if the profit exceeds the reference rate valid at the time of the registration of the find

Hungarian risk capital market very limited, only few high-value businesses SMEs can hardly find capital reasons: - lack of information - lack of business angels / seed funds SME financing in Hungary and in the EU – EIF analysis Life cycle Early stageExpansion stage Replacement capital Total investment HUEUHUEUHUEUHUEU ,0%5,2%22,8%26,6%76,2%68,2%100% ,8%10,4%4,3%21,0%94,9%68,6100%

1. Aid at the level of investors Terms of investment more favourable than for public investors advantage Conditions of yield restriction and loss mitigation negotiated with the market players least possible State intervention, which is necessary to include investors in the measure

2. Aid at the level of the fund and its management Fund only an intermediary chosen by open tender no advantage 3. Aid at the level of the SMEs If aid is present at the other levels it will be passed through to the SMEs State aid

Applicable State aid rules Compatibility Exclusionary conditions (RCG 2.1)X Form of the aid (RCG 4.2)X Tranches of finance (RCG 4.3.1)X Target companies (RCG 4.3.2)X Private investors (RCG 4.3.4)X Profit driven management decisions (RCG 4.3.5, 4.3.6) X Cumulation (RCG 6)X Reporting commitmentX The measure is compatible with Art. 107 (3) c) TFEU

SA (2012/N)  Extending the duration until 31 December 2013  Division of the Joint Fund Measure into Seed fund and Growth Fund sub-program + 4 additional Seed and 6 additional Growth Fund  Increasing the budget to EUR 206 million  Target companies: increasing the maximum annual turnover to 17 M € in case of Growth Funds and to € in case of Seed Funds  Lost mitigation: from 5% to in case of Growth Fund 10%, and in case of Seed Fund 15%  Increasing the investment tranche to EUR 2.5 million in case of Growth Fund, and in case of Seed Fund EUR

SA (2013/N)  Increasing the budget to EUR 310 M  Commitment: Appropriate measures due to the modification of the RCG.

State aid to Danube Cultural Palace NN 122/2010

 Notification: March 2010  Date of decision: 13 December 2010  Assessed on the basis of Art. 107 (3) d) TFEU  Beneficiary: Danube Palace Cultural Non-profit Ltd. (DP) operator of the Danube Art Ensemble (DAE) and the Danube Symphonic Orchestra (DSO)  Aid grantor: Ministry of Interior Affairs, Hungary  Aim of the measure: promotion and preservation of cultural heritage, financing cultural activities

 Eligible Costs ◦ Improving the operational conditions of DAE and DSO, ◦ Supporting music and dance shows provided by DAE and DSO, ◦ Supporting of new productions of DAE and DSO, ◦ Providing a venue for amateur ensembles set up by DP ◦ Organizing events with foreign ensembles  Budget: EUR 6 million for 5 years  Aid intensity: 90% of the incurred cultural costs

Existence of aid:  DP single beneficiary  Measure relives DP from cost that it have to bear otherwise by itself  DP operates on the cultural market  Compeets with other EU undertakings the measure constitute State aid within the meaning of Art. 107 (1) TFEU

Art 167 TFEU The Union shall contribute to the floweing of the cultures of the Member States, while respecting their national and regional diversity and at the same time bringing the common cultural heritage to the fore. aid compatible if it does not affect the competition to the extent contrary to the common interest

Criteria of compatibility:  Cultural aim ◦ The activity of DP clearly aims at preserving culture, the performances have significant cultural value, ◦ The performances take place principally in local events, ◦ The activity of DP is limited to the territory of Hungary,  Necessity ◦ the events are not profit seeking and revenues do not cover the costs  Proportionality ◦ subsidized cost: only essential costs for preservation of culture (confirmed by financial and professional reports) ◦ Incomes from potential ancilliary activities will be reinvested into its main activity Aid compatible with the Internal market

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