European Commission SECRETARIAT GENERAL Office BERL 8/294 B-1049 Brussels
Brussels, 16th of November 2005
Additions and Clarification concerning Complaint of 14 December 2004
SG (04) A/13162
Concerning the purchase by Teollisuuden Voima Oy (TVO) of the Framatome ANP 1600 MWh nuclear EPR (European Pressurised Water) Reactor to a fixed price and under various support schemes from Member States.
Complaint relating to
• illegal State aid in the energy sector, • internal market distortion through illicit export guarantees as illegal state aid, • predatory pricing, • violation of EC procurement rules, • infringement of EEA rules on state aid
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against the Government of Germany (state aid rules infringement through public loan) the Government of Finland (violation of public procurement rules and internal market rules, internal market for energy rules) the Government of France (internal market distortion through illegal state aid export guarantees) the Government of Sweden (state aid)
The complainant includes in this document the additions and clarifications as well as the text of the original complaint of 14 December 2004.
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Index
Information regarding the complainant...... 4 Introduction into the complaint...... 4 Short summary of how the complaint’s interests are affected ...... 6 Level at which alleged unlawful aid has been granted...... 6 Information regarding the alleged aid measures complained of ...... 7 Main parties involved in this transaction ...... 18 Banks involved...... 18 Corporations involved...... 21 Purchasers...... 21 Subcontractors involved...... 23 Buyers involved...... 23 Overview on the different support schemes related to the transaction ...... 25 Public Support Schemes as illegal state aid ...... 25 Assessment of the different aid schemes...... 27 Evaluation of the presence of aid within the meaning of Article 87(1) ECT...... 28 Advantages Granted To Framatome ANP/ Areva and Siemens as Suppliers...... 29 Advantages granted by Bayerische Landesbank to TVO within the transaction - aid. 29 Specific character ...... 40 State resources...... 40 Impact on intra-community trade and competition...... 41 Conclusion...... 41 Export guarantee advantages granted by COFACE to AREVA within the transaction .. 42 Factual situation ...... 42 Legal situation...... 45 Conclusion...... 52 Swedish State guarantee...... 52 Combined influence of the different support schemes...... 53 Fixed Price contract and market distortion according to Article 82 ECT...... 54 Other financing support to the project...... 59 Supplier credits and bilateral loans ...... 59 Infringement of EC Public Procurement Rules...... 60 Violation of the Public Procurement Directive 93/38/EC...... 60 Obligation to run public procurement procedure for electricity received from Olkiluoto 3...... 60 Violation of Public Procurement Rules by TVO for the Purchase of the new Nuclear Power Station ...... 62 Violation of the Public Procurement Directive 93/38/EC by TVO ...... 64 Violation of procurement rules by TVO due to non enquiry into state aid schemes ...... 66 Infringement of EEA Agreement ...... 68 Formal legal demand...... 69
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Information regarding the complainant
1. Name and Address: EREF, European Renewable Energies Federation ,asbl, Avenue de la Fauconnerie 73, 1170 Brussels, Belgium President: Peter Danielsson, address: Kungsgårdsvägen 50, 68154 Kristinehamn, Sweden
2. Legal representative for this complaint :
Represented by: Kuhbier law firm sprl, Dr. Dörte Fouquet, Rechtsanwältin (German lawyer), Avenue de la Fauconnerie 73, 1170 Brussels, Belgium Tel. : +32.2.6724367 Fax : +32.2.6727016 [email protected]
Proof of authorisation is submitted.
3. Activities of EREF:
EREF is a non-profit umbrella industry organisation of national associations of small and medium sized producers of electricity and biofuel from renewable energies sources (“RES”). EREF represents the RES producers’ interests before the different European and International organisations.
Introduction into the complaint
This complaint was introduced in December 2004 and aims to formally ask the European Commission to investigate serious and orchestrated concertations and actions
PDF compliments of www.earthtrack.net Dr. Dörte Fouquet Kuhbier law firm 5 to the detriment of competition in the European internal market for energy by Germany, Finland, France and Sweden in a transaction to sell and purchase the above mentioned EPR nuclear reactor from FRAMATOME ANP to TVO in Finland. It also suggests investigating violations of the notification requirements under the Treaty Establishing the European Atomic Energy Community (“Euratom”) and violations of the Electricity market directive.
These actions aimed and helped to reduce economic risks related to the projects as on the side of the purchaser as on the side of the seller to a level which is unheard in any power plant transaction or any energy supply since liberalisation of the European energy market in 1996.
Without the numerous non-notified acts of assistance by state authorities which will be outlined below and which have to be seen in the overall context of discrimination and distortion of the European energy market this nuclear power plant purchase transaction could not have happened at the guaranteed purchase price and Teollissuuden Voima y OY (“TVO”) could not sell the future electricity to the envisaged and already subscribed low electricity price. The inter linkage and dependency between the different actions make it necessary that the whole complaint is to be evaluated in a concise and co-ordinated way by all European Commission’s Directorate Generals involved.
While the illegal state aid granted by different member states is the main focus of this complaint, because it negatively affects member state trade and puts the complainant and all its members and their member companies at a competitive disadvantage. This does not mean that the other violations of European law should be neglected or could be handled by the competence of just the Directorate General for Competition. To the contrary the complainant reiterates its suggestion for a full investigation coordinated by the Secretariat General of the Commission.
The Complainant expresses concern about the handling of its complaint during the past eleven months. The Complainant perceives that not all relevant Directorates General have been involved in the alleged treaty infringement investigation and that the state aid
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Short summary of how the complaint’s interests are affected
EREF represents national associations of small and medium sized producers of electricity and biofuel from renewable energy sources. EREF represents more than 13.000 MW of installed capacity in the European Union in electricity from RES sources.
EREF defends the interests of its members for a fair and level playing field in the liberalised energy market.
Structured energy market distortions by the involvement of state authorities such as in the case of the Framatome ANP transaction with TVO for the purchase of a new 1600MWh nuclear European Pressurised Water Reactor (“EPR”) undermine any level playing field and render access to the electricity market on the ground of fair market conditions for any other electricity supplier impossible, creating respectively maintaining a distorted market.
Level at which alleged unlawful aid has been granted
1. in the case of Germany: Regional level (Bayerische Landesbank, (“BLB”)) as public bank 2. in the case of France: Central government (via export credit agency Compagnie Française d’Assurance pour le Commerce Extérieur SA (“COFACE”)) 3. in the case of Finland: Central government, public local and regional authorities 4. in the case of Sweden: Central government (probably via specific financial support via State owned credit agency Swedish Export Credit Corporation (“SEK”))
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Information regarding the alleged aid measures complained of
1. This complaint focuses on several ongoing aid schemes, which have not been notified and violate EC law and
2. Violation of EC procurement law.
3. The aid scheme impairs infra member state trade in the electricity, related manufacturing and financing sectors.
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Introduction
1. Since issuing of the European Commission’s Green Paper on the Implementation of the Internal Energy Market in Europe in 19881 the major dogma behind the internal energy market is free and fair competition between energy companies across the European Community which should lead to large efficiency gains, lower and more similar prices for consumers across the Community, increased competitiveness for energy-using industries, economic growth and increased welfare. 2. But it is likewise obvious and known that direct and indirect financial support schemes to traditional energy sources have always hindered access of renewable energies to the market. Globally, subsidies for oil, coal gas and nuclear power have totalled in the tens of billions of dollars annually.2 It is general knowledge, that existing fossil fuel and nuclear generators, established with public money and benefiting from depreciated assets, have lower marginal costs than new renewable technologies and are better able to manage the downward price pressures3. Hence the European Commission persistently asks the Member States to bring down subsidies to the traditional energy sector in the internal energy market in order to encourage a level playing field. This is especially valid for subsidies to new installations. 3. Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC consistently asks for removal of various barriers and asks Member States to refrain from discrimination. This Directive establishes common rules for the generation, transmission and distribution of electricity. It lays down rules relating to the organisation and functioning of the
1 Commission of the European Communities, The Internal Market for Energy (working paper of the Commission), COM (88) 238, final 2.5.88 2 See Removing Subsidies Levelling the Playing Field for Renewable Energy Technologies , Thematic Background Paper March 2004, Authors: Jonathan Pershing, Jim Mackenzie ,The World Resource Institute, Editing: Secretariat of the International Conference for Renewable Energies, Bonn 2004 3 See Energy subsidies in the European Union: A brief overview, European Environmental Agency Technical Report ,1/2004, page 8
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electricity sector, access to the market, criteria and procedures applicable to calls for tenders and the granting of authorisations and the operation of systems.
