EUROPEAN COMMISSION
Brussels, 11.03.2015 C(2015) 1748 final
PUBLIC VERSION
This document is made available for information purposes only.
Subject: State aid SA.40773 (2015/N) – United Kingdom Closure Aid to Hatfield Colliery Partnerships Ltd
Sir,
1. PROCEDURE 1. By electronic notification on 12 February 2015, registered by the Commission on the same day (SANI 193444), following pre-notification contacts, the UK authorities, in accordance with Article 108(3) of the Treaty on the Functioning of the European Union ("TFEU"), notified this State aid measure designed to finance the closure of the deep coal mine Hatfield Colliery.
2. DESCRIPTION OF THE CLOSURE PLAN 2. Hatfield Colliery Partnership limited (HCPL) is a mining company, operating Hatfield Colliery, a deep coal mine, which produces coal used exclusively for the purpose of generating electricity and heat in the UK.
3. Hatfield Colliery is located in Doncaster, South Yorkshire. It is one of the three remaining deep coal mines in the UK. Established in 1910, the mine has had a number of different owners and has been through a number of insolvency procedures.
The Rt Hon Philip Hammond MP Secretary of State for Foreign and Commonwealth Affairs Foreign & Commonwealth Office King Charles Street London SW1A 2AH United Kingdom
Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefón: 00-32-(0)2-299.11.11. 4. The coal produced at the mine is characterised by a calorific value of 27.7 MJ/kg. According to the UK authorities it falls under the Medium to High rank in accordance with the UN Economic Commission for Europe Codification Systems.
5. HCPL purchased the business and assets of Hatfield Colliery Limited (HCL), including the Hatfield Colliery, in December 2013. As part of the sale agreement, certain trading debts1 and existing loans2 of HCL were taken on by the purchaser.
6. Subsequently, HCPL failed to mine sufficient coal to trade at a level that it could service its high fixed cost base and legacy debt burden. HCPL is currently balance sheet insolvent.
7. The mining of Hatfield Colliery cannot continue in the long run without additional financial assistance. The later will be difficult and expensive to obtain, as from the investor point of view the UK coal sector is inherently risky due to the high volatility of coal prices and the prevailing policy of diversification of energy sources with a preference towards cleaner forms of energy.
8. The difficult market situation of Hatfield Colliery is further exacerbated by the increasing share of cheaper imported coal used for supplying current coal fired energy power stations.
9. Thus it has been decided to irrevocably close down Hatfield Colliery by February 2017 with coal production to stop by the end of August 2016.
10. The irrevocable closure of the mine is a pre-condition of the UK Government´s granting of aid.
11. Presently, HCPL operates only one mining unit where mining work is ongoing on a single coal face - H09.
12. Under the submitted Closure Plan the mining at H09 will cease by the end of August 2016. No new coal faces will be opened in the interim. After mining ceases, subsequent closure and remediation works are planned to be completed by February 2017.
13. HCPL has so far not benefited from closure aid, neither under the current nor under previous ownerships.
3. OBJECTIVE AND SCOPE OF THE NOTIFICATION 14. The objective of the State aid measure is to facilitate the closure of Hatfield Colliery by February 2017 in accordance with the rules set out in Council Decision 2010/787/EU of 10 December 2010 on State aid to facilitate the closure of uncompetitive coal mines3 ("the Council Decision"), in particular:
- to cover current production losses in the period November 2014 – October 2016 arising from the operation of the mine (under Article 3 of the Council Decision)
1 Outstanding balance to trade creditors amounted to GBP 12.5 million. 2 The existing loans to ING Bank amounted to GBP 87 million. 3 OJ L 336, 21.12.2010, p.24-29. 2 - to cover exceptional costs arising from the definitive closure of the mine covering the period November 2014 – February 2017 (under Article 4 of the Council Decision).
