IP/09/1757
Brussels, 19 th November 2009
State aid: Commission opens in-depth investigation into Portuguese regional investment aid for Petrogal
The European Commission has opened a formal investigation under EC Treaty state aid rules into an aid worth some €160 million for an investment project of the Portuguese energy company Petrogal in its existing refineries in Sines and Matosinhos. Portugal intends to subsidise the modernisation and integration of the two sole refineries in Portugal, mainly aiming at increasing the production of diesel to the detriment of fuel oil production. The investment will also increase the production of naphtha. After a preliminary investigation, the Commission has doubts as to the compatibility of the aid measure with the state aid rules, in particular regarding the incentive effect of the aid and the high market share of the beneficiary on the Portuguese market. Moreover, issues regarding the geographic and product market definition need to be clarified. The opening of a formal investigation gives interested third parties the possibility to comment on the proposed measure. Opening of an in-depth investigation does not prejudge the outcome of the procedure.
Competition Commissioner Neelie Kroes said: "When the beneficiary of aid for a large regional investment project has large market shares, we have to verify that the beneficiary genuinely needs the aid to carry out the investment and that the benefits of the aid outweigh the resulting distortion of competition".
The project is to be carried out in Sines and Matosinhos, two regions eligible for regional aid under Article 87(3)(a) of the EC Treaty as regions with an abnormally low standard of living and high unemployment. It has to be assessed under the Commission's Regional Aid Guidelines 2007-2013 (see IP/05/1653 ), and in particular under the rules on large investment projects.
The investment concerns the modernisation and integration of the two sole refineries in Portugal, belonging both to Petrogal, a 100% subsidiary of the group Galp Energia. The investment will mainly increase the production of diesel, and as collateral effect, the production of naphtha. The investment costs to be taken into account for the calculation of the aid amount to more than €1 billion. Portugal intends to grant an ad hoc aid, i.e. an aid which is not based on an existing aid scheme, of around €160 million in the form of a tax allowance.
The Commission's preliminary investigation could not establish a definite delimitation of the relevant product and geographic markets to be taken into account in the assessment. If the relevant geographic market for ex refinery sales of diesel is deemed to be national, the market share of Petrogal would exceed the 25% threshold, which would require an in-depth economic assessment on the basis of the recently adopted Communication on the In-Depth Assessment of Regional Aid to Large Investment Projects (see IP/09/993 ).
This in-depth assessment would cover in particular the question whether the aid is needed to incentivise the beneficiary to carry out the investment in the assisted region (e.g. demonstrate that in the absence of the aid the investment would not be realised, or would be realised elsewhere) and whether the benefit of the aid for the assisted region outbalances the distortion of competition which it creates
Moreover, the Commission has also doubts that the aid would fund an initial investment in the region and about the objective of the ad hoc aid. Ad hoc aid is only eligible for regional aid if it contributes predominantly to the achievement of regional development objectives.
The Commission has therefore opened a formal investigation to assess these issues.
The non-confidential version of the decision will be made available under the case number 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 .