4. The EC rules for competition and state aid are seen as particularly relevant tools for dismantling dominant market structures present in many national gas and electricity markets, seen by the Commission as fundamental barriers to free and fair competition in a common internal market. Nevertheless, the Commission underlined in its regular 2003 benchmarking report, that national electricity and gas market structures still function as a potential impediment to the realisation of fair competition in the EU.4
5. The Complainant is convinced that in the procedure of organising extreme low interest rated credits to TVO and in granting export credit from the French government to the French company AREVA which is the parent company to Framatome ANP and by substantial support from Swedish public authorities infringed EC state aid rules and the Member States respectively regional public banks involved violated the loyalty principle of Article 10 of the Treaty Establishing the European Community (“ECT”) to refrain from further discriminatory support and infringed competition and procurement rules of the ECT and subsequent regulations.
6. State aid was granted on several levels and none has been notified to the European Commission for approval so far.
7. The Complainant also got the impression that his complaint was not handled by the Commission according to established procedure whereby all DGs concerned are asked to intervene. Instead only DG TRANS (and only for four weeks without consulting with the Complainant) and DG COMP were involved. The Complainant senses a discriminatory treatment vis-à-vis other complainants and asks the Secretariat General to investigate a possible deviation from good administrative practice and thus a possible violation of procedural rights by the Complainant.
4 see benchmarking report 2003, page 4
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Brief description of facts
8. The 18th December 2003, Finnish energy company Teollisuuden Voima Oy (“TVO”) made an investment decision on the new nuclear power plant unit Olkiluoto 3 and signed with the Framatome ANP consortium a contract concerning the construction of a new nuclear power plant unit with a pressurized water reactor of about 1,600 MW. More than 60 Finnish companies will participate in the investment and have a share of the electricity to be produced by the unit starting commercial operation in 2009.
9. According to the Finnish Nuclear Energy Act, companies envisaging nuclear plant projects must apply for a so-called “Decision-in-Principle” from the Government on beforehand. The Finnish Government has to decide whether the project is in accordance with the overall good of the Finnish society. A positive Governmental decision needs ratification by the Parliament. Before this Government decision there are hearings with involved parties such as the municipality of location and public authorities, especially the Radiation and Nuclear Safety Authority (STUK). The entire process takes 1-2 years. Only after the ratification of the decision in principle the company can proceed to apply for the construction permit from the Government.
10. The European Commission was mislead by these non notified supports. The Commission thus underlined not only in its formal decision based on Article 41 Euratom in June 2004 that no support has been given to the project but also in the detailed Commission Staff Working paper –“ Inventory of public aid granted to different energy sources”, from 20025. The working paper explicitly states – and Finland was at that time the only country asking for authorisation for a new nuclear power plant – that “projects for investment recently notified to the Commission under Article 41 of the Euratom Treaty did not receive public aid. Especially in the area of nuclear energy is precise information crucial. The apparent misinformation with regards to the precise structure of the investment should lead the Commission to further investigate if all other supporting documentation is correct. Especially in a notification under the Euroatom Treaty
5 see page 8 of the working paper
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is the highest degree of correctness and precision crucial. The Complainant expresses grave concern with regards to the other information provided under Article 41 and urges the Commission to investigate all information provided. Especially in the trans-European energy market such misinformation can severely distort the energy market.
11. The following complaint tries to list all support schemes known to him and further infringement during the whole transaction for the new EPR reactor and formally asks the European Commission for opening of infringement procedures in all cases.
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Short chronology
12. The following timetable may help to visualise and to understand the major steps in the development
May 1999: The Finnish organisation responsible for the preparations for spent fuel disposal, Posiva Ltd, submitted the Environmental Impact Assessment Report (EIA) to the Finnish Ministry of Trade and Industry (MTI) and a Decision-in- principle (DiP) application to the Government.
January 2000: The council of the host municipality for disposal site, Eurajoki, gave its approval to the DiP application (votes 20 for, 7 against), and STUK (Finland’s regulatory body) concluded that the prerequisites for a DiP are met from the standpoint of nuclear and radiation safety.
15 November 2000: Finnish company Teollisuuden Voima Oy (TVO) submitted to the Finnish Council of State (Government) an application for a Decision in Principle (DiP) concerning the construction of one additional NPP unit, the Olkiluoto 3 unit.
December 2000: The Finnish Government gave its approval to the spent fuel disposal.
February 2001: STUK issued to the Ministry of Trade and Industry a preliminary safety assessment and a statement about the application.
February 2001: Framatome and Siemens in July 2000 finalise their agreement to merge their nuclear operations into Framatome ANP.
7 January 2002: STUK issued a supplementary of its preliminary safety judgement on account of terrorist attacks on U.S.A.
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January 2002: The Finnish Government made a favourable DiP (Decision in Principle) on the construction of Olkiluoto 3
24 May 2002: The Finnish Parliament approved plans for the construction of Olkiluoto 3 by a majority of 107 votes to 92.
March 2003: TVO finalises receipt of tender proposals. Tenders have been submitted to TVO during 2002/2003 by three vendors and for four designs: Framatome ANP: European Pressurised Water Reactor (EPR) of 1600MWe and SWE-1000 of 1200MWe General Electrics: European Simplified Boiling Water Reactor (ESBWR) of 1390MWE Atomstoryexport: VVER-91/99 of 1060MWe Westinghouse finally did not bid its AP-1000 PWR or its BWR-90+.6
Autumn 2003: AREVA ordered the pressure vessel even before its bid was chosen and before the Finnish Nuclear Supervisory agency STUK approved the project
October 2003: TVO chose Olkiluoto to be the location site for the new reactor.
18 December 2003: TVO signs the contract with Framatome ANP- Siemens.
8 January 2004: application for construction permit submitted to the Finnish Council of State.
25 May 2004: AREVA signed a EUR 400 million contract with TVO for the supply of uranium and transformation services required to manufacture Olkiluoto 3 reactor.7
6 www.iuc.com.au/nip.76.htm 7http://www.areva.com/servlet/ContentServer?pagename=arevagroup_en%2FPressRelease%2FPressReleaseFull Template&cid=1085486432327&p=1028798801053
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10 October,2004: EDF decided to build EPR nuclear reactor in Flamanville, Basse, Normandie
End of 2004: STUK is expected to submit its statement and safety assessment
Beginning of 2005: the Finnish Government to decide on the TVO’s construction license
2009: expected connection to grid
1st half of 2009: expected commercial operation according to TVO
13. On 11th of June 2004 the European Commission published its “favourable opinion” The -then- Commissioner and Vice President of the European Commission Loyola de Palacio underlined in the respective press declaration the “attractive economic option” of this project.
14. According to this Commission press release TVO had pointed out that the new nuclear plant was expected to have lower production costs for the electricity than those from fossil fuel plants and help to ensure stable and predicable supply and prices for its customers and that no “financial aid was being provided by the Finnish State to the project”8.
15. This evaluation of an economic attractive situation does not correspond with reality. It is apparent that the European Commission was not informed by the different governments and companies involved about the various subsidies granted and about the fact, that the fixed price offer is below cost price and thus price dumping helped by state aid.