15. The production estimates for the period concerned (November 2014- February 2017) are the following:
Table 1: Evolution of production output
Coal Year 1 Coal year 2 Coal year 3 Year (November 2014 – October 2015) (November 2015 – October 2016) (November 2016 – October 2017)
Coal Output(000´s tonnes) 799,3 745,4 0,0 Source: UK authorities
16. The closure of Hatfield Colliery will result in some 436 employees being laid off by February 2017.
Table 2: Evolution of headcount
Coal Year 1 Coal year 2 Coal year 3 Year (November 2014 – October 2015) (November 2015 – October 2016) (November 2016 – October 2017)
Opening headcount 436 382 24 Headcount reduction in year 54 358 24 Source: UK authorities
4. LEGAL BASIS AND GRANTING AUTHORITY
17. The legal basis is the Industrial Development Act 1982, section 7(1).
18. The Secretary of State for Business, Innovation and Skills is the granting authority for the notified measure.
5. BENEFICIARY AND DURATION 19. The beneficiary is Hatfield Colliery Partnership limited (HCPL).
20. HCPL is part of HCPL Group4 and is 100% owned by HCL HoldCo Limited. HCL Holdco Limited is owned by an employee trust, Hatfield Colliery EBT Company Limited, a company limited by guarantee. HCL Holdco Limited also owns four property companies of which three - Propco 2, Propco 3 and Propco 4 - own part of the land around Hatfield Colliery. The fourth property company - Propco 1- has no assets.
21. Subject to approval from the Commission, the aid will cover costs arising between November 2014 and February 2017.
4 Group structure chart is included in Annex 1 3 6. ELIGIBLE COSTS, FORM OF THE AID AND AID AMOUNT 22. The notification concerns aid to cover the positive difference between current production costs and revenues from units being closed (production losses) and to cover costs arising from closure of coal production units and which are not related to current production (exceptional costs).
23. The aid takes the form of a reimbursable grant, paid yearly in staged payments and bears 3% interest. The interest will be payable either at the end of the closure plan (February 2017) or at the end of coal production (August 2016). The form of the aid as a reimbursable grant, does not affect the fulfilment of the conditions for granting State aid under the Council Decision, but ensures that the intervention of the UK authorities is as market based as possible.
24. The reimbursable grant will be subject to a full informational and financial covenant package to be concluded with the aid beneficiary.
6.1. Total amount of aid and budget
25. The UK authorities consider that there is a very high risk that the grant will not be reimbursed due to the financial status of the beneficiary and the evolution of the coal market. Therefore, the total amount of aid equals the amount of the reimbursable grant - GBP 20 million and will be granted for three consecutive coal years, covering the period from November 2014 to February 2017.
26. The overall amount of State aid to be granted in accordance with Articles 3 and 4 of the Council Decision, broken down by year, is as shown in the table below.
Table 3: State aid payments per coal year
Coal Year 1 Coal year 2 Coal year 3 Type of aid in millions of GBP/Year Total (November 2014 – October 2015) (November 2015 – October 2016) (November 2016 – October 2017) Aid under Article 3 of the Council Decision 13,74 1,64 0,0 15,38 Aid under Article 4 of the Council Decision 0,23 2,91 1,48 4,62 Aid under Article 3 and Article 4 of the Council Decision 13,96 4,56 1,48 20,00 Source: UK authorities
6.2. Aid to cover production losses
27. The calculation of the production losses are based on a number of assumptions related to costs and revenues and described below.
28. The costs include production related costs, labour costs, depreciation costs and interest charges.
29. The estimated production costs in the Closure Plan are based on the following assumptions:
4 - API25 as a reference for the forward price of coal - Continuous tendency of downward prices (up to 18% price decrease) - high levels of price and foreign exchange risks - flat foreign exchange rate.
30. The revenues have been calculated on the basis of the fact that Hatfield Colliery´s trade agreements are normally expressed in terms of fixed price contracts based on the prevailing market price (API2) at the time of execution or floating price contract pegged to the prevailing market price (API 2) plus a price premium per gigajoule.
31. When forecasting the level of the revenues the UK authorities have decided to adopt a more conservative approach than the one used by HCPL in the submitted management plan6. The UK authorities´ more pessimistic estimate of the level of expected revenues7 is due to the high probability of adverse price movements that could have a negative effect on the level of forecasted revenues.
32. Being aware of the possibility of errors in forecasting the costs and revenues that determine the level of the expected production losses and wanting to limit the aid to the necessary minimum the UK authorities have decided to cap the amount of aid to be granted for the purposes of covering production losses to a maximum of GBP 15.38 million. The aid will be disbursed in tranches following a downward trend as shown in table 4.
