EUROPEAN COMMISSION

Brussels, 23.XII.2008 C(2008) 8997

PUBLIC VERSION

WORKING LANGUAGE

This document is made available for information purposes only.

Subject: N 143/2008 – Slovak Republic ZSNP a.s.

Sir,

1. PROCEDURE

By letter dated 18 March 2008, registered on the same day (A/5354), the Slovak authorities notified to the Commission of the above mentioned individual ad hoc aid measure, in accordance with Article 88 (3) of the EC Treaty.

The Commission asked for additional information by letters of 22 April 2008 (D/51615), 11 July 2008 (D/52763) and 19 September 2008 (D/53604). The Slovak authorities submitted the requested information by letters of 14 May 2008, registered on the same day (A/8922), 6 August 2008, registered on the same day (A/16455), 31 October 2008, registered on the same day (A/23014), 18 November 2008, registered on the same day (A/ 24606) and on 18 December 2008, registered on the same day (A/27397).

2. DESCRIPTION OF THE MEASURE

2.1 Objective

The primary objective of the notified ad hoc aid measure is the remediation of an industrial site contaminated by the production of primary from through isolation of a mud disposal site in order to avoid seepage of rain waters through disposal site and creation of alkaline waters with pH 13.5.

More specifically, the aid measure is aimed at:

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

- eliminating risks of contamination of the adjacent lands, surface and underground water by alkaline water; - significant decrease of infiltration of rain water into the mud disposal site, - ensuring the stability of mud disposal site (prevention from landfall and erosion); - eliminating dust emissions; - increase in landscape aesthetic level of the area.

2.2 Description of the site and the pollution

The polluted site is situated in Žiar nad Hronom in Central Slovakia. The mud disposal site 'Kalové pole' contains red and brown mud1 and extends to 40 hectares. According to 2005 data the volume of the disposed mud is 10 million tons and the volume of free and fixed highly alkaline water is 1.2 million m3.

The production of alumina from bauxite started in ZSNP (national enterprise) in 1957. The from the production processes was hydraulically transported to the mud settling basins and afterwards the alkaline water was pumped back to the production cycle. The seepage of alkaline water caused contamination of underground water over the entire area of adjacent alluvial plain and thus endangering quality of water in river Hron.

2.3 Remediation projects

The gradual rehabilitation of the site started in 1991. In January 1998 the production of primary aluminium finished at the site at hand and ZSNP a.s. ceased the technological exploitation of the mud settling basins. The remediation of the mud disposal site forms part of an agreement on environmental revitalisation of ZSNP a.s. concluded in 1994 between the Slovak government, the Fund of National Property of the Slovak Republic, the beneficiary, company SLOVALCO a.s. and EBRD as well as of the 'Environmental Action Plan' which is annexed to the agreement concluded in 2001 by the Fund of National Property of the Slovak Republic, EBRD and ZSNP a.s.

The original remediation project was based exclusively on 'greening' the mud disposal site through placing soil substrate and planting grass, bushes and wood species. However, the mid-operation tests showed that the soil substrate slides at several places (some of parts of the disposal site incline up to 42°), which led to the exposure of brown and and consequently to the seepage of rain waters to the mud disposal site and creation of additional volumes alkaline waters. On the basis of expert analysis of experimental trials, ZSNP a.s. decided to pursue the rehabilitation of the polluted site through the combination of technical and biological methods. The new project was subject to an exigent consultation process, complies with all technical and environmental requirements and was approved by central and local authorities as well as by administrator of Hron River.

The new remediation project consists of the following works: draining and treatment of alkaline water from the top basins of mud disposal site, upgrading pumping equipment, sealing the surfaces in the top basins with high-density polyethylene foil, draining rain water, building equalisation basins, placing drainpipes in the seepage canals and constructing access roads. The project is divided into two stages. Works on the first stage started in August 2006

1 Brown and red mud is classified as dangerous waste.

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and finished in March 2007. In April 2007, the works started on the second stage of remediation. The remediation measures implemented to date include: construction of underground sealing wall, treatment of alkaline water and a partial rehabilitation of the mud disposal site.

The costs of the original remediation project were estimated at SKK 55.5 million (EUR 1.71 million)2, but due to necessary changes in the remediation project described above, the costs increased substantially.

