Brussels, 6th July 2005
The European Commission has decided that the restructuring of Huta Czestochowa, one of Poland’s main steel producers, does not involve state aid, thereby clearing the way for the sale of the company.The sale is part of the restructuring and serves to pay the company’s creditors. The Commission investigated because the restructuring required a significant debt write off, from inter alia public creditors. On the basis of a detailed assessment of all claims and waivers the Commission concluded that the write-off of public claims was compliant with normal market behaviour and therefore does not involve state aid. However, the Commission also decided that some €4 million of restructuring aid previously given to the company was illegal and must be recovered.
Competition Commissioner Neelie Kroes commented: “I am satisfied that there is no state aid involved in the current restructuring and privatisation of Huta Częstochowa, though there is a certain amount of tidying-up to do for the past. This decision illustrates that the Commission takes its responsibilities to monitor state aid in the steel sector very seriously.“
Huta Częstochowa S.A is the second biggest steel producer in Poland. It is about to be sold to the Ukrainian steel producer Donbass. To this end, the company had planned comprehensive restructuring in 2003. The plans included a partial write-off of public and commercial debt claims. Such a debt-write off implies that the state forgoes revenue, which might be regarded as State aid in the meaning of the EC Treaty, if a private creditor would not have taken the same measure in the same circumstances.
Restructuring aid in the steel sector is generally prohibited. However, Protocol 8 of the Accession Treaty (on the restructuring of the Polish steel industry) granted Poland a derogation from this rule for eight companies. Huta Częstochowa was not among the eight because the company was originally intended for liquidation, and so it could not benefit from the derogation.
On 19 May 2004, the Commission launched an in-depth probe into the restructuring of the company (see IP/04/667). In the course of the investigation Poland provided the Commission with a comprehensive analysis of all claims concerned, establishing that for every public creditor, restructuring was a better solution than bankruptcy.
The procedure also investigated whether the company had received any previous restructuring aid prior to the ongoing restructuring, and found that Poland had indeed, in anticipation of the national restructuring plan, provided Huta Częstochowa with restructuring aids amounting to approximately €4 million. The Commission considered these measures as incompatible aid and requests Poland to recover it.
Protocol No 8 allows Poland to grant restructuring state aid for its steel industry, although the granting of such aid is prohibited under the EC state aid rules. On the basis of a national restructuring plan, the Protocol accepts the granting of state aid to eight companies from 1997 to 2003 up to a maximum of about PLN 3.4 billion. In exchange, Poland committed to cut more than 1 million tonnes of production capacity.
The Commission considers Protocol No 8 as the legal basis for the assessment of steel state aid cases between 1997 and 2006, including aid granted before accession.