Table 4: Evolution of production aid and the aggregated production costs and revenues of the mine
Coal Year 1 Coal year 2 Coal year 3 In millions of GBP Total (November 2014 – October 2015) (November 2015 – October 2016) (November 2016 – October 2017) Revenue 31,73 29,02 0,00 60,76 Production costs -46,12 -31,42 0,00 -77,54 Production losses -14,39 -2,39 0,00 -16,78 Eligible production losses under Article 3 of the Council Decision -14,39 -2,39 0,00 -16,78 Capped aid under Article 3 of Council Decision 13,74 1,64 0,00 15,38 Source: UK authorities
33. The UK authorities will monitor the difference between actual production costs and revenues for each coal year and will ensure that the aid amount granted per year under Article 3 of the Council Decision does not exceed the production losses actually incurred. Since the aid is paid during the coal year, the amount of aid will be adjusted ex post at the end of each coal year.
6.3. Aid to cover exceptional costs
34. After the production of the mine ceases in August 2016, closure of the mine facilities and remediation of the mine and its curtilage will be undertaken.
5 The API 2 index is the benchmark price reference for coal imported into northwest Europe and is used as the price reference for physical and over-the-counter coal contracts. It is calculated as an average of the Argus cif ARA assessment and the IHS McCloskey NW Europe Steam Coal marker. 6 An extract of the management plan with the respective figures for expected revenues and production losses is available in annex 2b. 7 The detailed calculations submitted by the UK authorities are available in annex 2a. 5 35. The table below shows the categories of exceptional costs not related to current production of the mine and arising as a result of its closure and their disbursement per year in period November 2014 – February 2017.
Table 5: Exceptional cost categories and their disbursement per year
Cost Category under Annex to Coal Year 1 Coal year 2 Coal year 3 Council Decision 2010/787/EU in Total (November 2014 – October 2015) (November 2015 – October 2016) (November 2016 – October 2017) millions of GBP (b) Other exceptional expenditure on workers who have lost or who lose their jobs 0,23 1,49 0,10 1,82 (g) Additional underground safety work resulting from the closure of coal production units 0,00 1,42 0,83 2,25
(i) Cost related to the rehabilitation of former coal mining sites 0,00 0,00 1,20 1,20
(m) Costs of surface re-cultivation 0,00 0,00 0,30 0,30 Estimated increase in the value of the land 0,95 0,95 Eligible exceptional costs under Article 4 of the Council Decision 0,23 2,91 1,48 4,62 Aid under Article 3 of Council Decision 0,23 2,91 1,48 4,62
Source: UK authorities
36. Staff reductions will take place as shown in Table 2.
37. The workforce will receive statutory redundancy payments. Statutory redundancy is calculated on the basis of half a week’s pay for each full year of service under the age of 22, 1 week’s pay for each full year between the ages of 22 and 40 and 1.5 weeks’ pay for each full year whilst 41 years and older. Length of service is capped at 20 years and weekly pay is capped at GBP 464. The maximum amount of statutory redundancy pay for an individual is GBP 13 920. 38. Closure works will include closing off all underground workings, the erection of explosion proof stoppings to regulate conditions underground, de-commissioning of the two mine shafts, whereby guide ropes and lifting ropes will be removed, treating the shafts, demolishing the colliery site and finally clearing the site for future potential uses.
39. The closure plan does not include the salvage of the underground mining machinery and materials given that the costs of their extraction are expected to be greater than the salvage value.
6 40. The table below describes the land associated with the Hatfield Colliery and its respective owners.
Table 6: Land associated with Hatfield Colliery Entity Description of land HCPL - the mine shafts, mining operations and assets; and - the circle of land around the mine shafts with a 45m circumference; Propco 2 - the ashfield site (current mine tip); - the part of the mine land (edged green on the plan);
Propco 3 - previous spoil tips Propco 4 - the remaining mine land (colliery yard, offices etc. excluding the 45m circles around the shafts) Source: UK authorities 41. For the purposes of calculating the precise amount of aid under Article 4 of the Council Decision, the UK authorities confirm that they will instruct certified independent surveyors to carry out the valuation of the land held by HCPL and Propcos 2, 3 and 4 prior to granting the aid and at the end of the closure plan restoration works. The UK authorities have made their own preliminary calculations as to the increase in the value of the land and consider it will amount to approximately GBP 950 000.