Up to 30 September 2008, ZSNP a.s. has already financed the following investment costs: A) Processing of alkaline waters from the mud disposal site (not part of the eligible costs)3: SKK 470 million (EUR 14.5 million)4, including, according to the Slovak authorities, the State aid at the level of SKK 20 million (EUR 0.62 million). B) Remediation of the mud disposal site: Stage I of the remediation (not part of the eligible costs): SKK 55 million (EUR 1.7 million), including according to the Slovak authorities the State aid at the level of SKK 10 million (EUR 0.31 million); Stage II of the remediation (part of the eligible costs): SKK 101 million (EUR 3.1 million).

As regards the already granted aid, the Slovak authorities explain that the aid was granted in year 2001 on the basis of the Governmental resolution No 59/2001 of 24 January 2001 on proposal of environmental measures for revitalisation of countryside of Žiar valley, which determined the specific measures for which the financial resources granted to ZSNP a.s. must be used, i.e. neutralisation of waste waters from mud disposal site (measure No 4) and biological remediation of the disposal site for red and brown mud (measure No 5) and the maximum aid amounts. The aid was paid out on the basis of agreements on providing of budgetary resources concluded with the beneficiary in 2003, 2004 and 2006.

2.4 Legal basis

The ad hoc aid is based on Act No. 587/2004 Coll. on Environmental Fund, Executive Decree of the Ministry of Environment of the Slovak Republic No. 157/2005 Coll. to Act No 587/2004 Coll. on the Environmental Fund and on Act No. 231/1999 Coll. on State Aid as amended.

2 Based on reference rate of 18 March 2008: EUR 1 = SKK 32.474. Source: National Bank of Slovakia. The same exchange rate will be applied in the whole document.

3 The contractual liability referred to below in Section 2.6.2 is linked exclusively to the remediation of the mud disposal site. The Slovak authorities nevertheless emphasize that the processing of alkaline waters is a necessary prerequisite for the remediation works.

4 Investment costs: SKK 179 million, operating costs linked to treatment of alkaline water: SKK 291 million.

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2.5 The beneficiary

The beneficiary is a large company ZSNP a.s. active in metallurgical sector, which focuses on aluminium processing. The company is situated in Žiar nad Hronom in a region eligible for assistance under 87 (3) (a) of the EC Treaty. The legal predecessor of the beneficiary was State enterprise Závody SNP, š.p. Žiar nad Hronom. In 1991 the enterprise was disestablished without liquidation and the new company ZSNP a.s. was set up. In 2002 the beneficiary company was privatized by company ŽHS a.s., which is now a majority shareholder owning 73.86% of shares of ZSNP a.s.

The beneficiary is not subject to any outstanding aid recovery order.

2.6 Liability for environmental pollution

2.6.1. Liability under public law

The Slovak authorities confirm that on the basis of the Slovak legal order company ZSNP a.s. is not under any public law obligation to remediate the mud disposal site. Such obligation does not arise directly from a law and was not established by a final decision of State authorities.

The legal analysis submitted by the Slovak authorities refers in this context specifically to Act 17/1992 Coll. on Environment and for the period before its entry into force to the general rules on liability and damages of the Civil and Business Codes.

The Act 17/1992 Coll. on Environment, which entered into force on 16 January 1992, introduced liability rules for breaching the obligations in the field of environmental protection (Article 27)5. Everybody, who caused the environmental 'harm', is under obligation to renew the natural functions of damaged eco-system or its parts6. The Act nevertheless covers only environmental harm which arose after its entry into force, i.e. is applicable to the activity of the beneficiary linked to the notified remediation measure only from 16 January 1992 until January 1998 when the production of primary aluminium finished at the site at hand. The Slovak authorities also explain that at the moment, the Slovak legal order does not contain any specific legislation concerning the old environmental burdens.

As regards the specific obligation to remediate linked to emergency situations with respect water pollution, Act No. 364/2004 Coll. on waters contains the relevant rules. The polluter (operator of the installation) is then obliged to remedy the situation on its own costs. The Slovak authorities explain that the aim of the remediation works carried out by ZSNP a.s. is exactly the prevention of contamination of rain waters by seepage through the mad disposal

5 The Commission notes that Act No 359/2007 Coll. on prevention and remediation of environmental damages, which transposes Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage into the Slovak legal order, is not relevant for the remediation measure under assessment as it covers on environmental damage which arose after its entry into force, i.e. 1 September 2007.

6 Pursuant to Article 27 (2) of Act No 17/1992 on Environment, the competent State authority decides on the imposition of an obligation to remediate the environmental harm. The Slovak authorities confirm that no such decision was issued with respect to ZSNP a.s. and explain that such decision has constitutive nature, i.e. without the decision there is no obligation to remediate the environmental harm.