16. On 14 December 2004 the Commission formally receives this complaint and is asked to broadly investigate violations of European law by all Member States involved. Without consulting the Complainant DG TREN closed the dossier on
8 EC Commission Press declaration IP/04/738 of 11 June 2004
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13 January 2005. The information was not shared with the Complainant until September 2005. DG COMP accepted the dossier on 22 December 2004 and met with the Complainant on 2 September 2005 and revealed that the government procurement issues raised by the Complainant were not investigated during the whole time. This as will be discussed later gives raise to procedural concerns.
The energy situation in Finland
17. Finland has four nuclear reactors providing 27% of its electricity. The total net output of these four reactors is 2656 MWe with average capacity factors over the 1990s of 94%. Two of the reactors are operated by TVO, the other two by Fortum Heat & Power. TVO’s reactors have been uprated 26% (from 690 MWE to 870 MWe each) and their lifetime has been extended to 60 years. They are Swedish boiling reactors. Fortum’s units have been uprated 9,7% from 465 Mwe to 510 Mwe. The electricity consumption is 16 600 kWh per capita per year.
18. Most of the electricity is imported or is generated from imported fuels. Finland is a net energy importer; it imports 71% of energy (50% of oil, 40% of crude oil and 100% of natural gas). In 2001, total electricity imports totalled 11,8GWh (12 % net, – 7,9 GWh from Russia, 5,4 from Sweden and 0,145 from Norway.9) Finland, Sweden, Norway and Denmark now form a single electricity market, with a total consumption of almost 400 TWh. The transmission capacity available may limit cross-border electricity trade, though it is increasing. Electricity is transmitted from one country to another over transmission systems which between Finland and Sweden partly take the form of sea-bed cables. At the moment, the transmission capacity between Finland and Sweden amounts to about 2,000 megawatts, and so far this has been sufficient to carry all the electricity traded between Finland and other Nordic countries.10 Projections suggest that 7500 MWe additional capacity is needed in Finland in 2030.
9 www.tvo.fi , and http://www.energiamarkkinavirasto.fi/data.asp?articleid=343&pgid=1&languageid=826 10 http://www.vn.fi/vnk/english/publications/vnk20004e/vnk20004en3.htm#3.1
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Electricity accounts for about a quarter of the energy end consumption, and more than a half of it is used by the industry.11
19. Figures published in 2000 showed that nuclear had very much higher capital costs than the others – EUR 1749/kW including initial fuel load, which is about three times the cost of a gas plant. But its fuel costs are declared to be much lower. Such an assumption, however, does not take into account the costs of decommissioning, waste disposal and high amount of Research and Technology funds received in the past for the development of the EPR reactor type.
20. According to OECD Nuclear Energy Agency report on Project of Generating Electricity, nuclear power was not the cheapest option in any of the examined states (at a 10 percent discount rate) and the least expensive options in only 5 states (at a 5 percent discount rate)12 Other aspect of the cost of nuclear should involve reliable values of accident, high level waste impacts, nuclear proliferation and impacts of terrorism.13
21. According to Finnish legislation, the nuclear companies are responsible for the decommissioning of the power plants and the management of the nuclear waste. The Finnish operators have reserved approximately 1 billion euros for these purposes into a special fund. This is supposed to cover the decommissioning of four reactors and the disposal of their waste. However, comparing this amount to the cost estimates in other countries and experiences gained on the costs of decommissioning, it is clear that the costs in Finland are highly underestimated. A study by Finnish VTT Technical Research Centre estimates that the burying of nuclear wastes alone will cost more than 1 billion euros (VTT 1999). Finland has opted for immediate decommissioning of nuclear facilities, which requires more financial resources than deferred decommissioning. Yet, Finland also applies external management strategy, i.e. the decommissioning funds are separate from the accounts of the nuclear operator.14
11 http://www.vn.fi/vnk/english/publications/vnk20004e/vnk20004en3.htm#3.1 12 http://www.nea.fr/html/general/press/1998/1998-8.html 13 http://www.nea.fr/html/general/press/1998/1998-8.html
14 http://www.euractiv.com/Article?tcmuri=tcm:29-131692-16&type=News
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22. The sum budgeted for decommissioning the four existing reactors is 390 million €, meaning 150 000 €/MW (VTT 1999). The sum is half of the sum reserved in the United States where the government officials estimate the price to be at 353 000 €/ MW. The decommissioning projects already implemented have cost 4 to13 times more than the US estimation above, meaning 1,43 million €/MW – 4,71 million €/MW. If the costs for Finnish reactors were counted according to these figures, the decommissioning of the four reactors would cost 3,7 billion – 12,1 billion € (Wise 1998).15
23. Finland’s nuclear power reactors:
type MWe net start
Loviisa 1 VVER-440 488 1977
Loviisa 2 VVER-440 488 1981
Olkiluoto 1 BWR 840 1979
Olkiluoto 2 BWR 840 1982
dates are for start of commercial operation.16 24. Electricity consumption is expected to rise by 1.5% a year until the year 2010, after which the average yearly growth will be around 1.0%. It is expected that 3 800 MW of new power plant capacity will be needed by the year 2015 to secure the supply of electricity.17 The Ministry of Trade and Industry predicts that electricity consumption will reach about 96 TWh in 2010 compared with 76 TWh in 1998.18 Finland is reportedly considering construction of a sixth nuclear power unit.19 The share of nuclear energy was in year 2001 about 27% of electricity supply in Finland (see the figure below) and about 18% of the total
15 Kosonen, K.: The economics of new nuclear power plants, http://www.greenpeace.se/files/2500- 2599/file_2553.pdf 16 http://www.world-nuclear.org/info/inf76.htm 17 http://www.tvo.fi/136.htm 18 http://www.vn.fi/vnk/english/publications/vnk20004e/vnk20004en3.htm#3.1 19 http://www.eia.doe.gov/emeu/cabs/finland.html
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use of energy (=32.33million
Wind Power 0.1%
Hydro Power 16.3% Nuclear 26.8% Wood based fuels 11.4%
Peat Natural gas 6.9% 10.3% Electricity imports (net) Coal 12% 14.1%
Oil toe).20 1.9%
Main parties involved in this transaction
Banks involved
Bayerische Landesbank (BLB)
25. BLB is a German public bank, governed by the legislation of the Land Bayern. It is owned 50% by the Free State of Bavaria and 50% by Association of Bavarian Savings Banks (SVB). SVB comprises presently the 82 autonomous Savings Banks and their public guarantors. The Savings Banks are public law institutions established by municipalities, counties, as well as special purpose municipal associations. SVB is a public law association, supervised by the Bavarian Ministry of the Interior. Its tasks include the promotion and representation of the interests of the saving public, the Savings Banks and their employees. The liabilities of the SVB including the joint and several liabilities as guarantor of BLB and Versicherungskammer Bayern are covered by its assets. Any not covered liabilities will be distributed among the Bavarian
20 OECD, NEA/NDC(2002)16, Committee for Technical and Economic Studies on Nuclear Energy Development and the Fuel Cycle [NDC] 47th Session 12-14 June 2002, Reports by Member Countries
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Savings Banks.21 BLB acts as the principal bank to the Free State of Bavaria, as well as central bank to the Bavarian savings banks. The location focus is the core market of Bavaria and bordering regions. It was created in 1972 by merger between Landesbodenkreditanstalt and Bayerische Gemeindebank and has legal status of corporation established under public law. In 2002, the shares of both shareholders were transferred into BayernLB Holding AG, in exchange for which the Free State of Bavaria and the Association of Bavarian Savings Banks each took 50% holding in BayernLB Holding AG. BayernLB Holding AG is exclusively entrusted with the duties of the sole shareholder of BayernLB as an institution under public law and is not a bank itself.22 The state-subsidised lending and Bauspar (home loan savings) business, which have a market- leading position in Bavaria, are managed by economically independent subsidiaries, Landesbodenkreditanstalt and LBS.
