1 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Cohesion policy and state aid 18th ANNUAL MEETING OF EUROPEAN FINANCIAL CONTROL AUTHORITIES OF STRUCTURAL FUNDS, “THE HOMOLOGUES GROUP” Ljubljana, October, 2009 Dr. Johann Sollgruber

2 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Overview 1.CONTENT 2.SF Standard clause 4.Cohesion Policy and State aid-links 5.Horizontal framework 6.Regional state aid 7.Recovery&Temporary state aid framework

3 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Compliance Under Article 9 (2) of the Council General Regulation for the Structural Funds EC (1083) 2006, operations financed by the Funds shall comply with the provisions of the Treaty and of acts adopted under them. The Commission and the Member States shall ensure that assistance from the Funds and the Member States be consistent with the activities, policies and priorities of the Community.

4 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Standard clause in Operational Programmes Any aid granted under an operational programme must comply with the State aid rules that are in force.

5 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Cohesion policy and State aid-links The concept of less and better targeted aid and aid for regions most in need and the objective of Cohesion policy are similar. Both policies focus on Lisbon oriented targets. Both policies, Cohesion and Competition responded to the Crisis-recovery package - see later Acceleration of programme implementation

6 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 List of aid schemes Article 37 SF REG indent i) Chapter II, Programming content, Section 1 “to include an indicative list of the proposed aid schemes, under Article 87 of the Treaty, which are expected to be submitted within the programming period for Commission approval.”

7 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Cohesion policy and State aid-links The fact that Article 55 (6) [modified] of the General Regulation governing the Structural Funds 2006/1063 refers to state aid and to the provisions of Article 87 (1) EC-Treaty proves how close both policies act together. Either financing gap analysis or maximum allowed state aid intensities

8 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Cohesion policy and State aid-links The 5 years' minimum period to keep an aided investment also stems from state aid rules ( "relocation in the context of regional development“). In essence it requires a Member State to recover any co-funded state aids where a project is terminated within five years after its completion (three years for SMEs). This Member States then informs all other Member States and the Commission of the recovery and as a consequence no other Member State will grant EU funding to the same undertaking.

9 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 State aid principles-Treaty provisions The basic substantive rules on the control of State aid in the EU are set out in Article 87 of the EC Treaty. This article provides that State aids are in principle incompatible with the common market. The principle of incompatibility covers measures that meet all the criteria listed in Article 87(1), i.e. they: a) involve a transfer of State resources; b) entail an economic advantage for undertakings; c) distort competition by selectively[1] favouring certain beneficiaries; and[1] d) produce an effect on intra-Community trade. [1][1] Selectivity could be with respect of the type of firms (e.g. SMEs), their location (e.g. a specific region) or their sector of activity. In the extreme, aid could be addressed at one specific firm.

10 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Stateaid principles-Treaty provisions State aid principles-Treaty provisions In the context of Structural Funds operations, the most relevant exemption clauses are those of Article 87(3)(a) and 87(3)(c) of the Treaty: Article 87(3)(a) states that the Commission may consider compatible “aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; Article 87(3)(c) states that the Commission may consider compatible “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”.

11 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Regional Aid guidelines Regional state aid guidelines. They give substance to the articles 87(3)(a) and 87(3)(c) of the Treaty. In essence they indicate the maximum grant rates allowed for certain specifically designated regions. Under the Regional Aid Guidelines , Member States were invited to notify a single regional aid map for covering their entire territory as soon as possible after the publication of the Guidelines. The provisions for "statistical effected regions" to be revised in 2010 and their financial envelope as well as degressive state aid intensities are similar and prove coherence between both policies.

12 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Regional aid guidelines Regional aid may be approved: Article 87(3)(a) : economic cohesion at Community level Article 87(3)(c): national disparities Award maxima under the Regional Aid Guidelines Large firms-Medium-firms-Small firms ‘a’ regions GDP per head <45% EU25 average ‘a’ regions GDP per head <60% EU25 average ‘a’ regions GDP per head <75% EU25 average ‘c’ areas (general case)

13 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 State aid maps

14 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Assessment of compatibility-a risk- based approach to State aid assessment Large regional aid eg risk capital RDI Specified aid categories

15 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Compatibility In broad terms, from a compliance perspective, three categories of measure can be distinguished:(i) de minimis support; (ii) measures which fit within the General GBER; and (iii) measures which require notification. This classification gives rise to important issues to be addressed at the domestic level, since each of the three groups carries different risks and responsibilities. Indeed, the lower the level of scrutiny by the Commission, the higher the administrative burden at the national and subnational levels in terms of ensuring compliance.

16 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Horizontal aid Block Exemption Regulation for the following categories have been adopted: Environmental protection Small and medium sized enterprises (SME) Employment Training RDI Risk capital Those elements which do not distort competition have been included into a « General Block exemption Regulation « OJ L 214, , p. 3–47

17 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Services of general economic interest Difficult area but highly relevant for Cohesion policy: Services of general economic interest The Decision specifies the conditions under which compensation to companies for the provision of SGEI is compatible with state aid rules and does not have to be notified to the Commission in advance. Conditions: a clearly defined public service mandate;no over-compensation;compensation of less than €30 million per year per undertaking; and annual turnover of less than €100 million per undertaking. no limits for amount of compensation:for hospitals, social housing; air and sea transport to islands; airports and ports.