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site, i.e. the prevention of creation of emergency situations endangering the ground and underground waters.

The fact that the beneficiary has never had, pursuant to the Slovak legal order, any obligation to remediate the mud disposal site, can be also illustrated by the fact that the Government in the above mentioned Governmental resolution No 59/2001 imposed on several State authorities the obligations linked to the revitalisation of landscape of Žiar valley, e.g. securing of necessary financial resources for carrying out the measures identified in the resolution, including providing financial resources to ZSNP a.s. for certain remediation works7.

2.6.2 Contractual liability

As referred to in point 2.3 above, the Agreement on environmental revitalisation of ZSNP a.s was concluded in 1994 between the Slovak government, the Fund of National Property of the Slovak Republic, the beneficiary, company SLOVALCO a.s. and EBRD8. In this agreement ZSNP a.s. undertook to carry out the revitalisation9 of the polluted environment caused by the production of primary alumina ('programme of rehabilitation works')10. The agreement stated among others that if ZSNP a.s. carries out the programme of rehabilitation works, the government undertakes not to request further rehabilitation works or other remedial measures beyond the agreed programme of rehabilitation works and not to order either any expenditure or carrying out of other legal or financial obligations which concern the environmental damages.

On 30 March 2001, the Fund of National Property of the Slovak Republic, EBRD and ZSNP a.s. concluded an agreement in the form of a letter which concerned only the remediation of the mud disposal site and the linked activity of treatment of alkaline waters. ZSNP a.s. undertook with reference to the above mentioned 1994 revitalisation agreement to carry out specific remediation works, whose costs were limited by the sum specified in the Environmental Action Plan which formed Annex 1 to the agreement. The costs of the required works linked specifically only to the remediation of the mud disposal site11 were

7 For details see section 2.3 above.

8 The revitalisation agreement was a condition imposed by EBRD for granting a loan to Slovalco a.s. for finalising the construction and putting into operation of new aluminium works. EBRD also became a shareholder of Slovalco a.s., but sold its stake in the meantime and currently holds no further shares in Slovalco. ZSNP a.s. currently owns 44.7 % of Slovalco's shares. The Slovak authorities explain that the relation between ZSNP a.s. and Slovalco a.s. does not anyhow influence the analysis of liability for environmental damages.

9 Remediation of the mud disposal site was one of 25 measures concerning removal of subsequent environmental burdens contained in the agreement. The other measures related e.g. to decrease of the NOx and dust emissions, lowering the sulphur emissions through gasification of boilers, continuous monitoring of emissions, waste waters and of the quality of underground waters, dust clean-up of certain installations, construction of disposal site for industrial waste, including disposal of dangerous waste, neutralisation of waste waters from red and brown mud disposal site.

10 It is a general practice of EBRD to include this type of environmental plans into the financing agreements.

11 As the notified measure relates exclusively to remediation of the mud site, only the limitation linked to this activity is taken into account.

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limited by the total sum of USD 5.55 million (SKK 272.8 million12, EUR approximately 8.4 million13). The Fund of National Property of the Slovak Republic undertook to ensure that ZSNP a.s. will carry out the remediation works in time and in line with the qualitative, quantitative and technical requirements. The Slovak authorities emphasize in this context that the contractual obligations of ZSNP a.s. and the Fund of National Property of the Slovak Republic were undertaken towards EBRD. In the privatisation agreement concluded in 2002, ŽHS a.s. as buyer, undertook within the scope of the above mentioned contractual obligations of ZSNP a.s.14 to carry out the investments in order to ensure the environmental revitalisation of ZSNP a.s. up to the level of SKK 500 million (EUR 15.4 million) by the end of 2012. Non-compliance with this condition of the privatisation agreement is considered as a substantial breach of the contract and the selling party (the Fund of National Property of the Slovak Republic) will be entitled to rescind the contract immediately, but only after such non-compliance is notified to it by EBRD15. The sum of SKK 500 million is linked to the implementation of different environmental measures (e.g. decrease of emissions of organic elements from production of tubes, reconstruction of electro separators of heating station), which are, unlike the Environmental Action Plan, not exclusively linked to the remediation of the mud disposal site.

