State Aid SA.24473 (2011/NN) Alleged Illegal State Aid in the Gas Sector - Spain

EUROPEAN COMMISSION

Brussels, 08.02.2012 C(2012) 551 final

PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only.

Subject: State aid SA.24473 (2011/NN) Alleged illegal State aid in the gas sector - Spain

Dear Minister,

The Commission wishes to inform you that, having examined the information provided on the above-mentioned measure, it has decided not to raise objections in the above case on the grounds that the measures adopted by the Xunta de Galicia (Government of the Autonomous Community of Galicia) for the construction of a regasification plant in the ría del Ferrol area do not constitute state aid within the meaning of Article 107(1) TFEU.

1. PROCEDURE

1. By letter of 29 October 2007, various residents' groups in the Autonomous Community of Galicia1, which form part of the Federación Roi Xordo2 and the Asociación Vecinal o Cruceiro de Mehá3 (hereafter "the complainant"), lodged a complaint with the European Commission against a series of measures adopted by the Xunta de Galicia in relation to the building of a liquefied natural gas (LNG) storage and regasification terminal located at Punta Promontorio in Galicia.

1 Asociaciones Vecinales El Pinar de Recimil, do Ensanche A, Ultramar do ensanche B, El Socorro de Ferrol Vello, Rosalia de Castro de A Graña, San Xoan-Bertón, O Cruceiro do Barrio de Canido, Sta Mariña and Unidade de San Felipe. 2 Established in 1997 under the name Coordinadora de Asociaciones de Vecinos de la Zona Urbana de Ferrol, the coordinating body for a number of residents' groups, all of which are non-profit-making, in the district of Ferrol, La Coruña, Galicia, Spain. 3 The residents' groups making the complaint are non-profit-making organisations whose main purpose is to coordinate the activities of the Residents' Groups of El Ferrol.

1 2. On 19 December 2007, the Commission forwarded the complaint to the Spanish authorities for comment. The Spanish authorities replied on 19 June 2008.

3. By letters of 18 August 2008, 17 March 2010, 9 July 2010 and 11 February 2011, the Commission sent its preliminary assessment to the complainant, stating that the measures in question did not appear to constitute state aid within the meaning of Article 107(1) TFEU.

4. The complainant replied to the Commission's preliminary assessment on 24 July 2009, 16 April 2010, 2 August 2010 and 9 March 2011.

5. On 5 May 2010 the Commission forwarded to the Spanish authorities the complainant's arguments concerning the Commission's preliminary assessment of 17 March 2010, asking them for comments. The Spanish authorities replied on 9 June 2010.

2. DESCRIPTION OF THE MEASURES

2.1. The incorporation of Reganosa and the capital contributions by its shareholders

6. Regasificadora del Noroeste, Sociedad Anónima, a limited liability company (hereinafter "Reganosa"), is a liquefied natural gas (LNG) storage and regasification plant located at Punta Promontorio, municipal area of Mugardos, in the province of La Coruña, Galicia.

7. Reganosa was incorporated in 1999 with the purpose of establishing a regasification plant in Mugardos and a gas pipeline. Its founding shareholders were Forestal del Atlántico S.A. and Gallega de Distribuidores de Alimentación S.A., both limited liability companies in the Tojeiro Group. That same year, Reganosa's founding shareholders subscribed to a capital increase, thus the breakdown in share ownership was as follows:

Shareholder No of shares Value of the increased Share subscribed investment4 capital

Forestal del 1 000 EUR 6 010.12 2% Atlántico S.A. Gallega de 49 0000 EUR 294 495.93 98% Distribuidores de Alimentación, S.A. Total increase 50 000 EUR 300 506.05 100%

4 Nominal value of each share: EUR 6.01.

2 8. Another capital increase which was fully subscribed by the founding shareholders took place in February 2000, which means that their shareholdings were as follows:

Shareholder No of shares Value of the extended Share subscribed investment5 capital

Forestal del 9 000 EUR 54 090 2% Atlántico S.A. Gallega de 441 000 EUR 2 650 410 98% Distribuidores de Alimentación, S.A. Total increase 450 000 EUR 2 704 554.47 100% Total company 500 000 EUR 3 005 060.52 capital

9. On 20 March 2000, the Xunta de Galicia, Endesa, the Tojeiro Group, Unión Eléctrica Fenosa, Sonatrach and Caixa Galicia concluded a Framework Agreement under which they established a promoters' association to develop the reception, storage and regasification plant for liquefied natural gas at Mugardos, together with the associated gas pipelines to supply consumers and the connections to the peninsular gas network6.

10. Under this Framework Agreement, a report was to be drawn up to provide an effective response to all the questions relating to the feasibility of the project in the long term7. A working group was set up which drafted the report between 20 March and 3 July 20008. The conclusions of that report were deemed acceptable by the parties, who decided to continue with the work of developing the plant.

11. On 20 July 2000, the signatories of the above-mentioned Framework Agreement concluded a Cooperation Agreement for the development of the regasification plant in Galicia (hereafter the "Cooperation Agreement"), in which they agreed that the regasification terminal and the related gas pipelines would be built and operated by Reganosa, which would have the following shareholder structure9:

5 Cf. footnote 4 above. 6 Article 5 of the Cooperation Agreement between the Xunta de Galicia, Endesa, the Tojeiro Group, Unión Eléctrica Fenosa, Sonatrach and Caixa Galicia to develop the regasification plant in Galicia. 7 Article 5 of the Cooperation Agreement. 8 Article 9 of the Cooperation Agreement. 9 Article 12 of the Cooperation Agreement.

