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Brussels, 20th December 2006

State aid: Commission authorises under conditions restructuring aid to Polish car manufacturer FSO

Following an in-depth investigation, the European Commission has concluded that restructuring aid to Fabryka Samochodow Osobowych ("FSO"), Poland, is compatible with EC Treaty state aid rules provided that certain conditions are respected. The Commission found that the aid is limited to the minimum necessary and that the restructuring plan of FSO is sufficient to restore the firm's long term viability. However, the Commission also considers that, without appropriate safeguards, the aid could lead to undue distortion of competition. The car manufacturing sector has excess capacity and the aid risks shifting the difficulties and the burden of adjustment to other firms and workers in other Member States. In this context, FSO must limit its annual car production to 150 000 units until February 2011.

Competition Commissioner Neelie Kroes said: “I am really pleased that FSO succeeded in designing a restructuring plan which should allow the company to survive in the long term and in which state aid is limited to the minimum.”

The Commission'sdecision concerns a state guarantee of € 62 million (USD83 million) and other state support measures amounting to € 16 million (PLN 62 million). € 52 million (PLN 201 million) of state aid had already been granted to FSO in the period before accession of Poland to the EU and were not covered by this investigation. The latter measures were nevertheless taken into account in the general assessment of the examined measures.

Following the bankruptcy of Daewoo Motor Corporation in 2000, its main shareholder, FSO experienced a drop in sales and heavy losses. Since 2000, the company has undergone restructuring and the total workforce has been reduced by two thirds. In 2005, it was taken over by the Ukrainian car manufacturer and distributor AvtoZAZ/UkrAvto. Finally, in 2006 FSO concluded a license agreement with GM DAT for the production of the Chevrolet Aveo.

In the restructuring plan, the majority of the restructuring costs are supported by private creditors and investors, the state aid is limited to the minimum necessary and does not provide the firm with surplus cash. The Commission concluded that the restructuring plan would be sufficient to restore the long term viability of the company.

However, FSO will not develop new car models but will become an independent assembler of cars, bidding for the production of models developed byother car manufacturers. In this context, it will be in competition with the production plants of large manufacturers and with other independent car assemblers. As production capacity in the car manufacturing industry significantly exceeds the demand in the EU, the restructuring aid to FSO could potentially lead to undue distortions of competition. . In order to limit these distortions, the Commission's decision makes the authorisation of the aid conditional on the respect of a production and sales cap, which will limit the production of the plant and its ability to bid for additional licence agreements until February 2011.

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