COMMISSION EUROPÉENNE

Bruxelles, 16.III.2005 C(2005)584 fin

Subject: N346/04, Environmental aid to Altair Chimica,

A. PROCEDURE

(1) By letter dated 29 July 2004, the Italian authorities notified, in accordance with Article 88(3) EC and with the Community guidelines on State aid for environmental protection1 (‘the environmental guidelines’), a project to grant environmental aid in favour of the company Altair Chimica S.p.A. (‘Altair’) for its plant in Saline di (Pisa, ). The Commission requested on 30 September and 23 December 2004 additional information, which were submitted by Italy on 15 November 2004, 2 and 22 February 2005.

B. DESCRIPTION OF THE AID

(2) Altair is a medium sized company employing 83 people and having a turnover of € 28.3 million2. It owns one plant dedicated to chemical productions (chlorine, soda, potassium and its derivates) and purchase, sale and development of production technologies of chemical activities.

(3) The aid project concerns an investment into a new plant for the production of chlorine which will replace an existing plant. The new plant will be based on membrane cell technology and will have a productive capacity of 22 000 tonnes of chlorine per year. The existing plant, based on mercury cell technology, has the same capacity.

(4) From the environmental point of view, the main advantage of the membrane cell over the mercury cell technology for the production of chlorine consists in the elimination of air and water mercury emissions. Mercury is a toxic metal,

1 OJ C 37, 3.2.2001, p. 3 2 The company is independent and does not own capital or voting rights of other companies.

S.E On. Gianfranco FINI Ministro degli Affari esteri P.le della Farnesina 1 I - 00194 Roma

Commission européenne, B-1049 Bruxelles – Belgique, Europese Commissie, B-1049 Brussel – België Telefono: 00-32-(0)2-299.11.11 - 1 - dangerous for human and animal life. The investment will allow a significant improvement on the existing Community standards on both air and water mercury emissions and other environmental benefits and in particular:

(i) the mercury emissions into the atmosphere at present of 29 kg/year and the mercury sludge at present of 202.1 kg/year will be totally eliminated;

(ii) there will be an energy consumption reduction of 16 GWh/year, corresponding to 16.6%;

(iii) there will be a reduction of water levies used for cooling from 850 m³/year to 350-370 m³/year, out of which 53 000 (instead of 22 000) will be given back to the river after depuration; and

(v) there will be a reduction of CO2 emissions produced from burning methane. Indeed, while the existing plant respects the existing standards by maintaining a quantity of mercury in sewage water of less than 1 µg/L and the quantity of mercury produced per year of 1.01 kg3, the membrane cell technology will completely eliminate mercury emissions into the atmosphere.

(5) Altair has only one production plant and therefore it does not want to substitute the membrane cell technology to the mercury cell technology by using the same plant while suspending production, because this would result in loss of market shares. In addition, according to the Italian authorities, converting the old plant instead of creating a new plant would result in higher costs, calculated by the Italian authorities as being of € 1.49 million and problems of implementation of the project. The construction of a new plant starting in the beginning of 2005, after Commission’s approval of the proposed aid instead of modifying the old plant, is therefore preferable to realise the project.

(6) The conversion of the chlorine production to membrane cell technology will require an investment of nominal € 14 450 000 between 2005 and 2006 (€ 13 572 000 in actualised values, rate of 3.95%, base year 2004).

(7) The beginning of the production is planned for January 2007, when there will be two months of parallel production of the two plants at half capacity. The complete shut down of the existing mercury cell plant will take place in March 2007. After that the old cell installations will be dismantled in environmentally friendly conditions.

(8) On the basis of the costs (steam, membranes, anodes and cathodes and cleaning of the old plant) benefits (energy, maintenance, materials, disposal of sludge and personnel) analysis, according to the Italian authorities there will be savings of € 1 142 000 in the first 5 years. The total cost for the financing actualised at 2004 values therefore is of € 12 430 000 (€ 13 572 000 – € 1 142 000).

3 The existing limits are 5 µg/L for water emissions (foreseen in Law Decree (Decreto Legislativo) n. 152/99) and less than 1,5 g/tonne of mercury produced per year for air emissions (foreseen in Decision (Deliberazione) of 19 February 1991). 2 (9) The eligible costs comprise the costs for a new electrolysis room with membrane cells and special circuits and services, maintenance and analysis instruments; equipment to transform energy from high to low tension, for dechlorination of used brine in exit of the cells, for saturation and purification of brine; installations necessary for the amalgamation of the caustic potash coming from the membrane cells, the washing of chlorine, for the hydrogen circuit including cooling and plant safety measures, the production of demineralised water for the new installation, the sewage water treatment installation, for connecting the fluids coming out of the distribution systems; the analysis equipment necessary for the chemic laboratory and a computerised chlorine and hydrogen control system.