Nordea
26. Nordea Bank AB Sweden is the parent company of Nordea Bank Finland, Denmark, Norge and others. The largest shareholder of Nordea Sweden is the Swedish state with 19,5% of shares and voting rights. The second largest shareholder is Alecta, a Nordic holding company, with 3,7% of shares. In 2003, it arranged syndicated loans amounting to a total of 7 billion euro (i.e. 17% of the total market in Nordic countries). The average interest rate on bank loans, according to Bank of Finland, was for the first half of 2003 decreasing from 4,43 to 3,77%.23
Swedish Handelsbanken
27. Its biggest shareholder is The Oktogonen Foundation with its 9.6% share of capital and 10.1% share of votes. The Oktogonen Foundation is Handelsbanken’s employee profit-sharing system.24 The second largest shareholder is Industrivärten, a Nordic holding company, with 8.2% of shares. At the end of 2003, Handelsbanken had around 110 000 shareholders, most of them private individuals. The majority of shareholders own only a small number
21 http://www.bayernlb.de/p/_en/idx/invest1/invest4/invest4.jsp 22 http://www.bayernlb.de/p/_en/idx/ueber/konstruk/portrait/portrait.jsp 23 http://www.bof.fi/eng/5_tilastot/5.1_Tilastografiikkaa/5.1.2_korot/ 24 http://www.industrivarden.net/templates/Holdings____141.aspx
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of shares. Of the major shareholders, there are a number of asset managers representing foreign private individuals and legal entities. Around 28% of the shares were owned by investors outside Sweden. Around 50% of the total number of shares was owned by Swedish institutional holders. These mainly include insurance companies, investment companies and equity funds representing a large number of private individuals (for example Alecta – 4.5%, Robur funds – 3,5%, Nordea Funds – 2.9 % etc) 25 The Swedish state is involved through the First, Second, Third and Fourth National Swedish Pension Funds, which are independent and competing entities, yet whose board members are appointed by the Government. All these pension funds make together 6,0% for the Swedish state.26
BNP Paribas
28. BNP is a private commercial bank. 72.1% of its shares is owned by institutional investors, out of which 56.4% European and 15.7% outside Europe. 7,6% of shares is held by public shareholders.27
JPMorgan Chase & Co.
29. JP Morgan Chase & Co. is a private commercial bank, a result of the merger of J.P. Morgan Chase and Bank One completed in July 2004. 65% of its shares are held by Institutional and Mutual Fund owners. The largest Institutional shareholder is Barclays Bank with 4.7% of shares, the largest mutual fund owner is Washington Mutual Investors Fund with 1.7% of shares.
25www.handelsbanken.se 26 http://www.ap4.se/Files/356/AP-folder%20Engelska.pdf 27 www.invest.bnpparibas.com, Interim report 2004.
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Corporations involved
Purchasers
30. On the side of the purchasers there is a consortium of AREVA and Siemens - Framatome ANP involved.
AREVA
31. AREVA is the trade name of the Societé des Participants du Commissariat à l“Energie Atomique. It was established by a decree no. 83-1116 of December 21, 1983. Its majority shareholder is C.E.A (Commissariat à l“Energie Atomique), established by French governmental decree 45-2563 of 18 Octobre 1945, which is a French public unit headed by the High Commissioner for atomic energy and by a board headed by the administrator general.28 At the end of 2003, CEA holds 79% of capital and 83% of voting rights. The French state holds, to the same date, 5.2% of capital and 5.2% of voting rights. Thus, either directly or indirectly through C.E.A. the French state is the majority shareholder in AREVA. Changes to company bylaws are approved by decree. Capital increase or the sale or exchange of AREVA shares held by CEA are subject to joint approval by the Ministry of Industry and Ministry of Economy. The French government designates four members on the Supervisory Board to serve as representatives of the French state. The legal form of AREVA is Societé anonyme à Directoire et Conseil de Surveillance governed by the French Commercial Code and decree dated March 23, 1967. 29
Framatome ANP S.A.S.
32. AREVA is a parent company of Framatome which merged its nuclear activities with Siemens into Framatome ANP. Siemens has 34% of the share capital, AREVA 66%.30
28 http://encyclopedia.thefreedictionary.com/Commissariat+%E0+l“%C9nergie+Atomique 29 www.areva.com, Annual Report 2003 30http://www.framatome-anp.com/servlet/ContentServer?pagename=Framatome- ANP%2Fview&c=rubrique&cid=1016885938159&id=1015078089579&rubid=1015078089579
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33. According to Siemens, this joint venture with majority shareholder AREVA specialises “in the development, planning and turnkey construction of nuclear power plants and research reactors”. Framatome’s new European Pressurized Water Reactor in Finland will be a landmark of future-oriented technology”31 In the Finland EPR venture Siemens will provide the turbine, Framatome will deliver the pressurised water reactor with 4.300MW thermal power.32
EDF 34. The French State’s EDF will also participate in the project through its subsidiary company Sofilo, which is the supplier of the boiler. Sofilo is 100% owned by EDF (2002 figures) and EDF is 100% owned by the French state.33
Siemens
35. Joint stock company, based in Munich, Siemens is a so-called “global solutions company”34 with more than 400 manufacturing sites located in 190 countries and with a focus on electrical engineering and electronics. Siemens is to be seen in the group of the world’s largest electronics and engineering companies, and is the biggest company in Germany. Its production covers a big variety of high- tech electrical engineering endeavour including nuclear generators. Siemens boasts more than 50,000 product lines, comprising over a million separate products. The Complainant also learned in the Commission meeting on 2 September that Siemens has given TVO an undisclosed amount of loan as part of the purchase. This loan further explains the possibility of a fixed price for such a significant investment project. Given the competitive situation in the trans-European energy sector, the Commission should include this loan in its investigation because it makes the export credits grated and the loan by the public bank even more significant because it means that the signalling function of such public support schemes, which will be explained further, transmitted
31http://www.siemens.com/Daten/siecom/HQ/CC/Internet/Annual/WORKAREA/gb04_ad/templatedata/English/ file/binary/E04_00_GB2004_1230305.PDF p.22 32 http://www.tvo.fi/uploads/OL3-esite%20eng(1).pdf 33 http://amadeus.bvdep.com/amadeus/top20/report_15.htm; It will be the first time when a boiler designed in France will be constructed abroad without being tested in France beforehand. 34 http://www.forbes.com/finance/mktguideapps/compinfo/CompanyTearsheet.jhtml?tkr=SI
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beyond the banking sector into the private sector to the point where a publicly traded company could justify granting a significant loan to TVO.
Subcontractors involved
36. The Olkiluoto 3 Consortium of AREVA and Siemens has placed with Japrotek Oy Ab, a company of the Vaahto Group and headquartered in Pietarsaari, a contract to supply large pressure vessels for the Olkiluoto 3 nuclear power plant project. The contract comprises a total of 14 tanks and vessels such as the accumulator tanks, the pressurizer relief tank, coolant storage tanks, the volume control tank and the boric acid tanks. The pressure vessels will be delivered between end of 2005 and summer 2006 to match the project’s time schedule.35 Vaahto Group is a private company owned by the Vaahto family members (77% of votes).
Buyers involved
TVO- Teollisuuden Voima Oy
37. TVO is an electricity generation company which supplies its shareholders with electricity at cost. The company already owns and operates 2 nuclear units on the west coast of Finland at Olkiluoto and has a share in Meri-Pori coal-fired power plant. Olkiluoto 1 (1978) and Olkiluoto 2 (1980) have been both upgraded up to 840 MWh output and together they amount to 20% of all electricity supply in Finland. There were previous two attempts to obtain a construction permit for nuclear power plant in 1986 and 1991-1993. Kyoto protocol and national CO2 emission reduction commitments were taken as main argument favouring the new nuclear power plant in 2000.36 TVO’s shareholders are dominated by a private company Pohjolan Voima Oy (56.8%), a non-profit utility owned primarily by a group of Finnish industrial companies, and public company Fortum Power & Heat AB (26.6%), a subsidiary of Fortum Oy.
