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Draft Letter to the Swedish Government

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Draft Letter to the Swedish Government 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 aluminium from bauxite ore 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 industrial waste 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 red mud 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. 2 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. 3 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.
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