European Commission SECRETARIAT GENERAL Brussels, 16th of ...
Transcript of European Commission SECRETARIAT GENERAL Brussels, 16th of ...
European Commission
SECRETARIAT GENERAL
Office BERL 8/294
B-1049 Brussels
Brussels, 16th of November 2005
Additions and Clarification concerning
Complaint of 14 December 2004
SG (04) A/13162
Concerning the purchase by Teollisuuden Voima Oy (TVO) of the
Framatome ANP 1600 MWh nuclear EPR (European Pressurised
Water) Reactor to a fixed price and under various support schemes
from Member States.
Complaint relating to
• illegal State aid in the energy sector,
• internal market distortion through illicit export guarantees
as illegal state aid,
• predatory pricing,
• violation of EC procurement rules,
• infringement of EEA rules on state aid
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against
the Government of Germany
(state aid rules infringement through public loan)
the Government of Finland
(violation of public procurement rules and internal market rules, internal market for
energy rules)
the Government of France
(internal market distortion through illegal state aid export guarantees)
the Government of Sweden (state aid)
The complainant includes in this document the additions and clarifications as well as the text of the original complaint of 14 December 2004.
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Index Information regarding the complainant...................................................................................... 4
Introduction into the complaint .............................................................................................. 4 Short summary of how the complaint’s interests are affected ........................................... 6 Level at which alleged unlawful aid has been granted....................................................... 6 Information regarding the alleged aid measures complained of ........................................ 7 Main parties involved in this transaction ......................................................................... 18
Banks involved..................................................................................................................... 18 Corporations involved .......................................................................................................... 21
Purchasers......................................................................................................................... 21 Subcontractors involved....................................................................................................... 23 Buyers involved.................................................................................................................... 23
Overview on the different support schemes related to the transaction ............................ 25 Public Support Schemes as illegal state aid ..................................................................... 25 Assessment of the different aid schemes......................................................................... 27 Evaluation of the presence of aid within the meaning of Article 87(1) ECT................... 28 Advantages Granted To Framatome ANP/ Areva and Siemens as Suppliers.................. 29
Advantages granted by Bayerische Landesbank to TVO within the transaction - aid. 29 Specific character ......................................................................................................... 40 State resources.............................................................................................................. 40 Impact on intra-community trade and competition ...................................................... 41 Conclusion.................................................................................................................... 41
Export guarantee advantages granted by COFACE to AREVA within the transaction .. 42 Factual situation ........................................................................................................... 42 Legal situation .............................................................................................................. 45 Conclusion.................................................................................................................... 52
Swedish State guarantee................................................................................................... 52 Combined influence of the different support schemes..................................................... 53 Fixed Price contract and market distortion according to Article 82 ECT....................... 54
Other financing support to the project.................................................................................. 59 Supplier credits and bilateral loans .................................................................................. 59
Infringement of EC Public Procurement Rules.................................................................... 60 Violation of the Public Procurement Directive 93/38/EC................................................ 60 Obligation to run public procurement procedure for electricity received from Olkiluoto 3........................................................................................................................................ 60 Violation of Public Procurement Rules by TVO for the Purchase of the new Nuclear Power Station ................................................................................................................... 62 Violation of the Public Procurement Directive 93/38/EC by TVO ................................. 64 Violation of procurement rules by TVO due to non enquiry into state aid schemes ....... 66
Infringement of EEA Agreement ......................................................................................... 68 Formal legal demand.................................................................................................... 69
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Information regarding the complainant
1. Name and Address:
EREF, European Renewable Energies Federation ,asbl,
Avenue de la Fauconnerie 73, 1170 Brussels, Belgium
President: Peter Danielsson, address: Kungsgårdsvägen
50, 68154 Kristinehamn, Sweden
2. Legal representative for this complaint :
Represented by: Kuhbier law firm sprl, Dr. Dörte Fouquet, Rechtsanwältin
(German lawyer),
Avenue de la Fauconnerie 73, 1170 Brussels, Belgium
Tel. : +32.2.6724367
Fax : +32.2.6727016
Proof of authorisation is submitted.
3. Activities of EREF:
EREF is a non-profit umbrella industry organisation of national associations of small
and medium sized producers of electricity and biofuel from renewable energies sources
(“RES”). EREF represents the RES producers’ interests before the different European
and International organisations.
Introduction into the complaint
This complaint was introduced in December 2004 and aims to formally ask the
European Commission to investigate serious and orchestrated concertations and actions
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to the detriment of competition in the European internal market for energy by Germany,
Finland, France and Sweden in a transaction to sell and purchase the above mentioned
EPR nuclear reactor from FRAMATOME ANP to TVO in Finland. It also suggests
investigating violations of the notification requirements under the Treaty Establishing
the European Atomic Energy Community (“Euratom”) and violations of the Electricity
market directive.
These actions aimed and helped to reduce economic risks related to the projects as on
the side of the purchaser as on the side of the seller to a level which is unheard in any
power plant transaction or any energy supply since liberalisation of the European
energy market in 1996.
Without the numerous non-notified acts of assistance by state authorities which will be
outlined below and which have to be seen in the overall context of discrimination and
distortion of the European energy market this nuclear power plant purchase transaction
could not have happened at the guaranteed purchase price and Teollissuuden Voima y
OY (“TVO”) could not sell the future electricity to the envisaged and already
subscribed low electricity price. The inter linkage and dependency between the
different actions make it necessary that the whole complaint is to be evaluated in a
concise and co-ordinated way by all European Commission’s Directorate Generals
involved.
While the illegal state aid granted by different member states is the main focus of this
complaint, because it negatively affects member state trade and puts the complainant
and all its members and their member companies at a competitive disadvantage. This
does not mean that the other violations of European law should be neglected or could
be handled by the competence of just the Directorate General for Competition. To the
contrary the complainant reiterates its suggestion for a full investigation coordinated by
the Secretariat General of the Commission.
The Complainant expresses concern about the handling of its complaint during the past
eleven months. The Complainant perceives that not all relevant Directorates General
have been involved in the alleged treaty infringement investigation and that the state aid
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part of the investigation gives the Complainant the impression that it might not have
been carried out in a completely un-prejudiced way.
Short summary of how the complaint’s interests are affected
EREF represents national associations of small and medium sized producers of
electricity and biofuel from renewable energy sources. EREF represents more than
13.000 MW of installed capacity in the European Union in electricity from RES
sources.
EREF defends the interests of its members for a fair and level playing field in the
liberalised energy market.
Structured energy market distortions by the involvement of state authorities such as in
the case of the Framatome ANP transaction with TVO for the purchase of a new
1600MWh nuclear European Pressurised Water Reactor (“EPR”) undermine any level
playing field and render access to the electricity market on the ground of fair market
conditions for any other electricity supplier impossible, creating respectively
maintaining a distorted market.
Level at which alleged unlawful aid has been granted
1. in the case of Germany: Regional level (Bayerische Landesbank, (“BLB”))
as public bank
2. in the case of France: Central government (via export credit agency
Compagnie Française d’Assurance pour le Commerce Extérieur SA
(“COFACE”))
3. in the case of Finland: Central government, public local and regional
authorities
4. in the case of Sweden: Central government (probably via specific financial
support via State owned credit agency Swedish Export Credit Corporation
(“SEK”))
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Information regarding the alleged aid measures complained of
1. This complaint focuses on several ongoing aid schemes, which have not
been notified and violate EC law and
2. Violation of EC procurement law.
3. The aid scheme impairs infra member state trade in the electricity, related
manufacturing and financing sectors.
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Introduction
1. Since issuing of the European Commission’s Green Paper on the
Implementation of the Internal Energy Market in Europe in 19881 the major
dogma behind the internal energy market is free and fair competition between
energy companies across the European Community which should lead to large
efficiency gains, lower and more similar prices for consumers across the
Community, increased competitiveness for energy-using industries, economic
growth and increased welfare.
2. But it is likewise obvious and known that direct and indirect financial support
schemes to traditional energy sources have always hindered access of renewable
energies to the market. Globally, subsidies for oil, coal gas and nuclear power
have totalled in the tens of billions of dollars annually.2 It is general knowledge,
that existing fossil fuel and nuclear generators, established with public money
and benefiting from depreciated assets, have lower marginal costs than new
renewable technologies and are better able to manage the downward price
pressures3. Hence the European Commission persistently asks the Member
States to bring down subsidies to the traditional energy sector in the internal
energy market in order to encourage a level playing field. This is especially
valid for subsidies to new installations.
3. Directive 2003/54/EC of the European Parliament and of the Council of 26 June
2003 concerning common rules for the internal market in electricity and
repealing Directive 96/92/EC consistently asks for removal of various barriers
and asks Member States to refrain from discrimination. This Directive
establishes common rules for the generation, transmission and distribution of
electricity. It lays down rules relating to the organisation and functioning of the
1 Commission of the European Communities, The Internal Market for Energy (working paper of the Commission), COM (88) 238, final 2.5.88 2 See Removing Subsidies Levelling the Playing Field for Renewable Energy Technologies , Thematic Background Paper March 2004, Authors: Jonathan Pershing, Jim Mackenzie ,The World Resource Institute, Editing: Secretariat of the International Conference for Renewable Energies, Bonn 2004 3 See Energy subsidies in the European Union: A brief overview, European Environmental Agency Technical Report ,1/2004, page 8
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electricity sector, access to the market, criteria and procedures applicable to
calls for tenders and the granting of authorisations and the operation of systems.
4. The EC rules for competition and state aid are seen as particularly relevant
tools for dismantling dominant market structures present in many national gas
and electricity markets, seen by the Commission as fundamental barriers to free
and fair competition in a common internal market. Nevertheless, the
Commission underlined in its regular 2003 benchmarking report, that national
electricity and gas market structures still function as a potential impediment to
the realisation of fair competition in the EU.4
5. The Complainant is convinced that in the procedure of organising extreme low
interest rated credits to TVO and in granting export credit from the French
government to the French company AREVA which is the parent company to
Framatome ANP and by substantial support from Swedish public authorities
infringed EC state aid rules and the Member States respectively regional public
banks involved violated the loyalty principle of Article 10 of the Treaty
Establishing the European Community (“ECT”) to refrain from further
discriminatory support and infringed competition and procurement rules of the
ECT and subsequent regulations.
6. State aid was granted on several levels and none has been notified to the
European Commission for approval so far.
7. The Complainant also got the impression that his complaint was not handled by
the Commission according to established procedure whereby all DGs concerned
are asked to intervene. Instead only DG TRANS (and only for four weeks
without consulting with the Complainant) and DG COMP were involved. The
Complainant senses a discriminatory treatment vis-à-vis other complainants and
asks the Secretariat General to investigate a possible deviation from good
administrative practice and thus a possible violation of procedural rights by the
Complainant.
4 see benchmarking report 2003, page 4
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Brief description of facts
8. The 18th December 2003, Finnish energy company Teollisuuden Voima Oy
(“TVO”) made an investment decision on the new nuclear power plant unit
Olkiluoto 3 and signed with the Framatome ANP consortium a contract
concerning the construction of a new nuclear power plant unit with a
pressurized water reactor of about 1,600 MW. More than 60 Finnish companies
will participate in the investment and have a share of the electricity to be
produced by the unit starting commercial operation in 2009.
9. According to the Finnish Nuclear Energy Act, companies envisaging nuclear
plant projects must apply for a so-called “Decision-in-Principle” from the
Government on beforehand. The Finnish Government has to decide whether the
project is in accordance with the overall good of the Finnish society. A
positive Governmental decision needs ratification by the Parliament. Before this
Government decision there are hearings with involved parties such as the
municipality of location and public authorities, especially the Radiation and
Nuclear Safety Authority (STUK). The entire process takes 1-2 years. Only
after the ratification of the decision in principle the company can proceed to
apply for the construction permit from the Government.
10. The European Commission was mislead by these non notified supports. The
Commission thus underlined not only in its formal decision based on Article 41
Euratom in June 2004 that no support has been given to the project but also in
the detailed Commission Staff Working paper –“ Inventory of public aid
granted to different energy sources”, from 20025. The working paper explicitly
states – and Finland was at that time the only country asking for authorisation
for a new nuclear power plant – that “projects for investment recently notified to
the Commission under Article 41 of the Euratom Treaty did not receive public
aid. Especially in the area of nuclear energy is precise information crucial. The
apparent misinformation with regards to the precise structure of the investment
should lead the Commission to further investigate if all other supporting
documentation is correct. Especially in a notification under the Euroatom Treaty 5 see page 8 of the working paper
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is the highest degree of correctness and precision crucial. The Complainant
expresses grave concern with regards to the other information provided under
Article 41 and urges the Commission to investigate all information provided.
Especially in the trans-European energy market such misinformation can
severely distort the energy market.
11. The following complaint tries to list all support schemes known to him and
further infringement during the whole transaction for the new EPR reactor and
formally asks the European Commission for opening of infringement
procedures in all cases.
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Short chronology
12. The following timetable may help to visualise and to understand the major steps
in the development
May 1999: The Finnish organisation responsible for the preparations for spent fuel
disposal, Posiva Ltd, submitted the Environmental Impact Assessment Report
(EIA) to the Finnish Ministry of Trade and Industry (MTI) and a Decision-in-
principle (DiP) application to the Government.
January 2000: The council of the host municipality for disposal site, Eurajoki, gave
its approval to the DiP application (votes 20 for, 7 against), and STUK (Finland’s
regulatory body) concluded that the prerequisites for a DiP are met from the
standpoint of nuclear and radiation safety.
15 November 2000: Finnish company Teollisuuden Voima Oy (TVO) submitted
to the Finnish Council of State (Government) an application for a Decision in
Principle (DiP) concerning the construction of one additional NPP unit, the
Olkiluoto 3 unit.
December 2000: The Finnish Government gave its approval to the spent fuel
disposal.
February 2001: STUK issued to the Ministry of Trade and Industry a preliminary
safety assessment and a statement about the application.
