Miek VAN DER WEE Head of Unit DG COMP- Regional state aid SAM in practice The 2014 reform of regional State aid Northern Ireland State aid Awareness Seminar 16 September 2014

Structure of presentation 1. Regional State aid: Basics 2. Regional aid: Where? 3. Regional aid: What for? 3.1 Initial Investment [3.2 Operating aid]  Not in N. Ireland 4. Compatibility assessment of investment aid 5. Conclusion: Main changes Regional aid

Regional inequalities in EU … ■ Article 3 TEU: "The Union shall promote economic, social and territorial cohesion, and solidarity among Member States." ■ Article 174 TFEU "In order to promote its overall harmonious development, the Union shall develop and pursue actions leading to a strengthening of economic, social and territorial cohesion."

EU Regional State aid policy ■ Exemption from the general ban on State aid for regional aid measures: ● "Aid to promote the development of areas where the standard of living is abnormally low or where there is serious underemployment…" (Art. 107(3)(a) TFEU) ● "Aid to facilitate the development of … certain economic areas…" (Art. 107(3)(c) TFEU) ■ Criteria for the application of the regional aid exemptions: ● Successive Communications since early 1970’s ● Successive Regional Aid Guidelines (1998, 2006, 2013) ● Block Exemption Regulations (2006, 2008, 2014)

RAG/GBER ■ Purpose of regional aid: ● To promote the development of disadvantaged areas by addressing their economic handicaps ● To promote economic cohesion of the EU ■ How? ● Support for investment and job creation by undertakings ● Support for operating expenses of undertakings (exceptionally) ■ Criteria set out in RAG & GBER: ● Where can regional aid be granted? ● What can aid be granted for? ● How much aid can be granted?

Regional aid maps - 1 For regional aid to be effective, it needs to be focused on the regions that suffer the most serious difficulties ■ Regions with abnormally low standard of living  Art. 107(3)(a) ● Reference point is EU average ● Criterion  GDP/cap lower than 75% EU average  Outer Most Regions (Art. 349 TFEU) ■ Other disadvantaged areas  Art. 107(3)(c) ● Ex-Article 107(3)(a) regions ( ) ● Sparsely populated areas ● Other problem regions with population of at least 50,000

Regional aid maps - 2 Types of region 'a' areas25.8%33.0% - GDP/cap < 75%24.9%32.1% - Outermost regions0.9% ‘c’ areas21.8%13.6% - Former ‘a’ regions6.9% - Sparsely populated0.6% - Other ‘c’ areas14.3% Total ‘a’ + ‘c’47.6%46.6% Comparison population coverage and :

Regional aid maps - 3 MS ‘a’ areasPredefined ‘c’Non-predefined ‘c’Total Austria25.8 Belgium Bulgaria Czech Republic88.1 Cyprus50.0 Denmark8.0 Estonia Finland France Germany Greece Hungary Ireland 51.3 Italy Latvia Lithuania Luxembourg8.0 Netherlands 7.5 Malta Poland Portugal Romania Slovakia88.5 Slovenia Sweden12.3 Spain UK EU Total [2013 situation] [22.5] [25.9] [100.0] [88.6] [50.0] [8.6] [100.0] [33.0] [18.4] [29.6] [100.0] [50.0] [34.1] [100.0] [16.0] [7.5] [100.0] [76.7] [100.0] [88.9] [100.0] [15.3] [59.6] [23.9]

Regional aid maps - 4 Assisted area (% EU GDP/head) Large firms Medium- sized firms Small firms 'a' areas (<45%)50%60%70% 'a' areas (45%-60%)35%45%55% 'a' areas (60%-75%)25%35%45% Former 'a' areas (until end ‘17)15%25%35% Sparsely populated areas, external border areas 15%25%35% Other 'c' areas10%20%30% Regional aid map also places limits on the amount of investment aid that can be granted in each region:

Regional aid maps - 5 Regional aid map

Investment aid: “Initial investment” - 1 ■ Investment in tangible and intangible assets relating to In 'a' regions & SME in 'c' areas: - Setting up of a new establishment; - Diversification of output of establish- ment into products not previously produced in the establishment; - Extension of the capacity of an existing establishment; - Fundamental change in the production process. ■ Acquisition of assets linked to establishment that has closed or would have closed ■ No replacement investment!

Investment aid: “Initial investment” - 2 ■ Investment in tangible and intangible assets relating to In 'a' regions & SME in 'c' areas: - Setting up of a new establishment; - Diversification of output of establish- ment into products not previously produced in the establishment; - Extension of the capacity of an existing establishment; - Fundamental change in the production process. LEs in 'c' areas: - Setting up of a new establishment; - Diversification of activity of establish- ment, if new activity is not same as or similar to activity previously per- formed in the establishment; - Diversification of existing establish- ments into new products or new process innovations (RAG only!!). ■ Acquisition of assets linked to establishment that has closed or would have closed ■ No replacement investment!