(10) The proposed aid amounts to € 4 971 816 in actualised values. The aid would be divided by Italy in different instalments and paid out on the basis of contract measurement and with a last instalment of 20% paid only after detailed reporting of the expenses effectively incurred by Altair and final inspection.

(11) The legal basis for the aid is Law 662/1996 and the framework program Agreement, signed on 23.06.2004 between the Ministry of Environment, the region of Tuscany, the commune of Volterra, ARPA Toscana and Altair.

(12) The Italian authorities have ensured that there is no cumulation with other aid measures and that the companies have not received illegal State aid which has to be reimbursed further to a decision of the Commission ordering the recovery of the unlawful aid4.

(13) The Italian authorities committed to verify that the dismantling of the old plant takes place in safe and environmentally friendly conditions and to provide the Commission with annual reports on the state of the project and on the financial and procedural developments. They also committed to adopt a proactive behaviour in the control and in supplying the necessary information, to monitor very closely the dismantling of the plant and to make sure that the company respects the environmental aims of the project. In case the dismantling of the old plant does not take place in environmentally safe conditions, it committed to recover the aid and to adopt all measures necessary for the protection of the environment.

C. ASSESSMENT OF THE PROPOSED AID MEASURE

C.1. Existence of State aid within the meaning of Article 87(1) of the EC Treaty

(14) According to Article 87(1) of the EC Treaty, 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 shall, in so far as it affects trade between Member

4 Cfr. Judgement of the Court of 15 May 1997 in the case C-355/95 P (Textilwerke Deggendorf GmbH v Commission and Federal Republic of Germany), Rec. 1997, p. I-2549).

3 States, be incompatible with the common market. Pursuant to the established case law of the European Courts, the criterion of trade being affected is met if the recipient firm carries out an economic activity involving trade between Member States.

(15) Under the proposed measure, State resources would be provided for an investment in chlorine production equipment. The aid will benefit Altair, a producer of chemicals goods, which are traded between Member States. Consequently, the proposed aid measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty.

C.2. Compliance with the environmental guidelines

(16) The Commission has to examine the proposed aid measure in the light of Article 87(3)(c) of the EC Treaty and specifically of the environmental guidelines.

(17) According to paragraph 29 of the environmental guidelines, investment aid up to 30% gross of the eligible costs may be authorised for investments improving on the applicable Community standards, or undertaken in the absence of mandatory Community standards, or undertaken in order to comply with national standards that are more stringent than the applicable Community standards. Community standards are defined in paragraph 6 as the mandatory Community standard setting the levels to be attained in environmental terms and the obligation under Community law to use the best available techniques (‘BAT’).

(18) Furthermore, paragraph 40 provides that aid for investment to improve on Community standards or undertaken where no Community standards exist may not be granted where such improvements merely bring companies into line with Community standards already adopted but not yet in force.

(19) In conformity to the approach adopted by the Commission in case N 323/035, the Commission notes that two distinct Directives may be relevant in the assessment. The first is Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control6 (‘the IPPC Directive’) that sets out the rules for achieving a high level of protection of the environment in a wide range of industrial and agricultural activities, including chlorine production.

(20) The IPPC Directive introduces an obligation for Member States to have in place by 30 October 2007 permits for existing installations with emission limits values based on BAT. The Commission adopts BAT reference documents (BREFs) which Member States are required to take into account when determining best available techniques generally or in specific cases.

5 Environmental aid to Solvay Rosignano, in OJ C 115, 30.04.2004, p. 17. 6 OJ L 257, 10.10.1996, p. 26. 4 (21) The Reference Document on Best Available Techniques in the Chlor-Alkali Manufacturing industry7 (‘the BREF’) states that the BAT specific to mercury cell plants is considered to be conversion to membrane cell technology. It is clear from the BREF that mercury cell technology itself is not a BAT.

(22) However, this does not automatically imply the obligation to convert to membrane cell technology by 30 October 2007 under the IPPC Directive. Indeed, Article 9(4) of the Directive provides that, while emission limits values should be based on BAT, permits should also take into account the technical characteristics of the installation concerned, its geographical location and the local environmental conditions and its local and long-distance effects.

