Onorevole Enzo Moavero Milanesi Ministro Degli Affari Esteri E Della Cooperazione Internazionale P.Le Della Farnesina 1 I - 00194 Roma

EUROPEAN COMMISSION

Brussels, 12.12.2018 C(2018) 8732 final

PUBLIC VERSION

This document is made available for information purposes only.

Subject: State aid SA.52170 (2018/N) – Italy – Rescue aid to Condotte in A.S.

Sir,

The European Commission ("the Commission") wishes to inform Italy that, having examined the information supplied by your authorities on the State aid referred to above, it has decided not to raise any objections, as it is compatible with the internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union (“TFEU”).

The Commission has based its decision on the following considerations:

1. PROCEDURE

(1) Following pre-notification contacts, on 30 November 2018, Italy notified to the Commission its plans to grant rescue aid to the company Società Italiana per Condotte d’Acqua S.p.A. in Amministrazione Straordinaria ("Condotte" or the "company").

(2) The Italian government agreed exceptionally to waive its rights deriving from Article 342 TFEU in conjunction with Article 3 of the EC Regulation 1/1958 and to have the planned Decision adopted and notified pursuant to Article 297 of the Treaty in English language.

2. THE BENEFICIARY

Onorevole Enzo Moavero Milanesi Ministro degli Affari esteri e della Cooperazione Internazionale P.le della Farnesina 1 I - 00194 Roma

Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefono: 00-32-(0)2-299.11.11

(3) Condotte was established in 1880, with headquarters in Rome. The company is active in the construction sector, including infrastructure works, such as road, high speed railway, energy (hydroelectricity power dams) and large infrastructure works. Condotte operates as a sole contractor or in joint ventures with other construction companies though consortia or similar legal entities which participate in varying proportions and/or phases of the works.

(4) With turnover value of EUR 844 million in 2016 and an order book of approximately EUR 4 billion, of which EUR 2.7 billion in Italy and EUR 1.3 billion abroad, Condotte ranks third among the fifty largest Italian construction companies and thirty first in Europe. The current portfolio of Condotte includes 23 projects, whether in Italy, other Member States (Denmark, Romania) or third countries (Algeria, Kuwait), of which eight projects as direct contractor and others in association with other construction companies.

(5) Condotte is owned by Ferfina S.p.A., which is a financial company holding interests and control in a group of companies able to perform construction works in various sectors of the construction market.

Figure 1

Condotte and related companies with direct or indirect ownership links

(6) The Italian authorities explain various external factors impacting Condotte. The economic crisis led to a reduction in annual spending for the construction sector in Western Europe of -1.1% per year (2012 - 2016). More specifically in Italy, public investments involving civil engineering were reduced around -7% per year from 2008 to 2015; payment delays by public administrations after the issuance of work progress certificate frequently exceeded 5 months in 2017; adjudication processes

2 and settlement of disputes with the contracting authorities involves long proceedings, in a context of tenders adjudicated to lowest price and extensions of length of commercial cycles, which put Italian construction companies under financial strain. Italy further points out that Condotte also made inadequate choices as to strategy, organization and objectives.

(7) The Italian authorities explain that these internal and external factors contributed to reducing operating margins and increasing debt, so that at present Condotte cannot finance its operation from its revenues and equity in the short or in the long term. Indeed, Condotte generated EUR 364.8 million losses in 2017, which led to having negative equity of EUR 168.6 million as of 12 December 2017. To further substantiate the difficulties of the company, the Italian authorities provided prospective monthly cash flow projections from October 2018 to June 2019, which show that the company is unable to meet its operating and financial costs.

(8) Upon its request, Condotte was admitted to the Extraordinary Administration Procedure on 6 August 20181. By a decree dated 14 August 2018, the Ordinary Court of Rome (Tribunale Ordinario di Roma) declared the insolvency of Condotte, to the effect that it could not support the liabilities of the company. The Italian authorities also explain that on 6 July 2018, Condotte's owner Ferfina had submitted the request for a Court-driven process of settlement with its creditors.