35http://www.areva.com/servlet/ContentServer?pagename=arevagroup_en%2FAroundUs%2FAroundUsFullTem plate&cid=1095412337577&p=1028798801061 36 www.tvo.fi
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38. Credit ratings of TVO by Standard&Poor’s: short term credit rating is A-2, long term BBB. As a result of the construction of Olkiluoto 3, TVO will gradually incur about 2.5 billion EUR in new debt until 2009. The project will also add construction and operating risks. Standard&Poor’s had revised TVO’s credit rating outlook from ‘stable” to “negative” after the decision to build the new reactor was announced. The S&P’s analyst says “it reflects the increased business and financial risk”.37 39. TVO does not have to worry about getting the electricity sold since its shareholders will get the electricity for cost price, either to use it or sell it onwards.38
Fortum Oy
40. Fortum Oy is a public Finnish energy company which was established in 1998, when the state-owned company IVO merged with the oil company Neste. The government than sold 20% if its stake.39 The Moody’s credit rating of Fortum is Baa1, the outlook is ‘stable”. Standars&Poor’s long term credit rating was restated at BBB+/Stable/A-2 . Fortum will participate in the new power plant with a share of approximately 25%, thus Fortum’s investment as an equity share will be EUR 180 million during 2004-2009, entitling it to approx. 400 MW of the plant’s capacity. During the first quarter, Fortum also provided a shareholders“ loan of EUR 45 million.40
Pohjolan Voima Oy - Pohjolan Voima is a privately owned group of companies in the energy sector, which produces electricity and heat for its shareholders in Finland. The Group also develops and maintains technology and services in its sector.
37 Nuclear Monitor, June 5, 2002 38 Kosonen, K.: The economics of new nuclear power plants 39 http://www.world-nuclear.org/info/inf76.htm 40 www.fortum.com Finally, Fortum confirmed it is to participate in TVO’s 1,600MW EPR nuclear power plant unit at Olkiluoto with a share of approximately 25%. Fortum´s investment as an equity share will be EUR180m during 2004-2009, entitling it to approximately 400 MW. Fortum is also to give a shareholders“loan of EUR45m. see POWER IN EUROPE / ISSUE 419 / 16 FEBRUARY 2004, page 10
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- Its largest shareholder (42.0%) is UPM-Kymmene Corporation; the second largest shareholder (15.7%) is Stora Enso Oy.41 PVO is a privately owned group of companies in the energy sector, which produces electricity and heat for its shareholders in Finland. The Group also develops and maintains technology and services in its sector.42
UPM-Kymmene
- is one of the world’s leading forest industry companies. The company businesses focus on magazine paper, newsprint, fine and specialty products etc. Its last year’s turnover was EUR 10 billion.43
Stora Enso
- is an integrated paper, packaging and forest products company. The largest shareholder is the Finnish state with 11.0% of shares and 24.0% of votes.44 Wood and paper industry consumes around 30 percent of all energy in Finland.
Overview on the different support schemes related to the transaction
Public Support Schemes as illegal state aid
41. Various different apparent and known support schemes are involved. The whole transaction has up to now received large amount of public financial support:
Syndicated bank loan
42. Bayerische Landesbank as a public bank gave low interest rate of to 2.6 % on substantial loan to TVO as leading partner in a syndicated loan.
41 www.pvo.fi 42 http://www.pvo.fi/page.asp?_item_id=112 43 www.upm-kymmene.com 44 www.storaenso.com
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43. Bayerische Landesbank (BLB) gave in 2003 or in the beginning of 2004 a EUR 1,95 billion syndicated credit for an interest of 2,6% to the Finnish company Teollisuuden Voima Oy (TVO) for the purchase of the Framatome-ANP offer to supply the 1600 MWh nuclear EPR (European Pressurised Water Reactor).
44. According to TVO, borrowing arrangements with 12 banks were made amounting to EUR 1,95 billion towards the end of 2003.45 The margin of the banks is approximately 0,5%. According to our information, the syndicated loan was apparently shared equally among those five banks, i.e. 390 million EUR per syndicate bank.
Export Guarantees
45. Siemens hat introduced a demand to Hermes the German export credit agency in June 2003 and AREVA had submitted application to the French export credit agency COFACE.
46. Siemens did not succeed: According to Hermes environmental guiding principles developed in April 2001, “export of nuclear technology designed for building of a new or conversion of existing power plants are excluded from support by the Federal Government”. However, after submitting it’s pre-request in June 2003 and receiving negative response, Siemens argued that they wanted guarantee only for the turbines which are no specific nuclear technology. The German Ministry of Foreign Affairs in the relevant inter ministerial Committee opened towards accepting, giving Siemens a letter of interest. The letter indicated that a Hermes guarantee might be provided if the company gets the contract form TVO to build the EPR46 . In December 2003, however, Siemens had to withdraw its application for Hermes under political pressure within and from the German Government and Parliament.
47. COFACE, French export credit agency. COFACE is a subsidiary company of Natexis Banques Populaire and of Group Banque Populaire. It is a private
45 http://www.tvo.fi/uploads/TVO%20Vuosik%20Eng2003(1).pdf 46 WISE/NIRS Nuclear Monitor on September 12, 2003
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company rated AA by Fitch and Aa3 by Moody’s. When granting public guaranties, it acts on the account and behalf of the French state as public agency. This is governed by a contract concluded with the French state – the latest version from 2003 sets the remuneration amount at EUR 62 million. There are four types of guarantees administrated by COFACE on behalf of the state: L“assurance prospection L“assurance-crédit export L“assurance change La guarantie d investissements
48. Guarantee for Areva has been granted in the 2nd trimester of 2004 for the contract signed between Areva and TVO in the amount of 610 million EUR - such an amount is the second highest ever reported, in form of export credit insurance47. This “l“assurance-credit export” insures the exporters and banks against the risk of non payment due to commercial or political reasons under such contracts, which are not insurable on the private market. It focuses on the contracts for equipment and infrastructure of developing countries.48
Assessment of the different aid schemes
49. There are several types of advantages received by the suppliers, which have to be examined by the European Commission: those granted by a syndicated loan under the leadership of BLB those granted by the French Export Credit Agency COFACE and those granted by the Swedish Government (via SEK) None of those supports can be seen isolated though but underline the importance of co-ordinated performance.
50. According to Article 87 (1) of the Treaty (ECT), any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to
47 The highest amount of EUR 758 million was granted to Chantiers de l“Atlantique in the second trimestre of 2001. Otherwise, few of the guarantees exceed EUR 200 million. 48 http://www.cofaceCOFACE.fr/dmt/rubc_asscrexp/indexc.htm
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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.” This definition which has been amplified by secondary legislation and EC Court rulings demands four criteria to be fulfilled in order to acknowledge the existence of state aid.
Evaluation of the presence of aid within the meaning of Article 87(1) ECT
51. Evaluations will follow the usual examination of the four legal state aid criteria which are: The measures have to be specific, granted through State resources and likely to distort competition and intra-Community trade, and could thus be considered to constitute State aid.
52. According to Article 87(1) of the Treaty any aid granted by a Member State or through State resources, in any form, is incompatible with the Treaty and the EEA Agreement insofar as it affects trade between Member States and between contracting parties and distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods.
53. • Transfer of State resources: State aid rules cover only measures involving a transfer of State resources (including those of national, regional or local authorities, public banks and foundations, etc.) hereby the financial support does not necessarily need to be granted by the State itself. Art. 87(1) ECT also may cover a grant by a private or public intermediate body appointed by the State. Financial transfers that constitute aid can take many forms such as grants or fund allocations, fiscal rebates, loan guarantees, accelerated depreciation allowances, capital injections etc. 54. • Economic advantage: The aid will have to constitute an economic advantage that the undertaking would not have received in the normal course of business. It has to be remembered in this regard that "any entity engaged in economic activities of a commercial nature" is considered to be an undertaking under
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Community competition law. The economic advantage referred to above is not limited only to grants or fund allocations 55. • Selectivity: State aid must be selective in favour of an undertaking or category of undertaking and thus affect the balance between them and their competitors. Selectivity is what differentiates State aid from "general measures". 56. • Effect on competition and trade between Member States: Aid must have a potential negative effect on competition and trade between Member States. It is normally considered sufficient if it can be shown that the beneficiary is involved in an economic activity and that he operates in a market in which there is trade between Member States.