February 2001: Framatome and Siemens in July 2000 finalise their agreement to
merge their nuclear operations into Framatome ANP.
7 January 2002: STUK issued a supplementary of its preliminary safety judgement
on account of terrorist attacks on U.S.A.
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January 2002: The Finnish Government made a favourable DiP (Decision in
Principle) on the construction of Olkiluoto 3
24 May 2002: The Finnish Parliament approved plans for the construction of
Olkiluoto 3 by a majority of 107 votes to 92.
March 2003: TVO finalises receipt of tender proposals.
Tenders have been submitted to TVO during 2002/2003 by three vendors and for
four designs:
Framatome ANP: European Pressurised Water Reactor (EPR) of 1600MWe and
SWE-1000 of 1200MWe
General Electrics: European Simplified Boiling Water Reactor (ESBWR) of
1390MWE
Atomstoryexport: VVER-91/99 of 1060MWe
Westinghouse finally did not bid its AP-1000 PWR or its BWR-90+.6
Autumn 2003: AREVA ordered the pressure vessel even before its bid was chosen
and before the Finnish Nuclear Supervisory agency STUK approved the project
October 2003: TVO chose Olkiluoto to be the location site for the new reactor.
18 December 2003: TVO signs the contract with Framatome ANP- Siemens.
8 January 2004: application for construction permit submitted to the Finnish
Council of State.
25 May 2004: AREVA signed a EUR 400 million contract with TVO for the
supply of uranium and transformation services required to manufacture Olkiluoto 3
reactor.7
6 www.iuc.com.au/nip.76.htm 7http://www.areva.com/servlet/ContentServer?pagename=arevagroup_en%2FPressRelease%2FPressReleaseFullTemplate&cid=1085486432327&p=1028798801053
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10 October,2004: EDF decided to build EPR nuclear reactor in Flamanville, Basse,
Normandie
End of 2004: STUK is expected to submit its statement and safety assessment
Beginning of 2005: the Finnish Government to decide on the TVO’s construction
license
2009: expected connection to grid
1st half of 2009: expected commercial operation according to TVO
13. On 11th of June 2004 the European Commission published its “favourable
opinion” The -then- Commissioner and Vice President of the European
Commission Loyola de Palacio underlined in the respective press declaration
the “attractive economic option” of this project.
14. According to this Commission press release TVO had pointed out that the new
nuclear plant was expected to have lower production costs for the electricity
than those from fossil fuel plants and help to ensure stable and predicable
supply and prices for its customers and that no “financial aid was being
provided by the Finnish State to the project”8.
15. This evaluation of an economic attractive situation does not correspond with
reality. It is apparent that the European Commission was not informed by the
different governments and companies involved about the various subsidies
granted and about the fact, that the fixed price offer is below cost price and thus
price dumping helped by state aid.
16. On 14 December 2004 the Commission formally receives this complaint and is
asked to broadly investigate violations of European law by all Member States
involved. Without consulting the Complainant DG TREN closed the dossier on
8 EC Commission Press declaration IP/04/738 of 11 June 2004
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13 January 2005. The information was not shared with the Complainant until
September 2005. DG COMP accepted the dossier on 22 December 2004 and
met with the Complainant on 2 September 2005 and revealed that the
government procurement issues raised by the Complainant were not
investigated during the whole time. This as will be discussed later gives raise to
procedural concerns.
The energy situation in Finland
17. Finland has four nuclear reactors providing 27% of its electricity. The total net
output of these four reactors is 2656 MWe with average capacity factors over
the 1990s of 94%. Two of the reactors are operated by TVO, the other two by
Fortum Heat & Power. TVO’s reactors have been uprated 26% (from 690 MWE
to 870 MWe each) and their lifetime has been extended to 60 years. They are
Swedish boiling reactors. Fortum’s units have been uprated 9,7% from 465
Mwe to 510 Mwe. The electricity consumption is 16 600 kWh per capita per
year.
18. Most of the electricity is imported or is generated from imported fuels. Finland
is a net energy importer; it imports 71% of energy (50% of oil, 40% of crude oil
and 100% of natural gas). In 2001, total electricity imports totalled 11,8GWh
(12 % net, – 7,9 GWh from Russia, 5,4 from Sweden and 0,145 from Norway.9)
Finland, Sweden, Norway and Denmark now form a single electricity market,
with a total consumption of almost 400 TWh. The transmission capacity
available may limit cross-border electricity trade, though it is increasing.
Electricity is transmitted from one country to another over transmission systems
which between Finland and Sweden partly take the form of sea-bed cables. At
the moment, the transmission capacity between Finland and Sweden amounts to
about 2,000 megawatts, and so far this has been sufficient to carry all the
electricity traded between Finland and other Nordic countries.10 Projections
suggest that 7500 MWe additional capacity is needed in Finland in 2030.
9 www.tvo.fi , and http://www.energiamarkkinavirasto.fi/data.asp?articleid=343&pgid=1&languageid=826 10 http://www.vn.fi/vnk/english/publications/vnk20004e/vnk20004en3.htm#3.1
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Electricity accounts for about a quarter of the energy end consumption, and
more than a half of it is used by the industry.11
19. Figures published in 2000 showed that nuclear had very much higher capital
costs than the others – EUR 1749/kW including initial fuel load, which is about
three times the cost of a gas plant. But its fuel costs are declared to be much
lower. Such an assumption, however, does not take into account the costs of
decommissioning, waste disposal and high amount of Research and Technology
funds received in the past for the development of the EPR reactor type.
20. According to OECD Nuclear Energy Agency report on Project of Generating
Electricity, nuclear power was not the cheapest option in any of the examined
states (at a 10 percent discount rate) and the least expensive options in only 5
states (at a 5 percent discount rate)12 Other aspect of the cost of nuclear should
involve reliable values of accident, high level waste impacts, nuclear
proliferation and impacts of terrorism.13
21. According to Finnish legislation, the nuclear companies are responsible for the
decommissioning of the power plants and the management of the nuclear waste.
The Finnish operators have reserved approximately 1 billion euros for these
purposes into a special fund. This is supposed to cover the decommissioning of
four reactors and the disposal of their waste. However, comparing this amount
to the cost estimates in other countries and experiences gained on the costs of
decommissioning, it is clear that the costs in Finland are highly underestimated.
A study by Finnish VTT Technical Research Centre estimates that the burying
of nuclear wastes alone will cost more than 1 billion euros (VTT 1999). Finland
has opted for immediate decommissioning of nuclear facilities, which requires
more financial resources than deferred decommissioning. Yet, Finland also
applies external management strategy, i.e. the decommissioning funds are
separate from the accounts of the nuclear operator.14
11 http://www.vn.fi/vnk/english/publications/vnk20004e/vnk20004en3.htm#3.1 12 http://www.nea.fr/html/general/press/1998/1998-8.html 13 http://www.nea.fr/html/general/press/1998/1998-8.html 14 http://www.euractiv.com/Article?tcmuri=tcm:29-131692-16&type=News
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22. The sum budgeted for decommissioning the four existing reactors is 390 million
€, meaning 150 000 €/MW (VTT 1999). The sum is half of the sum reserved in
the United States where the government officials estimate the price to be at 353
000 €/ MW. The decommissioning projects already implemented have cost 4
to13 times more than the US estimation above, meaning 1,43 million €/MW –
4,71 million €/MW. If the costs for Finnish reactors were counted according to
these figures, the decommissioning of the four reactors would cost 3,7 billion –
12,1 billion € (Wise 1998).15
23. Finland’s nuclear power reactors:
type MWe net start
Loviisa 1 VVER-440 488 1977
Loviisa 2 VVER-440 488 1981
Olkiluoto 1 BWR 840 1979
Olkiluoto 2 BWR 840 1982
dates are for start of commercial operation.16
24. Electricity consumption is expected to rise by 1.5% a year until the year 2010,
after which the average yearly growth will be around 1.0%. It is expected that 3
800 MW of new power plant capacity will be needed by the year 2015 to secure
the supply of electricity.17 The Ministry of Trade and Industry predicts that
electricity consumption will reach about 96 TWh in 2010 compared with 76
TWh in 1998.18 Finland is reportedly considering construction of a sixth nuclear
power unit.19 The share of nuclear energy was in year 2001 about 27% of
electricity supply in Finland (see the figure below) and about 18% of the total
15 Kosonen, K.: The economics of new nuclear power plants, http://www.greenpeace.se/files/2500-2599/file_2553.pdf 16 http://www.world-nuclear.org/info/inf76.htm 17 http://www.tvo.fi/136.htm 18 http://www.vn.fi/vnk/english/publications/vnk20004e/vnk20004en3.htm#3.1 19 http://www.eia.doe.gov/emeu/cabs/finland.html
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use of energy (=32.33million
toe).20Oil
1.9%
Wind Power0.1%
Woodbased fuels
11.4%
Peat6.9%
Electricityimports (net)
12%Coal
14.1%
Natural gas10.3%
Nuclear26.8%
Hydro Power16.3%
Main parties involved in this transaction
Banks involved
Bayerische Landesbank (BLB)
25. BLB is a German public bank, governed by the legislation of the Land Bayern.
It is owned 50% by the Free State of Bavaria and 50% by Association of
Bavarian Savings Banks (SVB). SVB comprises presently the 82 autonomous
Savings Banks and their public guarantors. The Savings Banks are public law
institutions established by municipalities, counties, as well as special purpose
municipal associations. SVB is a public law association, supervised by the
Bavarian Ministry of the Interior. Its tasks include the promotion and
representation of the interests of the saving public, the Savings Banks and their
employees. The liabilities of the SVB including the joint and several liabilities
as guarantor of BLB and Versicherungskammer Bayern are covered by its
assets. Any not covered liabilities will be distributed among the Bavarian 20 OECD, NEA/NDC(2002)16, Committee for Technical and Economic Studies on Nuclear Energy Development and the Fuel Cycle [NDC] 47th Session 12-14 June 2002, Reports by Member Countries
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Savings Banks.21 BLB acts as the principal bank to the Free State of Bavaria, as
well as central bank to the Bavarian savings banks. The location focus is the
core market of Bavaria and bordering regions. It was created in 1972 by merger
between Landesbodenkreditanstalt and Bayerische Gemeindebank and has legal
status of corporation established under public law. In 2002, the shares of both
shareholders were transferred into BayernLB Holding AG, in exchange for
which the Free State of Bavaria and the Association of Bavarian Savings Banks
each took 50% holding in BayernLB Holding AG. BayernLB Holding AG is
exclusively entrusted with the duties of the sole shareholder of BayernLB as an
institution under public law and is not a bank itself.22 The state-subsidised
lending and Bauspar (home loan savings) business, which have a market-
leading position in Bavaria, are managed by economically independent
subsidiaries, Landesbodenkreditanstalt and LBS.
Nordea
26. Nordea Bank AB Sweden is the parent company of Nordea Bank Finland,
Denmark, Norge and others. The largest shareholder of Nordea Sweden is the
Swedish state with 19,5% of shares and voting rights. The second largest
shareholder is Alecta, a Nordic holding company, with 3,7% of shares. In 2003,
it arranged syndicated loans amounting to a total of 7 billion euro (i.e. 17% of
the total market in Nordic countries). The average interest rate on bank loans,
according to Bank of Finland, was for the first half of 2003 decreasing from
4,43 to 3,77%.23
Swedish Handelsbanken
27. Its biggest shareholder is The Oktogonen Foundation with its 9.6% share of
capital and 10.1% share of votes. The Oktogonen Foundation is
Handelsbanken’s employee profit-sharing system.24 The second largest
shareholder is Industrivärten, a Nordic holding company, with 8.2% of shares.
At the end of 2003, Handelsbanken had around 110 000 shareholders, most of
them private individuals. The majority of shareholders own only a small number 21 http://www.bayernlb.de/p/_en/idx/invest1/invest4/invest4.jsp 22 http://www.bayernlb.de/p/_en/idx/ueber/konstruk/portrait/portrait.jsp 23 http://www.bof.fi/eng/5_tilastot/5.1_Tilastografiikkaa/5.1.2_korot/ 24 http://www.industrivarden.net/templates/Holdings____141.aspx
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of shares. Of the major shareholders, there are a number of asset managers
representing foreign private individuals and legal entities. Around 28% of the
shares were owned by investors outside Sweden. Around 50% of the total
number of shares was owned by Swedish institutional holders. These mainly
include insurance companies, investment companies and equity funds
representing a large number of private individuals (for example Alecta – 4.5%,
Robur funds – 3,5%, Nordea Funds – 2.9 % etc) 25 The Swedish state is
involved through the First, Second, Third and Fourth National Swedish Pension
Funds, which are independent and competing entities, yet whose board
members are appointed by the Government. All these pension funds make
together 6,0% for the Swedish state.26
BNP Paribas
28. BNP is a private commercial bank. 72.1% of its shares is owned by institutional
investors, out of which 56.4% European and 15.7% outside Europe. 7,6% of
shares is held by public shareholders.27
JPMorgan Chase & Co.
29. JP Morgan Chase & Co. is a private commercial bank, a result of the merger of
J.P. Morgan Chase and Bank One completed in July 2004. 65% of its shares are
held by Institutional and Mutual Fund owners. The largest Institutional
shareholder is Barclays Bank with 4.7% of shares, the largest mutual fund
owner is Washington Mutual Investors Fund with 1.7% of shares.
25www.handelsbanken.se 26 http://www.ap4.se/Files/356/AP-folder%20Engelska.pdf 27 www.invest.bnpparibas.com, Interim report 2004.
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Dr. Dörte Fouquet Kuhbier law firm 21
Corporations involved
Purchasers
30. On the side of the purchasers there is a consortium of AREVA and Siemens -
Framatome ANP involved.