(9) Condotte is at present managed by three commissioners appointed by the Italian government. According to Italy, the Extraordinary Administration is focused on restarting business operation now dependent on Condotte meeting its payment obligations for existing projects and works as soon as possible in order to proceed with selling Condotte in one or more homogeneous business units. The objective is to sell the company's assets through a competitive, transparent and non- discriminatory procedure. The Extraordinary Administration, as envisaged by the three commissioners, cannot and will not aim for new projects to be added to the current portfolio.

(10) Italy considers that Condotte plays an important role in the construction sector not only because of a large number of 1 041 direct jobs it provides but also because of substantial, much larger number of indirect jobs and commercial links it sustains with subcontractors, suppliers, creditors, etc. The Italian authorities indicate that current projects in which Condotte is involved in the region of Campania involve around four thousand direct and indirect jobs. Moreover, the Italian authorities claim that the exit of Condotte from the market would have the effect of irremediably losing technical knowledge and a key provider of services with systemic effects on the construction market. Moreover, once lost, the know-how for building complex infrastructure cannot be recreated easily or in the short term. Apart from that, Condotte's exit would strengthen the position of competitors for certain strategic segments in high speed railway lines (e.g. Milan-Genoa, Brescia- Verona, Verona-Padua) up to an oligopoly situation. Condotte's exit would allegedly be particularly detrimental to the Campania region, where Condotte committed works up to EUR 361 million, with more than 300 orders awarded to third parties and where unemployment (21%) is well above national rate (11.2%).

1 Decree by Minister of Economic Development, pursuant to Article 2 of the Legislative Decree 347/03.

3 3. DESCRIPTION OF THE RESCUE AID

(11) The notified rescue aid consists of a State guarantee amounting at EUR 190 million in favour of Condotte2. The State guarantee is to be used in the next six months in part to support EUR 136 million cash loan(s) financing current operations and in part to support EUR 54 million credit signatures needed for financial institutions issuing or renewing advance bonds or performance bonds, or other guarantees needed to reactivate works as presented in detail in the liquidity plan for the coming six months (for details see recital (43)).

(12) The exact conditions of the guarantee are not yet defined, but the Italian authorities declare that the interest rates charged for the supported financial instruments will be in line with normal banking conditions for healthy undertakings, and will not be lower than Euribor + 400 basis points, which corresponds to the reference rate for weak undertakings offering normal levels of collateralisation3. Italy also committed to submit the granting act of the guarantee in favour of Condotte.

(13) Italy expects that the guaranteed loans shall be reimbursed with the proceeds from the sale. In any event, Italy undertakes that at the end of the six months following the granting of aid it shall submit either a restructuring plan or a liquidation plan following which it shall liquidate the company and sell its assets out of which the loans will be repaid or in a case no liquidation is initiated a proof that the loans have been reimbursed in full and/or that the guarantee has been terminated within six months of the authorisation or disbursement of the first instalment.

(14) Finally, the Italian authorities confirmed, in line with point 74 of the R&R Guidelines that neither Condotte, its subsidiaries nor the Ferfina S.p.A. have received any rescue or restructuring aid in the past ten years.

4. ASSESSMENT OF THE RESCUE AID

(15) The Commission first assesses whether the rescue guarantee under scrutiny entails State aid to Condotte under Article 107(1) TFEU, and then whether such aid is lawful and compatible with the internal market.

4.1. Existence of State aid (16) According to Article 107(1) TFEU, "[s]ave as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market".

(17) The qualification of a measure as aid within the meaning of this provision therefore requires the following cumulative conditions be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the

2 Decree of the Ministry of Economic Development pursuant to Article 2-bis of Decree 30 January 1979, n. 26, converted with modifications in Law 3 April 1979, n. 95. 3 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.

4 measure must distort or threaten to distort competition and affect trade between Member States.