42. The UK authorities confirm that they will put in place contractual arrangements to ensure that any actual increase in the value of the land will be deducted from the amount of aid granted under Article 4 and points (g), (i) and (m) of the Annex to the Council Decision. The grant of aid will be conditional on Propcos 2, 3 and 4, which are not aid beneficiaries, entering into legally binding contractual provisions to the effect that those companies will not benefit in the event that there is an increase in the value of the land as a result of the aid.
6.4. Plan of measures to mitigate the environmental impact of coal production
43. The UK authorities have put in place an extensive suite of policy measures aimed at mitigating the environmental impact of coal production in the UK. These measures, aimed at reducing the UK´s reliance on electricity from coal-fired power stations and mitigate the environmental impacts of coal extraction and combustion, include the following:
- Decarbonisation of the electricity sector: decrease the amount of unabated coal used for the purposes of electricity generation8 by introducing a British Carbon Price Floor (CPF), which acts as a tax on carbon and consequently increases the price of coal generation;
8 As a result of the pursued strategy of electricity sector decarbonisation it is expected that in 2025 only 1% of total electricity generation in the UK will be from unabated coal. 7 - Obligatory use of Carbon Capture and Storage (CCS)9 installations at new coal- fired power stations10; - Promotion of renewable electricity through various support measures11; - Promotion of energy efficiency measures12.
44. None of the measures described above benefit from State aid under this decision.
45. The closure of Hatfield Colliery and the specific measures applicable to it during its period of operation and once it has been closed down are in line with and reinforce the UK policy measures for environmental mitigation outlined above.
46. The UK authorities have submitted a list of measures that ensure the mitigation of the environmental impact of coal production and encompass the following:
- general measures applicable during the period of operation; - general measures applicable during the period of closure; - specific measures related to carbon capture and storage.
6.4.1. Mitigating the environmental impact of coal extraction during the period of operation
47. Hatfield Colliery is operated in accordance with the terms of a lease and licence issued by the Coal Authority, a non-departmental public body of the UK’s Department of Energy and Climate Change. The licence places limitations on the degree of coal mining subsidence damage that can be allowed from planned mine workings.
48. The Coal Authority lease contains provisions that require the operator to work the mine in accordance with relevant legislation, including environmental statute and specifically prohibits the operator from depositing in the mine any pollutants not required for coal mining operations.
49. In addition to the Coal Authority licence and lease, Hatfield Colliery also works under the provisions of consents issued by other regulatory bodies. These include consents issued by the UK Environment Agency and the local planning authority covering such aspects as water discharge, coal processing, noise, dust and tipping of colliery spoil.
9 The UK has introduced the CCS Competion which includes financial support for research and development of CCS technology and operating support under a Contract for Difference for large CCS projects. 10 The National Policy Statements issued under the Planning Act 2008 require any new coal-fired power station to be equipped with at least 300 MWe (net) of CCS. 11 Measures under the Government´s Electricity Market Reforms include the support for all low carbon technologies in the form of Contracts for Difference (CfD) that will be replaced in 2017 by the new Renewable Obligations (RO) support scheme. 12 Energy efficiency measures include the Green Deal and the Energy Company Obligation financing private homes insulation. 8 50. The colliery also has a licence from the Department of Energy and Climate Change to capture and drain methane from the mine for health and safety reasons.
6.4.2. Mitigating the environmental impact of coal extraction during the period of closure
51. When the mine closes the Coal Authority lease sets out the condition that the mine should be left in following closure, including the requirement for the operator to seal the mine entries.
52. Under environmental legislation the operator will be required to inform the UK Environment Agency about the closing down of Hatfield Colliery at least six months prior to the start of closure works and prepare a detailed report on the consequences of closure on the water regime affected by the mine.
53. A method of mine closure will be agreed with the Environment Agency, the Coal Authority and the UK Health and Safety Executive incorporating such items as the building of underground water dams and the clay sealing of the strata around aquifers exposed in the mine shafts to prevent pollution. As part of the closure programme the local planning authority will require an agreed restoration scheme for the colliery tip and the site surface.
6.4.3. Mitigating the environmental impact of coal extraction by specific measures
54. Hatfield Colliery is a supplier to several coal-fired power plants in the UK. Measures are being implemented at some of these sites to mitigate the environmental impact of coal combustion.