AREVA
31. AREVA is the trade name of the Societé des Participants du Commissariat à
l“Energie Atomique. It was established by a decree no. 83-1116 of December
21, 1983. Its majority shareholder is C.E.A (Commissariat à l“Energie
Atomique), established by French governmental decree 45-2563 of 18 Octobre
1945, which is a French public unit headed by the High Commissioner for
atomic energy and by a board headed by the administrator general.28 At the end
of 2003, CEA holds 79% of capital and 83% of voting rights. The French state
holds, to the same date, 5.2% of capital and 5.2% of voting rights. Thus, either
directly or indirectly through C.E.A. the French state is the majority shareholder
in AREVA. Changes to company bylaws are approved by decree. Capital
increase or the sale or exchange of AREVA shares held by CEA are subject to
joint approval by the Ministry of Industry and Ministry of Economy. The
French government designates four members on the Supervisory Board to serve
as representatives of the French state. The legal form of AREVA is Societé
anonyme à Directoire et Conseil de Surveillance governed by the French
Commercial Code and decree dated March 23, 1967. 29
Framatome ANP S.A.S.
32. AREVA is a parent company of Framatome which merged its nuclear activities
with Siemens into Framatome ANP. Siemens has 34% of the share capital,
AREVA 66%.30
28 http://encyclopedia.thefreedictionary.com/Commissariat+%E0+l“%C9nergie+Atomique 29 www.areva.com, Annual Report 2003 30http://www.framatome-anp.com/servlet/ContentServer?pagename=Framatome-ANP%2Fview&c=rubrique&cid=1016885938159&id=1015078089579&rubid=1015078089579
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Dr. Dörte Fouquet Kuhbier law firm 22
33. According to Siemens, this joint venture with majority shareholder AREVA
specialises “in the development, planning and turnkey construction of nuclear
power plants and research reactors”. Framatome’s new European Pressurized
Water Reactor in Finland will be a landmark of future-oriented technology”31 In
the Finland EPR venture Siemens will provide the turbine, Framatome will
deliver the pressurised water reactor with 4.300MW thermal power.32
EDF 34. The French State’s EDF will also participate in the project through its
subsidiary company Sofilo, which is the supplier of the boiler. Sofilo is 100%
owned by EDF (2002 figures) and EDF is 100% owned by the French state.33
Siemens
35. Joint stock company, based in Munich, Siemens is a so-called “global solutions
company”34 with more than 400 manufacturing sites located in 190 countries
and with a focus on electrical engineering and electronics. Siemens is to be seen
in the group of the world’s largest electronics and engineering companies, and is
the biggest company in Germany. Its production covers a big variety of high-
tech electrical engineering endeavour including nuclear generators. Siemens
boasts more than 50,000 product lines, comprising over a million separate
products. The Complainant also learned in the Commission meeting on 2
September that Siemens has given TVO an undisclosed amount of loan as part
of the purchase. This loan further explains the possibility of a fixed price for
such a significant investment project. Given the competitive situation in the
trans-European energy sector, the Commission should include this loan in its
investigation because it makes the export credits grated and the loan by the
public bank even more significant because it means that the signalling function
of such public support schemes, which will be explained further, transmitted
31http://www.siemens.com/Daten/siecom/HQ/CC/Internet/Annual/WORKAREA/gb04_ad/templatedata/English/file/binary/E04_00_GB2004_1230305.PDF p.22 32 http://www.tvo.fi/uploads/OL3-esite%20eng(1).pdf 33 http://amadeus.bvdep.com/amadeus/top20/report_15.htm; It will be the first time when a boiler designed in France will be constructed abroad without being tested in France beforehand. 34 http://www.forbes.com/finance/mktguideapps/compinfo/CompanyTearsheet.jhtml?tkr=SI
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Dr. Dörte Fouquet Kuhbier law firm 23
beyond the banking sector into the private sector to the point where a publicly
traded company could justify granting a significant loan to TVO.
Subcontractors involved
36. The Olkiluoto 3 Consortium of AREVA and Siemens has placed with Japrotek
Oy Ab, a company of the Vaahto Group and headquartered in Pietarsaari, a
contract to supply large pressure vessels for the Olkiluoto 3 nuclear power plant
project. The contract comprises a total of 14 tanks and vessels such as the
accumulator tanks, the pressurizer relief tank, coolant storage tanks, the volume
control tank and the boric acid tanks. The pressure vessels will be delivered
between end of 2005 and summer 2006 to match the project’s time schedule.35
Vaahto Group is a private company owned by the Vaahto family members (77%
of votes).
Buyers involved
TVO- Teollisuuden Voima Oy
37. TVO is an electricity generation company which supplies its shareholders with
electricity at cost. The company already owns and operates 2 nuclear units on
the west coast of Finland at Olkiluoto and has a share in Meri-Pori coal-fired
power plant. Olkiluoto 1 (1978) and Olkiluoto 2 (1980) have been both
upgraded up to 840 MWh output and together they amount to 20% of all
electricity supply in Finland. There were previous two attempts to obtain a
construction permit for nuclear power plant in 1986 and 1991-1993. Kyoto
protocol and national CO2 emission reduction commitments were taken as main
argument favouring the new nuclear power plant in 2000.36 TVO’s shareholders
are dominated by a private company Pohjolan Voima Oy (56.8%), a non-profit
utility owned primarily by a group of Finnish industrial companies, and public
company Fortum Power & Heat AB (26.6%), a subsidiary of Fortum Oy.
35http://www.areva.com/servlet/ContentServer?pagename=arevagroup_en%2FAroundUs%2FAroundUsFullTemplate&cid=1095412337577&p=1028798801061 36 www.tvo.fi
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Dr. Dörte Fouquet Kuhbier law firm 24
38. Credit ratings of TVO by Standard&Poor’s: short term credit rating is A-2, long
term BBB. As a result of the construction of Olkiluoto 3, TVO will gradually
incur about 2.5 billion EUR in new debt until 2009. The project will also add
construction and operating risks. Standard&Poor’s had revised TVO’s credit
rating outlook from ‘stable” to “negative” after the decision to build the new
reactor was announced. The S&P’s analyst says “it reflects the increased
business and financial risk”.37
39. TVO does not have to worry about getting the electricity sold since its
shareholders will get the electricity for cost price, either to use it or sell it
onwards.38
Fortum Oy
40. Fortum Oy is a public Finnish energy company which was established in 1998,
when the state-owned company IVO merged with the oil company Neste. The
government than sold 20% if its stake.39 The Moody’s credit rating of Fortum is
Baa1, the outlook is ‘stable”. Standars&Poor’s long term credit rating was
restated at BBB+/Stable/A-2 . Fortum will participate in the new power plant
with a share of approximately 25%, thus Fortum’s investment as an equity share
will be EUR 180 million during 2004-2009, entitling it to approx. 400 MW of
the plant’s capacity. During the first quarter, Fortum also provided a
shareholders“ loan of EUR 45 million.40
Pohjolan Voima Oy - Pohjolan Voima is a privately owned group of companies in the energy
sector, which produces electricity and heat for its shareholders in
Finland. The Group also develops and maintains technology and
services in its sector.
37 Nuclear Monitor, June 5, 2002 38 Kosonen, K.: The economics of new nuclear power plants 39 http://www.world-nuclear.org/info/inf76.htm 40 www.fortum.com Finally, Fortum confirmed it is to participate in TVO’s 1,600MW EPR nuclear power plant unit at Olkiluoto with a share of approximately 25%. Fortum´s investment as an equity share will be EUR180m during 2004-2009, entitling it to approximately 400 MW. Fortum is also to give a shareholders“loan of EUR45m. see POWER IN EUROPE / ISSUE 419 / 16 FEBRUARY 2004, page 10
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Dr. Dörte Fouquet Kuhbier law firm 25
- Its largest shareholder (42.0%) is UPM-Kymmene Corporation; the
second largest shareholder (15.7%) is Stora Enso Oy.41 PVO is a
privately owned group of companies in the energy sector, which
produces electricity and heat for its shareholders in Finland. The Group
also develops and maintains technology and services in its sector.42
UPM-Kymmene
- is one of the world’s leading forest industry companies. The company
businesses focus on magazine paper, newsprint, fine and specialty
products etc. Its last year’s turnover was EUR 10 billion.43
Stora Enso
- is an integrated paper, packaging and forest products company. The
largest shareholder is the Finnish state with 11.0% of shares and 24.0%
of votes.44 Wood and paper industry consumes around 30 percent of all
energy in Finland.
Overview on the different support schemes related to the transaction
Public Support Schemes as illegal state aid
41. Various different apparent and known support schemes are involved. The whole
transaction has up to now received large amount of public financial support:
Syndicated bank loan
42. Bayerische Landesbank as a public bank gave low interest rate of to 2.6 % on
substantial loan to TVO as leading partner in a syndicated loan.
41 www.pvo.fi 42 http://www.pvo.fi/page.asp?_item_id=112 43 www.upm-kymmene.com 44 www.storaenso.com
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Dr. Dörte Fouquet Kuhbier law firm 26
43. Bayerische Landesbank (BLB) gave in 2003 or in the beginning of 2004 a EUR
1,95 billion syndicated credit for an interest of 2,6% to the Finnish company
Teollisuuden Voima Oy (TVO) for the purchase of the Framatome-ANP offer to
supply the 1600 MWh nuclear EPR (European Pressurised Water Reactor).
44. According to TVO, borrowing arrangements with 12 banks were made
amounting to EUR 1,95 billion towards the end of 2003.45 The margin of the
banks is approximately 0,5%. According to our information, the syndicated loan
was apparently shared equally among those five banks, i.e. 390 million EUR per
syndicate bank.
Export Guarantees
45. Siemens hat introduced a demand to Hermes the German export credit agency
in June 2003 and AREVA had submitted application to the French export credit
agency COFACE.
46. Siemens did not succeed: According to Hermes environmental guiding
principles developed in April 2001, “export of nuclear technology designed for
building of a new or conversion of existing power plants are excluded from
support by the Federal Government”. However, after submitting it’s pre-request
in June 2003 and receiving negative response, Siemens argued that they wanted
guarantee only for the turbines which are no specific nuclear technology. The
German Ministry of Foreign Affairs in the relevant inter ministerial Committee
opened towards accepting, giving Siemens a letter of interest. The letter
indicated that a Hermes guarantee might be provided if the company gets the
contract form TVO to build the EPR46 . In December 2003, however, Siemens
had to withdraw its application for Hermes under political pressure within and
from the German Government and Parliament.
47. COFACE, French export credit agency. COFACE is a subsidiary company of
Natexis Banques Populaire and of Group Banque Populaire. It is a private
45 http://www.tvo.fi/uploads/TVO%20Vuosik%20Eng2003(1).pdf 46 WISE/NIRS Nuclear Monitor on September 12, 2003
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Dr. Dörte Fouquet Kuhbier law firm 27
company rated AA by Fitch and Aa3 by Moody’s. When granting public
guaranties, it acts on the account and behalf of the French state as public
agency. This is governed by a contract concluded with the French state – the
latest version from 2003 sets the remuneration amount at EUR 62 million.
There are four types of guarantees administrated by COFACE on behalf of the
state:
L“assurance prospection
L“assurance-crédit export
L“assurance change
La guarantie d investissements
48. Guarantee for Areva has been granted in the 2nd trimester of 2004 for the
contract signed between Areva and TVO in the amount of 610 million EUR -
such an amount is the second highest ever reported, in form of export credit
insurance47. This “l“assurance-credit export” insures the exporters and banks
against the risk of non payment due to commercial or political reasons under
such contracts, which are not insurable on the private market. It focuses on the
contracts for equipment and infrastructure of developing countries.48
Assessment of the different aid schemes
49. There are several types of advantages received by the suppliers, which have to
be examined by the European Commission:
those granted by a syndicated loan under the leadership of BLB
those granted by the French Export Credit Agency COFACE and
those granted by the Swedish Government (via SEK)
None of those supports can be seen isolated though but underline the importance of
co-ordinated performance.
50. According to Article 87 (1) of the Treaty (ECT), any aid granted by a Member State
or through State resources in any form whatsoever which distorts or threatens to
47 The highest amount of EUR 758 million was granted to Chantiers de l“Atlantique in the second trimestre of 2001. Otherwise, few of the guarantees exceed EUR 200 million. 48 http://www.cofaceCOFACE.fr/dmt/rubc_asscrexp/indexc.htm
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Dr. Dörte Fouquet Kuhbier law firm 28
distort competition by favouring certain undertakings or the production of certain
goods shall, insofar as it affects trade between Member States, be incompatible with
the common market.” This definition which has been amplified by secondary
legislation and EC Court rulings demands four criteria to be fulfilled in order to
acknowledge the existence of state aid.
Evaluation of the presence of aid within the meaning of Article 87(1) ECT
51. Evaluations will follow the usual examination of the four legal state aid criteria
which are: The measures have to be specific, granted through State resources
and likely to distort competition and intra-Community trade, and could thus be
considered to constitute State aid.
52. According to Article 87(1) of the Treaty any aid granted by a Member State or
through State resources, in any form, is incompatible with the Treaty and the
EEA Agreement insofar as it affects trade between Member States and between
contracting parties and distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods.
53. • Transfer of State resources: State aid rules cover only measures involving a
transfer of State resources (including those of national, regional or local
authorities, public banks and foundations, etc.) hereby the financial support does
not necessarily need to be granted by the State itself. Art. 87(1) ECT also may
cover a grant by a private or public intermediate body appointed by the State.
Financial transfers that constitute aid can take many forms such as grants or
fund allocations, fiscal rebates, loan guarantees, accelerated depreciation
allowances, capital injections etc.
54. • Economic advantage: The aid will have to constitute an economic advantage
that the undertaking would not have received in the normal course of business.
It has to be remembered in this regard that "any entity engaged in economic
activities of a commercial nature" is considered to be an undertaking under
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Dr. Dörte Fouquet Kuhbier law firm 29
Community competition law. The economic advantage referred to above is not
limited only to grants or fund allocations
55. • Selectivity: State aid must be selective in favour of an undertaking or category
of undertaking and thus affect the balance between them and their competitors.