(18) Prior to examining if the rescue guarantee involves State aid pursuant to Article 107(1) TFEU, the Commission notes that Italy considers the guarantee does involve State aid. Moreover, the Commission has already concluded that ad hoc guarantees granted under the same legal basis than the one planned for Condotte to other insolvent Italian construction companies admitted to Extraordinary Administration allowing them to continue operations for the next six months involve State aid4.

(19) The State guarantee shall be granted through the exercise of discretion by an ad hoc act of the Italian Ministry of Economy and Finance. Therefore, the guarantee is imputable to the Italian State and creates a risk for the State resources that are involved and that would need to be mobilised in case of borrower default.

(20) This State guarantee will be issued through the exercise of discretion to the benefit of one specific undertaking for an ad hoc amount determined by reference to its liquidity needs. The Commission notes that the State guarantee is not part of a broader measure of general economic policy to provide support to undertakings, in a comparable legal and economic situation, active in the construction or other economic sectors. Therefore, the Commission concludes that this State guarantee is selective within the meaning of Article 107(1) TFEU.

(21) The guarantee confers an economic advantage to Condotte by allowing access to finance at conditions available to healthy undertakings that Condotte, given its insolvency state and negative equity would not have been able to obtain on the market, to continue its operations.

(22) The market for construction works is open to competition in the European Union and Condotte will be able to continue ongoing construction projects therein, whether in Italy or in other Member States, such as Denmark or Romania (see recital (4) above).

(23) By granting access to finance at conditions which it would not otherwise obtain, the State guarantee is liable to improve the position of Condotte in relation to other competing construction companies active in Italy or in other Member States within the internal market which need to finance their operations at market conditions and which could step in replacing Condotte in current or future construction projects. The State guarantee consequently distorts or threatens to distort competition and affects trade between Member States.

4.2. Conclusion on the existence of aid

(24) In light of the above, the Commission concludes that the planned State guarantee in favour of Condotte involves State aid under Article 107(1) TFEU and will therefore assess its lawfulness and compatibility with the internal market.

4 Commission decision of 11.6.2014 raising no objections to State aid SA.38579 (2014/N) – Italy Rescue aid to Impresa S.p.A. in A.S. OJ C251 of 1.8.2014, p.1.

5 4.3. Legality of the aid (25) The planned State guarantee has not been granted to Condotte yet and Italy is thus observing the stand-still obligation laid down in Article 108(3) TFEU. Therefore, the guarantee to Condotte does not constitute unlawful State aid.

4.4. Compatibility of the aid (26) Under Article 107(3)(c) TFEU, the Commission can authorize aid if it is granted to promote the development of certain economic sectors and if this aid does not adversely affect trading conditions to an extent contrary to the common interest. In view of the nature and aims of the State aid at stake, the Commission will assess whether the State guarantee complies with the provisions on rescue aid laid down in the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty5 ("R&R Guidelines").

4.4.1. Eligibility

(27) In order to be eligible for rescue aid, an undertaking must qualify as an undertaking in difficulty pursuant to section 2.2 of the R&R Guidelines. In particular, point 20 of the R&R Guidelines stipulates that an undertaking is considered to be in difficulty when, without intervention by the State, it will almost certainly be condemned to going out of business in the short or medium term. This would be the case when at least one of the circumstances described in point 20 from letter a) to d) of the R&R Guidelines occurs.

(28) As explained at recital (8), the Italian court has already declared Condotte insolvent and the proceedings for Extraordinary Administration have been initiated. The company thus qualifies as a firm in difficulty pursuant to point 20(c) of the R&R Guidelines.

(29) According to point 21 of the R&R Guidelines, a newly created undertaking is not eligible for rescue aid. An undertaking will in principle be considered as newly created during the first three years following the start of operations in the relevant field of activity. Only after that period will it become eligible for aid, provided notably that does not form part of a larger business group. Condotte is not a newly created undertaking, as it was established 138 years ago.

(30) According to point 22 of the R&R Guidelines, a company belonging to a larger business group is not normally eligible for aid under these guidelines, except where it can be demonstrated that the company's difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself.