3 Shareholder % share capital Autonomous Community of Galicia (Xunta de Galicia) 10% Endesa Generación, S.A. 20% Grupo Tojeiro 18% Unión Eléctrica Fenosa 20% Sonatrach 15% Grupo Caixa Galicia 9% Caixa de Aforros de Vigo, Ourense e Pontevedra and Banco 8% Pastor (to be distributed)

12. The working group drew up a proposal for action and an Action Plan10, and, by the signature of the Cooperation Agreement, a series of commitments specific to each party on the basis of their particular expertise and economic activity were agreed to. The commitments for each party were as follows: (i) consumption of natural gas from the plant (for Grupo Tojeiro, Endesa and Unión Eléctrica Fenosa), (ii) sufficient natural gas supply (for Sonatrach) and (iii) for Xunta de Galicia, the diligent examination and/or handling of the following : administrative permits and formalities and possible subsidies falling under its competence, support for similar procedures falling under other administration's competence and consideration of adequate mechanisms for maintaining the viability of the project if external circumstances so required11. No consequence is foreseen in the Cooperation Agreement in case any of the parties fails to perform its commitments.

13. Between 2001 and 2004, in order to ensure that Reganosa could commence operations, the Xunta de Galicia and the other signatories of the Framework Agreement, and by the Caja de Ahorros de Vigo, Ourense y Pontevedra (hereinafter "Caixanova") and Banco Pastor S.A., agreed to the following

10 Annex 1 to the Cooperation Agreement. 11 Article 9 of the Cooperation Agreement.

"ARTICLE 9.- THE XUNTA DE GALICIA

Shall handle as expeditiously as possible the necessary administrative procedures for obtaining permits, within its remit, and shall prompt and help other authorities as much as possible with the tasks within their remit, until the plant and gas pipelines are operating normally. It shall prompt and help other authorities as much as possible with the tasks within their remit so that they contribute to the economic viability of the project. It shall examine with deep interest the granting of all possible grants and subsidies within its remit and shall prompt and help other authorities as much as possible with the tasks within their remit so that they contribute to the economic viability of the project.

Moreover, if the undertaking's activities were to be affected by external circumstances that would substantially reduce the profitability of the project, the Xunta de Galicia shall look into adequate mechanisms to maintain its economic viability. On the other hand, if the activities prove to be more profitable than expected, the Company shall look into ways of reducing the charges paid by the users of the plant.

For the purposes of the previous paragraph, the concession decision shall, where appropriate, define the standard conditions of the activities of the project".

4 capital increases in Reganosa, under the same conditions albeit in different proportions12:

(i) Capital increase of 23 March 2001

Shareholder No of Value of the Total % share shares increased number of capital subscribed investment13 shares

Forestal del 80 000 EUR 480 800 90 000 6% Atlántico S.A. Gallega de 100 000 EUR 601 000 590 000 39.33% Distribuidores de Alimentación, S.A. Unión Fenosa Gas, 210 000 EUR 1 262 100 210 000 14% S.A. Endesa Generación 210 000 EUR 1 262 100 210 000 14% S.A. Sonatrach 100 000 EUR 601 000 100 000 6.66% Investment Corporation, B.V. Xunta de Galicia 100 000 EUR 601 000 100 000 6.66% Corporación 100 000 EUR 601 000 100 000 6.66% Financiera de Galicia S.A. Caixanova 50 000 EUR 300 500 50 000 3.33% Banco Pastor 50 000 EUR 300 500 50 000 3.33% Total increase 1 000 000 EUR 1 500 000 100% 6 010 121.05 Total company 1 500 000 EUR capital 9 015 181.57

(ii) Capital increase of 26 June 2002

Shareholder No of Value of the Total % share shares increased number of capital subscrib investment14 shares ed Forestal del Atlántico S.A. 120 000 EUR 721 200 210 000 7% Gallega de Distribuidores de 150 000 EUR 901 500 740 000 24.7% Alimentación, S.A. Unión Fenosa Gas, S.A. 315 000 EUR 1 893 150 525 000 17.5% Endesa Generación S.A. 315 000 EUR 1 893 150 525 000 17.5%

12 Note from the La Coruña Companies Register, annexed to the complaint. 13 Cf. footnote 4 above. 14 Idem.

5 Sonatrach Investment 150 000 EUR 901 500 250 000 8.33% Corporation, B.V. Xunta de Galicia 150 000 EUR 901 500 250 000 8.33% Corporación Financiera de 150 000 EUR 901 500 250 000 8.33% Galicia S.A. Caixanova 75 000 EUR 450 750 125 000 4.17% Banco Pastor 75 000 EUR 450 750 125 000 4.17% Total increase 1 500 000 EUR 9 015 000 3 000 000 100% Total share capital 3 000 000 EUR 18 030 181.57 3 000 000 100%