Selectivity is what differentiates State aid from "general measures".
56. • Effect on competition and trade between Member States: Aid must have a
potential negative effect on competition and trade between Member States. It is
normally considered sufficient if it can be shown that the beneficiary is involved
in an economic activity and that he operates in a market in which there is trade
between Member States.
Advantages Granted To Framatome ANP/ Areva and Siemens as Suppliers
Advantages granted by Bayerische Landesbank to TVO within the transaction - aid
57. The transaction in question is a syndicated revolving credit of 1.95 billion EUR
with two tranches maturing in 2009 and 2011 respectively given to TVO by
Bayerische Landesbank for purchase of a fixed price turn-key contract is a
syndicated loan. The interest rate on this loan is 2,6%.49 The other banks
involved are Handelsbanken, Nordea, BNP Paribas and JP Morgan,50. It can
also not be excluded that one of the sellers Siemens granted a loan with similar
advantageous conditions to TVO as the Complainant learnt in the meeting with
Commission officials on 2 September 2005. When assessing the impact of the
BLB loan and its signalling function in the syndicated loan, this loan of Siemens
should also be taken into account.
58. Aid in the meaning of article 87 ECT must be understood in the broadest
possible meaning according to practice of Commission and case-law of the
European Court for Justice (ECJ): the form and the purpose of the aid are
irrelevant, only the potential effect is taken into consideration (effet theory) and
it covers beside direct grants loans, reductions in interest rates, State guarantees,
49 The 2,6% interest rate is according to 2 months Euribor,. www.euribor.org 50 www.olkiluoto.info
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Dr. Dörte Fouquet Kuhbier law firm 30
that means any economic advantage that a firm would not have received in the
normal course of business.
59. One test to find out if aid is involved is the test of the so-called "commercial
investor principle", regularly applied by the European Commission.
60. Syndicated loans were used in the international finance market in recent past in
addition to securitisation. A syndicated loan is similar to an ordinary bank loan,
except that it is granted by a group of several banks. Syndicated loans with
longer maturities have recently been replaced by loans with shorter maturities of
less than 12 months, and banks are expected to lean increasingly toward such
short-term loans after implementation of the new Basel Capital Accord.51
Recently, many banks have withdrawn completely from the syndicated loan
market and are concentrating on investment banking.
61. Even though the loan with its largely reduced interest rate of 2.6 % in question
is a so-called syndicated loan and under participation of two commercial private
banks, the whole transaction under the overall responsibility of the Bayerische
Landesbank violates nevertheless this Market Economy Investor Principle.
62. When assessment has to be done whether a loan is given by a publicly owned
bank the Commission and the European Court use the so-called market
economy investor principle (MEIP). It is used under strict consideration of the
specific circumstances of each case and has no general binding framework but
gives a set of test elements to be followed in order to clarify the case on the
bases of state aid principles.
63. The general idea of the MEIP is, that State aid would not be involved if loans or
other funds are made available on terms which a private investor would find
acceptable in providing funds to a comparable private undertaking when the
51 The new Basel Accord on banks“ capital requirements, known as Basel II, is scheduled to be implemented in 2006. The present Basel Accord was signed in 1988.
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Dr. Dörte Fouquet Kuhbier law firm 31
private investor is operating under normal market economy conditions52.
According to Commission’s decisions a financial measure is unacceptable to a
market economy investor if the financial position of the company is such that a
normal return (in dividends and capital gains) cannot be expected within a
reasonable period of time.
64. First of all, the question of the interest rate in comparison with average rates or
minimum rates should be observed:
65. BLB and the whole syndicate under its leadership have not acted as a private
investor in a market economy offering a preferential but economically viable
tariff.
- 2,6% interest will never allow a normal, adequate return of investment in
a market where the average rate is much higher. The whole syndicated
loan is an unprofitable transaction, which a normal commercial bank as
investor could not have made alone or without specific guarantees.
Especially not on the ground that the receiving company TVO has poor
credit rating, which would obligatory lead to an increased interest rate
needs, also in view of the Basle obligation. For comparison with this 2.6
% loan to TVO, a two-year loan for the German republic, and Germany
is rated AAA+, amounted for 2,57%. The selected MFI (Monetary
Financial Institutions) interest rate on loans to non-financial corporation
over EUR 1 million with an initial rate fixation over five years has been,
between August 2003 and September 2003, at 4.3%, according to the
European Central Bank.53
66. A further serious evaluation of considerate and adequate minimum interest rate
can be drawn from the OECD based CIRR rules for credits which also clearly
show that the interest rate of 2.6 % is a dumping offer of the syndicated banks.
52 Concerning EC Commission’s decisions using the MEIP in cases concerning financial services, see: Crédits Lyonnais (OJ L 221, 8. 8. 1998, p.28; GAN (OJ L 78, 16.3.1998, p.1); WestLB (OJ L 150/1, 23. 6. 2000, p 23) 53 ECB Press release on January 15, 2004, www.ecb.int
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Dr. Dörte Fouquet Kuhbier law firm 32
67. Commercial Interest Reference Rates (CIRRs) are the minimum interest rates
which may be applied under the OECD Arrangement on Guidelines for
Officially Supported Export Credits.
68. The Euro CIRR curve is used for the calculation of the base rate of the Euro
CIRR. It reflects the interest rates for different maturities using a selection of
bonds with a very high credit standing and a market value representing at least
half of the actively traded state bonds issued by the Member States in the euro-
zone54. Further information concerning the Euro CIRR can be found on the
Export Credits’ Homepage of the Directorate-General for Trade of the European
Commission55. The CIRR minimum interest rates have been for example in the
first half of 2004 as following:56
Period 5 years or less above 5 years and
up to and including 8.5
years above 8.5 years
15 June 2004-
14 July 2004 3.99 % 4.55 % 4.95 %
69. The Commission has itself developed reference interest rates which is equally
above the 2.6 % scheme. Should a private investor carry out such an operation
under normal market conditions, the revenue sought by this investor would be
likely an interest rate of 6%-7%, taking into consideration all the relevant facts
and figures, i.e. credit ratings of TVO, the safety risk immanent to any nuclear
power plant project, the fact that EPR is a prototype, etc.. In the longstanding
case against German Landesbank WestLB, BLB and other German
Landesbanken on question of illegal state aid in a process of obligatory capital 54 The calculation of Euro CIRR curve is based on the same model of calculation (data source, formula and selection criteria included) as the Euro par Yield Curve. The only difference is that an iterative algorithm is added to the calculation. With the help of this algorithm only the best bonds (representing at least 50% of the market capitalisation of those used for the Euro par yield curve) are kept. The coefficients specific to the Euro CIRR Curve can be used to obtain the daily yield for any maturity. 55 http://europa.eu.int/comm/trade/issues/sectoral/export_cred/index_en.htm 56 see reference above
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Dr. Dörte Fouquet Kuhbier law firm 33
injection where capital was provided by the German regional governments
(Länder), which partly or fully own the banks, by way of a transfer of public
housing and other assets with uninteresting low return of investment, the
European Commission evaluated that a private investor would expect a normal
return on investment which has been estimated by the European Commission in
its decision published in October 2004 in at that range of 6-7 % interest
equivalent. Due to this decision BLB has to repay € 260 million plus interest,
which is evidently importantly higher than the interest asked from TVO in this
transaction.57
70. As far as solvency and liquidity are concerned, BLB must act in compliance
with the German Banking Act, section 10 and also with Principle I (solvency)
and Principle II (liquidity) issued by the German Financial Supervisory
Authority. These provisions reflect and implement the revised Basel Accord of
2004, the Capital Adequacy Directive (93/6/EEC) and the Banking Directive
(2000/12/EC).58
71. The other banks involved in the syndicated loan could only have been ready and
able to give such a low interest rate if the loans are guaranteed by the respective
states (France, Sweden,) or via a specific transaction with BLB in the syndicate
contracts.
72. Bayerische Landesbank and its partners in the syndicate lose income and thus
the State of Bavaria as owner waived on income which means state aid in form
of loss of state revenues.
73. The Complainant has no insight knowledge of the terms and conditions risk
sharing between the partners of the syndicate.
74. In the meeting with the Complainant the Commission expressed the view that
BLB’s involvement in the syndicated loan was 15 to 20 percent and thus per se
57 For more details see press declaration of European Commission, IP/04/1261, Brussels, 20 October 2004 58 For more details, see http://www.bundesbank.de/bankenaufsicht/bankenaufsicht_eigen.en.php
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Dr. Dörte Fouquet Kuhbier law firm 34
too low to be considered state aid. The Complainant takes the view that
Commission might not have fully evaluated the impact of BLB’s participation
in the syndicated loan which seems to come close to a considerable underuse of
its own discretion (“Ermessensausfall”).
75. It has long been established that EC law has to be interpreted as much and as far
as possible consistently with WTO law.59 This is particularly true with regard to
EC law that is intended to implement WTO obligations. As the CFI decided
only recently: “It is only where the Community intended to implement a
particular obligation assumed in the context of the WTO, or where the
Community measure refers expressly to the precise provisions of the
agreements included in the annexes to the WTO Agreement, that it is for the
Court of Justice and the Court of First Instance to review the legality of the
Community measure in question in the light of the WTO rules (Portugal v
Council, paragraph 49).”60 State aid rules in European law are intended to
implement the Communities international obligations with regards to the WTO
Agreement on Subsidies and Countervailing Measures (“SCM”).61 As such the
Commission should analyse the BLB participation in the syndicated loan in the
light of Articles 1.1 (a) (iv) and Article 2 SCM. The findings of the panel and
even more importantly the submissions of DG TRADE in the recent WTO
dispute European Communities - Countervailing Measures on Dynamic
Random Access Memory Chips from Korea - (WT/DS299) case62 concerning a
syndicated loan that was granted to the DRAMS producer Hynix are very
instructive. Two public banks and two entrusted banks participated together
with seven large commercial banks in this syndicated loan (not unlike the TVO
loan). Korea had argued that because commercial banks participated the
syndicated loan could not be considered a subsidy. The Commission submitted:
“The participation of other banks does not prove the commercial viability of
participation. The EC argues that the other banks were simply not investigated
59 See P Eeckhout, “Judicial Enforcement of WTO law in the European Union: Some further reflections” (2002) JEIL 91 60 Judgment of the Court of First Instance (Fifth Chamber, extended composition) of 3 February 2005. Chiquita Brands International, Inc., Chiquita Banana Co. BV and Chiquita Italia, SpA v Commission of the European Communities, Case T-19/01, European Court Reports 2005 – 000, para. 115. 61 See Commission letter to the Member States, of 02 Aug 1995, Document number D/20506. 62 Report of the Panel, WTO Document WT/DS299/R, circulated 17 June 2005.
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Dr. Dörte Fouquet Kuhbier law firm 35
by the EC and, if anything, their participation shows that the "too big to fail"-
policy of intervention in favour of Hynix was successful. It convinced other
banks to participate in the loan as the credit would be a safe bet.63 For these
reasons, participation by the seven non-examined banks in the Syndicated Loan
does not provide a valid benchmark for the commercial reasonability of
participation in the Syndicated Loan. The actions of these seven banks were, in
any case, profoundly influenced both by the actions of the government in
relation to Hynix, and by the actions of the government in relation to the Korean
capital markets as a whole.64”65 The panel followed the EC’s conclusion but
criticised that the EC did not consider fully whether the seven commercial
banks had made their decision solely on commercial grounds.66
76. In other words where the participation of a public bank is crucial for other
commercial banks or like in the case of TVO even manufacturing companies to
participate in a syndicated loan or justify granting a loan vis-à-vis its
shareholders, that particular loan has a signalling function that goes well beyond
the nominal share of such bank in the loan. A good indication in this case is the
particularly low interest rate which was also used in the WTO case as an
indicator.
77. The Complainant urges the Commission that it should interpret its own state aid
rules in line with this recent pronouncement in the WTO Dispute Settlement
Mechanism and not just in its countervailing investigation. Thus the
Commission should properly investigate all commercial banks’ reasons to
participate in a loan which is as described far below usual market conditions.
This is particularly important since the above statement was made due to an
application by the European Community – DG TRADE. The Complainant 63 EC First Written Submission, paras. 286-287. 64 EC response to question 11 of the Panel, para. 64. As the EC stated: "[c]onsider the situation in which a government gives a guarantee that induces a bank to provide a company with risk capital that will certainly be lost. There are essential two ways of viewing this situation, which both lead to essentially the same result. First, the guarantee itself, with no premium, is a financial contribution, the amount of the subsidy being at least equivalent to the capital that it is certain will be lost. Second, the bank has effectively been entrusted or directed to provide a subsidy, the amount of the subsidy being at least equivalent to the capital that it is certain will be lost". (EC response to question 11 of the Panel, para. 62) 65 Panel report, para. 7.35. 66 Panel report, para. 7.183.
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alleges that the Commission is in apparent danger of undermining the integrity
and the coherence of the Community legal order in this case.67
78. We formally ask the Commission to investigate in the different conditions and
the related contracts between the partners in the syndicate. It is important to
investigate especially in questions of state guarantees or other supportive
measures given to the individual syndicate members in order to evaluate there
position as “free” investor who is ready to waive revenues, violating thus the
interests of his shareholders. Related insight examination and questioning
should be directed towards the respective members of the syndicate and towards
the respective governments the syndicate banks are located in, meaning
Germany (concerning the question if Germany or Bavaria may have directly or
indirectly given further advantage to the other partner banks in the syndicate),
France, Sweden and Finland ( which should all like Germany be asked if
directly or indirectly advantages or guarantees were given to partners in the
syndicate).
79. The Commission has indicated that it will not look at the specific provisions
under the syndicated loan but rather just at the 15 – 20% participation of BLB
which it considers to be too low to constitute state aid. But as described the
allocation of risk and the important participation by a public bank should be
carefully reviewed in cases where the conditions appear to be below market
conditions. Such thorough investigation is also required under a WTO law
conform interpretation of state aid rules (for the sake of community coherence
and good governance) and in cases where the main risk remains with the public
bank. The concert of public aid schemes involved in this case further requires a
close investigation.