(31) Condotte is owned by Ferfina, which is a mere holding company which does not produce goods or services itself and is in turn seriously affected by Condotte's situation. Ferfina is also facing solvency problems, with the consequent inability to provide support to its subsidiary as corroborated by its position on the insolvency procedure (see recital (8)). Condotte's difficulties, as described in recital (6),

5 Communication from the Commission - Guidelines on State aid for rescuing and restructuring non- financial undertakings in difficulty, OJ C249, 31.7.2014, p.1.

6 appear to be intrinsic to its activity and operation and do not result from an arbitrary allocation of costs within the group. Therefore, the Commission concludes that point 22 of the R&R Guidelines is fulfilled.

4.4.2. Contribution to an objective of common interest

(32) Under point 38(a) of the R&R Guidelines, in assessing whether the rescue aid can be declared compatible with the internal market, the Commission examines whether the State aid contributes to a well-defined objective of common interest in accordance with Article 107(3) TFEU. In this respect, the Member State must provide clear evidence showing that the aid aims to prevent social hardship or address a market failure. Under point 44 of the R&R Guidelines, this can be demonstrated in particular by showing that one of the circumstances listed from letter a) to g) are met.

(33) The notified rescue aid has the purpose to prevent the immediate bankruptcy of Condotte with immediate impact of slowing down or disrupting some of the public ongoing construction works referred to in recitals (4) and (10). On the basis of the information provided by the Italian authorities, the Commission finds that there is a concrete risk of disruption of the ongoing activity of construction of large and/or public infrastructure works and of the direct and indirect activities induced by contracts under execution. These activities are hard to replicate in the short term horizon within which the rescue aid is to be assessed and in which it would be difficult for any competitor to step in and fully replicate the role of Condotte without risking a further slowdown in the modernization of the infrastructure.

(34) Hence, the Commission concludes that the information provided by the Italian authorities demonstrates that the rescue aid contributes to a well-defined objective of common interest. It is therefore not necessary to assess the claim by the Italian authorities whether some other construction companies serving segments of works provided by Condotte would effectively constitute an oligopoly if Condotte exited the market. If that change in market structure happened, other competition legal instruments prohibiting restrictive agreements, abusive behaviour from dominant undertakings or mergers significantly impeding effective competition are more adequate than State aid to an undertaking in difficulty in order to remedy the effects of that hypothetical situation.

4.4.3. Appropriateness

(35) Under point 38(c) of the R&R Guidelines, the Commission will not consider an aid measure to be compatible with the internal market if other, less distortive measures allow the same objective to be achieved. In this respect, rescue aid must fulfil the conditions laid down in point 55 from letter a) to e) and 56 of the R&R Guidelines.

(36) The State guarantee to Condotte, covering loans and credit signatures up to EUR 190 million will be used by the company to meet liquidity needs for six months starting from 1 January 2019, as set out in the liquidity plan provided by the Italian authorities (see recitals 7, 11 and 43), to keep the firm in business and support the plan to sell the company's assets.

(37) As described in recital (12) Italy made the commitment that the total financial cost of the guaranteed loan will not be less than the reference rate for weak 7 undertakings offering normal levels of collateralisation in accordance with point 56 of the R&R Guidelines.

(38) In their notification, the Italian authorities committed to communicating to the Commission proof that the guarantee has been terminated, not later than six months after the authorisation of the rescue aid measure to Condotte, or a restructuring plan or a liquidation plan. Consequently, the notified measure is in line with point 55(d) of the R&R Guidelines.

(39) The Commission observes that Italy declares the State guarantee shall only be used to meet operating costs set out in the liquidity plan (see recital (11)). In other words, Condotte will not use the rescue aid to finance structural measures nor other activities than its current operation (see recital (9)).

(40) In view of the information provided by Italy, the Commission concludes that the condition laid down in points 38(c) and 55 of the R&R Guidelines is met and therefore the form of the aid allows rescuing Condotte in the least distortive way.

