Brussels, 6 November 2013
State aid: Commission orders Germany to recover illegal state aid from German wood processor HoKaWe
After an in-depth investigation, the European Commission has concluded that a framework agreement for the delivery of wood between the German Land Brandenburg and HoKaWe Eberswalde GmbH ("HoKaWe") was not in line with EU state aid rules. In particular, the price adjustments under the agreement gave HoKaWe an undue economic advantage over its competitors. The company therefore needs to pay back € 2.4 million plus interest.
On 1 June 2006, an agreement between the Land Brandenburg and HoKaWe for the delivery of wood entered into force. The parties agreed upon an initial reference price and a clause adjusting prices in line with the German index for industrial wood. The risk of price fluctuations was to be shared evenly between the parties. In addition, the agreement laid down a price adjustment formula.
The Commission's investigation showed that the initial reference price and the price adjustment clause were market conform. Indeed, both were based on reasonable considerations and negotiations between the parties and a private market player could have entered into an agreement under the same or comparable conditions.
However, in reality the prices were not adjusted in accordance with this clause, but on the basis of the price adjustment formula, which was flawed and did not reflect the intentions of the parties, as described in the price adjustment clause. This led to significantly lower purchasing prices for HoKaWe and to an uneven distribution of the risk of price fluctuations, in breach of the price adjustment clause.
As a reaction to internal legal opinions from 2010, pointing to possible state aid issues resulting from the application of the formula, the Land Brandenburg negotiated an amendment of the agreement. This amendment entered into effect on 30 June 2011 and deleted the formula, thereby reinstating the true intentions of the parties. Thus, all subsequent price adjustments were made in accordance with the price adjustment clause.
However, from the entry into force of the agreement on 1 June 2006 until its amendment on 30 June 2011, the annual price adjustments were not made on market conform conditions and led to significantly lower wood purchase prices for HoKaWe. Consequently, HoKaWe benefitted from an economic advantage consisting in the difference between the price actually paid and the market conform price that would have resulted from the application of the price adjustment clause. The Commission has therefore ordered Germany to recover this advantage, amounting to € 2.4 million plus interest.
The non-confidential version of the decision will be made available under the case number SA.34721 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.