80. The Complainant alleges that such investigation might well reveal that the
commercial banks’ involvement was triggered not by commercial
considerations but rather by a signalling function of public support schemes.
67 See for example ECJ (5th Chamber)Österreichischer Gewerkschaftsbund, Gewerkschaft Öffentlicher Dienst v. Austria [2002] 1 C.M.L.R. 14.
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81. We have learnt, that Sweden is involved and substantially supported the whole
transaction, though Sweden hides any details to whom in what form and under
which conditions support was given. Fact is, that the project has asked and
received support by SEK, (AB Svensk Exportkredit), the Swedish Export Credit
Agency and SEK has according to its own publication in its annual report of
2003 made a substantial financial commitment for the new nuclear power plant
to be built in Finland by Teollisuuden Voima Oy (TVO). This project was
approved by the Finnish Parliament and is important for Finland for many
reasons, mainly because it helps to ensure future energy supplies in the Nordic
area. The project has the potential to provide major contracts for Swedish
suppliers and construction firms.”68 Since 2003 the Kingdom of Sweden is 100
% owner of SEK69.
82. We formally ask the European Commission to clarify the details of this support
in 2003 by SEK respectively the Swedish State.
83. Since the NORDIC INVESTMENT BANK, headquartered in Helsinki has its
Swedish premises under the address of SEK in Stockholm, it maybe important
to question Sweden if joint transactions have been concluded to supported the
Finnish project with or via Nordic Investment Bank. The Nordic Investment
Bank is multilateral financial institution owned by the five Nordic countries
(Denmark, Finland, Iceland, Norway, Sweden). One of the directors of SEK is
Chairman of Nordic Investment Bank, Deputy Chairman of the Swedish Export
Credits Guarantee Board. Both organisations could be involved in supporting
the Finnish TVO project and should be questioned accordingly.
84. Coming back to the question whether the presence of private investors in the
syndicate change the evaluation of state aid involvement, this has to be denied
regarding the above objective discrepancy between minimum interest rates and
the actual rate granted to TVO. On the contrary, it is apparent that state
68 See SEK Annual report 2003, page 18, under the chapter heading ‘sek involved in many environment and energy projects” 69 see SEK “Analysis -Swedish Export Credit Corporation SWEDEN, Europe/M.East/Africa ,November 2004”
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intervention by at least BLB alongside private capital made it only possible that
the private banks went ahead with this loan.
85. This is a fact that has been obvious in other cases for the European
Commission: “The search for a construction which appears to assure
concomitance, in order to obtain a no-aid finding, seems to have become a key
preoccupation of certain authorities, enterprises and their advisers”70 In this
context the Commission has to look carefully into side-agreements between the
state and the other private investors, as asked for above.71
86. Moreover, a loan which objectively is far below the average minimum interest-
rate and covers 2/3 of the whole purchase price has to be seen as aid scheme
since it is not just accessory but decisive for the whole transaction to proceed.
87. And it is obvious that the aid character has to be acknowledged since further
support measures are related to the transaction as important export credit
guarantees, issued by COFACE and detailed in its consequences below.
88. The Commission will certainly have to investigate into the specific role of BLB
as German Landesbank. There is apparently again the risk, that BLB may again
have used two the specific German system of public guarantees even though
there have to be ended in its application in 2005, this is the Anstaltslast and the
Gewährträgerhaftung.
89. "Anstaltslast" can best be defined as obligation on the owner to maintain the
institution concerned. This means that the public owner, in case of BLB the
Land Bayern, is obliged to protect the economic basis of the institution and
maintain its viability throughout its lifetime. The "Anstaltslast" does not confer
rights on creditors.
90. "Gewährträgerhaftung" gives creditors a direct claim on the guarantor
(Gewährträger), and is therefore an obligatory liability. The guarantor must
70 Ben Slocock, DG Comp, “The Market Economy Investor Principle” in Competition Policy Newsletter, June 2002, p 24 71 This is Commission practice, see Ben Slocock, p. 24
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honour all the bank’s liabilities that cannot be met from the bank’s assets.
Neither form of guarantee is limited in terms of time or amount. Credit
institutions do not need to pay a charge for them.
91. The performance of the German Landesbanken is a special case, due mainly to
the fact that, thanks to the system of public guarantees in the form of
Anstaltslast and Gewährträgerhaftung.72 These advantages have become all the
more important over time, the more banks’ interest margin has declined. The
other categories of banks cannot compete with the lower lending rates
subsidised by public guarantees, a situation which has allowed the
Landesbanken to continue an expansionary lending policy. This shows how
legitimate and necessary the state aid complaint filed by the European
Commission was. The agreements between the European Commission and the
German government after lengthy negotiations, under which Anstaltslast and
Gewährträgerhaftung will be phased out by 2005, are important.73
92. In this context and knowing the BLB is obliged to still repay € 260 Million plus
interest it is astonishing that the Bank apparently continues to design financial
transactions in profiting from the above state guarantees even though being
obliged to stop this practice within the coming months.
72 The –then- Commissioner for Competition Monti: "The new legal situation at last creates fair competition on the internal market for financial services. Hitherto, state guarantees enabled public sector banks to expand their banking business at the expense of competitors, since State guarantees reduce refinancing costs on the capital markets, thus giving the banks better conditions when they raise funds for new business opportunities. The competitiveness of the German and the European economy will benefit from the abolition." "There will be no sudden break," Mario Monti emphasised, ‘since we have agreed transitional provisions. The new legal situation will benefit German taxpayers, German and foreign banks and also the German public sector banks themselves, since in the long term it cannot be in their interests to shield themselves from competition." The "Anstaltslast" and the "Gewährträgerhaftung" are very important, for four reasons," declared Mr Monti. It shows that the Commission is acting against all forms of state aid - direct and indirect (e.g. state guarantees) - that are incompatible with EU law, that the Commission is carefully monitoring developments in European banking, that it is resolutely fulfilling its duty as guardian of the Treaty vis-à-vis all Member States (large and small), and that it is perfectly possible to comply with the state aid rules without questioning the public-law nature of undertakings." 73 To the detriment role of the German Landesbanken see JUDGMENT OF THE COURT (Sixth Chamber) 12 December 2002 Case C-209/00 Westdeutsche Landesbank Girozentrale (WestLB) and Commission Decision 2000/392/EC - Obligation to recover the illegal State aid
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Dr. Dörte Fouquet Kuhbier law firm 40
93. Summarising it is to be concluded, in view of the foregoing, that the advantages
granted by Bayerische Landesbank et alia to TVO are aid advantages within the
meaning of Article 87(1) of the Treaty.
Specific character
94. Article 87(1) of the Treaty requires that a measure, in order to be defined as
State aid, favour “certain undertakings or the production of certain goods”. In
the case at issue, it is evident that the advantages, meaning the loan for an
interest rate of 2.6 % were granted to TVO only.
State resources
95. There must be a financial transaction between State and company which leads
to an economic advantage to the firm from public resources, be it through a
direct grant or a loss of profits. The ‘state" is not only the national or federal
level but all public bodies, or agencies acting on their behalf at national and sub-
national levels, such as public banks, municipalities, regions, Länder. According
to Commission’s and Court practice it can also be a private body if it is
entrusted by the State to distribute public funds and it can also be private funds
if the money is distributed by a public body and the State thus has the final
saying.
96. BLB is a public bank. It is governed by public law and endowed with public
funds. The Free State of Bavaria is 50% shareholder and thus the state resources
were made available in the transaction at issue. According to the details of the
syndicate contracts it is evident that at least the share of BLB’s own financial
commitment in relation to the interest rate constitutes means which are
given/waived from state resources. TVO received an advantage through State
measures by being given an interest rate on a loan granted by German public
institution which would not be awarded to other competitors, such as for
instance to producers of energy from renewable sources. The advantages in this
case were granted indirectly through state resources and are clearly imputable to
the state. Such a low interest rate which TVO has been awarded with is below
normal interest rates for similar transactions for energy utilities and is in this
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Dr. Dörte Fouquet Kuhbier law firm 41
difference constituting a transfer of public capital to an enterprise by insufficient
remuneration.
97. Since this state aid has not been notified to the European Commission, it is an
unlawful aid also with regards to the provision of Article 88(3) of the
Treaty. It is also contrary to wording of ECJ First Instance (Second Chamber,
extended composition) judgement of 6 March 2003 – Westdeutsche Landesbank
Girozentrale and Land Nordrhein-Westfalen v Commission of the European
Communities, Joint cases T-228/99 and T-233/99, para 36: „The Commission
does not question the right of Member States to create special-purpose funds in
order to fulfill tasks of general economic interest. However, as soon as such
public funds and assets are used for commercial competitive activities, they
must be subject to normal market economy rules.“ At para 181, the Court also
says that „...the (State) resources do not cease to be so simply because the use of
those resources is similar to that by a private investor“.
Impact on intra-community trade and competition
98. It would be sufficient, if a simple threat to distort competition would be apparent. The
distortion is normally assessed in comparing the situation of the benefiting firm on the
market with and without, before and after (forecast) the aid. In practice, as soon as
there is an aid, the Commission presumes that this condition is fulfilled if the
beneficiary undertaking is in competition with another firm in the EC. As can be seen
all selling companies out bid their competitors, which means that the individual aid
schemes had as such an influence on intra-community trade. The Complainant also
feels that the competitive situation of its members has been negatively influenced and
requests the Commission to investigate the combination of the aid schemes.
Conclusion
99. As the criteria for State aid are met in this case, the advantages granted to TVO
by BLB via the syndicated loan are state aid within the meaning of Article 87(1)
of the Treaty. The State aid is incompatible with the common market. And due
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Dr. Dörte Fouquet Kuhbier law firm 42
to systematic reasons these rules also apply in the ambit of the Euratom Treaty.
The Euratom Treaty does not specifically exclude ECT provisions and as such
is only lex specialis for the areas where it does provide such special rules. The
Commission has long been of the same opinion which is why she investigates
the violation of state aid provisions regarding the restructuring of the UK
nuclear waste management and the envisioned decommissioning authority.74
100. The European Commission is herewith formally asked to pursue non
notified state aid infringement procedure and to demand of Germany to take all
necessary measures to immediately discontinue and recover from the
beneficiary TVO the aid referred and unlawfully made available to the
beneficiary.
Export guarantee advantages granted by COFACE to AREVA within the transaction
101. In the following we come to the conclusion the France has through
COFACE granted illegal state aid to Areva in form of state guarantee.
Factual situation
102. Guarantee has been granted in the 2nd trimester of 2004 for the contract
signed between Areva and TVO in the amount of 610 million EUR - such an
amount is the second highest ever reported 75. This “l“assurance-credit export”
insures the exporters and banks against the risk of non payment due to
commercial or political reasons under such contracts, which are not insurable on
the private market. It focuses on the contracts for equipment and infrastructure
of developing countries.76 This state guarantee for AREVA is the only one
granted for a project located in the EU77.
74 Commission Press Release IP/04/1430, 1 December 2004. 75 The highest amount of EUR 758 million was granted to Chantiers de l“Atlantique in the second trimestre of 2001. Otherwise, few of the guarantees exceed EUR 200 million. 76 http://www.cofaceCOFACE.fr/dmt/rubc_asscrexp/indexc.htm 77 http://www.COFACE.fr/rub01_gr/gc.htm
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103. COFACE was not entitled to hand out such a big sum for a marketable
transaction within the European Union. The state guarantee of 610 mio Euros
was specific, granted through State resources and is distorting competition and
intra-Community trade, and has be considered to constitute State aid, which was
not notified to the European Commission and therefore is illegal state aid. The
measure is granted by the State or through State resources. The measure favours
AREVA. It affects trade between between Member States. It distorts
competition.
104. COFACE is a subsidiary company of Natexis Banques Populaire and of
Group Banque Populaire. It is a private company rated AA by Fitch and Aa3 by
Moody’s. When granting public guaranties, it acts on the account and behalf of
the French state as public agency. This is governed by a contract concluded with
the French state – the latest version from 2003 sets the remuneration amount at
EUR 62 million. There are four types of guarantees administrated by COFACE
on behalf of the state:
L’assurance prospection
L’assurance-crédit export
L’assurance change
La guarantie de investissements
105. COFACE manages since 1946, “pour le compte de l’État”, a wide range
of credit insurance products on behalf of the State for the purpose of supporting
French exports. Cover with public money under this scheme of credit insurance
is confined to risks that cannot be insured in the private market. The
beneficiaries are companies which market products and services that are, at least
partly, of French origin.
106. Transactions are guaranteed by the State and are recorded in separate
accounts, which are audited and certified by a designated Statutory Auditor.
Similar arrangements exist in most countries and many partners in the
CreditAlliance network fulfil this role on behalf of their respective
governments.
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Dr. Dörte Fouquet Kuhbier law firm 44
107. The aim is to assure non insurable risks, that means risks non marketable
on the private insurance market for the benefice of companies working on the
export market and whose origins are predominately French.
108. From its budget as “handling agent” or prolonged arm of the French
Government in the field of export guarantees on behalf and for account of the
French State COFACE gave this guarantee of 610 Mio Euro.
109. Finland is rated A1 by COFACE in line with OECD recommendation
and EC legislation, indicating ‘steady political and economic environment“ with
„very weak default probability“. TVO’s short term credit rating is as mentioned
A-2, long term BBB. Finland is not and cannot be marked as an export target
country on the COFACE official map „Politique d’Assurance-Crédit pour
2004“. This is the first time ever that COFACE granted- in violation of EC law -
such guarantee for export to EU country.
