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