55. Drax is a main customer of Hatfield Colliery and is expected to remain such over the period of the closure plan. There is an intention to develop a new coal-fired oxy-fuel power plant with full CCS equipment13 on land adjacent to the existing Power Plant.
56. The state-of-the-art coal-fired power plant will be equipped with full CCS technology capable of capturing approximately 2 million tonnes of CO2 per year, some 90% of all CO2 emissions produced by the plant. The project is intended to prove CCS technology at commercial scale and demonstrate it as a competitive form of low-carbon power generation and as an important technology in tackling climate change. It will also play an important role in establishing a CO2 transportation and storage network in the Yorkshire and Humber area.
13 The Drax CCS Project will be partially financed by the UK´s CCS Demonstration Competition scheme aimed at promoting the deployment of CCS technologies and is also seeking European funding from the NER 300 programme. 9 6.5. Cumulation
57. The aid to be granted under the notified measure cannot be cumulated with other operating aids for the same eligible costs.
7. ASSESSMENT 7.1. State aid in the sense of Article 107(1) TFEU
58. State aid is defined in Article 107(1) TFEU as "any aid granted by a Member State 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 in so far as it affects trade between Member States".
59. The notified aid measure favours a specific economic undertaking – HCPL - and allows this specific beneficiary to be relieved, by means of State resources transferred directly from the State budget, of a part of the production, social and safety costs which it would normally have to bear itself. The market for coal is fully open to competition and coal is traded across borders. Consequently, the financial aid from the State strengthens the position of the beneficiary in relation to its competitors in the EU and therefore has potentially distorting effects on competition and is liable to affect intra-EU trade.
60. Accordingly, the Commission concludes that the notified measure in favour of HCPL constitute State aid within the meaning of Article 107(1) TFEU.
7.2. Lawfulness of the aid
61. By notifying the aid measure before its implementation, the UK authorities fulfilled their obligation according to Article 108(3) of the TFEU.
7.3. Compatibility of the aid
62. The Commission has assessed the compatibility of the notified scheme, according to the Council Decision for the period from 1 November 2014 until 28 February 2017.
63. According to Article 2, paragraph 2 of the Council Decision, "aid shall cover only costs in connection with coal for the production of electricity, the combined production of heat and electricity, the production of coke and the fuelling of blast furnaces in the steel industry, where such use takes place in the Union". The production aid the UK Government intends to grant concerns the production of coal used for the production of electricity and heat. Therefore, this criterion is complied with.
64. The UK intends to grant closure aid in the context of the closure plan of Hatfield Colliery. As defined in Article 1.c) of the Council Decision, the closure plan drawn up by the Member State must provide for measures culminating in the definitive
10 closure of coal production units. The closure plan submitted by The UK includes the legislative and other measures adopted by the UK described in sections 2 to 6, including also the financial measures planned to accompany the definitive and irrevocable closure of the units concerned, thus leading to an orderly winding down of activities of such units at the planned dates.
65. Moreover, Article 7(2) of the Council Decision specifies the minimum elements that a closure plan must contain:
a. Identification of the coal production units; b. Real or estimated production costs for each coal production unit per coal year; c. Estimated coal production, per coal year, of coal production units forming the subject of a closure plan; d. The estimated amount of closure aid per coal year.
66. The UK authorities have submitted all the relevant data required for the assessment of the closure plan.
7.3.1. State aid to cover the production losses
67. According to Article 3(1) of the Council Decision, aid to an undertaking intended specifically to cover the current production losses of coal production units may be considered compatible with the internal market only if it satisfies the following conditions:
a) the operation of the coal production units concerned must form part of a closure plan the deadline of which does not extend beyond 31 December 2018;
68. The UK authorities have indeed explained that under the managed closure plan, production at Hatfield Colliery will cease by August 2016 and the mine will be closed by February 2017.
69. The irrevocable closure of Hatfield Colliery is further guaranteed by the fact that the UK authorities have statutory powers to close it. The Coal Authority has powers to terminate the licence, under which Hatfield Colliery operates. The Secretary of State for the Department of Energy and Climate Change (DECC) also has a power to direct the Coal Authority in the manner in which it operates its licencing function.
b) the coal production units concerned must be closed definitively in accordance with the closure plan;
70. The submitted closure plan provides for a progressive reduction of the activity until the definitive closure of the coal mine in February 2017. The definitive closure of the mine is envisaged through the detailed abandonment works, ecological rehabilitation and natural environment restoration of the surfaces occupied by the former mining activity. Specific measures are provided to accompany the downsizing, retraining and severance payments for redundant staff. The
11 Commission can conclude from this that the production units will be closed definitely.
c) the aid notified must not exceed the difference between the foreseeable production costs and the foreseeable revenue for a coal year. The aid actually paid must be subject to annual correction, based on the actual costs and revenue, at the latest by the end of the coal production year following the year for which the aid is granted.