(23) Given that Member States have exclusive responsibility for the implementation of the Directive, the appreciation of the specific factors mentioned in Article 9 (4) is of competence of the permit granting authority at national level. More specifically, if the competent authorities issuing the permits clearly indicate what specific conditions justify such decision, permits can be granted to plants based on mercury cell technology also after 30 October 2007.

(24) In the case under scrutiny, the competent authority issuing the permit, the has affirmed that, on the basis of the current circumstances, and in the hypothesis that the project under scrutiny were not to be realised, it would see no grounds to require conversion to membrane cells technology by 2007. This statement was supported by the fact that the performance of existing mercury cells falls within the performance levels indicated in the BREF for the remaining life time of mercury cells installations, as well as by the analysis of the specific technical characteristic of the installation concerned, and by the specific geographical location and the local environmental conditions in which Altair operates.

(25) Based on the information above, the Commission considers that the Italian authorities have provided sufficient information to demonstrate that, in the specific case of the project under scrutiny, the investment goes beyond what would be necessary for Altair to meet its obligation under Community law to comply with the requirements of the IPPC Directive.

(26) The second Directive that is relevant in the assessment of the case is Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy8. The Directive calls for specific measures to be adopted at Community level against pollution of water by individual pollutants or groups of pollutants presenting a significant risk to or via the aquatic environment.

7 Document adopted by the Commission on 21 December 2001, notice in OJ C 12 of 16 January 2002, p. 5. The document is available at http://eippcb.jrc.es/pages/FActivities.htm. 8 OJ L 327 of 22.12.2000, p. 1. 5 (27) Amongst the naturally occurring polluting substances, mercury was identified as a priority hazardous substance (PHS)9. For PHS, the Directive sets the goal of achieving concentrations in the marine environment approaching background values. The environmental objectives of the Directive include that for all PHS, all emissions, discharges and losses shall be phased out. According to Article 16 of the Directive, the Commission shall present proposals for measures with the aim to cease emissions, discharges and losses into water of the hazardous substances which derive from human activities within a 20 year timeframe from the date of the adoption by the Council and Parliament of such proposals.

(28) The existing mercury cell plant in Volterra would not be able to comply with the requirements set out in Directive 2000/60/EC as of 2020. However, this does not mean that the conversion to membrane cell technology is undertaken merely to allow Altair to fall into line with Community standards already adopted but not yet in force. Indeed, the investment planned by Altair significantly anticipates the desired effect of the Directive, as mercury emissions will cease completely after 2007.

(29) The proposed aid intensity of 40% is in conformity with paragraphs 29 and 35 of the environmental guidelines. The base intensity of 30% under paragraph 29 of the guidelines can in fact be increased of 10% gross when investments are carried out by SMEs, as is the case in the notified aid scheme. Indeed Altair can be considered as a medium sized enterprise in the sense of the Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises10 as it is an autonomous enterprise not owning capital or voting rights of other companies which is employing 83 persons and has an annual turnover of about € 28 million per year.

(30) Paragraph 37 of the environmental guidelines specifies that eligible costs must be confined strictly to the extra investment costs necessary to meet the environmental objectives. Where the cost of investment in environmental protection cannot be easily identified in the total cost, the Commission usually takes into account the cost of a technically comparable investment that does not provide the same degree of environmental protection. In all cases, eligible costs must be calculated net of the benefits accruing from any increase in capacity, cost savings engendered during the first five years of the life of the investment and additional ancillary production during that five-year period.

(31) The Commission notes that Altair already operates a plant for the production of chlorine based on mercury cell technology. According to the information provided by the Italian authorities, the plant complies with current regulations, and could continue to do so for the foreseeable future (see above). The old part of the plant has been functioning since 1960, but it was completely revamped between 1992 and 2002. Further to the significant investments made in 1999, 2000 and 2001, the estimated lifetime of the electricity substation is at least 40

9 Cfr. Decision n. 2455/2001 EC of the European Parliament and of the Council of 20 November 2001 establishing the list of priority substances in the field of water policy and amending Directive 2000/60/EC, in OJ L 331 of 15.12.2001, p. 1. 10 OJ L 124 of 20.05.2003, p. 36.