Advantages Granted To Framatome ANP/ Areva and Siemens as Suppliers
Advantages granted by Bayerische Landesbank to TVO within the transaction - aid
57. The transaction in question is a syndicated revolving credit of 1.95 billion EUR with two tranches maturing in 2009 and 2011 respectively given to TVO by Bayerische Landesbank for purchase of a fixed price turn-key contract is a syndicated loan. The interest rate on this loan is 2,6%.49 The other banks involved are Handelsbanken, Nordea, BNP Paribas and JP Morgan,50. It can also not be excluded that one of the sellers Siemens granted a loan with similar advantageous conditions to TVO as the Complainant learnt in the meeting with Commission officials on 2 September 2005. When assessing the impact of the BLB loan and its signalling function in the syndicated loan, this loan of Siemens should also be taken into account. 58. Aid in the meaning of article 87 ECT must be understood in the broadest possible meaning according to practice of Commission and case-law of the European Court for Justice (ECJ): the form and the purpose of the aid are irrelevant, only the potential effect is taken into consideration (effet theory) and it covers beside direct grants loans, reductions in interest rates, State guarantees,
49 The 2,6% interest rate is according to 2 months Euribor,. www.euribor.org 50 www.olkiluoto.info
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that means any economic advantage that a firm would not have received in the normal course of business.
59. One test to find out if aid is involved is the test of the so-called "commercial investor principle", regularly applied by the European Commission.
60. Syndicated loans were used in the international finance market in recent past in addition to securitisation. A syndicated loan is similar to an ordinary bank loan, except that it is granted by a group of several banks. Syndicated loans with longer maturities have recently been replaced by loans with shorter maturities of less than 12 months, and banks are expected to lean increasingly toward such short-term loans after implementation of the new Basel Capital Accord.51 Recently, many banks have withdrawn completely from the syndicated loan market and are concentrating on investment banking.
61. Even though the loan with its largely reduced interest rate of 2.6 % in question is a so-called syndicated loan and under participation of two commercial private banks, the whole transaction under the overall responsibility of the Bayerische Landesbank violates nevertheless this Market Economy Investor Principle.
62. When assessment has to be done whether a loan is given by a publicly owned bank the Commission and the European Court use the so-called market economy investor principle (MEIP). It is used under strict consideration of the specific circumstances of each case and has no general binding framework but gives a set of test elements to be followed in order to clarify the case on the bases of state aid principles.
63. The general idea of the MEIP is, that State aid would not be involved if loans or other funds are made available on terms which a private investor would find acceptable in providing funds to a comparable private undertaking when the
51 The new Basel Accord on banks“ capital requirements, known as Basel II, is scheduled to be implemented in 2006. The present Basel Accord was signed in 1988.
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private investor is operating under normal market economy conditions52. According to Commission’s decisions a financial measure is unacceptable to a market economy investor if the financial position of the company is such that a normal return (in dividends and capital gains) cannot be expected within a reasonable period of time.
64. First of all, the question of the interest rate in comparison with average rates or minimum rates should be observed:
65. BLB and the whole syndicate under its leadership have not acted as a private investor in a market economy offering a preferential but economically viable tariff.
- 2,6% interest will never allow a normal, adequate return of investment in a market where the average rate is much higher. The whole syndicated loan is an unprofitable transaction, which a normal commercial bank as investor could not have made alone or without specific guarantees. Especially not on the ground that the receiving company TVO has poor credit rating, which would obligatory lead to an increased interest rate needs, also in view of the Basle obligation. For comparison with this 2.6 % loan to TVO, a two-year loan for the German republic, and Germany is rated AAA+, amounted for 2,57%. The selected MFI (Monetary Financial Institutions) interest rate on loans to non-financial corporation over EUR 1 million with an initial rate fixation over five years has been, between August 2003 and September 2003, at 4.3%, according to the European Central Bank.53
66. A further serious evaluation of considerate and adequate minimum interest rate can be drawn from the OECD based CIRR rules for credits which also clearly show that the interest rate of 2.6 % is a dumping offer of the syndicated banks.
52 Concerning EC Commission’s decisions using the MEIP in cases concerning financial services, see: Crédits Lyonnais (OJ L 221, 8. 8. 1998, p.28; GAN (OJ L 78, 16.3.1998, p.1); WestLB (OJ L 150/1, 23. 6. 2000, p 23) 53 ECB Press release on January 15, 2004, www.ecb.int
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67. Commercial Interest Reference Rates (CIRRs) are the minimum interest rates which may be applied under the OECD Arrangement on Guidelines for Officially Supported Export Credits.
68. The Euro CIRR curve is used for the calculation of the base rate of the Euro CIRR. It reflects the interest rates for different maturities using a selection of bonds with a very high credit standing and a market value representing at least half of the actively traded state bonds issued by the Member States in the euro- zone54. Further information concerning the Euro CIRR can be found on the Export Credits’ Homepage of the Directorate-General for Trade of the European Commission55. The CIRR minimum interest rates have been for example in the first half of 2004 as following:56
above 5 years and up to Period 5 years or less above 8.5 years and including 8.5 years 15 June 2004- 3.99 % 4.55 % 4.95 % 14 July 2004
69. The Commission has itself developed reference interest rates which is equally above the 2.6 % scheme. Should a private investor carry out such an operation under normal market conditions, the revenue sought by this investor would be likely an interest rate of 6%-7%, taking into consideration all the relevant facts and figures, i.e. credit ratings of TVO, the safety risk immanent to any nuclear power plant project, the fact that EPR is a prototype, etc.. In the longstanding case against German Landesbank WestLB, BLB and other German Landesbanken on question of illegal state aid in a process of obligatory capital
54 The calculation of Euro CIRR curve is based on the same model of calculation (data source, formula and selection criteria included) as the Euro par Yield Curve. The only difference is that an iterative algorithm is added to the calculation. With the help of this algorithm only the best bonds (representing at least 50% of the market capitalisation of those used for the Euro par yield curve) are kept. The coefficients specific to the Euro CIRR Curve can be used to obtain the daily yield for any maturity. 55 http://europa.eu.int/comm/trade/issues/sectoral/export_cred/index_en.htm 56 see reference above
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injection where capital was provided by the German regional governments (Länder), which partly or fully own the banks, by way of a transfer of public housing and other assets with uninteresting low return of investment, the European Commission evaluated that a private investor would expect a normal return on investment which has been estimated by the European Commission in its decision published in October 2004 in at that range of 6-7 % interest equivalent. Due to this decision BLB has to repay € 260 million plus interest, which is evidently importantly higher than the interest asked from TVO in this transaction.57
70. As far as solvency and liquidity are concerned, BLB must act in compliance with the German Banking Act, section 10 and also with Principle I (solvency) and Principle II (liquidity) issued by the German Financial Supervisory Authority. These provisions reflect and implement the revised Basel Accord of 2004, the Capital Adequacy Directive (93/6/EEC) and the Banking Directive (2000/12/EC).58
71. The other banks involved in the syndicated loan could only have been ready and able to give such a low interest rate if the loans are guaranteed by the respective states (France, Sweden,) or via a specific transaction with BLB in the syndicate contracts.
72. Bayerische Landesbank and its partners in the syndicate lose income and thus the State of Bavaria as owner waived on income which means state aid in form of loss of state revenues.
73. The Complainant has no insight knowledge of the terms and conditions risk sharing between the partners of the syndicate.
74. In the meeting with the Complainant the Commission expressed the view that BLB’s involvement in the syndicated loan was 15 to 20 percent and thus per se
57 For more details see press declaration of European Commission, IP/04/1261, Brussels, 20 October 2004
58 For more details, see http://www.bundesbank.de/bankenaufsicht/bankenaufsicht_eigen.en.php
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too low to be considered state aid. The Complainant takes the view that Commission might not have fully evaluated the impact of BLB’s participation in the syndicated loan which seems to come close to a considerable underuse of its own discretion (“Ermessensausfall”).