The Slovak authorities conclude that the contractual liability of ZSNP a.s. with respect to environmental measures concerning the remediation of the mud disposal site is limited by the sum of USD 5.55 million (SKK 272.8 million, EUR approximately 8.4 million) as referred to in the Environmental Action Plan annexed to the 2001 agreement16. As indicated above, the commitment of ŽHS a.s. based on the privatisation agreement to carry out investments for environmental revitalisation of ZSNP a.s. up to the level of SKK 500 million concerns also other environmental measures not linked to the remediation of the mud disposal site.

2.6.3 Compliance with' polluter pays principle'

The Slovak authorities conclude that based on legal analysis the obligation to remediate the mud disposal site does not result from any valid legislation, but exclusively from the contractual obligation undertaken by ZSNP a.s. in the 2001 agreement which is strictly limited to the level of USD 5.55 million (SKK 272.8 million). The compliance with the polluter pays principle is thus linked to this amount, which ZSNP a.s. undertook to invest in the remediation of the mud disposal site.

12 Based on reference rate of 30 March 2001: 1 USD = SKK 49.145.

13 Based on reference rate referred in footnote No. 2.

14 The Slovak authorities explain that even if formally the obligations were taken over by different legal entities, they concern the remediation of the same mud disposal site which was specified in 1994 and 2001 agreements with EBRD.

15 The Slovak authorities note in this context that as from 2007, EBRD is not anymore the shareholder of Slovalco a.s.

16 The Environmental Action Plan refers with respect to two remediation sub-measures to financing from the Government of the Netherlands. The Slovak authorities explained that it was linked to an unsuccessful technical experiment, which had to be removed and the remediation of the respective area had to be refinanced by ZSNP a.s. from its own resources.

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2.7 Form of aid

The aid is granted in the form of a soft loan provided by the Environmental Fund. The loan amounts to SKK 250 million (EUR 7.7 million). It has maturity of 15 years and the interest rate of 1 % p.a. is applied.

2.8 Eligible costs

The eligible costs are costs of the remediation works of stage II of the new remediation project linked to the objectives referred to above in point 2.1. These costs include e.g.: transport of materials; purchase and installation of separative and protection geofoils, drainage pipes with equipment, high-density polyethylene foils, drainage elements, bentonite mats, soil substrate, wood species, hydroseed; purchase17 and rent of construction machinery; construction of roads, project management costs and project's presentation; work force costs.

Only the costs incurred after the submission of the application for aid to the Slovak authorities are considered as eligible.

Based on expert opinion and statement of the local environmental authority, the Slovak authorities confirmed that there cannot be any commercial use of the remediated site given the dangerous character of the waste (presence of carcinogenic substances) and insufficient stability of the slopes for long-term use. According to the local environmental authority, the site can be used after remediation only for purposes for which it was approved, i.e. as a mud disposal site. The mud disposal site will stay at the original place and will be isolated from the surrounding areas. After remediation, the site will nevertheless need further monitoring and maintenance. Accordingly, the Slovak authorities stated that it is excluded that the site at hand is sold to third parties for commercial use after remediation. Therefore, the Slovak authorities conclude that there is no element to be deducted from the eligible costs (increase in value of the remediated site).

The eligible costs amount to SKK 607.7 million (EUR 18.7 million) in nominal value. The net present value of the eligible costs is SKK 561.8 million (EUR 17.3 million)18.

17 The purchased machinery will not be sold after remediation, but will be further used in the remediated site.

18 The net present value was calculated on the basis of discount rate determined in line with the Communication from the Commission on the revision of the method for setting the reference and discount rates, OJ C 14, 19.1.2008, p.6.

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2.9 Aid amount and aid intensity

According to calculations submitted by the Slovak authorities, the aid amount expressed as GGE19 is SKK 65.8 million (EUR 2.03 million).

The aid intensity is 11.7 % of the eligible costs.

For the purposes of these calculations, the Slovak authorities applied the reference rate of 5.34% set pursuant to the Communication from the Commission on the revision of the method for setting the reference and discount rates20. The base rate of 4.34 % is based on 3 months (February, March, April 2008) average of 1 year BRIBOR. Based on the assessment done by commercial bank, a margin of 100 basis points is applied ('good' rating category and 'normal' collaterisation).

2.10 Duration

The aid is granted in the form of a soft loan, i.e. as a one-off measure. The maturity of the loan extends to 15 years. The aid will not be granted before the approval of the aid measure by the Commission.

2.11 Cumulation

The aid cannot be cumulated with the aid received from other local, regional, national or Community sources to cover the same eligible costs.