6 years. Further to investments in 1974, 1992 and 2003, the electrolytic cell room has an estimated lifetime of additional 30 years. Finally, further to investments made in 1996-1997 and 2001, the estimated lifetime of the brine plant is unlimited.

(32) The Commission considers that Altair could exploit the existing plant for the production of chlorine without having to undertake additional investments. Therefore, the Commission concludes that the whole amount of the investment of € 14 450 000, € 12 430 000 in actualised values in the membrane cell plant is necessary to meet the environmental objectives.

(33) The Commission has examined the issue why the investment costs foreseen by Altair are relatively higher in €/ton than for other Italian alkali producers replacing mercury to membrane cell technology. The Italian authorities have supplied extensive information explaining these differences and the Commission came to the following conclusion: Altair is an SME having only one plant and cannot therefore benefit from economies of scale of many other large players on the market, for instance with regard to their supply agreements. In addition, there are differences in the costs according to the geographic location of the plants. Moreover, there are technical differences between different alkali plants which lead to different investment costs.

(34) Altair’s is not a classical Chlor-Alkali plant, it does not produce chlorine and caustic soda, but mainly some chlorides and potassium compounds. The production process (electrolysis) and the environmental issues are similar, but the markets for the products and costs are different, for instance because the transport conditions are different and this has an impact on the quality and on the composition of the up-stream products. In addition, in the Altair plant, differently from traditional chlorine soda plants, there is no separation between the production of chlorine and its use in the other parts of the plant. In fact, chlorine is instantly used without being compressed, liquefied and newly evaporated. Further to the intervention, the new membrane cells system would not be able to resist to the resulting pressure and absorption changes, if an integrated system of control (ISC), the cost of which has been estimated as being of € 400 000, would not be put in place to supervise the section of the process concerning the brine, the chlorine, the hydrogen and electrolysis room to ensure safety. Due to the delicacy of the technology, the system cannot be controlled manually but has to be entrusted to a particular supervisor projected by the supplier of the technology.

(35) Additionally, the Commission has analysed the investments necessary for de- commissioning the existing mercury cell installation, amounting to € 2 500000. On a general basis, demolition or dismantling costs have to be considered under the polluter pays principle and can normally not be considered eligible costs under the environmental guidelines.

(36) In this specific case however, the Commission takes the view that the costs related to the de-commissioning of the old mercury plant are eligible. The Commission considers that it is not necessary for the purposes of the present decision to determine whether there is a legal obligation under Article 3 (f) of the IPPC Directive for the company to clean up the installations or not. If, on the one hand, there was such an obligation, this would only be the direct result

7 of the voluntary transfer from the mercury technology to the membrane technology. Since Altair would not have to clean up the old installations as long as it continues to produce chlorine on the basis of the mercury technology, the cost of de-commissioning would be indissolubly linked to the eligible investment in the membrane technology. If, on the other hand, there was no such obligation to de-commission the old plant, the cleaning-up of the old installations would be an improvement in relation to the Community Standards as stipulated in paragraph 29 of the environmental guidelines, and would therefore qualify as eligible costs. In addition, the aim of the intervention is to prevent environmental damages and in particular to avoid potential mercury leakages of an old plant and to put in place changes towards newer and environmentally safer technology.

(37) Furthermore, the Commission notes that no increase in capacity will occur as a consequence of the investment under scrutiny. However, Altair will on the one hand have to face additional economic burdens and on the other enjoy cost savings during the first five years of operation. The benefits stem from reduced energy needs, lower maintenance and running costs, and workforce savings. They will more than compensate additional costs deriving from an increased need for specific inputs in the process as well as the costs for the demolition of the mercury cell in environmentally safe conditions. The additional costs and benefits can be summarised as follows (figures in EUR actualised at 2004 prices):

I) Costs

a) an increase of Steam consumption of 320 000 €/y ([…]∗) corresponding to € 1 372 000 for the first five years is estimated;

b) for the exchange of the membranes and the activation of anodes and cathodes, a cost of 8 €/year per ton of chlorine is estimated;

c) for the purification of the brine, more chemicals and chelating resin with a cost of 1.5 €/year per ton of chlorine are forecasted. The costs under b) and c) are of 209 000 €/year corresponding to € 896 000 for the first five years;

d) with regard to the fixed costs, as of 2007 Altair will demolish the old mercury cell and the brine depuration plant, with a cost of € 2 063 000 (at actualised values) which would correspond to 500 000 €/year for five years. The costs relating to the rehabilitation of the site refer only to the dismantling of the old mercury cells and do not include costs referring to the rehabilitation of the area. These costs refer in particular to emptying the process fuels and securing machines and equipment, the rehabilitation of certain machines and equipment and the treatment of waste, dismantling and demolition of machines, equipment and installations. The benefits of € 145 000 for the sale of mercury to the Spanish company Minas de Almadén y Arrayanes SA - MAYASA (2.5 USD x 70 000 t), have been subtracted, net of the recovery and packaging costs, from the fixed costs of the dismantling of the plant, and in particular from the transport and

∗ Confidential information

8 waste disposal costs, which have been indicated as being of € 900 000 instead of € 1 045 000.

