State aid: Commission prohibits electricity price subsidies for Alcoa and orders partial recovery of aid already granted
After an in-depth investigation opened in July 2006 (see ), the European Commission has found that operating aid granted since 2006 by Italy to aluminium producer Alcoa was incompatible with EC Treaty state aid rules. The preferential electricity tariffs that Italy offered Alcoa for its aluminium smelters in Sardinia and Veneto from 2006 to 2010 only contribute to reducing Alcoa's operating costs and have no other justification. They therefore give the company an unfair advantage over its competitors, which have to operate without such subsidies. The Commission has therefore ordered Italy to end the illegal subsidies and to recover part of the aid already paid from Alcoa.
Competition Commissioner Neelie Kroes said: "Price subsidies that result in artificially low energy prices for selected companies waste taxpayers' money and distort competition in the Single Market. Alcoa will have to pay back most of the illegal subsidies."
The original mechanism foresaw that the Italian state-owned utility company ENEL would supply electricity to Alcoa at a fixed tariff set for ten years, i.e. until December 2005. The Commission approved this mechanism because at that time, it was an ordinary business transaction concluded under market conditions and therefore free of state aid.
However, Italy modified the original financing mechanism and prolonged the tariff without adapting it to the evolution of the market. The current tariff no longer corresponds to market conditions but is a subsidised price, financed by a levy imposed on electricity consumers: Alcoa purchases its electricity from ENEL and the Italian State reimburses Alcoa the difference between the contractual purchase price and the historical tariff, which has been adjusted only marginally over time.
The Commission's in-depth investigation found that the price subsidy mechanism resulting from the modification and extension of the 1996 tariff constituted illegal state aid in favour of Alcoa since 2006. Electricity supplied below the market price reduces the beneficiary's ordinary operating costs and enables it to sell its products at a lower price or at a higher margin. It therefore provides the beneficiary with an unfair advantage over other producers who do not receive such aid. Moreover, none of the exemptions foreseen in the EC Treaty for exceptionally authorising such aid to further a goal of common interest, such as for example regional development or environmental protection, apply to the present case.
The decision therefore requires Italy to put an end to the preferential tariff and to recover the aid already granted . Aid in favour of the Veneto smelter needs to be fully paid back. However, concerning the smelter located in Sardinia, the Commission has accepted that, in the specific circumstances of the case, on the basis of the principle of sound administration only part of the aid granted (aid granted until January 2007 for Sardinia) should be recovered.
The decision is in line with the Commission's case practice regarding energy price subsidies in favour of selected companies. In 2007, the Commission adopted a negative decision with recovery in respect of a comparable electricity tariff for the Terni companies (see )).
Alcoa challenged the Commission's decision to open an in-depth investigation before the EU Court of First Instance, arguing that the tariff did not constitute aid or should be considered as existing aid, for which specific state aid rules apply. However, the CFI dismissed Alcoa's application in March 2009 (case T-332/06). This judgment is currently under appeal.
The non-confidential version of the decision will be made available under the case numbers and 4 in the on the 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 .