4.4.4. Proportionality of the aid / aid limited to the minimum

(41) Under point 38(e) of the R&R Guidelines, aid must not exceed the minimum needed to achieve the objective of common interest. As specified in point 60 of the R&R Guidelines rescue aid must be restricted to the amount needed to keep the beneficiary in business for six months. In determining that amount, the Commission takes into account the outcome of the formula set out in Annex I of the R&R Guidelines. The Commission will authorize any aid exceeding the result of that calculation only if it is duly justified by the provision of a liquidity plan setting out the beneficiary's liquidity needs for the coming six months.

(42) The EUR 190 million amount of a guarantee required by the Italian authorities to be approved as rescue aid exceeds the result of the formula set out in Annex I to R&R Guidelines.

(43) However, the Italian authorities have provided a liquidity plan for Condotte starting from October 2018 to June 2019, the data of which shows that the notified aid amount corresponds to the liquidity needs of the company for the six months to come. In particular, the cash-flow estimate provided by Italy shows that Condotte can expect limited operating revenues wholly insufficient to meet costs. Furthermore in order to reactivate the works, Condotte needs a credit signature to be issued by the financial institutions as a guarantee on the performance of its financial obligations covering performance and advance payment or other project related bonds.

(44) The Italian authorities committed to make available to the Commission, upon its request, the official report, which is mandatory under the Italian law, in order to allow the verification that the aid has not been diverted to any other beneficiary than Condotte6.

6 The existent monitoring system under the Italian law is provided for by the specific legislation of the Extraordinary Administration (Legislative 270/99 and Decree Law 347/2003), according to which the Extraordinary Commissioners, appointed by law, are subject to a double check by the Ministry and the Supervisory Committee and to a further form of control in that the Court ascertains the actual

8 (45) The Commission therefore concludes that the rescue aid is indeed proportionate and restricted to a minimum amount, in line with point 60 of the R&R Guidelines.

4.4.5. Negative effects

(46) Under point 38(f) of the R&R Guidelines, the negative effects of the aid on competition and trade between Member States must be sufficiently limited, so that the overall balance of the measure is positive.

(47) The Commission notes the declaration provided by Italy that neither Condotte, its subsidiaries or Ferfina S.p.A. have received any notified rescue aid, restructuring aid or temporary restructuring aid in the last ten years and Italy claims no such aid has been granted. Consequently, the Commission concludes that "one time, last time" principle as required in the section 3.6.1. points 71 and 74 of R&R Guidelines, is respected.

4.4.6. Transparency

(48) According to point 38(g) of the R&R Guidelines, Member States, the Commission, economic operators and the public must have easy access to all relevant acts and pertinent information about the aid awarded. This means that the provisions on transparency laid down in point 96 of the R&R Guidelines must be respected. The Commission notes that Italy undertakes to respect those obligations. The relevant information shall be made available on the website: https://www.rna.gov.it/sites/PortaleRNA/it_IT/home

4.5. Conclusion on the compatibility of the aid

(49) In the light of the findings above, the Commission concludes that the measure meets the compatibility conditions of the R&R Guidelines. The Commission therefore considers that the rescue aid planned to be provided to Condotte is compatible with the internal market.

(50) In addition, the Commission reminds Italy of its obligation to submit annual reports to the Commission, in accordance with point 131 of the R&R Guidelines.

(51) The Commission notes the plans of Italy to sell the company as described in recitals (9) and (13) and reminds Italy to notify a restructuring or a liquidation plan for Condotte if the rescue aid cannot be reimbursed by Condotte or terminated within the set timeframe of six months.

5. CONCLUSION

The Commission has accordingly decided not to raise objections to the rescue aid to Condotte on the grounds that it is compatible with the internal market pursuant to Article 107(3) (c) of the Treaty on the Functioning of the European Union.

existence of the company's debts and the existence of any form of privilege and monitors the payments made during the procedure in order to ensure the par condicio creditorum.

9 If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/eloiade/isef/index.cfm.

Your request should be sent electronically to the following address: European Commission, Directorate-General Competition State Aid Greffe B-1049 Brussels [email protected]

Yours faithfully For the Commission

Margrethe VESTAGER Member of the Commission