3. ASSESSMENT

3.1 Presence of State aid under Article 87(1) of the EC Treaty

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, insofar as it affects trade between Member States, be incompatible with the common market.

It has been established by the Court that in order to qualify as State aid, a measure must first be granted directly or indirectly through State resources, and second, be imputable to the State21.

The aid will be granted by the Environmental Fund which is financed through the State budget. These financial resources therefore qualify as State resources for the purposes of establishing the existence of State aid within the meaning of Article 87 (1) of the EC Treaty. The Environmental Fund forms an integral part of the Slovak administration and therefore its activities are considered as imputable to the State.

19 Gross grant equivalent.

20 OJ C 14, 19.1.2008, p.6.

21 See e.g. C-482/99, v Commission, [2002] ECR I-4397, paragraph 24.

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Only one undertaking selected by the Slovak authorities will benefit from the notified measure.

The beneficiary will be relieved of a part of the remediation work costs which it would normally have to bear itself. Consequently, the aid will strengthen its financial position in relation to its competitors in the Community and therefore will have potentially distorting effects on competition. Products of the beneficiary concerned might be subject to cross-border trade within the Community, thus the aid grant is likely to affect trade between Member States.

Therefore, the notified scheme constitutes State aid within the meaning of Article 87 (1) of the Treaty.

3.2 Lawfulness of the aid

By notifying the aid measure before its implementation, the Slovak authorities fulfilled their obligation according to Article 88(3) of the EC Treaty.

3.3 Compatibility of the aid

The Commission has assessed the compatibility of the notified scheme according to Article 87 (3) (c) and in the light of the new Community Guidelines on State Aid for Environmental Protection (hereinafter referred to as 'the Environmental aid guidelines'), which were adopted on 23 January 2008 and entered into force on 2 April 2008. Point 204 of the Environmental aid guidelines foresees that the Commission will apply them to all notified aid measures in respect of which it is called upon to take a decision after the guidelines are published in the Official Journal22, even where the projects were notified prior to their publication. This provision is therefore applicable to the aid measure at hand.

As the notified measure concerns the remediation of mud disposal site, the compatibility criteria laid down in points 132 – 134 of the Environmental aid guidelines apply.

As regards the improvement of environmental protection, the Commission notes that the pollution is caused by red and brown mud from alumina production which is classified as dangerous waste. The deposited waste contaminated the soil and the seepage of rain water into the mud disposal site leads to creation of alkaline water which consequently creates a constant risk of contamination of adjacent land and surface and underground water. Through remediation of the site (primarily the isolation of the site against seepage of rain water), the risk of such contamination will be eliminated, the disposal site will be stabilised and dust emissions reduced. It can be therefore concluded that in line with point 132 of the Environmental aid guidelines the aid measure leads to the improvement of environmental protection.

As regards the compliance with the polluter pays principle, point 132 of the Environmental aid guidelines states that where the polluter is clearly identified, that person must finance the rehabilitation in accordance with the ‘polluter pays principle’ and no State aid may be given.

22 OJ C 82, 1.4. 2008, p. 1.

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In this context 'polluter' refers to the person liable under the law applicable in each Member State, without prejudice to the adoption of Community rules in the matter23. Pursuant to the third paragraph of point 132 of the Environmental aid guidelines, where the polluter is not identified or cannot be made to bear the costs, the person responsible for the work may receive aid.

The specific liability rules for breaching the obligations in the field of environmental protection were introduced into the Slovak legal order by Act 17/1992 Coll. on Environment. As explained in detail in section 2.6.1., the Act on Environment is relevant for the determination of liability of the beneficiary only as regards the period from its entry into force on 16 January 1992 until January 1998, when the production of primary aluminium finished at the site at hand24. Furthermore, the Commission notes in this context that Act No 359/2007 Coll. on prevention and remediation of environmental damages, which transposes Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage into the Slovak legal order, is not relevant for the remediation measure under assessment as it covers only environmental damage which arose after its entry into force, i.e. 1 September 2007.

The Slovak authorities confirmed that based on the analysis under the Slovak legal order, the liability of ZSNP a.s. with respect to the remediation of the mud disposal site is limited exclusively to its contractual obligation towards EBRD under the 2001 agreement, which amounts to USD 5.55 million (SKK 272.8 million, EUR approximately 8.4 million). Given this confirmation, the Commission considers that for the amount exceeding the contractual liability limit the polluter cannot be considered as liable under national law. Accordingly, considering the above mentioned definition of a polluter as person liable under national law applicable in each Member State, it can be implied that for the amount exceeding the contractual liability limit the polluter cannot be identified.

