Brussels, 20th December 2006
State aid: Commission opens formal investigation into sale of Bank Burgenland to Grazer Wechselseitige in Austria
The European Commission has launched a formal investigation under EC Treaty state aid rules into the sale of Bank Burgenland. Land Burgenland decided to sell the bank in March 2006 to the Austrian insurance company Grazer Wechselseitige Versicherung AG (GRAWE) for €100.3 million, although the tender procedure had also produced an offer of €155 million by an Ukrainian/Austrian Consortium. The Commission has to make sure that the tender was conducted in a non-discriminatory manner and that the sale did not involve incompatible state aid. The opening of an investigation procedure gives interested parties the possibility to comment on the measures under scrutiny. It does not prejudge the outcome of the investigation.
EU Competition Commissioner Neelie Kroes stated: " The Commission must check whether Land Burgenland had objective, transparent and non-discriminatory reasons to favour the offer of Grazer Wechselseitige Versicherung AG. Otherwise, the sale might involve state aid that may be illegal under EU rules."
The privatisation of Bank Burgenland is an essential component of a restructuring plan approved by the Commission in the context of a restructuring aid to Bank Burgenland. After two failed attempts, Land Burgenland started the privatisation process anew in September 2005. At the end of this third tender procedure, only two bidders came forward with a binding offer. Although the Consortium offered €155 million and GRAWE only €100.3 million, Land Burgenland decided in March 2006 to award the contract to GRAWE.
In its 23rd Report on Competition policy (1993), the Commission has developed a number of criteria to assess state aid in the privatisation of a state-owned company. At this stage, at least two of these principles do not seem to be respected.
First, the company should be sold to the highest bidder. The Commission will in particular examine the argument of the Austrian authorities that, taking into account all the elements of the transaction, the "best bidder" has been chosen, even if this was not the highest bidder.
Second, the tender procedure should be open, transparent, unconditional and/or non-discriminatory. The Commission has doubts whether this key principle was respected. The Commission’s concerns relate to procedural issues during the sales process, but also to more substantial issues, such as the selection criteria used in the tender and the interpretation given to them by Land Burgenland.
Inter alia, the Commission’s investigation will seek to clarify why Land Burgenland did not request a provisional assessment of the two bidders by the Austrian Financial Market Authority (FMA) before deciding. The Commission inquiry will also examine the issuance of additional bonds by Bank Burgenland just before the sale. This operation increased the liability of Land Burgenland under the public guarantee measure Ausfallhaftung, from which Bank Burgenland benefited (as a public bank) until the sale (this guarantee in any event has to be abolished by 1 April 2007, following an agreement between Austria and the Commission - see IP/03/476). This appears to be in contradiction with one of the tender criteria requiring the continuation of Bank Burgenland without the use of the guarantee.