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Illegal state aid / European Commission demands Romania to recover EUR 60 million from CE Hunedoara

de Adrian N Ionescu , 12.11.2018

Romania has to recover illegal state aid worth EUR 60 million granted to Compexul Energetic Hunedoara, announced the European Commission with a statement released on Thursday.

The amount represents four public loans and the related interest, out of a total of five granted.

A fifth loan is an existing aid granted before Romania’s accession to the EU and therefore does not need to be recovered.

We remind that company’s debts amounted to RON 1.5 billion last year and losses in 2017 amounted to RON 768.8 million.

Public support measures granted by the Romanian authorities to CE Hunedoara energy producer do not comply with the EU state aid rules for companies facing difficulties, the Commission ruled following a thorough investigation launched in March.

The Commission has received assurances from Romania that in case the company is to be liquidated and its assets sold, national legislation contains enough provisions to avoid disruptions in electricity and heating services supplied to the population in the region covered by CE Hunedoara.

Romania may adopt appropriate and proportionate measures to avoid any sudden disruption of such services, so that the European Commission’s decision does not prejudice the adoption of such measures.

As stated in the announcement, the Commission is fully committed to supporting Romania in its efforts to reform the energy sector so as to address all the possible negative socio-economic consequences of the energy transition. In this respect, the “Clean energy for all citizens” package also includes a specific part designed to facilitate a fair transition in the carboniferous regions of the EU, the EC says.

Margrethe Vestager, European Competition Commissioner, said that a government can support a company in difficulty if that company has a compelling restructuring plan and the state aid has a limited effect on competition in the market.

In CE Hunedoara’s case, these conditions have not been fulfilled – we have discovered that public loans that Romania granted to Complexul Energetic Hunedoara offered an unfair economic advantage to the company. This means that the state aid was illegal. Now, Romania needs to recover the illegal aid granted to the company,” the commissioner said, quoted in the EC’s release.

Chronology

On April 21, 2015, the Commission approved the granting of a temporary rescue aid amounting to EUR 37.7 million (RON 167 million) to the energy producer “Complexul Energetic Hunedoara”, which is in a financial difficulty even since 2013.

In the context of that decision, Romania committed to present a restructuring plan designed to ensure the future viability of CE Hunedoara if the company would not be able to reimburse the rescue aid within six months.

In March 2018, the Commission launched a thorough investigation, as CE Hunedoara did not reimburse the state aid, and no credible restructuring plan or real steps to liquidate the company have been presented, the EC said in the announcement.

During the investigation, the Commission assessed whether the five loans granted from public sources to CE Hunedoara complied with the EU state aid rules. Altogether, on June 30, 2016, the loans amounted to approximately EUR 73 million (RON 337 million).

The Commission found that, in this case, no private operator in the market economy would have granted, guaranteed or prolonged any of the five loans granted by the state to CE Hunedoara, given that the company’s financial situation has been continuously deteriorating from 2013. Consequently, CE Hunedoara benefited from an unfair economic advantage over its competitors.

EU state aid rules allow the state to intervene in support of a company in financial difficulty only under specific conditions and especially require that the company is subject to a robust restructuring plan that would restore its long-term viability, contributes to the costs related to its restructuring and any potential distortions of competition are limited.

Under the EU state aid rules, state interventions in companies may be considered as not representing state aid when they are applied based on the same conditions that a private operator activating in market conditions would have accepted (the principle of private economic operator in the market economy). If this principle is not followed, public interventions represent state aid within the meaning of Article 107 of the Treaty on the Functioning of the European Union, as it provides the beneficiary with an economic advantage which its competitors do not have.

CE Hunedoara is a Romanian state-owned electricity and heat producer that also operates the mines of superior coal to supply its power plants.

CE Hunedoara has a market share of about 5% of Romania’s electricity production and has about 4,797 employees.

The company has been established in 2012 with assets previously held by other state-owned companies that were in insolvency and liquidated (Electrocentrale Paroseni and Electrocentrale Deva, as well as, in a later stage, Compania Nationala a Huilei Petrosani).

It has been recording losses since 2013, and in January 2016 entered the formal insolvency procedure. The proceedings have been suspended until the outcome of a judicial review procedure request made by trade unions before a regional court in Romania.

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