(iii) Capital increase of 13 June 2004

Shareholder No of Value of the Total % share shares increased number of capital subscrib investment15 shares ed Forestal del Atlántico S.A. 217 904 EUR 1 309 603.04 427 904 7.47% Gallega de Distribuidores de 272 379 EUR 1 636 997.8 1 012 379 17.69% Alimentación, S A. Unión Fenosa Gas, S.A. 571 997 EUR 3 437 701.97 1 096 997 19.17% Endesa Generación S.A. 571 997 EUR 3 437 701.97 1 096 997 19.17% Sonatrach Investment 272 379 EUR 1 636 997.8 522 379 9.13% Corporation, B.V. Xunta de Galicia 272 379 EUR 1 636 997.8 522 379 9.13% Corporación Financiera de 272 379 EUR 1 636 997.8 522 379 9.13% Galicia S.A. Caja de Ahorros de Vigo, 135 190 EUR 812 492 260 190 4.55% Ourense y Pontevedra Banco Pastor 135 190 EUR 812 492 260 190 4.55% Total increase 2 723 794 EUR 16 370 001.94 5 721 794 100% Total share capital 5 723 794 EUR 34 400 183.51 100%

(iv) Capital increase of 1 October 2004

Shareholder No of Value of the Total % share shares increased number of capital subscrib investment16 shares ed Forestal del Atlántico S.A. 174 090 EUR 1 046 281 601 994 7.62% Gallega de Distribuidores de 217 613 EUR 1 307 854.13 1 229 992 15.57% Alimentación, S.A. Unión Fenosa Gas, S.A. 456 986 EUR 2 746 485.6 1 553 983 19.67% Endesa Generación S.A. 456 986 EUR 2 746 485.6 1 553 983 19.67% Sonatrach Investment 217 613 EUR 1 307 854.13 739 992 9.37% Corporation, B.V. Xunta de Galicia 217 613 EUR 1 307 854.13 739 992 9.37%

15 Idem. 16 Idem.

6 Corporación Financiera de 217 613 EUR 1 307 854.13 739 992 9.37% Galicia S.A. Caja de Ahorros de Vigo, 108 806 EUR 653 924.06 368 996 4.67% Ourense y Pontevedra Banco Pastor 108 806 EUR 653 924.06 368 996 4.67% Total increase 2 176 126 EUR 13 078 517.26 7 899 920 100% Total share capital 7 899 920 EUR 47 478 700.77 100%

14. At the moment, Reganosa is owned by the Xunta de Galicia (10%), Endesa Generación (21%), Unión Fenosa (21%), Grupo Tojeiro (18%), Sonatrach (10%), Caixa Galicia (10%), Caixanova (5%) and Banco Pastor (5%)17.

2.2. Authorisation for construction and operation of Reganosa

2.2.1. Rules applicable to the construction of regasification plants

15. In Article 3(2)(c) of Law 34/1998 of 7 October 1998 on the hydrocarbons sector (hereafter the "Hydrocarbons Sector Law"), applicable until it was amended by Law 12/2007 of 2 July 200718, it is the Spanish Central State Administration which must authorise the facilities making up the basic natural gas network when they concern the territory of more than one Autonomous Community. The basic natural gas network, as stated in Article 59 of the Hydrocarbons Sector Law, consists of regasification plants for liquefied natural gas which can supply the gas network and plants for liquefying natural gas capable of supplying the gas network.

16. Similarly, Article 67 of the Hydrocarbons Sector Law states that administrative authorisation is required in order to build a plant for the reception, storage and regasification of liquefied natural gas. The applicants must take the form of a trading company and provide sufficient evidence that they meet the following requirements:

a. The technical and safety conditions for the proposed facilities. b. Adequate compliance with environmental protection conditions. c. Location of the facilities must comply with regional land planning rules. d. They must have the legal, technical and financial capacity to complete the project.

17. Moreover, Article 67(3) of the Hydrocarbons Sector Law states that the procedure and authorisation would include a consultation to obtain the opinion of the general public.

2.2.2. Administrative authorisation obtained by Reganosa

17 According to the information available at http://www.reganosa.com/web/index.php?idioma=es&seccion=60&desglose=10 at 31 October 2011. 18 Amended by Law 34/1998 of 7 October 1998 on the Hydrocarbon Sector.

7 18. On 11 March 1999 Reganosa officially applied for administrative authorisation for the construction and operation of the regasification plant.

19. The project was publicised by the Government's Assistant Delegate responsible for industry and energy19 in order to canvass the opinion of the general public. On 17 August 2001, the Government's Assistant Delegate in Galicia submitted to the Ministry of Economic Affairs the outcome of the public opinion-gathering exercise, which included arguments from private individuals, municipal bodies, environmental organisations and groups, and Reganosa's reply to these arguments.

20. Subsequently, as a result of the opposition by the local population and the large number of arguments submitted, letters were sent to various bodies20 to gather information on the implications of the project. The replies from these bodies were favourable, with authorisation depending on the fulfilment of certain requirements and the completion of studies, reports and plans prior to starting the project.

21. In accordance with the Hydrocarbons Sector Law of 18 April 2002, the Board of the National Energy Commission issued a report on the construction of the Mugardos plant by Reganosa, expressing a favourable opinion on the project and setting out several comments on the technical project21.

