Brussels, 20th November 2007
Competition Commissioner Neelie Kroes said: "Compensation for an expropriation cannot be open-ended. It must be clearly established upfront, at the time of expropriation. Never-ending compensation becomes incompatible state aid when, as here, it distorts competition. The aid must be fully recovered, including interest".
The preferential electricity tariff was originally established in 1962, as compensation for the nationalisation of a hydroelectric power plant owned by Società Terni, of which the three beneficiaries are the legal successors. Under the expropriation arrangement, Società Terni was to receive electricity supplies at cost-price for thirty years (until 1992), that is throughout the remaining duration of the company's hydroelectric power concession.
After a first prolongation, from 1992 to 2007, agreed by the Commission in 1992 under the state aid rules, Italy further prolonged the preferential tariff from 2005 to 2010 through the Italian law 80/2005. This measure was however not notified to the Commission.
The Commission opened an investigation in 2006 on its own initiative as it had doubts that the reiterated prolongations of the tariff could still be considered part of the compensation for the expropriation. In fact, a compensatory package should be established in a predictable manner at the time when the assets are removed and should not be arbitrarily increased forty years after the fact. Moreover, the original expropriation package was proportionate and did not penalise Società Terni.
Compensation granted by the State to a company in the context of an expropriation does not normally constitute state aid. However, in this case the assessment has shown that further extensions of the preferential tariff could no longer be considered as compensatory, for two main reasons:
(i) the adequacy of the compensation provided for in the original expropriation package and
(ii) the absence of predictability normally inherent in compensatory measures.
State support in the form of electricity supplied below the market price reduces a beneficiary's operating costs and enables it to sell its products at a lower price, thereby distorting competition vis-à-vis other EU producers who do not receive the same subsidies. The Commission found that none of the exceptions provided for in the EC Treaty for authorising such aid applied. The aid must therefore be considered incompatible.
The non-confidential version of the decision will be made available under the case number C 36/A/2006 in the State aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.