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   -   State aid No 40/93
   -   Steel:  Klöckner Stahl GmbH
   -   Germany, Duisburg
   -   Initiation of proceedings

   Acting on a proposal from Mr van Miert, the Member of the Commission with
   special  responsibility  for competition policy, the  Commission  decided
   today to initiate proceedings under Article 6 of the code of state aid in
   the  ECSC Treaty steel sector in respect of possible aid elements of  the
   injection of public capital into the company Klöckner Stahl GmbH.

   THE KLÖCKNER GROUP

   Klöckner Stahl GmbH  is a holding company with an integrated steel  plant
   in Bremen that currently employs 4 700 people.

   Since  1991  the  group Klöckner Werke AG has  been  faced  with  serious
   financial  difficulties  which  led it in 1992 to ask  its  creditors  to
   write off  debts  in order to save it from bankruptcy.  It  was  in  this
   context   that   the  Commission,  which  had  made  an  ECSC   loan   of
   DM 175 million  to  Klöckner,  agreed,  along  with  the  group's   other
   creditors,  to  relinquish 40% of its claim.   In  return,  the  Klöckner
   group  undertook to cut its production capacity for  hot-rolled  products
   from 4.2 million tonnes per year to 3.7 million tonnes (see IP(93) 435).

   In  November 1993  the  Commission  learned that  a  group  of  four  new
   shareholders   was   ready  to  help  create  a  new   holding   company,
   Klöckner Stahl,  by injecting a substantial amount of new  capital.   The
   Commission  asked the German Government in December 1993 to notify it  of
   this transaction.  It received a reply in January 1994.

   THE TRANSACTION

   The capital of the new holding company is now divided between five groups
   of  shareholders:  Klöckner Werke,  which  is  retaining  33.35%  of  the
   shares,  and  four  new shareholders which have  acquired  the  remaining
   shares at a symbolic cost of DM 1:
   -   Hanseatische Industrie Beteiligungen GmbH (HIBEG) (31.99%);
   -   Stadtwerke Bremen AG (SW) (13.33%);
   -   Bremer Vulkan Verbund AG (BVV) (13.33%);
   -   Detlef Hegemann GmbH (Heg) (8%).

   HIBEG and SW are public entities, while Heg is a private concern.   BVV's
   status  is unclear because some of the information available indicates  a
   strong public-sector influence in this group.

   The new shareholders have to inject DM 250 million of new capital,  while
   Klöckner Werke is to make loans to Klöckner Stahl.

   THE COMMISSION'S ASSESSMENT

   The Commission is uncertain as to whether the majority of the new capital
   is public or private capital.

   Furthermore,  it would seem that Klöckner Werke's lending is an  entirely
   different  type  of  operation  to  the  capital  injection  by  the  new
   shareholders  in that it entails less risk.   Under these  circumstances,
   even if the new venture were to be regarded as private, a majority of the
   DM 250 million  of  risk capital provided by the new shareholders  -  68%
   (88% if BVV were a public enterprise) - would be public capital.

   The  Commission has therefore concluded that a majority of the  new  risk
   capital  to  be injected into the company would come from  public  funds.
   It  accordingly  has  doubts about the state's  behaviour  as  a  prudent
   market-economy investor and considers that the venture could involve  aid
   elements  prohibited under Article 4(c) of the  ECSC Treaty.   These  are
   the reasons which have led the Commission to initiate proceedings.

   Mr van Miert  considers  it  particularly  important  to  eliminate   the
   slightest  doubts  concerning  state  aid in  this  sector  since  it  is
   necessary  to  maintain perfect consistency with the  decisions  recently
   taken by the Council on the steel-industry restructuring proposals put to
   it.   Furthermore, control over state aid in this sector is all the  more
   essential  in  that it is a key factor in guaranteeing, in  the  eyes  of
   private  industry, the credibility of Community policy that is  so  vital
   for implementing the voluntary reduction in production capacity.

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