22. The Gas Network Technical Manager, ENAGAS, submitted the report requested by the Directorate-General for Energy Policy and Mining on the need for the Reganosa plant and the implications it would have for the gas network. The report took account of the fact that the National Energy Commission report states that the regasification plant will service various customers including the combined-cycle power stations to be established at As Pontes and Sabón by two of Reganosa's shareholders, with total power output of 1 600 MW. It also stated that, since Galicia produced surplus electricity, it

19 This was done by inserting advertisements in the Official State Gazette of 5 May 2001, the Official Gazette of the province of 12 May 2001, at the Town Hall and in several mass circulation daily newspapers (La Voz de Galicia of 2 May 2001 and El Ideal gallego of 2 May 2001). Report on the proposal for a Decision by the Directorate-General for Energy Policy and Mining granting Regasificadora del Norte, S.A. (Reganosa) prior administrative authorisation to establish a plant for the reception, storage and regasification of LNG in Mugardos (La Coruña). 20 In particular: • Ministry of the Environment. Directorate-General for Quality and Environmental Evaluation, which on 11 June 2001 issued a statement on the environmental effects of the plans to construct an LNG plant. • Ministry of the Environment. Directorate-General for Coasts. • Ministry of Defence. • Xunta de Galicia. Directorate-General for Planning. • Ferrol - San Ciprián port authority. 21 Report by the National Energy Commission on the proposal for a Decision by the Directorate- General for Energy Policy and Mining granting Regasificadora del Norte, S.A. (Reganosa) prior administrative authorisation to establish a plant for the reception, storage and regasification of LNG in Mugardos (La Coruña).

8 would be necessary to reinforce the electricity transport networks to evacuate the electricity generated in the combined-cycle stations22.

23. Finally, on 3 June 2002, the Directorate-General for Energy Policy and Mining granted prior administrative authorisation to Reganosa to build a plant for the reception, storage and regasification of liquefied natural gas pursuant to Articles 3 and 67 of the Hydrocarbons Law, subject to a series of conditions23.

2.2.3. The application to Reganosa of the general economic regime applicable to LNG terminals

24. In the resolution granting the administrative licence to Reganosa, it was expressly stated that the general remuneration system applicable to LNG regasification and storage activities in Spain shall also be the basis for the remuneration of the Reganosa plant. In particular:

"Seven. Economic regime applicable to LNG plants

"The management of the plant shall be deployed in accordance with the economic regime applicable to regulated activities and the system of tariffs, tolls and fees established in the applicable rules.

As it is set out in article 2 of ORDER ECO/301/2002, of 15 february, regarding the inclusion of a regasification facility authorized on a direct and individual manner:

"In the case of facilities allocated on a direct and individual manner, the Directorate General for Energy Policy and Mining, following a report of the Gas Network Technical Manager and the National Energy Commission, shall expressly take a decision on the application to a regasification, storage or transport facility of the economic regime set out in the present ORDER, all without prejudice to other required administrative authorizations referred to in Article 55 of Law on the Hydrocarbons Sector".

The total accredited cots associated with the new investments shall be calculated in the manner specified in article 5 of ORDER ECO 301/2002, of 15 february, and its annexes.

25. On the basis of the above, the general rules on remuneration of the activities carried out by LNG regasification plants were also applied to Reganosa, in particular Royal Decree 949/2001, of 3 August, on the regulation of third parties access to the gas facilities and the establishment of an integrated economic natural gas system (hereinafter "RD 949/2001"), according to which, the regulated activities related to the supply of natural gas will be remunerated on the basis of a system of tariffs, tolls and fees.

22 Report of 3 June 2002 by ENAGAS on the need for and implications for the gas network of the regasification plant applied for by Regasificadora del Noroeste, S.A. 23 Report on the proposal for a Decision by the Directorate-General for Energy Policy and Mining granting Regasificadora del Norte, S.A. (Reganosa) prior administrative authorisation to establish a plant for the reception, storage and regasification of LNG in Mugardos (La Coruña). Official State Gazette of 24 July 2002, pages 6032 and 6033.

9 26. According to article 16 of RD 949/2001, the remuneration will be calculated individually for each company. In particular, the Minister of Economy, after having been informed by the National Energy Commission, will establish, before the 31 January of each year, the fix costs to be remunerated regarding the regasification, storage and transport of gas for each company or group of companies for that specific year, as well as the concrete values for the calculation of the variable part which the remuneration could also include (and which is calculated on the basis of the degree of utilization of the facility). Moreover, the Minister of Economy, after having been informed by the National Energy Commission, can establish formulae for the annual actualization of the costs to remunerate for, on the basis of the main macroeconomic magnitudes evolution, the availability of the facilities, the efficiency and the quality of the system.

2.3. The Contract of Limited Support by Shareholders

27. On 27 October 2005, an agreement called the "Contract of Limited Support by Shareholders" was signed by Reganosa (recipient of the funds), the shareholders of Reganosa and the BBVA, Caixa Galicia and other credit institutions listed in Annex 1 to the Contract24 (the creditors), in which all Reganosa's shareholders undertook jointly, under equal conditions and in proportion to their participation in the capital of Reganosa, to make capital contributions to hold Reganosa indemnified should the outcome of the legal proceedings and/or related appeals listed in Article II of the Contract of Limited Support by Shareholders be unfavourable to Reganosa. This would cover the damages incurred if it were necessary for Reganosa to satisfy the debt contracted with certain creditors25, until such time as Reganosa could demonstrate, to the satisfaction of its creditors, that it could cover compensation or repair of the damage arising from an unfavourable resolution.