18 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 The economicdownturn-recovery measures The economic downturn-recovery measures Temporary State aid framework (December 2008): The consolidated version including the February 2009 amendments is “Temporary Community framework for State aid measures to support access to finance in the current financial and economic crisis (OJ No C 83/1 of 7 April 2009)”. This framework allows for a “compatible limited aid amount” of € to be paid in the years In the light of the financial and economic crisis it can exceptionally be paid to firms that fall under the definition of “firms in difficulties”. But all measures apply only to firms which were not in difficulty on 1 July 2008

19 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 The economic downturn-recovery measures-Temporary state aid framework Cohesion policy and firms in difficulties While rescue and restructuring aid by Member States is therefore allowed under restrictive conditions it has never been a priority under Cohesion Policy. This is for several reasons: –The priority of Cohesion policy has been on promoting innovation, business start up and developing the capacity for entrepreneurship that can contribute to productivity gains in the medium and long term; –The added value of EU investment in rescue and restructuring is highly dubious because of the difficulties of choosing which companies to rescue and restructure. The risk is that such measures would not be well targeted but used too widely with modest, low or zero medium term impact. –There is a high risk of wasting public resources softening the impact of the closure of uncompetitive companies (often due to over capacity or unproductive work practices) rather than allowing market forces work.

20 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Rescue aid The fact that state aid measures are allowed in a particular field does not automatically imply that such measures are priorities for Cohesion Policy.

21 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Credit squeeze  This framework allows for a “compatible limited aid amount” of € to be paid in the years In the light of the financial and economic crisis it can exceptionally be paid to firms that fall under the definition of “firms in difficulties”  Financial crisis is affecting the real economy (businesses and jobs).  High risk aversion on the part of banks → credit squeeze.  All companies are affected and especially SMEs.  Negative impact at short-medium term for EU companies and at long term on EU investments. THEREFORE →Need for additional State aid measures but they have to be well targeted.

22 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Objective of the Communication on temporary state aidframework Objective of the Communication on temporary state aid framework  Part of « European Economic Recovery Plan ». of 26 November 2008-COM(2008) 800 final  To facilitate companies’ access to finance, thereby:  Ensuring continuity in their activities.  Encouraging companies to continue investing in the future, in particular in a sustainable growth economy.

23 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Main principles of the Communication Recall the existing aid instruments. + Propose additional aid measures → Based on Art. 87(3)(b) → Limited in time ( ) Applicable to all sectors, SMEs and large companies. Recall the existing aid instruments. + Propose additional aid measures → Based on Art. 87(3)(b) → Limited in time ( ) Applicable to all sectors, SMEs and large companies.

24 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Measures Aid in the form of subsidised interest rate Aid for the production of green products Other measures-Risk Capital  Temporary derogation of risk capital guidelines.  Simplification of the requirements to use the "escape clause" contained in the export credit Communication. Compatible limited amount of aid Aid in the form of guarantees

25 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Compatiblelimited amount of aid Compatible limited amount of aid Not an increase of de minimis threshold → New aid of EUR per undertaking  Aid may be granted until  Prior to the granting, MS shall verify that any possible de minimis aid received + the new aid will not exceed the threshold of EUR during the period

26 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Compatible limited amount of aid  Only applicable to aid schemes.  Firms active in the fisheries sector and in some agricultural activities are not eligible. (But applicable to the transport sector)  Excluded: export aid or aid favouring domestic products.  The measure only applies to firms which were not in difficulty on 1 July 2008.

27 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Aid in the form of guarantees  Reduction of the annual guarantee premium to be paid during a period of two years following the granting of the guarantee in relation to both investment and working capital loans. [max. 90% of the loan]  Loan must not exceed the total annual wage bill of the beneficiary for For companies created after → the estimated amount for the first two years in operation.  Guarantee premium is calculated in accordance with the safe- harbour provisions of the ‘Notice on guarantees’.

28 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Aid in the form of guarantees  Reduction of up to:  25% for SMEs  15% for large companies  This reduction can also be applied for new guarantees granted on the basis of methodologies already accepted by a Commission decision.  The measure only applies to firms which were not in difficulty on 1 July 2008.

29 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Interest aid for the production of green products  Interest rate reduction for investment loans. Loans should be granted before For financing of new products which significatly improve environmental protection.  Starting point to calculate the aid is the reference rate of the beneficiary calculated in accordance with the « subsidised interest rate » methodology. Then, reduction of up to:  25% for large companies  50% for SMEs

30 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Interest aid for the production of green products  Reduction applied for a period of two years following the granting of the loan.  The measure only applies to firms which were not in difficulty on 1 July 2008.

31 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Cumulation  De minimis + compatible limited amount of aid → max. EUR for the period of –  De minimis + rest of the measures contained in the Communication → de minimis granted after shall be deducted from the aid granted.  Temporary aid measures can be cumulated with other compatible aid provided that the maximum aid intensities are respected.

32 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Notification requirements New measures should be notified The Commission will ensure swift adoption of decisions

33 Homologues Group Meeting Slovenia, October 2009 Republika SlovenijaEuropean Union Ljubljana, October 2009 Merci ! Gracias! Thank you ! Vielen Dank !