110. The partners in this venture on the side of the suppliers had asked for
export credit guarantees. Export credits insure the exporting company against
non-payment for delivered goods; in case of “garantie plafondée“ the insured
asks for a maximum amount of the loss which it wishes to be insured. The
amount guaranteed for AREVA is 610 million Euros.. AREVA asked for this
guarantees in order to facilitate the rating and access for TVO to advantageous
financial credits on the international financial market and thus increased
attractiveness of the whole transaction.
111. The question of receiving important state export guarantees was crucial
for the whole transaction since TVO credit rating has immediately been revised
negatively by Standard & Poor in 2002 after the Finnish Parliament had - in
May 2002- approved the construction of a new nuclear reactor. Standard & Poor
had converted TVO’s credit rating outlook form ‘stable” to “negative”
According to quotation of an Standard & Poor’s credit analyst in 2002, this
move reflects the increased business and financial risk that would likely result if
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Dr. Dörte Fouquet Kuhbier law firm 45
TVO decides to proceeds.”78 The credit rating company Standard & Poor’s had
published in December 2003, the credit rating for TVO as A-2 for short term
credit rating and BBB for long term rating.79
112. AREVA as public French company received export credit guarantee
from the state via COFACE as in this respect public authority. The above
displayed table is published on the web page of COFACE under the heading
“Assurance-Crédit Export”80
Legal situation
113. Export guarantees are state aid under EC state aid rules. This has been
the state of EC law since 1969. In the ECJ Judgment of the Court of 10
December 1969 Commission of the European Communities v French Republic
(Joined cases 6 and 11-69)81 gave the most compelling reason for this
assessment, which was then supported by the Commission. The Claimant would
like to ask the Commission if it has changed its mind. In its meeting on
2 September 2005 the Commission officials involved alleged that they could not
see any state aid with regard to the two export guarantees because they
78 See quotation in Nuclear Monitor, June 5, 2002 ( North American Edition) 79 see TVO press declaration of 08.01.2004 entitled “Year 2003 the best production year in the history of the Olkiluoto nuclear power plant - Construction licence application for the new plant unit submitted today” 80 www.COFACE.fr/_docs/gc2_04.pdf 81 [1969] ECR 523.
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Dr. Dörte Fouquet Kuhbier law firm 46
complied allegedly –what the Complainant disputes- with the OECD rules on
export guarantees. The existence of a state aid cannot be doubtful after the
Court’s judgement in 1969 which has been approved several times. Against the
arguments of the French Republic the Court ruled: “A preferential rediscount
rate for exports, granted by a state in favour only of national products exported
and for the purpose of helping them to compete in other Member States with
products originating in the latter, constitutes an aid within the meaning of
Article 92 the observance of which it is the Commission’s task to ensure.”82
The reason for this position is plain. A state export guarantee removes an
element of risk which the undertaking would have to bear – this and not the
costs to the state are relevant.83 There is another reason why these export
guarantees for intra-community trade are potentially violating EC state aid
rules and that is that in those secure markets they usually compete with
commercial export guarantee providers (whereas in the typical export guarantee
for a politically insecure trade, those providers do not compete). As former
Commissioner Van Miert put it: “Whether these agencies are public or private
raises in itself no problem. There is a problem, however, when public agencies
can benefit from state aids (guarantees, free reinsurance, exemption from taxes,
etc.) which private agencies are not able to obtain and therefore suffer from
distorted competition. The Commission's intention is to eliminate the distorted
effects of such aids with the aim of creating market conditions under which
private and public export credit agencies compete with each other on an equal
footing.”84 Unfortunately the current understanding in the Commission seems to
have gravitated away from this earlier opinion.85
114. The Complainant cannot understand why the Commission does not want
to comply with this clear ECJ judgment (besides being on of the first
infringement proceedings initiated by the Commission herself ever). Unlike the
Commission officials in the meeting of there might not be a requirement for
82 Ibid. para. 20. 83 A Evans, European Community Law of State Aid (Claredon: Oxford 1997), 32. 84 OJ 1993 C297/29. 85 See further Jonathan Wood, “Export Credit Insurance” 1994, 9(5) Journal of International Banking Law, 193, 195.
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Dr. Dörte Fouquet Kuhbier law firm 47
such state aid to be communicated to the Commission but that does not change
the character of the aid.
115. This position has repeatedly been confirmed by the Commission
herself.86 This is particularly the case where ‘poorly ranked’ undertakings are
enabled to obtain loans at market rates.87 This seems to be an enforcing factor
here. The whole financial package for the TVO reactor was influenced by the
provision of export guarantees. The Commission has repeatedly declared that
the state export guarantees are a particular concern where “the guarantee is
necessary for the survival of the company concerned.”88 This also seems to be
the case here – the Commission has thus for not investigated if the fix price, i.e.
the core of the purchase, could have been possible without the state export
guarantee.
116. The Commission seems to think that because an export guarantee
allegedly complies with OECD rules there is no illegal state aid. This view is
not without legal mistakes and the Complainant points out that there might be
the danger for the Commission of severely underusing its discretion to
investigate EC Treaty infringements or even committing a grave legal error. The
Commission alleges that all state export guarantees comply with the OECD
code. The Complainant has reason to believe that his might not be the case due
to the very high amount granted to the undertaking.
117. The Complainant is also of the view that the Commission herself does
not automatically rely on Council decisions implementing OECD Agreements.
In a recent decision the Commission herself explained: “Finally, the
Commission disagrees with the Netherlands that the aid should only be assessed
on the basis of Council decisions based on the OECD export credit rules. State
aid within the meaning of Article 87(1) of the Treaty to the shipbuilding
86 Communication of the Commission to the Member States pursuant to Article 93 (1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export- credit insurance (Text with EEA relevance), [1997] OJ C 281/4. 87 See Commission decision 94/694 ([1994] OJ L279/29) concerning capital increase and credit guarantees in favour of TAP. 88 Commission communication C 26/9 ([1995] OJ C 121/4 concerning Credit Lyonnaise and decision 95/547 ([1995] OJ L308/92 giving conditional approval to Credit Lyonnaise.
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Dr. Dörte Fouquet Kuhbier law firm 48
industry has necessarily to be assessed on the basis of the applicable rules that
the Commission imposed itself (the framework on State aid to shipbuilding) in
order to apply the derogations to the incompatibility of State aid as foreseen by
the Treaty.”89 In other words the Commission usually does not only blindly
assess the OECD rules but all EC law concerned.
118. This broader perspective is particularly important in the present case.
The OECD rules and the Council decision of 22 December 2000 replacing the
Decision of 4 April 1978 on the application of certain guidelines in the field of
officially supported export credits90 have to be assessed against the broader
framework of EC law. It should be recalled that short-term export insurances
and guarantees are already subject to fair competition between commercial
export guarantee and state export guarantee providers (see Communication of
the Commission to Member States amending the communication pursuant to
Article 93(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to
short-term export-credit insurance (Text with EEA relevance)91). The
commercial provision of export credit products is also subject to EC law
(Council Directive 98/29/EC of 7 May 1998 on harmonisation of the main
provisions concerning export credit insurance for transactions with medium and
long-term cover92). However state export credit providers are not subject to the
rules of this directive. The main reason for these decisions is the possible
distortion of competition between producers of different Member states and of
competition between commercial and state providers.
119. The OECD rules and the corresponding Council decision are only
concerned with exports – indeed the Council decision itself is based on Article
132 ECT which specifically refers to “exports to third countries”. The
Complainant thus alleges that the Council decision is not applicable where, as in
the present case, no exports to third countries occur. Within the common market
there are no exports to third countries – it is questionable if the exchange of 89 2005/122/EC: Commission Decision of 30 June 2004 on the State aid which the Netherlands is planning to implement in favour of four shipyards to support six shipbuilding contracts (notified under document number C(2004) 2213) (Text with EEA relevance), [2005] OJ L 39/48. 90 [2001] OJ L 32/1. 91 Official Journal C 217, 02/08/2001 p. 2. 92 Official Journal L 148, 19/05/1998 p. 22.
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Dr. Dörte Fouquet Kuhbier law firm 49
goods within the Community can indeed be considered an export at all (see Part
Three – Community Policies – Title I – Free Movement of Goods, Articles 23
pp. ECT). The Complainant alleges that in the present case the Commission
committed a grave legal mistake by applying a Council decision which concerns
exports to state export guarantees which are provided purely within the Union
and its common market.
120. But even if the Council decision were applicable, it would have to be
interpreted in the light of the common market (if not the common market for the
elements of a nuclear facility – the decision should be considered with a view to
the common energy market). The purpose of an export guarantee is to cover
country risks. Per definition there are no country risks between the member
states in a common European market. This understanding is confirmed by an
economic analysis. Within a common market and indeed a European Union of
close political cooperation the risk of one member state versus another cannot
be assessed because with regard to most economic activities both member states
are bound by the same rules. This is even truer in the present field of nuclear
power where a specialised treaty instrument provides for the closest possible
cooperation. It also constitutes a prohibited discrimination on the grounds of
nationality (Article 12 ECT) because only companies from the Member state
who’s authority grants the export credit can enjoy such right. Indeed the
Complainant alleges that were the Commission to interpret the Council decision
otherwise she would violate Article 28 ECT because a state export guarantee
granted exclusively to a company in the territory of one Member state for the
export to another can be considered a measure having equivalent effect to a
quantitive restriction on imports because other companies from other member
states are effectively in economic terms barred from importing to that same
Member state. [CHECK.]
121. But the Council decision in itself poses also questions of legality. It just
annexes the OECD Agreement on export credits. This Agreement contains
special provisions for export credits for nuclear power plants (ANNEX II:
Sector Understanding on Export Credits for Nuclear Power Plant). This Annex
provides undue and unfair treatment for all exports related to nuclear power
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Dr. Dörte Fouquet Kuhbier law firm 50
plants. It is inconsistent with the fundamental principle of equal treatment which
has long been established in ECJ case law and is contained in Article 19 of the
Declaration on Fundamental Rights in the European Union which were
solemnly declared at the Nice Summit and which the Council in this decision
did not observe.
122. The special treatment of nuclear plants is also an inconsonance with
OECD Recommendation on Common Approaches on Environment and
Officially Supported Export Credits, which are will soon translate into a
Council decision,93 Art.2, to be seen in the fact that the export credit guarantee
in question does not reduce the potential for trade distortion neither does it
promote the level playing field. Also the obligation of prevention and mitigation
of adverse environmental impacts of the projects (Art.3) is not certainly being
achieved by awarding an unprecedented amount to a nuclear power plant
project, which is a priori classified as Category A, i.e. potential to have
significant adverse environmental aspects (Art.6) Objections have been raised in
the National Assembly of France (Yves Cochet) and in the Senate (Marie
Christine Blandin) as to the lack of transparency and publicity of the discussion
precedent to the decision on granting COFACE. The objections concerned also
the fact that Finland is in no way a developing or dangerous country and it
should be only Areva bearing the risk of possible delays and extra costs of the
project.94 It is to be noted that AREVA is the only company to be ever granted
an export credit guarantee for a contract with a buyer from EU Member State.
123. In conclusion it should be noted that export subsidies always and directly
affect competition in the market place between rival potential suppliers of goods
and services. Recognising their pernicious effects, the Commission, as the
guardian of competition under the Treaty, has always strictly condemned export
aid in intra-Community trade.95
93 Commission working document - Integrating environmental considerations into other policy areas- a stocktaking of the Cardiff process, COM/2004/0394 final. 94 Marie Christine Blandin: (www.senat.f/senateurs/blandine_marie_christine/questions/questions_ectites.html#COFACE), Yves Cochet : (www.yvescochet.net) 95 In its seventh report on competition policy (1977), point 242, the Commission stated that export aids in intra-Community trade 'cannot qualify for derogation whatever their intensity, form, grounds or purpose’.
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124. Already in 1977 the Commission made it undoubtedly clear that export
aid in intra-Community trade “cannot qualify for derogation whatever their
intensity, form, grounds or purpose96. This has since been common ruling, as
outlined especially in the 1997 Communication of the Commission to the
Member States pursuant to Article 93 (1) of the EC Treaty applying Articles 92
and 93 of the Treaty to short-term export- credit insurance.97
125. According to the European Commission the purpose of the 1997
communication is to remove distortions of competition due to State aid in the
sector of export-credit insurance, where there is competition between public or
publicly supported export-credit insurers and private export-credit insurers.98
126. In particular, the sector directly concerned by such competition, and
therefore by the 1997 communication, is that of export-credit insurance relating
to short-term export-credit risks on trade within the Community and with
countries outside it. These risks are defined in the 1997 communication as so-
called “marketable risks”. Marketable risks are those risks which may not be
covered by export-credit insurers with the support of the State. Only those risks
which are not marketable can be publicly supported.
127. First of all aid given under this scheme can only be given for risk
assurance which are not marketable.
128. Concluding from these principles the present support to the public
company AREVA by COFACE as “Garantie délivrée pour le compte de l’État”
constitutes state aid.
96 7th Commission report on competition policy (1977), point 242 97 Official Journal C 281 , 17/09/1997 P. 0004 - 0010 98 Communication of the Commission to Member States amending the communication pursuant to Article 93(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export credit Insurance (2001/C 217/02), Official Journal of the European Communities C 217/2, 2.8.2001,
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129. It is from public budget to a public company, having as consequence that
one state company can help itself by way of credit insurance from state budget
and thus being the worst case scenario for non-market behaviour.
130. In the case of TVO and Finland the conditions for non marketable risks
are clearly not fulfilled. COFACE was not allowed to give this guarantee to a
French public company AREVA for its venture with TVO in Finland for
delivery and installation of the specific EPR reactor.
131. The whole transaction was not notified to the European Commission.
Conclusion Again since state aid has been given but not notified we formally ask the European
commission for infringement procedures and to demand the immediate dissolution of the
guarantee transaction.
Swedish State guarantee
132. Again, we also formally ask the European Commission whether SEK,
the Swedish Export Credit Agency gave similar support to one, several or all
partners in this transaction involved. The same considerations that apply to the
French state export guarantee also apply here and should be considered mutatis
mutandis.