28. The amount of the contributions to be made to Reganosa by the shareholders under this contract cannot exceed the amount of the sums owed by Reganosa to the creditors by virtue of the contracts it has signed with them.

2.4. The complaint

29. The complainants allege that certain measures adopted by the Xunta de Galicia in relation to Reganosa constitute state aid within the meaning of Article 107(1) TFEU, with Reganosa and its shareholders benefiting directly. These measures are:

24 Banco Bilbao Vizcaya Argentaria, S.A., Instituto de Crédito Oficial, Caja de Ahorros and Monte de Piedad de Madrid, The Royal Bank of Scotland, plc, Banca Intesa, S.p.A., Caixanova and BNP Paribas, branch in Spain. 25 Arising from the following contracts signed by Reganosa and certain creditors on 27 October 2005: (i) commercial credit contract; (ii) contract concerning collateral; (iii) counter-guarantee contract; (iv) Financial Transactions Framework Contract. All obligations under VAT are excluded.

10 (1) The Xunta de Galicia's share in Reganosa's capital, achieved by means of increases of Reganosa's capital, amounting to four million four hundred and forty thousand nine hundred and sixty-four euros (EUR 4 440 964).

(2) The joint guarantee offered by the Xunta de Galicia for a loan amounting to four hundred and sixteen million euros (EUR 416 000 000) taken out by Reganosa.

(3) Subsequently, in their arguments of 2 August 2010, the complainants pointed to an irregular offer which the Xunta de Galicia had made to a closed number of private investors and financial entities to take part in the project. The complainant considers that the Cooperation Agreement signed on 20 July 2000 places the private investors and financial entities which signed it in a privileged position with respect to other investors who could have taken part if a tendering procedure had been organised. This is because of the remuneration rules of the Spanish gas network, which guarantee a return, based on the nominal capacities initially contracted and the assets deployed rather than the actual final productivity of the plant. Because of this, despite its low output and the fact that it is an allegedly inefficient project for the gas network, Reganosa apparently obtained high earnings.

30. The complainant also refers to the fact that Reganosa is unnecessary and unprofitable, and considers that the plant is inefficient and generates very high costs for the Spanish gas and energy network. According to the complainant, the plant's lack of financial viability was already known at the time it was established, but this did not matter to the Reganosa shareholders because of the remuneration arrangements in the Spanish gas sector, by virtue of which they would obtain a guaranteed return despite the fact that the plant was not financially viable.

31. The complainant adds that the above measures had not apparently been notified to the European Commission before implementation, thus infringing Article 108(3) TFEU and of the provisions of Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 108 TFEU26 and Regulation (EC) No 794/200427 implementing Council Regulation (EC) No 659/199928.

32. The complainant also points to the inadequate and dangerous location of the plant which is not at an external port but inland, at the end of the Ferrol estuary, making it dangerous and difficult for methane carriers to reach the plant and raising the costs for the entire network. Other negative features include adverse climatic conditions and the proximity of housing.

33. The complainant puts forward other arguments about the construction of the Reganosa regasification plant, such as failure to comply with national and EU public procurement rules, failure to provide public information and organise a

26 Of 22 March 1999. OJ L 83 of 27 March 1999. 27 Commission Regulation of 21 April 2004: OJ L 140 of 30 April 2004. 28 Council Regulation laying down detailed rules for the application of Article 108 TFEU.

11 public consultation, and insufficient clarity and transparency in preparing and planning the project. The complainant also alleges a failure to comply with national and EU rules on safety and the environment and with the rules regulating the gas sector in Spain.

2.5. Observations by the Spanish authorities

34. The Spanish authorities consider that the measures which are the subject of this complaint do not constitute state aid by virtue of the application of the principle of a market economy investor, since the participation in Reganosa's share capital and the undertaking to contribute capital by means of the Contract of Limited Support by Shareholders were both carried out under the same conditions by the Xunta de Galicia and by Reganosa's other private shareholders. Moreover, the Xunta de Galicia's holding is a minority holding.

35. In addition, the Spanish authorities consider that the commitments made under the Contract of Limited Support by Shareholders do not constitute state aid, much less state aid in the form of a guarantee. They are in fact simply commitments which did not result in any financial contribution.

3. ANALYSIS OF THE MEASURES WHICH ARE THE SUBJECT OF THE COMPLAINT

3.1. THE MEASURES EXAMINED

36. The relevant measures for the purposes of state aid rules are the following:

(i) The capital which the Xunta de Galicia contributed to Reganosa by subscribing to capital increases, under the same conditions as the other shareholders.

(ii) The fact that the Xunta de Galicia undertook to contribute capital to Reganosa under the Contract of Limited Support by Shareholders.

37. Contrary to what was stated by the complainant rather belatedly in the letter of 2 August 2010, the Xunta de Galicia did not arbitrarily choose the other shareholders of Reganosa. Instead it decided, as already stated in section 2.1 above, to participate as a minority shareholder in the Reganosa regasification plant by signing the Framework Agreement and the Cooperation Agreement in 2000. This project already existed; authorisation for it had already been requested from the Central State Administration a year previously, in 1999, and it had in fact been authorised by the Central State Administration, not by the Xunta de Galicia. Consequently, examination of this argument comes under measure (i) above.