71. As shown above in Table 4, the annual aid notified for coal production in the closing production units does not exceed the difference between the foreseeable costs and foreseeable revenues. In Annex 2 A, the foreseeable costs and foreseeable revenues are provided in detail.
72. The UK authorities have committed to ensure that the aid actually paid will be subject to annual correction, based on the actual costs and revenues, at the latest by the end of the Coal production year following the year for which the aid is granted. The aid amount will be subject to an ex-post adjustment at the end of each such Coal production year.
d) the amount of aid per tonne coal equivalent must not cause prices for Union coal at utilisation point to be lower than those for coal of a similar quality from third countries.
73. The level of aid granted is a product of market prices as the production losses are a function of the expected revenues and the forecasted production costs, both of which are determined on the basis of market prices as explained in recitals 29 and 30. Thus the amount of aid per tonne coal will not cause prices for Union coal at utilisation point to be lower than those for coal of a similar quality from third countries.
e) the coal production units concerned must have been in activity on 31 December 2009;
74. Hatfield Colliery was in activity in 2009.
f) the overall amount of closing aid granted by a Member State must follow a downward trend: by the end of 2013 the reduction must not be less than 25%, by the end of 2015 not less than 40%, by the end of 2016 not less than 60% and by the end of 2017 not less than 75% of the aid granted in 2011.
75. The Hatfield Colliery has been competitive until recently. It is only due to engineering and geological problems significantly affecting production and the continued deterioration in world coal prices that its competitiveness was affected and hence the closure decision was taken.
12 76. Since the UK authorities have not granted any closure aid until now, there are no thresholds from previous years to be taken into account. However, in order for the downward trend to be maintained at the reduction rates mentioned above, the Commission has applied the principle enshrined in Article 3(1)(f) of the Council Decision, taking as reference year, the year in which aid is granted for the first time (2015) and applying the reduction rates in the order established in the Council Decision. Nevertheless, this approach does not affect the rest of the provisions in Article 3 of the Council Decision which apply literally and in full as per previous Commission case practice. In particular, as the Council Decision provides expressly in Article 3(1)(a) that the operation of the coal production unit must not extend beyond 31 December 2018, taking 2015 as a reference year cannot lead to an extension of the closure date beyond 31 December 2018. Moreover, in accordance with Article 3(1)(b) the approach above cannot change the fact that the coal production unit must be irrevocably closed.
77. The present approach ensures that Member States that have started to grant closure aid later than 2011 are treated equally and are not put at a disadvantage with respect to Member States that have started to grant aid in 2011.
78. The rationale of the Council Decision is to ensure an orderly winding down of activities in the context of an irrevocable closure plan. The downward trend of the aid amounts as per Article 3(f) of the Council Decision has the scope of ensuring an orderly winding down also by way of the degressivity of the aid amounts. It also clearly takes into account the situation of mines that were uncompetitive even in 2011.
79. In the case of the Hatfield Colliery, it is clear the mine became uncompetitive only recently and that there is an orderly winding down of the activities. The mine will only continue to function until August 2016 when it will completely stop all coal production. The UK authorities will closely monitor this process and even cap the allowable aid amount. The Commission, thus, concludes, that taking 2015 as the reference year for calculating the downward trend for the aid amount is in line with interpreting the Council Decision on the basis of its rationale and spirit.
80. The Commission concludes from the table below, that state aid to be granted has a downward trend and falls into the minimum levels of reduction provisioned in the Council Decision. The degressivity criterion prescribed by the Council Decision is therefore complied with.