133. FRAMATOME ANP Siemens may have together with TVO or in
similar constellations asked for support by SEK, (AB Svensk Exportkredit), the
Swedish Export Credit Agency.
134. As already mentioned it is a fact that Sweden gave via SEK in 2003
‘substantial financial commitment for the new nuclear power plant to be built in
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Dr. Dörte Fouquet Kuhbier law firm 53
Finland by Teollisuuden Voima Oy (TVO)”.99 Since 2003 the Kingdom of
Sweden is 100 % owner of SEK100.
Combined influence of the different support schemes
135. The Complainant alleges that only the combination of these different
state aids made the offer of a fix price for the EPR possible and thus indirectly
provided one single state aid to TVO. The Commission should carefully
investigate if due to the fix price TVO was the final recipient of the alleged aid.
The Complainant reserves the right to challenge this combination in court
because it will by 2009 result in a significant distortion of the trans-European
energy market.
136. State aid in the Community is beginning to adopt a more market oriented
approach. It would be entirely out of sync with the current discussions if with
regard to this transaction the Commission chose a myopic view on the relevant
market. The market affected by the state aids here is not only the market for the
construction of nuclear power plants (or power plants in general) it is the trans-
European energy market. Only the broadest possible market definition fully
assesses the extent to which the combination of the different aid schemes distort
intra-Community competition with regard to this important sector.
137. The common effect of the individual aid schemes but also and more
significantly of their specific combination lead to a distortion of competition
and had a detriment effect on trade between Member States. Teollisuuden
Voima Oy offers its goods and services in competition with other European
electricity generating corporations outside Finland and inside Finland.
Therefore, any state aid given to TVO will distort the competition and affect
trade between Member States. As in order to construct and operate nuclear
power plant, TVO must be able to find financial resources and obtain
99 See SEK Annual report 2003, page 18, under the chapter heading ‘sek involved in many environment and energy projects” 100 see SEK “Analysis -Swedish Export Credit Corporation SWEDEN, Europe/M.East/Africa ,November 2004”
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advantages under the same normal market conditions to which other individuals
on the market are subjected to.
138. The distortion of competition which results from this state aid allows
TVO to reflect the low construction costs into the price of electricity produced
from it. EU common electricity market is already distorted by many subsidies
and incentives for nuclear power such as EURATOM loans, state guarantees,
export credits etc. The aim of the Directives 2001/77/EC and Directive 2003/54
is to reach level playing field for all kinds of energy generators. Continuous
state aids for nuclear power represents a serious obstacle to achieving this aim.
The Community level of the potential distortion is further enhanced by the fact
that the aid is of an international nature, i.e. German government supporting
Finnish developer.
139. The result of the damaging distortion of competition through illegal state
aid can already be felt by the Complainant’s membership. The competitive
situation has already been negatively influenced to the detriment of energy
producers relying on RES. The Complainant expect this situation to become
even more severe once TVO reactor connects to the public grid in 2009. The
Commission is underusing its discretion in infingment procedures if it
completely disregards the influence of the illegal state aid on the energy market.
Fixed Price contract and market distortion according to Article 82 ECT
140. We formally ask the European Commission to investigate if the
transaction does not constitute predatory pricing in the sense of Article 82 ECT,
done by market dominating companies and by means of a “dumping” fixed
price offer. This is particularly important should the Commission come to the
conclusion that no state aid exists. If the state aid granted did not distort
competition, then the only conclusion that the Complainant can draw are illegal
activities of the parties and indeed the Member state authorities involved.
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141. TVO concluded a fixed price contract with Framatome-ANP for EUR 3
billion. The cost estimate includes the plant delivery, site construction work,
supporting services, project management and interests during the construction
work for which TVO is responsible.101 Framatome-ANP is likely to have to pay
the exceeding costs which are expected to occur due to ambitious timeline,
necessary additional safety improvements requested by the Finnish authorities,
material costs increase. Significant exceeding of total cost is expected due to
rising price of steel alone.102 When the price was debated at the Finnish
parliament in spring 2002 the figures mentioned for the new atomic plant were
1,7 – 2,5 billion euros.
Standard & Poor´s states already the price of 3.2 billion EUR, according to 2003
figures. Framatome’s CEO, Ralf Guldner admitted, that the situation is troublesome for
his company, given the rising prices of raw materials. The issue of a fixed price is
causing problems within the industry itself. German utilities have told Electricite de
France that its asking price for a share in an EPR to be built in France is too high. They
calculated that the EDF’s asking price represents cost per installed megawatt of about
25% higher than the price charged to TVO for building Olkiluoto3.103 This dispute is
continuing up to date with insistence of EDF that they need 25 % higher prices than in
the TVO deal, even though the German bidders involved in the negotiations around the
new Nuclear Reactor Project in Flamanville/France underline that “ EDF has got to
understand that the first-of-a-series argument doesn't really stand
up anymore since the reactor is going to have a world market."104
142. The IEA in its report from February 2004 urged the Finnish government
to also consider another option for cutting climate change emissions in case the
EPR will not be ready in 2009 as planned. IEA emphasised that Olkiluoto 3
will be the first atomic reactor ever built in a deregulated market which can
cause unforeseen problems. The report also stressed that all over the world
atomic energy projects have exceeded the calculations planned and they have
101 www.tvo.fi 102 Tekniika&Talous magazine, 19.5.2004 103 Platts nuclear news Flashes, May 25, 2004 104 Nucleonics Week, Volume 46 / Number 46 / November 17, 2005 Copyright Platts 2005 A Division of The McGraw-Hill Companies, Inc.,
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Dr. Dörte Fouquet Kuhbier law firm 56
not been able to keep to the planned building schedules.105 The TVO’s company
officials admit themselves that the construction time schedule „is tight106“.
143. The expected price per MWh for the electricity produced is not available
to the public, but it is estimated by the partners in this transaction to be less than
25 EUR/MWh.107
144. TVO’s estimated cost of the new power unit output was 2.2
eurocents/kWh, which is in serious conflict with OECD assessment made in
1998 estimating the cost up to 3.1eurocents/kWh.108
145. The following facts further increase to the circumstance that the whole
transaction is economically not viable for Framatome ANP but a risky venture,
based on the urgency to have a European show case at all cost for further
expansion of their EPR reactor, in Europe and elsewhere, especially in China
thus greatly distorting the European energy market in hindering other
competitors especially from other energy sources to produce and supply on the
Finnish market.
146. Licensing procedure in Finland is in hands of Radiation and Nuclear
Safety Authority (STUK) and governed by the Nuclear Energy Act and
Decree. The requirements for granting the construction license are prescribed in
the sections 18 and 19 of the Nuclear Energy Act, the requirements for granting
operation license are prescribed in the section 20 of the Act109. The licenses are
granted by the Government and STUK makes a statement on the application for
the licenses and attaches its safety statements. A supporting statement of the
municipality intended to be the site of the planned nuclear facility must is also a
prerequisite for an approving decision in principle.110 The operation license is
granted only for a fixed term, usually for ten years. In its preliminary safety
105 http://library.iea.org/dbtw-wpd/textbase/npsum/finland2003SUM.pdf (downloaded) 106 http://www.tvo.fi/370.htm 107 www.olkiluoto.info108 http://www.antenna.nl/wise/587/5514.html 109 http://www.stuk.fi/saannosto/19870990e.html 110 http://www.stuk.fi/english/npp/licences.html110 Licensing procedure chart and the list of relevant regulation, viz Attachement No.1
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Dr. Dörte Fouquet Kuhbier law firm 57
assessment, STUK states that “none of the plants concepts in TVO’s
application do, as such, meet all Finnish safety requirements...the necessary
design alterations could be made during the construction license application
phase....the structural designs of all the plant concepts would require some
modification”. Also, STUK implies that TVO is not capable of running the plant
at its status quo by suggesting that “...TVO must develop its organisation,
working practices and know-how during the possible construction phase to take
responsibility for safety planning for the facilities entire operating life.” The
supplementary safety assessment requires provisions to be made for an
impacting large passenger or military plane. 111
147. The preliminary safety assessment by STUK was concluded as
following: “No such insuperable principal safety technical barriers have been
found that would prevent accepting this reactor type in Finland. However there
are several planning details that need to be further developed in things like the
planning of the reactor core, the emergency boroning of the reactor, wading the
containment building, the performance of the reactor’s emergency cooling
systems, recycling arrangements of the emergency cooling and controlling of a
serious accident. Cooling of a melted core, which relates to controlling a serious
accident, is very complex in the EPR and that’s why it is difficult to prove that
it would work in the case of a serious accident.”112
148. In October 2003 when TVO had announced that the EPR is their main
candidate, the head of the department of nuclear power plant control in STUK,
Mr. Juhani Hyvärinen described the needs for changes as following:
- One of the biggest changes is needed to the system that prevents
significant releases in the „worst case“ accident, meaning the melting of
the reactor core or other serious damages to the core. The system the
EPR now has is a kind of a „catcher“ in the bottom of the containment,
which can stand heat and catches and cools the core in case of melting.
According to Mr Hyvärinen, the basic idea is good but the realisation
http://www.stuk.fi/english/npp/5th_npp.html111 www.stuk.fi112 2 . The full text of the assessment can be found at http://www.stuk.fi/english/npp/5th_npp.html
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Dr. Dörte Fouquet Kuhbier law firm 58
“clumsy” and it looks like it has to be changed. These changes will
require also changes in the containment.
- There is a water spraying system to cool the fuel in case of a melt down
accident. The capacity of this system must be doubled.
- The cladding tube needs steel „panels“ in addition to the originally
planned ferro - concrete to make the cladding tube dense enough.
- STUK requires bigger systems for stopping the chain reaction and
cooling the reactor in case of an emergency.
- In addition to these, STUK considers that the current safety solutions are
not good enough to stand a terrorist attack with a passenger aircraft.113
149. It is also noteworthy, that after the number of accidents in the existing
Olkiluoto plants has risen unusually in 2003, STUK has ordered TVO to
develop a plan to improve safety culture.
150. As to the process of licensing, the public in Finland has not been given a
chance to participate in the project after the parliament vote. They had to hand
out their statements after it was made clear by STUK that the EPR model as
such would not meet the Finnish safety criteria, but before it was known how
Framatome ANP is going to meet the challenges.114
151. After TVO submitted its construction application on January 8, 2004, the
Finnish Ministry of Trade and Industry received 70 opinions and statements
regarding this application, most of them from abroad. No deadline for STUK
statement and related safety assessment has been set, but it is expected by the
end of this year. The Government is expected to be deciding on the construction
license in the beginning of 2005.115
Conclusion
152. We therefore formally ask the European Commission to investigate in
infringement on the bases of Article 82 ECT and we reserve the right to further
113 http://www.greenpeace.se/files/2500-2599/file_2552.pdf , page 2 114 www.olkiluoto.info115 http://www.valtioneuvosto.fi/vn/liston/base.lsp?r=82993&k=en&old=754
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submission concerning questions especially related to market dominance and we
ask the European Commission to open the respective infringement procedures.
Other financing support to the project Supplier credits and bilateral loans
153. We also have information on further financial resources in this
transaction where we ask the Commission for investigation in order to see
whether state aid may be involved:
154. In addition to the syndicated loan, TVO will also have access to financial
resources through suppliers’ credit of 587 million EUR maturing between 2009-
2021 and through bilateral loans totalling 550 million EUR maturing between
2009-2013. Funds from the syndicated credit and most bilateral loans may be
used for general corporate purposes.116
155. Fortum Oy will invest EUR 185 million, entitling to approximately 400
MW of the new plant’s capacity.
156. TVO states, that in January 2004, a total of EUR 180 million was taken
out as shareholder loans from corporations which have subscribed the new
series B shares issued in December. Total price of this issue was EUR 16
million and new shares will be issued during 2004-2009 amounting to EUR 712
million to cover internal financing share of Olkiluoto 3.117
157. There are 61 entities taking part in the financing and the companies will
get their shares of the electricity produced. About 40% of the electricity is for
general use, the rest is for the industry.
2.standardandpoors.com, under section “Credit Ratings >> Energy116 www.standardandpoors.com117 http://www.tvo.fi/uploads/TVO%20Vuosik%20Eng2003(1).pdf
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Dr. Dörte Fouquet Kuhbier law firm 60
158. TVO also receives EUR 549 million loans from the State Nuclear Waste
Management Fund in 2003. 118 The Fund is governed by Section 38 of Nuclear
Energy Act 990/87. It is independent from the state budget, controlled by
Ministry of Trade. Loans from the Fund are regulated by Section 52, which also
states that „The interest charged for loans from the Fund, granted under
subsection 1 or 3, shall be a minimum of the base rate of the Bank of Finland
increased by two percentage points.“ So far, TVO has assets of EUR 760
million in this Fund.
Infringement of EC Public Procurement Rules
159. The Complainant notes with dismay that the Commission did not
investigate the public procurement violations. All Commission officials
involved were all taken by surprise when asked about the public procurement
issues in the Meeting on 2 September 2005. This is another violation of good
administrative procedure and the Complainant reserves its right to ask the
Ombudman for an intervention in the current case.
160. In connection with the tendering and purchase of the Nuclear Reactor
from Framatome/ANP-Siemens there are several factors which point towards
infringement of EC procurement rules in Finland on different levels. We
formally ask the European Commission to investigate.
Violation of the Public Procurement Directive 93/38/EC
Obligation to run public procurement procedure for electricity received from Olkiluoto 3
161. According to our knowledge, public authorities such as the city of
Helsinki or other public authorities engaged themselves in this structure to
purchase electricity from Olkiluoto 3 for a specific price. Therefore the question
arises whether the public authorities should have been obliged to organise
public procurement for the supply of electricity before agreeing to receive
electricity from the new nuclear power plant.
