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Brussels, 31 January 2001

Commission moves over state aid to German vegetable processing company

The Commission has decided to open a state aid procedure in respect of a proposed state guarantee given to a company processing vegetables in Germany. With this measure, a guarantee would be given by the Thüringer Aufbaubank for loans for the acquisition by the newly created Frenzel Kyffhäuser Tiefkühlkost GmbH of the fixed assets of a manufacturing plant in Ringleben. The company processes in particular root vegetables (carrots, kohlrabi) and potatoes.

The proposed state guarantee must be assessed on the basis of the Commission notice on the application of State aid rules in the form of guarantees. It appears that the proposed state guarantee constitutes state aid to the borrower. Furthermore, there may be aid to the lender. The house bank has pre-financed the investments to avoid delaying the project. The "definitive" financing will only be made available after the entry into force of the guarantee. If the guarantee would be granted, this would have the effect of the State taking over a risk currently taken by a bank for free.

As regards the value of the aid to the borrower, it seems extremely difficult to quantify the aid rate for the guarantee, but the Commission doubts that calculations provided by the German authorities are adequate, in view of the capital position of the company. As the German authorities have indicated that the loans would not be granted without the guarantee and the German authorities do not exclude that the company will become bankrupt if the guarantee is not granted, the Commission cannot exclude that the aid intensity amounts to 100% of the guarantee. Such an aid intensity would be incompatible with the Community guidelines for state aid in the agriculture sector.

Furthermore, this statement of the German authorities on a possible bankruptcy casts doubt on the assurance that the company is not in financial difficulties. Indeed, based in the information provided the Commission cannot exclude that the guarantee must in fact be assessed on the basis of the rescue and restructuring guidelines. Assuming the rescue and restructuring guidelines apply, as the German authorities have not submitted a restructuring plan to restore viability, as it is not shown how undue distortions of competition are avoided and in what the own contribution of the beneficiary existed, the Commission would have to express doubt about the compatibility of the proposed measure.

For these reasons, the Commission has decided to open the procedure provided for by Article 88(2) of the EC Treaty against the proposed state guarantee.

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