38. Finally, as it has been explained in section 2.2.3. above, the general remuneration system applicable to LNG terminals has also been applied to Reganosa. Therefore, Reganosa was not expected to and has not benefitted from any derogation to the general remuneration system or from a specific

12 remuneration system not applicable to other operators of LNG terminals in Spain. It follows that the revenues of Reganosa which the complainant qualifies as unjustifiably high are a consequence of the application of the general remuneration system and, therefore, cannot be seen as providing a specific economic advantage to Reganosa compared to companies operating LNG terminals in Spain which are in the same factual and legal situation. This assessment is without prejudice of the question whether the aforementioned remuneration system involves state aid within the meaning of Article 107(1) TFEU, which is not the object of the present decision.

3.2. ASSESSMENT UNDER STATE AID RULES

39. Article 107(1) of the TFEU provides, inter alia, that, except where otherwise provided in the Treaty, any aid granted by a Member State or through state resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the internal market, in so far as it affects trade between Member States.

40. Therefore, in order to determine whether the measures in question constitute state aid within the meaning of Article 107(1) TFEU, the presence of these four requirements must be assessed cumulatively:

− they must have been granted by the State or through state resources; − they must favour certain undertakings or the production of certain goods; − they must be capable of distorting competition; − they must affect trade between Member States.

3.2.1. State resources

41. In order to classify a measure as state aid, it must have been granted by a Member State or through state resources. The EU courts have produced a broad interpretation of "state" for this purpose, which includes central government entities and regional and local governments29, such as the Xunta de Galicia.

42. It emerges from case law that advantages granted directly or indirectly through state funds or which constitute an additional burden for the State constitute state aid. This does not mean that all the advantages granted by a State constitute aid, whether or not financed with state funds30.

29 Cases C-248/84 Germany v European Commission [1987] ECR 4013, paragraph 17 and T-227/01 to T-229/01, T-265/01 to T-266/01 and T-270/01 Territorio Histórico de Álava – Diputación Foral de Álava y Comunidad autónoma del País Vasco – Gobierno Vasco and Others v Commission, [2009] ECR II – 3029, paragraph 178, among others. 30 Cases C-379/98 PreussenElektra AG v Schleswag AG [2001] ECR I – 2099, paragraph 58; C-200/97 Ecotrade Srl v Altiforni e Ferriere di Servola SpA (AFS), [1998] ECR 7907, paragraph 35, and C- 295/97 Industrie Aeronautiche e meccaniche Rinaldo Piaggio SpA v International Factors Italia SpA (Ifitalia), Dornier Luftfahrt GmbH and Ministerio della Difesa [1997] ECR 3735, paragraph 35, among others.

43. In the case at hand, the circumstances referred to by the complainant at recitals 29 and 30 above such as the respect of public procurement rules, environmental irregularities or inconveniences, etc., do not involve state resources within the meaning of Article 107(1) TFEU and are therefore irrelevant for the purposes of applying this provision.

44. The same is true with regard to the commitments taken by the Xunta de Galicia by virtue of the cooperation agreement of 20 July 2000 referred to at recital 12. These commitments consist of best endeavours obligations to expeditiously handle administrative tasks which concern acts of public authority such as the granting of permits or subsidies falling under the Xunta de Galicia's competences or under that of other public bodies. As such, the expedient handling of administrative procedures involves only the diligence performance of public service duties and does not commit the resources of the Xunta de Galicia. Even if it were to be contended that the performance of these best endeavours obligations created a liability for the Xunta in case a result they aim at is not achieved (e.g. a certain delay in delivering a permit or an authorisation), quod non, that liability would not result in State resources within the meaning of Article 107(1) TFEU in the form of the share capital contribution raised by the complainants and examined in the present procedure being made available to Reganosa.

45. On the other hand, the Xunta de Galicia contributed capital to Reganosa and took on a commitment to make future contributions so that Reganosa could honour a series of loans it had taken out. Since the Xunta de Galicia is the Government of the Autonomous Community of Galicia, and those measures involved or committed funds from its budget, the above measures were carried out using state resources pursuant to Article 107(1) TFEU.

3.2.2. Economic advantage

46. Intervention by the authorities in the capital of an undertaking, in any form, can constitute state aid when the requirements of Article 107(1) TFEU are met. However, pursuant to the principle that the public and private sectors are to be treated equally, capital placed directly or indirectly at the disposal of an undertaking by the State in circumstances which correspond to normal market conditions cannot be regarded as state aid31. Indeed, the provision of capital in the form of an equity investment by public funds does not necessarily confer an economic advantage on the recipient on the sole ground of the public nature of the resources involved.

3.2.2.1. The private market-economy investor principle

47. To decide whether such intervention constitutes state aid, it must be determined whether, in similar circumstances, a private investor operating under normal market conditions (hereinafter "private investor") of a dimension comparable to that of the bodies managing the public sector could have been

31 Case 303/88 Italian Republic v Commmission [1991] ECR 1433, paragraph 20.

14 prevailed upon to make capital contributions of the same size, having regard in particular to the information available and foreseeable developments at the date of those contributions32.

48. The Commission included this principle in the Communication from the Commission: Application of Articles 107 and 108 TFEU to public holdings33 and in the Communication to Member States on the application of Articles 107 and 108 of the EEC Treaty and of Article 5 of Commission Directive 80/723/EEC to public enterprises in manufacturing sector34, and it has also been interpreted by the case law of the Community Courts.