Investment aid: “Eligible costs” Two ways to calculate “eligible costs”: ■ Costs calculated on the basis of investment costs: ● Material assets (land, building, equipment) ● Immaterial assets: - Transfer of technology - Patents, operating or patented and non-patented know-how licenses - For large enterprises, limited to 50% of eligible costs ■ Costs calculated on the basis of wage costs: Wage costs arising from job creation as a result of the initial investment (two-year wage cost)

Investment aid: “Conditions” ■ Conditions for regional investment aid: ● Maintenance of investment (or jobs) in the region: - 5 years for large enterprises - 3 years for SMEs ● 25% of investment should be from own contribution or external finance, but totally free of public support

Investment aid: “How much aid?” ■ Maximum allowable aid is defined as a percentage of eligible costs of the initial investment (GGE) ■ Maximum aid intensity is set in the regional aid maps ■ LIPs: Scaled down “adjusted aid amount”: Adjusted max. aid amount = RAC x [ (50 + (0.5 x B) + (0.34 x C) ] (B = Cost between 50 Mio and 100 Mio; C = Cost above 100 Mio) ■ Projects involving high aid amounts  To be notified! Notification threshold: Adjusted aid amount for investment of € 100 Mio Notification required if: 10% RegionAid > € 7.5 Mio 25% RegionAid > € Mio

Assessment: To be notified under RAG ■ Aid to shipbuilding & coal ■ Individual aid > Notification threshold ● Individual aid > Maximum aid allowed for project > €100 Mio ● NIRL (10% aid ceiling): Aid > €7.5 Mio ■ Investment by LE’s in existing establishments in ‘c’ areas: ● for diversification into new products ● for new process innovations ■ Sectoral aid schemes ■ Individual aid to companies that have closed or intend to close down the same or similar activity in EEA ■ Aid measures involving non-transparent forms of aid

Compatibility Assessment ■ Common principles: ● contribution to an objective of common interest ● necessity of the aid ● appropriateness of the aid ● aid limited to the minimum necessary ● avoidance of undue negative effects (black-list) ● transparency of aid + evaluation ■ NO aid if one principle is NOT respected ■ Requirements for aid under RAG more demanding than under GBER

1. Objective of common interest & RAG: ■ ESI Funds co-financed schemes: ● Assumed ■ Other measures ● MS to demonstrate contribution to development strategy for the region and appropriateness of measure GBER: ■ - 2. Appropriateness

3. Incentive effect RAG: Additional for LE’s: ■ Counterfactual: ● Impact on investment decision ● Impact on location choice ■ LE’s to submit evidence ● Aid schemes: Credibility check by aid grantor ● Notified ad hoc aid: MS to submit evidence showing that aid has incentive effect GBER: Additional for LE’s: ■ Documentation to be submitted by beneficiary showing that project would not have been carried out in the area concerned or would not have been sufficiently profitable in absence of aid Always: Submission of standard application form before start of work

4. Proportionality RAG: Additional condition for LE’s: ■ Aid should not exceed net extra cost of implementing the project in the area concerned ■ Verification: ● Notified individual aid: COM ● Aid schemes: MS GBER: ■ - In all cases: Aid should respect (adjusted) maximum aid intensity set out in RAM

5. Avoid undue distortive effects RAG ■ Distortive effects: ● Location ● Product market (overcapacity, market power) ■ No aid if: ● it attracts an investment from a poorer region (*)(°) ● relocation of an investment due to the aid (°) ● if investment takes place on a market with structural overcapacity (°) GBER GBER does not apply : ■ Aid to beneficiary closed or intends to close down similar activity in EEA ■ Sectoral aid schemes (°) EC to verify when assessing notified individual aid (*) MS to verify when awarding aid under scheme

6. Transparency RAG ■ Publication on Central/Regional Website: ● Text of aid scheme ● Aid granting authority ● Individual aid (Beneficiary, Aid amount, Aid intensity) ■ Evaluation ● Large or novel aid schemes ● COM may limit duration to four years GBER ■ Publication on Central/Regional Website: ● Text of aid scheme ● Aid granting authority ● Individual aid > € 0.5 Mio (Beneficiary, aid amount, aid intensity, …) ■ Evaluation: ● Schemes > € 150 Mio ● Evaluation Plan to be approved by COM

Main changes 2014 ■ Stricter requirements under RAG ● Compatibility assessment for notified measures outside SF operations - Incentive effect - Proportionality - Necessity of aid ● Limits on eligibility of initial investment projects by LE’s in ‘c’ areas ● No forum shopping ● Evaluation + increased transparency requirements ■ Widening of scope of GBER ● Lighter compatibility assessment requirements

Thank you ! Any questions ?