75. It has long been established that EC law has to be interpreted as much and as far as possible consistently with WTO law.59 This is particularly true with regard to EC law that is intended to implement WTO obligations. As the CFI decided only recently: “It is only where the Community intended to implement a particular obligation assumed in the context of the WTO, or where the Community measure refers expressly to the precise provisions of the agreements included in the annexes to the WTO Agreement, that it is for the Court of Justice and the Court of First Instance to review the legality of the Community measure in question in the light of the WTO rules (Portugal v Council, paragraph 49).”60 State aid rules in European law are intended to implement the Communities international obligations with regards to the WTO Agreement on Subsidies and Countervailing Measures (“SCM”).61 As such the Commission should analyse the BLB participation in the syndicated loan in the light of Articles 1.1 (a) (iv) and Article 2 SCM. The findings of the panel and even more importantly the submissions of DG TRADE in the recent WTO dispute European Communities - Countervailing Measures on Dynamic Random Access Memory Chips from Korea - (WT/DS299) case62 concerning a syndicated loan that was granted to the DRAMS producer Hynix are very instructive. Two public banks and two entrusted banks participated together with seven large commercial banks in this syndicated loan (not unlike the TVO loan). Korea had argued that because commercial banks participated the syndicated loan could not be considered a subsidy. The Commission submitted: “The participation of other banks does not prove the commercial viability of participation. The EC argues that the other banks were simply not investigated
59 See P Eeckhout, “Judicial Enforcement of WTO law in the European Union: Some further reflections” (2002) JEIL 91 60 Judgment of the Court of First Instance (Fifth Chamber, extended composition) of 3 February 2005. Chiquita Brands International, Inc., Chiquita Banana Co. BV and Chiquita Italia, SpA v Commission of the European Communities, Case T-19/01, European Court Reports 2005 – 000, para. 115. 61 See Commission letter to the Member States, of 02 Aug 1995, Document number D/20506. 62 Report of the Panel, WTO Document WT/DS299/R, circulated 17 June 2005.
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by the EC and, if anything, their participation shows that the "too big to fail"- policy of intervention in favour of Hynix was successful. It convinced other banks to participate in the loan as the credit would be a safe bet.63 For these reasons, participation by the seven non-examined banks in the Syndicated Loan does not provide a valid benchmark for the commercial reasonability of participation in the Syndicated Loan. The actions of these seven banks were, in any case, profoundly influenced both by the actions of the government in relation to Hynix, and by the actions of the government in relation to the Korean capital markets as a whole.64”65 The panel followed the EC’s conclusion but criticised that the EC did not consider fully whether the seven commercial banks had made their decision solely on commercial grounds.66
76. In other words where the participation of a public bank is crucial for other commercial banks or like in the case of TVO even manufacturing companies to participate in a syndicated loan or justify granting a loan vis-à-vis its shareholders, that particular loan has a signalling function that goes well beyond the nominal share of such bank in the loan. A good indication in this case is the particularly low interest rate which was also used in the WTO case as an indicator.
77. The Complainant urges the Commission that it should interpret its own state aid rules in line with this recent pronouncement in the WTO Dispute Settlement Mechanism and not just in its countervailing investigation. Thus the Commission should properly investigate all commercial banks’ reasons to participate in a loan which is as described far below usual market conditions. This is particularly important since the above statement was made due to an application by the European Community – DG TRADE. The Complainant
63 EC First Written Submission, paras. 286-287. 64 EC response to question 11 of the Panel, para. 64. As the EC stated: "[c]onsider the situation in which a government gives a guarantee that induces a bank to provide a company with risk capital that will certainly be lost. There are essential two ways of viewing this situation, which both lead to essentially the same result. First, the guarantee itself, with no premium, is a financial contribution, the amount of the subsidy being at least equivalent to the capital that it is certain will be lost. Second, the bank has effectively been entrusted or directed to provide a subsidy, the amount of the subsidy being at least equivalent to the capital that it is certain will be lost". (EC response to question 11 of the Panel, para. 62) 65 Panel report, para. 7.35. 66 Panel report, para. 7.183.
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alleges that the Commission is in apparent danger of undermining the integrity and the coherence of the Community legal order in this case.67
78. We formally ask the Commission to investigate in the different conditions and the related contracts between the partners in the syndicate. It is important to investigate especially in questions of state guarantees or other supportive measures given to the individual syndicate members in order to evaluate there position as “free” investor who is ready to waive revenues, violating thus the interests of his shareholders. Related insight examination and questioning should be directed towards the respective members of the syndicate and towards the respective governments the syndicate banks are located in, meaning Germany (concerning the question if Germany or Bavaria may have directly or indirectly given further advantage to the other partner banks in the syndicate), France, Sweden and Finland ( which should all like Germany be asked if directly or indirectly advantages or guarantees were given to partners in the syndicate).
79. The Commission has indicated that it will not look at the specific provisions under the syndicated loan but rather just at the 15 – 20% participation of BLB which it considers to be too low to constitute state aid. But as described the allocation of risk and the important participation by a public bank should be carefully reviewed in cases where the conditions appear to be below market conditions. Such thorough investigation is also required under a WTO law conform interpretation of state aid rules (for the sake of community coherence and good governance) and in cases where the main risk remains with the public bank. The concert of public aid schemes involved in this case further requires a close investigation.
80. The Complainant alleges that such investigation might well reveal that the commercial banks’ involvement was triggered not by commercial considerations but rather by a signalling function of public support schemes.
67 See for example ECJ (5th Chamber)Österreichischer Gewerkschaftsbund, Gewerkschaft Öffentlicher Dienst v. Austria [2002] 1 C.M.L.R. 14.
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81. We have learnt, that Sweden is involved and substantially supported the whole transaction, though Sweden hides any details to whom in what form and under which conditions support was given. Fact is, that the project has asked and received support by SEK, (AB Svensk Exportkredit), the Swedish Export Credit Agency and SEK has according to its own publication in its annual report of 2003 made a substantial financial commitment for the new nuclear power plant to be built in Finland by Teollisuuden Voima Oy (TVO). This project was approved by the Finnish Parliament and is important for Finland for many reasons, mainly because it helps to ensure future energy supplies in the Nordic area. The project has the potential to provide major contracts for Swedish suppliers and construction firms.”68 Since 2003 the Kingdom of Sweden is 100 % owner of SEK69.
82. We formally ask the European Commission to clarify the details of this support in 2003 by SEK respectively the Swedish State.
83. Since the NORDIC INVESTMENT BANK, headquartered in Helsinki has its Swedish premises under the address of SEK in Stockholm, it maybe important to question Sweden if joint transactions have been concluded to supported the Finnish project with or via Nordic Investment Bank. The Nordic Investment Bank is multilateral financial institution owned by the five Nordic countries (Denmark, Finland, Iceland, Norway, Sweden). One of the directors of SEK is Chairman of Nordic Investment Bank, Deputy Chairman of the Swedish Export Credits Guarantee Board. Both organisations could be involved in supporting the Finnish TVO project and should be questioned accordingly.
84. Coming back to the question whether the presence of private investors in the syndicate change the evaluation of state aid involvement, this has to be denied regarding the above objective discrepancy between minimum interest rates and the actual rate granted to TVO. On the contrary, it is apparent that state
68 See SEK Annual report 2003, page 18, under the chapter heading ‘sek involved in many environment and energy projects” 69 see SEK “Analysis -Swedish Export Credit Corporation SWEDEN, Europe/M.East/Africa ,November 2004”
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intervention by at least BLB alongside private capital made it only possible that the private banks went ahead with this loan.
85. This is a fact that has been obvious in other cases for the European Commission: “The search for a construction which appears to assure concomitance, in order to obtain a no-aid finding, seems to have become a key preoccupation of certain authorities, enterprises and their advisers”70 In this context the Commission has to look carefully into side-agreements between the state and the other private investors, as asked for above.71
86. Moreover, a loan which objectively is far below the average minimum interest- rate and covers 2/3 of the whole purchase price has to be seen as aid scheme since it is not just accessory but decisive for the whole transaction to proceed.