49. There is no economic advantage conferred and thus no state aid when the capital is contributed under conditions that would be acceptable to a private investor operating under normal market conditions35. To this end, as stated by the Commission36 and in case law37, what must be borne in mind is the approach that would have been adopted by a private investor, having regard to the information available and foreseeable developments at the date of the contributions. Therefore, the Commission and the EU Courts consider that a capital contribution using public funds can be regarded as satisfying the private investor test and not constituting state aid if, inter alia, it was made at the same time as a significant capital contribution on the part of a private investor made in comparable circumstances38.

50. In the case at hand, the capital contributions made by Caixa Galicia to Reganosa took place during the subscription of capital increases for Reganosa referred to in section 2.1 above, in which all the private investors and financial institutions that are shareholders of Reganosa took part at the same time, under the same conditions as the Xunta de Galicia and, in some cases, in larger proportions than the Xunta de Galicia, thus the latter was at all times a minority shareholder.

51. The Xunta de Galicia's share of the company capital of Reganosa following the capital increase of 23 March 2001 was approximately 6.66% (see section 2.1.(i) above), rising to approximately 8.33% following the capital increase of 26 June 2002 (see section 2.1.(ii) above), to approximately 9.13% following the capital increase of 13 June 2004 (see section 2.1.(iii) above) and to 9.37% following the capital increase of 1 October 2004 (see section 2.1.(iv) above).

32 Joined Cases C-328/99 and C-399/00, Italy and SIM 2 Multimedia v Commission [2003] ECR I- 4035, paragraphs 37 and 38; Joined Cases C-296 and C-318/82, Netherlands and Leeuwarder Papierwarenfabriek BV v Commission [1985] ECR 809, paragraph 17. 33 Bulletin EC 9-1984. 34 OJ C 307 of 13 November 1993. 35 Joined Cases C-296/82 and C-318/82, cited above, paragraph 17. 36 Paragraph 28 of the Communication from the Commission to the Member States. Application of Articles 107 and 108 TFEU and of Article 5 of Commission Directive 80/723/EEC to public undertakings in the manufacturing sector. 37 Case T-16/96 Cityflyer Express v European Commission, [1998] ECR II – 757, paragraph 76. 38 Case T-296/97, Alitalia v Commission [2000] ECR II-3871, paragraph 81; Case T-385/94, Air France v Commission [1996] ECR II - 2109, paragraphs 148-149. See also point 3.2 of the Communication to the Member States on the application of Articles 107 and 108 of the EEC Treaty

15 52. At 31 October 2011, the Xunta de Galicia's share in Reganosa's capital was still a minority share, namely 10% of its capital.

3.2.2.2. Analysis of the measures from the point of view of the market economy investor principle

53. The measures in question will be examined below to see whether they fulfil the criteria of the private investor test, given that they were carried out jointly with significant private investments. In line with the Commission's decision- making practice, the following will be taken into account:

(i) Significant investments by private investors.

(ii) The fact that the public and private investments occurred at the same time.

(iii) The fact that the terms and conditions of the investments were identical.

(iv) The prospective profitability of the company.

(i) Significant investments by private investors

54. The Xunta de Galicia has a minority holding in Reganosa. The remainder of the capital is owned by private investors. Thus Unión Eléctrica Fenosa and Endesa Generación S.A., which are private undertakings operating in the energy sector, own the biggest individual percentages of the capital, namely approximately 20% each. The Tojeiro Group, a private investor which owns shares in Reganosa via its undertakings Forestal del Atlántico S.A. and Gallega Distribuidores de Alimentación, S.A., also has a holding of close to 20%. In other words, Reganosa's main shareholders, all of which are non- public and have an approximately 60% share in the company, entered into an undertaking to contribute, where appropriate, 60% of the capital necessary pursuant to the Contract of Limited Support by Shareholders.

55. In absolute terms, as can be seen roughly from the table below, the main private investors made significant capital contributions in favour of Reganosa.

16 Shareholder Value of capital contribution Undertakings in the Tojeiro Group39 EUR 11 010 310.7 Unión Fenosa Gas, S.A. EUR 9 339 060.44 Endesa Generación S.A. EUR 9 339 060.44 Sonatrach Investment Corporation, B.V. EUR 4 448 754.26 Xunta de Galicia EUR 4 448 754.26 Corporación Financiera de Galicia S.A. EUR 4 448 754.26 Caja de Ahorros de Vigo, Ourense y Pontevedra EUR 2 217 255.33 Banco Pastor EUR 2 217 255.33

56. Therefore the three main private investors individually made capital contributions that were more than twice as high as those made by the Xunta de Galicia.

57. Moreover, the capital contributions made jointly by Reganosa's three main private shareholders are also significant in relative terms, accounting for roughly 60% of all the capital contributions made.

58. Reganosa's three main private shareholders also contributed significantly in the context of the undertaking to provide limited support, with each one agreeing to make contributions in proportion to their share of Reganosa's capital, in other words around 60% of the total capital to be contributed.

59. In view of the above, Reganosa's three main shareholders are private shareholders who made capital contributions and entered into very significant commitments, in both absolute and relative terms, to contribute capital to Reganosa.

(ii) The fact that the public and private investments occurred at the same time (concomitance)

60. As stated in section 2.1. above, all Reganosa's shareholders took part at the same time in the capital increases in which the Xunta de Galicia participated. Moreover, all Reganosa's shareholders signed the Contract of Limited Support by Shareholders on 27 October 2005.