As described in detail in point 2.3 above, ZSNP a.s. has already invested from its own sources the following amounts with respect to the remediation of the mud disposal site: SKK 45 million (Stage I of the remediation minus the already granted State aid). Furthermore, it is necessary to recall that the net present value of the eligible costs minus the aid amount under the notified measure amounts to SKK 496 million. The sum of these financial resources without any aid element, i.e. SKK 541 million, highly exceeds the 'contractual liability limit' of USD 5.55 million (SKK 272.8 million) referred to above and it is as well above the undertaking to invest SKK 500 million into the general environmental revitalisation of ZSNP a.s. resulting from the privatisation agreement.

23 Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage, OJ L 143, 30.4. 2004, p. 56. However, according to its Article 17, this directive shall not apply to damage caused by an emission, event or incident that took place before 30 April 2007. Therefore, the Commission relied in the present case on the national law.

24 It is worth noting in this context that that the environmental harm caused during this period represents only approximately 15% of the total pollution created during the period of 1957-1998 and that the aid intensity under the notified measure amounts to 11.7% of the eligible costs compared to the maximum allowable of 100%. Accordingly, even if the liability for environmental harm had been established under this law, the polluter pays principle would be respected as the beneficiary would pay from its own resources the part of remediation costs exceeding such share of liability and the contractual liability limit of USD 5.55 million (SKK 272.8 million) resulting from contractual obligation towards EBRD under the 2001 agreement would be respected as well.

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It can be therefore concluded that the notified measure complies with the polluter pays principle and the aid amounting to SKK 65.8 million (EUR 2.03 million) is in line with the conditions of point 132 of the Environmental aid guidelines.

The aid intensity of the notified measure is 11.7% of the eligible costs, i.e. is fully in line with the maximum level of 100% of the eligible costs set in point 133 of the Environmental aid guidelines.

As for the eligible costs, they are linked to the costs of remediation works. The Slovak authorities confirm that given the limited possibilities to use of the site after remediation25, it can be excluded that the site is sold to third parties and therefore there is no increase in value to be deducted from the eligible costs. The notified measure thus complies with point 134 of the Environmental aid guidelines.

With respect to the aid amount and the net present value of the eligible costs, the Commission notes that their level is calculated in line with the Communication from the Commission on the revision of the method for setting the reference and discount rates.

As regards the incentive effect, the Slovak authorities confirmed that only costs incurred / to be incurred after the submission of aid application to the Slovak authorities are considered as eligible under this aid measure. With respect to additional conditions for large companies, the Slovak authorities explained that there is only one environmentally acceptable solution for the remediation of the site at hand, i.e. the theoretically possible temporary solutions without the aid would not prevent the creation of further environmental damage. The Slovak authorities put forward that without the aid the remediation works on the approved remediation project would slow down substantially what would lead to the prolongation of the period during which the mud disposal site is exposed to rain and additional alkaline waters are created26. Considering the above, the Commission concludes that the condition of presence of incentive effect pursuant to Section 3.2 of the Environmental aid guidelines is complied with.

Finally, with respect to the already granted aid linked to the remediation of the mud disposal site, the Commission notes that according to the Slovak authorities the aid was granted in 2001on the basis of Governmental resolution No. 59/2001, i.e. before the accession of the Slovak Republic to the EU. The payment contracts concluded in 2003, 2004 and 2006 were mere acts of execution of the previously granted aid. Given the determination of maximum aid amounts and the exact purpose of the aid in the granting document (Governmental resolution No. 59/2001) this aid does not seem to be applicable after the accession.

Accordingly, the Commission comes to the conclusion that the notified scheme complies with the Environmental guidelines and is therefore compatible with the common market in accordance with Article 87 (3) (c) of the EC Treaty.

25 According to the local environmental authority, the site can be after remediation used exclusively for purposes for which it was approved, i.e. as a mud disposal site (for details see point 2.6 above). 26 According to the estimations of the Slovak authorities the remediation without any aid would last 2 years longer, i.e. would be finalized only in 2012.

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4. CONCLUSION

The Commission finds that the aid to ZSNP a.s. is compatible with the common market in accordance with Article 87 (3) (c) of the EC Treaty and has therefore decided not to raise objections to the notified measure.

If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within 15 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/community_law/state_aids/index.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

Please accept, Sir, the assurance of my highest consideration.

For the Commission

Günter Verheugen Vice President of the European Commission

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