13 Table 7: Evolution of total aid amounts between 2011 and 2017:
Base Year Base Year + 1 Base Year + 2 Coal Year 1 Coal year 2 Coal year 3 Specification/year (November 2014 – October 2015) (November 2015 – October 2016) (November 2016 – October 2017) Amount of state aid to be paid under Article 3 of the 13,74 1,64 0,00 TheCouncil effective Decision reduction in millions of state of GBP aid notified pursuant to Article 3 of the Council Decision, towards the benchmark - 88% 100% year in millions of GBP
- not available 25% Minimum reduction provided for in the Council Decision g) the overall amount of closure aid to the coal industry of a Member State must not exceed, for any year after 2010, the amount of aid granted by that Member State and authorised by the Commission in accordance with Articles 4 and 5 of Regulation (EC) No 1407/2002 for the year 2010;
81. The UK authorities have declared that the mining industry in the UK has not received any aid in accordance with Articles 4 and 5 of Regulation (EC) No 1407/2002 for the year 2010. Therefore, there is no threshold for 2010 that could be taken into account.
h) the Member States must establish a plan to take measures aimed at mitigating the environmental impact of the production of coal by production units to which aid is granted pursuant to this Article, for example in the field of energy efficiency, renewable energy or carbon capture and storage.
82. The UK authorities have provided a list of environmental protection measures (as described in section 6.4. above) to mitigate the environmental impact of coal production which includes environmental measures during the period of operation and environmental measures during the period of mine closure.
83. Moreover a Carbon Capture and Storage (CCS) project will be undertaken at the coal-fired power plant Drax as described in recital 54.
84. In the light of the facts stated in recitals 82 and 83, the Commission considers that the conditions laid down in Article 3(1)(h) of the Council Decision are satisfied.
85. The assessment above demonstrates that all substantive criteria of Article 3 of the Council Decision regarding the closure aid to be granted for the implementation of the closure plan are complied with.
7.3.2. State aid to cover the exceptional costs
86. According to Article 4.1 of the Council Decision, State aid granted to coal mines to cover the costs arising from the closure of coal production units and which are not related to current production may be considered compatible with the internal market provided the amount paid does not exceed such costs.
14 87. As shown in Table 5, the exceptional costs notified by the UK authorities cover:
- the costs arising from the closure of Hatfield Colliery, in accordance with the submitted closure plan, defined in letter (g), (i) and (m) of paragraph 1 from the Annex to the Council Decision; - the costs generated by the restructuring and occupational retraining programs of personnel following the closure of coal production units defined in letter (b) of paragraph 1 from the Annex to the Council Decision.
88. The Commission notes that the UK does not plan to finance in excess of the actual exceptional costs incurred and that the categories of costs planned to be covered correspond to eligible categories defined in the Annex to the Council Decision, for the purposes of Article 4. The UK authorities confirmed that the legally binding contracts in respect of the repayable grant will contain safeguards, including financial covenants, which will ensure that the grant covers only the actual costs incurred.
89. The UK states that the costs covered by the aid for exceptional costs do not result from non-compliance with environmental regulations as per Article 4(2) of the Council Decision, such as:
- Directive 2006/21/EC14 on the management of waste from extractive industries; - Directive 2004/35/EC15 on environmental liability with regard to the prevention and remedying of environmental damage; - The Framework Directive 2000/60/EC16 establishing a framework for Community action in the field of water policy; - Directive 92/43/EEC17 on the conservation of natural habitats and of wild fauna and flora; - Directive 85/337/EEC18 on the assessment of the effects of certain public and private projects on the environment.
90. Consequently, measures undertaken in order to comply with mandatory requirements from relevant environmental legislation will not be included in eligible costs.
91. As stated in recital 42 the UK authorities commit to deduct any increase in the value of the land (stemming from the planned remediation works) from the eligible costs for categories (g), (i) and (m) of the Annex to the Council Decision as provided therein. Moreover, there will be no advantage stemming from any of the other assets of the beneficiary as no equipment or machinery will be recuperated due to the high costs of extraction.
14 OJ L 102, 11.4.2006, p. 15. 15 OJ L 143, 30.4.2004, p. 56. 16 OJ L 327, 22.12.2000, p. 1. 17 OJ L 176, 20.7.1993, p. 29. 18 OJ L 175, 5.7.1985, p. 40. 15 92. The aid will not be combined with other State aid within the meaning of Article 107(1) TFEU or with other forms of European Union financing for the same eligible costs (Article 5 of the Council Decision).
93. Moreover, the UK authorities commit themselves to ensure that all aid received by the beneficiary shall be shown in the profit-and-loss accounts as a separate item of revenue distinct from turnover.