61. Consequently, the capital contributions and the undertakings to contribute capital made by the Xunta de Galicia and by Reganosa's private shareholders took place simultaneously for all shareholders, in both cases.

(iii) The fact that the terms and conditions of the investments were identical

39 Grupo Tojeiro as such has been considered one of the shareholders of Reganosa by the Spanish Competition Authority. See resolutions in cases C-0098/08, of 11 february 2009, Gas Natural/Unión Fenosa; N-03001, of 19 february 2003, Gas de Asturias/Gas Figueres and N-271, of 27 september 2002, Planta de Regasificación de Sagunto.

62. The Xunta de Galicia took part in successive increases of Reganosa's capital under the same terms and conditions as the other private shareholders of the company, acquiring a certain number of shares of identical nominal value and similar rights as those assigned to the other shareholders of Reganosa.

63. By signing the Contract of Limited Support by Shareholders on 27 October 2005, all Reganosa's shareholders, including the Xunta de Galicia, undertook to provide capital to Reganosa in the event that a series of incidents unfavourable to it should occur. The undertaking was made under the same conditions as the other shareholders, but in proportion to its share of Reganosa's capital.

64. In conclusion, the terms and conditions of the investments made by the Xunta de Galicia and Reganosa's private investors were the same.

65. Furthermore, the commitments undertaken by Xunta de Galicia and some other of Reganosa's shareholders under the Cooperation Agreement do not alter this conclusion. In fact, those commitments constitute equivalent best performance undertakings, for the following reasons. First, all of them constitute best endeavour performance commitments related to the parties' expertise and economic activities. In particular, except for Xunta de Galicia's commitment to analyse the best mechanisms to maintain the economic viability of Reganosa and charge setting, which are general rights that any shareholder in a company may have, the other commitments accepted by Xunta de Galicia constitute in reality a diligent performance of its public service obligations, which is intrinsically related to Xunta de Galicia's activity, as the natural gas consumption and supply commitments are related the other parties' economic activities.

66. In addition, no specific consequence is foreseen in the Cooperation Agreement in case any of the parties fails to perform its commitments.

67. Finally, as a consequence of the commitments agreed to in the Cooperation Agreement, neither Xunta de Galicia nor any of the other shareholders reduces its rights or participation in Reganosa's profits.

68. On the basis of the above, it can be concluded that the terms and conditions of the investments made by the Xunta de Galicia and Reganosa's private investors were the same.

(iv) The prospective profitability of the company

69. As stated above, the private investor test should be examined mindful of the information available and the foreseeable developments at the date of the contributions.

70. In this particular case, Reganosa was established and is operating with a view to making a profit, and private investors seem to consider that the prospects it

18 offers in terms of profitability were satisfactory. Therefore, as stated in section 2.1., the signatories of the Framework Agreement and of the Cooperation Agreement checked various aspects, including the viability of the project, by means of a report drawn up by the working group set up for this purpose, before continuing with the work of establishing the plant and putting it into operation. The prospects were sufficiently attractive for the real private investors who invested capital and entered into commitments under the same conditions as the Xunta de Galicia, and for even higher amounts than it.

71. The complainant does not appear to contradict this when, in its arguments of 2 August 2010, it corroborates Reganosa's prospects of profits and high revenues – on the contrary. The complainant adds that these prospects are advantageous for a small core of shareholders who signed the Framework Agreement and the subsequent capital increases, and objects that the Xunta de Galicia selected the other shareholders, paying no heed to transparency.

72. In this respect, first, there is no evidence that Xunta de Galicia selected the other shareholders of Reganosa. In addition, it is implausible, and the complainant adduces no evidence to the contrary, that a minority shareholder with a 6% stake is in a position to select the other private shareholders with much higher holdings in the company. In any event, restricted selection of shareholders in a non-listed company is the approach usually followed in the market by private investors. The restriction among themselves in the number, nature or choice of co-shareholders is, therefore, in keeping with the application of the market economy investor principle, which cannot introduce differences in treatment between public and private shareholdings.

73. In the light of the above arguments, the measures which are the subject of the present procedure do not constitute state aid since a private investor operating under normal market economy conditions, of a dimension comparable to that of the Xunta de Galicia, could have made capital contributions of the same size, having regard in particular to the information available and foreseeable developments at the date of those contributions.

74. Since the measures assessed do not meet one of the cumulative requirements for the existence of State aid within the meaning of Article 107 (1) TFEU, namely that the measures favour a specific undertaking by conferring an economic advantage to it, it is not necessary to analyse the presence of the other cumulative conditions concerning the distortion of competition and the effect on trade between Member States.

4. CONCLUSION

The Commission therefore considers that the contribution by the Xunta de Galicia to Reganosa fulfils the test related to the behaviour of a private investor in a market economy and, therefore, in the absence of an economic advantage conferred on Reganosa, does not involve State aid within the meaning of Article 107 (1) TFEU.

19 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/eu_law/state_aids/state_aids_texts_en.htm Your request should be sent by registered letter or fax to: European Commission Directorate-General for Competition State Aid Registry B-1049 Brussels Fax No: +32-2-296 12 42

Yours faithfully,

For the Commission

Joaquín Almunia Vice-President