II) Benefits

a) The new technology will lead to a gain of energy [of 16.6% and] benefit corresponding to 2 717 000 € in the first five years;

b) the maintenance costs include also costs of depuration of the brine plant, the treatment and recovery of mercury by third companies and the royalties costs of 102 €/year, which Altair has to pay, in proportion to the amount of chlorine produced, to DeNora for the use of titanium anodes; as the new machines will require low maintenance costs of about 3% of the value of the investment and that there will be no expenses in relation to mercury as in the old technology, a benefit of 433 000 €/year, corresponding to € 1 786 000 for the first five years is estimated;

c) considering the low expenses for material necessary for the new cells, a benefit of 54 000 € in the first five years has been identified;

d) the disposal of sewage sludge will be less costly as it will not contain mercury any more and a benefit of 100 000 €/year after the first two years is estimated, corresponding to € 351 000 (at actualised values) for the first five years;

e) the new technology will allow a reduction of personnel, which can be reemployed elsewhere by the company and therefore a benefit of 75 000 €/year is estimated corresponding to € 566 000 (at actualised values) for the first five years. The benefits deriving from personnel have been accurately calculated by the Italian authorities, which have taken into account the benefits within the 4 last of the next five years. The benefits in 2007, in contrast, have been outweighed by the additional personnel needed in January and February 2007 when both plants will be functioning and the personnel needed for two months in the old plant for the demercurisation.

(38) The costs and benefits are therefore the following:

Savings in energy needs 2 717 000 Savings in maintenance costs 1 786 000 Savings in materials used for the cell rooms 54 000

Savings in disposal of sewage sludge 351 000 Savings in workforce 566 000 Additional costs - additional steam production -1 372 000 Additional costs –membranes, anodes, depuration -896 000 Additional costs - demolition of existing cell -2 063 000 Total costs and benefits 1 142 000

(39) The eligible investment costs of the investment under scrutiny are thus € 12 430 000 (that is € 13 572 000 minus € 1 142 000). The allowable investment aid amounts to 40% gross of the eligible costs, that is to € 4 971 816.

9 (40) Finally, the Commission considers that the investments planned by Altair relating to a change from the mercury technology to a mercury free technology are fully in line with the EU environmental aim to reduce mercury levels in the environment and human exposure. The Commission therefore takes the view that the grant of an environmental aid to Altair can be considered as a compatible incentive11 to go beyond the legal framework described above, and thus to contribute to the Commission’s policy recently lined out in its “Community Strategy Concerning Mercury”12.

(41) The Commission notes that the Italian authorities committed to verify that the dismantling of the old plant takes place in safe and environmentally friendly conditions and to provide the Commission with annual reports on the state of the project and on the financial and procedural developments. The Commission considers the respect of these monitoring and reporting commitments of the Italian authorities described above to be an essential condition for the approval of the aid project by the Commission.

D. CONCLUSION

In view of the above, the environmental investment aid project in favour of Altair is considered compatible with the Common market pursuant to Article 87(3)(c) of the EC Treaty, subject to the respect by the Italian authorities of the commitments under paragraph 12 and 13 of the present decision.

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://europa.eu.int/comm/sg/sgb/state_aids/. Your request should be sent by registered letter to:

Commission of the European Communities Competition DG State aid Greffe Rue de Spa 3 / Spa 3 6/ 5a B - 1049 Bruxelles/Brussel; Or by fax to +32-2-296.12.42.

In all your correspondence, please specify the name of the case and the case number.

11 See also paragraph 18 (b) of the environmental guidelines.

12 Communication from the Commission to the Council and the European Parliament concerning a Community Strategy Concerning Mercury, COM(2005) 20 final of 28.01.2005.

10 Yours faithfully, for the Commission

Neelie KROES Member of the Commission

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