94. Likewise, the UK authorities commit themselves to ensure that HCPL shall keep precise and separate accounts for the Colliery and for other economic activities which are not related to coal mining and shall take all the necessary measures to comply with the provisions of Article 6 of the Council Decision.
95. It follows that the notified aid meets the conditions laid down in the Council Decision as to cumulation and separation of accounts of the beneficiary.
96. The UK has provided detailed costs estimates for the mine, broken down by individual cost items, for each year covered by the closure plan in accordance with Article 7(2) of the Council Decision. The Commission takes the view that the information provided by the UK satisfies also the requirements of Article 7(4) of the Council Decision for the entire period covered by the closure plan.
97. The UK authorities undertook to abide by the requirements under Article 7(3) and 7(5)-(6) of the Council Decision.
98. The Commission has therefore concluded that both the closure plan and the aid to be granted each year on the basis of the plan can be authorized in the present decision. It follows that the notified aid complies with the relevant conditions laid down in the Council Decision.
8. CONCLUSION
99. The Commission considers the aid afferent to the closure plan for the Hatfield Colliery to be compatible with the internal market pursuant to Council Decision 2010/787/EU of 10 December 2010 on State aid to facilitate the closure of uncompetitive coal mines and has therefore decided not to raise objections to the notified measure.
100. The Commission reminds the UK authorities that, in accordance with the Council Decision, they shall notify to the Commission:
- any amendments related to the final closure; - all the aid, which they intend to grant to the coal industry under the Council Decision during a coal year.
101. According to Article 3(3) of the Council Decision, if the mine to which aid is granted is not closed at the date fixed in the closure plan as authorised by the
16 Commission, the UK authorities shall recover all aid granted in respect of the whole period covered by the closure plan.
102. The Commission also reminds the UK authorities that, in accordance with Article 7(5) of the Council Decision, they shall inform the Commission of the amount and of the calculation of the aid actually paid during a coal year no later than six months after the end of that year. Where any corrections are made to the amounts originally paid during a given coal year, the UK authorities shall inform the Commission before the end of the following coal year.
If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm
Your request should be sent by registered letter or fax to:
European Commission Directorate-General for Competition State Aid Greffe B-1049 Brussels Fax No: 32 2 296 12 42
Yours faithfully, For the Commission
Margrethe VESTAGER Member of the Commission
17 Annex 1
HCPL Group Structure Chart
Source: UK authorities
1 Annex 2
A) Forecasted Production Losses and Exceptional Costs by the UK Authorities
Illustrative sensitivities Coal Year 1 Coal Year 2 Coal Year 3 12 months 12 months 4 months £'m Nov 14 - Oct 15Nov 15 - Oct 16Nov 16 - Feb 17 TOTAL Scenario 1: 18% reduction in API2 from Feb 15 Production ('000 tonnes) 799,30 745,40 0,00 1544,70 Revenue 31,73 29,02 0,00 60,76 Production costs -25,43 -14,98 0,00 -40,40 Total payroll -17,15 -13,34 0,00 -30,50 Interest charges -0,44 0,00 0,00 -0,44 Normal depreciation -3,10 -3,10 0,00 -6,20 Production costs -46,12 -31,42 0,00 -77,54 Production (losses)/profit -14,39 -2,39 0,00 -16,78 Article 3 eligible losses -14,39 -2,39 n/a -16,78 Article 3 aid cap -13,74 -1,64 n/a -15,38
Exceptional costs 1b) Redundancy costs -0,23 -1,49 -0,10 -1,82 1g) Underground safety work 0,00 -1,42 -0,83 -2,25 1i) Rehabilitation of former mine sites 0,00 0,00 -1,20 -1,20 1m) Surface recultivation 0,00 0,00 -0,30 -0,30 Estimated increase in land value 0,95 0,95 Article 4 costs -0,23 -2,91 -1,48 -4,62 Article 4 costs cap -0,23 -2,91 -1,48 -4,62
Total eligible for aid -14,61 -5,31 -1,48 -21,40 Total aid cap -13,96 -4,56 -1,48 -20,00
Opening headcount 436 382 24 Headcount reduction in year 54 358 24
Source: UK authorities
2 B) HCPL Management Plan
Source: UK authorities
3