118 http://www.tvo.fi/uploads/Vuosikertomus%202003%20Eng(2).pdf, page 12
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162. As already described above the public shareholders of TVO are: Fortum
Heat and Power (26.6%), Oy Mankala Ab (8.1%), Etelä Pohjanmann (6.5%)
and Kemira Oy (1.9%). But there are further 57 entities taking part in the
financing and will get their shares of the electricity produced. Between them are
public entities.119
163. The A series shares entitle the shareholders to the electricity generated in
existing Olkiluoto 1 and Olkiluoto 2 nuclear power plants, the B series shares
will entitle shareholders to electricity from the new nuclear power plant and the
C series shares entitle shareholders to the share of electricity of Meri-Pori coal-
fired power plant. This new division of shares to A, B and C series is effective
from December 2003. The companies which subscribed B shares also provided
shareholder loan to TVO amounting to EUR 180 million. Total price of B
shares issue was EUR 16 million and new shares will be issued during 2004-
2009 amounting to EUR 712 million to cover internal financing share of
Olkiluoto 3. All public authorities own shares of A, B and also C series.120
119 Electricity companies participating in Oliluoto 3 are: Alajärven Sähkö Oy, Esse Elektro Kraft Ab, Etelä-Pohjanmaan Voima Oy, Etelä-Savon Energia Oy, Fortum Power and Heat Oy ,Graninge Energia Oy, Haminan Energia Oy, Helsikni kaupunki, Hiirikosken Energia Oy, Iin Energia Oy, Imatran Seudun Sähkö Oy, Jylhän Sähköosuuskunta, Järviseudun Sähkövoiman Kuntayhtymä,Kaakon Energia Oy, Kemira Oyj, Keravan Energia Oy, Keskusosuuskunta Oulun Seudun Sähkö, Kokemäen Sähkö Oy, Kokkolan kaupunki/energialaitos,Korpelan Voima kuntayhtymä, Kruunupyyn kunta/sähkölaitos, KSS Energia Oy, Kumera Oy, Kymenlaakson Sähkö Oy, Kumppivoima Tuotanto Oy, Köyliö Säkylän Sähkö, Lahti Energia Oy, Laihian Sähkö Oy, Lammaisten Energia Oy, Lankoksen Sähkö Oy, Lehtimäen Sähkö Oy, Leppäkosken Sähkö Oy, Oy Metsä-Botnia,M-Real Oy, Myllykoski Oyj, Mäntsälän Sähkö Oy, Nurmijärven Sähkö Oy, Oulun kaupunki/Oulun Energia,Outokumpu Oyj, Paneliakosken Voim Oy, Pietarsaaren kaupunki/energialaitos,Pohjolan Voima Oy, Porin kaupunki, Porvoon Energia Oy, Pohjois-Karjalan Sähkö Oy, Päijät-Hämeen Voima Oy, Rauman Energia Oy, Rautaruukki Oyj, Rovakaira Oy, Sallila Energia Oy, Savon Voima Oy (Atro), Seinäjoen Energia Oy,Stora-Enso, Suur-Savon Sähkö Oy, Tornionlaakson Sähkö Oy, UPM-Kymmene Oyj, Uusikaarlepyyn kaupunki/liikelaitos, Vaasan Sähkö Oy, Vantaan Energia Oy, Vatajankosken Sähkö Oy, Vetelin Sähkölaitos, Vimpelin Voima Oy, Ääneseudun Energia Oy,Pohjolan Voima
120 http://www.tvo.fi/uploads/Vuosikertomus%202003%20Eng(2).pdf, page 6
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Dr. Dörte Fouquet Kuhbier law firm 62
164. The shareholders provide TVO with EUR 180 million loans and also
they agreed to buy TVO’s shares to be issued during 2004-2009 for the amount
of EUR 712 million.
165. Directive 93/36/EEC of 14 June 1993 coordinates procedures for the
award of public supply contracts, which is transposed by Finish Law on Public
Procurement 1505/1992. The Finnish Decree on public supply contracts
concerning the procurement of goods and services, and on works contracts
exceeding given threshold values (380/1998) implements the above Directive.
The Finnish Decree on the procurement procedures of entities operating in the
water, energy, transport and telecommunications sectors (381/1998) implements
the Directive 93/38/EEC coordinating the procurement procedures of entities
operating in the water, energy, transport and telecommunication sectors..
166. All those public authorities which do fall under the scope of Directive
93/36/EEC are obliged to public procurement procedure with regards to their
supply of electricity from TVO and could not engage themselves in long term
supply agreements with TVO without public tendering procedure. We therefore
formally ask the Commission to investigate if public partners on the Finnish
side of the transaction would fall within the discretion of the above Public
Procurement Rules concerning public entities involved.
Violation of Public Procurement Rules by TVO for the Purchase of the new Nuclear Power Station
167. As outlined in detail below TVO had to follow all relevant Public
Procurement Rules. We formally ask the European Commission to investigate
how the procurement proceeded in detail and to evaluate if public procurement
laws were fully observed.
168. In case of non-appliance we ask the Commission to order a new
procurement procedure.
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Dr. Dörte Fouquet Kuhbier law firm 63
169. We ask for infringement procedures concerning the violation of public
procurement rules by TVO when knowing of predatory fixed price scheme
proposed by Framatome/ANP/Siemens.
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Dr. Dörte Fouquet Kuhbier law firm 64
TVO tender characteristics
170. The tender was launched by TVO in October 2002 with deadline for
March 2003. TVO requested bids for a light water plant unit with either a
boiling water or pressurised water reactor with an electric power capacity of
1.000 to 1.6000 MW.121 Tenders have been submitted to TVO by three vendors
and for four designs: Framatome ANP: European Pressurised Water Reactor
(EPR) of 1600MWe and SWE-1000 of 1200MWe, General Electrics: European
Simplified Boiling Water Reactor (ESBWR) of 1390MWE and Russian
Atomstoryexport: VVER-91/99 of 1060MWe.
171. Since the considerate size of the new nuclear power plant and in view of
the non-discriminatory ruling of Directive 2003/54/EC of the European
Parliament and of the Council of 26 June 2003 concerning common rules for the
internal market in electricity and repealing Directive 96/92/EC consistently asks
for removal of various barriers and asks Member States to refrain from
discrimination. TVO was in our view obliged to ask for state aid clearance and
was obliged to reject the offer of Framatome ANP .
Violation of the Public Procurement Directive 93/38/EC by TVO
172. Directive 93/38/EEC coordinating the procurement procedures of entities
operating in the water, energy, transport and telecommunications sector
(„Directive“) applies to TVO.
173. This maybe questionable since Art. 2 paragraph 1 (a) of the Directive
provides that this Directive shall apply to contracting entities which are public
authorities or public undertakings.
174. TVO cannot be considered as a “public undertaking“ since public
authorities may not exercise directly or indirectly a dominant influence, nor can
such influence be presumed. The ownership structure of TVO shows that it is
121 http://www.tvo.fi/301.htm
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Dr. Dörte Fouquet Kuhbier law firm 65
56.9% private owned and 43.1% public owned company. There is also a number
of public authorities involved in the private investor’s shareholding structure.
However, the public authorities do not hold the majority of TVO’s capital, nor
its voting rights, neither can they appoint more than half of TVO’s
administrative, managerial or supervisory body (Art.1, para 2).
175. On the other hand Art. 2. paragraph 1 (b) of the Directive states that it
should apply to “contracting authorities” which when they are not public
authorities or public undertakings, have as one of their activities any of those
referred to in paragraph 2 or any combination thereof and operate on the basis
of special or exclusive rights granted by a competent authority of e Member
State.“
176. Art.2 paragraph 3 than states that a contracting entity shall be considered
to enjoy special or exclusive rights in particular where - in case of paragraph 2
(a)- the entity supplies with drinking water, electricity, gas or heat a network
which is itself operated by an entity enjoying special or exclusive rights granted
by a competent authority of the Member State concerned.
177. This means that one has to evaluate if the Finnish transmission system is
such a network enjoying special or exclusive rights granted by the Finnish state.
Finland’s national transmission system operator is Fingrid Oy122. It was created
by Government in November 1996 when the Government bought the electricity
transmission assets of IVO (state-owned) and PVO in the two then existing
transmission networks. It now owns more than 99% of the grid as well as all
major interconnections. It has the following shareholders: Finland : 12%, PVO:
25% (PVO holds 56,8% of TVO) Fortum : 25% (Fortum is a state company,
which holds 26,6% of TVO), Institutional owners: 38%. The following voting
rights are given:
Finland: 16.7%
PVO: 33.3%
Fortum: 33.3%
122 www.fingrid.fi
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Dr. Dörte Fouquet Kuhbier law firm 66
Institutional owners: 16.7%
178. Overall, the Finnish state holds 37% of shares and 50% of votes in
Fingrid Oy123.
179. According to Section 4 of the Finnish Electricity Market Act 386/1995
and Decree 518/1999 any interested entity can construct a power line, subject to
a licence issued by the Finnish Electricity Market Authority. Thus, Fingrid does
not have a statutory monopoly on transmission facilities.
180. Fingrid sets its own transmission prices and functions as common carrier
– it has the obligation of carrying the load of every potential customer,
connecting all generation installations and duty to extend the infrastructure.
Fingrid also owns 20% of Nord Pool, the Nordic interstate transmission system.
But it was the Finnish state which bought the network from PVO and IVO in
1996 for FM 7 billion to resell consequently Fingid’s shares on the market,
while still holding 50% of votes.
181. In our view this initial investment, which was the largest financial
operation on Finland’s domestic market ever carried out, constitutes some
special position of Fingrid. This links it to the direct applicability of
procurement rules.
182. Therefore TVO was obliged to follow Public Procurement rules.
Violation of procurement rules by TVO due to non enquiry into state aid schemes
183. According to our investigation and the above fact presentation TVO was
fully aware of the above predatory pricing scheme of Framatome/ANP and also
of the COFACE guarantee. Therefore TVO, knowing that it was done by public
support, TVO was obliged to demand of the applicant in the tendering process
to ask if state support schemes were notified to the European Commission. The
tendering agency should ask in cases of “abnormally low” offers and according 123 IEA report,1999, saved, ownership structures printed into file
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Dr. Dörte Fouquet Kuhbier law firm 67
to Art. 34 Directive 93/38/EEC coordinating the procurement procedures of
entities operating in the water, energy, transport and telecommunications sector
which provides: „Contracting entities may reject tenders which are abnormally
low owing to the receipt of State aid only if they have consulted the tenderer
and if the tenderer has been unable to show that the aid in question has been
notified to the Commission…“.
184. TVO was aware that Siemens and AREVA were asking for state
guarantees. This was published in the press at least and broadly concerning
details on the question of Siemens in negotiating with HERMES.
185. Already preamble, recital 9 of Directive 93/38/EEC states that „…to
ensure a real opening-up of the market and a fair balance in the application of
procurement rules in these sectors requires that the entities to be covered must
be identified on a different basis than by reference to their legal status.“
186. Directive 93/38/EEC, Art. 4 states: „1. When awarding supply, works or
service contracts, or organising design contests, the contracting entities shall
apply procedures which are adapted to the provision of this Directive. 2.
Contracting entities shall ensure that there is no discrimination between
different suppliers, contractors or service providers“.
187. Art.30 provides: “2. The system, (…), shall operate on the basis of
objective criteria and rules to be established by the contracting entity….“
“5. In reaching their decision as to qualification or when the criteria and rules are
being updated, contracting entities may not:
- impose conditions of an administrative, technical or financial nature on
some suppliers, contractors or service providers which are not imposed
on others,…“
188. In our opinion, TVO would have needed to enquire whether the above
received COFACE guarantee had been notified to the European Commission
and to reject the offer since no such notification was submitted to the European
Commission. Since the considerate size of the new nuclear power plant and in
view of the non-discriminatory ruling of Directive 2003/54/EC TVO was in our
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Dr. Dörte Fouquet Kuhbier law firm 68
view obliged to ask for state aid clearance and was obliged to reject the offer of
Framatome ANP. Concerning all the related facts around the fixed-price offer
and concerning the probably higher costs to be expected we refer to Par. 120 to
132 of this complaint.
189. Again we ask the European Commission to open infringement
procedures.
Infringement of EEA Agreement
190. We reserve the right for further submission but ask the Commission to
enquire if the AGREEMENT ON THE EUROPEAN ECONOMIC AREA
(EEA Agreement) and especially Chapter Two “State Aid” and Article 61(1) of
the EEA Agreement are not violated and subsequently to also open infringement
procedures. This is a necessary examination since EEA Member state Norway
is one of the direct neighbours to Finland and has import links to Finland as
shown above under par. 16. The same considerations that apply in the
Community context with regard to the OECD Agreement are also true with
regard to EFTA. Particularly since the only countries bound by EFTA
competition rules are Lichtenstein, Norway and Iceland. These countries share a
common understanding on discrimination and market distortion.
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Dr. Dörte Fouquet Kuhbier law firm 69
191. Article 61 (1) asks as following:
“Save as otherwise provided in this Agreement, any aid granted by EC Member States,
EFTA States or through State resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain undertakings or the production
of certain goods shall, in so far as it affects trade between Contracting Parties, be
incompatible with the functioning of this Agreement.”
We suggest investigating under considering the above arguments on state aid violation in this
EEA investigation procedure.
Formal legal demand
192. We ask the European Commission to open formal main procedure on all above
grounds for violation of EC law.
193. We ask to receive reasoned interim decisions in writing concerning all above
complaint points.
194. We repeat that so far only DG Comp was reacting to this complaint concerning
the state aid parts (CP238/04) . We had a constructive discussion with DG COMP and
this adjusted complaint gives a thorough reflection and reaction to the arguments
exchanged with DG Comp during meeting.
195. We did not receive any acknowledgement of any of the other services of the
Commission which are obliged to evaluate our complaint.
196. We underline necessity to receive these acknowledgements in due time and
repeat that our complaint was introduced almost one year ago and the question of non-
action procedure against the European Commission arises.
Dr. Dörte Fouquet Rechtsanwältin 16th of November 2005
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