87. And it is obvious that the aid character has to be acknowledged since further support measures are related to the transaction as important export credit guarantees, issued by COFACE and detailed in its consequences below.
88. The Commission will certainly have to investigate into the specific role of BLB as German Landesbank. There is apparently again the risk, that BLB may again have used two the specific German system of public guarantees even though there have to be ended in its application in 2005, this is the Anstaltslast and the Gewährträgerhaftung.
89. "Anstaltslast" can best be defined as obligation on the owner to maintain the institution concerned. This means that the public owner, in case of BLB the Land Bayern, is obliged to protect the economic basis of the institution and maintain its viability throughout its lifetime. The "Anstaltslast" does not confer rights on creditors. 90. "Gewährträgerhaftung" gives creditors a direct claim on the guarantor (Gewährträger), and is therefore an obligatory liability. The guarantor must
70 Ben Slocock, DG Comp, “The Market Economy Investor Principle” in Competition Policy Newsletter, June 2002, p 24 71 This is Commission practice, see Ben Slocock, p. 24
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honour all the bank’s liabilities that cannot be met from the bank’s assets. Neither form of guarantee is limited in terms of time or amount. Credit institutions do not need to pay a charge for them.
91. The performance of the German Landesbanken is a special case, due mainly to the fact that, thanks to the system of public guarantees in the form of Anstaltslast and Gewährträgerhaftung.72 These advantages have become all the more important over time, the more banks’ interest margin has declined. The other categories of banks cannot compete with the lower lending rates subsidised by public guarantees, a situation which has allowed the Landesbanken to continue an expansionary lending policy. This shows how legitimate and necessary the state aid complaint filed by the European Commission was. The agreements between the European Commission and the German government after lengthy negotiations, under which Anstaltslast and Gewährträgerhaftung will be phased out by 2005, are important.73
92. In this context and knowing the BLB is obliged to still repay € 260 Million plus interest it is astonishing that the Bank apparently continues to design financial transactions in profiting from the above state guarantees even though being obliged to stop this practice within the coming months.
72 The –then- Commissioner for Competition Monti: "The new legal situation at last creates fair competition on the internal market for financial services. Hitherto, state guarantees enabled public sector banks to expand their banking business at the expense of competitors, since State guarantees reduce refinancing costs on the capital markets, thus giving the banks better conditions when they raise funds for new business opportunities. The competitiveness of the German and the European economy will benefit from the abolition." "There will be no sudden break," Mario Monti emphasised, ‘since we have agreed transitional provisions. The new legal situation will benefit German taxpayers, German and foreign banks and also the German public sector banks themselves, since in the long term it cannot be in their interests to shield themselves from competition." The "Anstaltslast" and the "Gewährträgerhaftung" are very important, for four reasons," declared Mr Monti. It shows that the Commission is acting against all forms of state aid - direct and indirect (e.g. state guarantees) - that are incompatible with EU law, that the Commission is carefully monitoring developments in European banking, that it is resolutely fulfilling its duty as guardian of the Treaty vis-à-vis all Member States (large and small), and that it is perfectly possible to comply with the state aid rules without questioning the public-law nature of undertakings." 73 To the detriment role of the German Landesbanken see JUDGMENT OF THE COURT (Sixth Chamber) 12 December 2002 Case C-209/00 Westdeutsche Landesbank Girozentrale (WestLB) and Commission Decision 2000/392/EC - Obligation to recover the illegal State aid
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93. Summarising it is to be concluded, in view of the foregoing, that the advantages granted by Bayerische Landesbank et alia to TVO are aid advantages within the meaning of Article 87(1) of the Treaty.
Specific character
94. Article 87(1) of the Treaty requires that a measure, in order to be defined as State aid, favour “certain undertakings or the production of certain goods”. In the case at issue, it is evident that the advantages, meaning the loan for an interest rate of 2.6 % were granted to TVO only.
State resources
95. There must be a financial transaction between State and company which leads to an economic advantage to the firm from public resources, be it through a direct grant or a loss of profits. The ‘state" is not only the national or federal level but all public bodies, or agencies acting on their behalf at national and sub- national levels, such as public banks, municipalities, regions, Länder. According to Commission’s and Court practice it can also be a private body if it is entrusted by the State to distribute public funds and it can also be private funds if the money is distributed by a public body and the State thus has the final saying.
96. BLB is a public bank. It is governed by public law and endowed with public funds. The Free State of Bavaria is 50% shareholder and thus the state resources were made available in the transaction at issue. According to the details of the syndicate contracts it is evident that at least the share of BLB’s own financial commitment in relation to the interest rate constitutes means which are given/waived from state resources. TVO received an advantage through State measures by being given an interest rate on a loan granted by German public institution which would not be awarded to other competitors, such as for instance to producers of energy from renewable sources. The advantages in this case were granted indirectly through state resources and are clearly imputable to the state. Such a low interest rate which TVO has been awarded with is below normal interest rates for similar transactions for energy utilities and is in this
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difference constituting a transfer of public capital to an enterprise by insufficient remuneration.
97. Since this state aid has not been notified to the European Commission, it is an unlawful aid also with regards to the provision of Article 88(3) of the Treaty. It is also contrary to wording of ECJ First Instance (Second Chamber, extended composition) judgement of 6 March 2003 – Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen v Commission of the European Communities, Joint cases T-228/99 and T-233/99, para 36: „The Commission does not question the right of Member States to create special-purpose funds in order to fulfill tasks of general economic interest. However, as soon as such public funds and assets are used for commercial competitive activities, they must be subject to normal market economy rules.“ At para 181, the Court also says that „...the (State) resources do not cease to be so simply because the use of those resources is similar to that by a private investor“.
Impact on intra-community trade and competition
98. It would be sufficient, if a simple threat to distort competition would be apparent. The distortion is normally assessed in comparing the situation of the benefiting firm on the market with and without, before and after (forecast) the aid. In practice, as soon as there is an aid, the Commission presumes that this condition is fulfilled if the beneficiary undertaking is in competition with another firm in the EC. As can be seen all selling companies out bid their competitors, which means that the individual aid schemes had as such an influence on intra-community trade. The Complainant also feels that the competitive situation of its members has been negatively influenced and requests the Commission to investigate the combination of the aid schemes.
Conclusion
99. As the criteria for State aid are met in this case, the advantages granted to TVO by BLB via the syndicated loan are state aid within the meaning of Article 87(1) of the Treaty. The State aid is incompatible with the common market. And due
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to systematic reasons these rules also apply in the ambit of the Euratom Treaty. The Euratom Treaty does not specifically exclude ECT provisions and as such is only lex specialis for the areas where it does provide such special rules. The Commission has long been of the same opinion which is why she investigates the violation of state aid provisions regarding the restructuring of the UK nuclear waste management and the envisioned decommissioning authority.74
100. The European Commission is herewith formally asked to pursue non notified state aid infringement procedure and to demand of Germany to take all necessary measures to immediately discontinue and recover from the beneficiary TVO the aid referred and unlawfully made available to the beneficiary.
Export guarantee advantages granted by COFACE to AREVA within the transaction
101. In the following we come to the conclusion the France has through COFACE granted illegal state aid to Areva in form of state guarantee.
Factual situation
102. Guarantee has been granted in the 2nd trimester of 2004 for the contract signed between Areva and TVO in the amount of 610 million EUR - such an amount is the second highest ever reported 75. This “l“assurance-credit export” insures the exporters and banks against the risk of non payment due to commercial or political reasons under such contracts, which are not insurable on the private market. It focuses on the contracts for equipment and infrastructure of developing countries.76 This state guarantee for AREVA is the only one granted for a project located in the EU77.
74 Commission Press Release IP/04/1430, 1 December 2004. 75 The highest amount of EUR 758 million was granted to Chantiers de l“Atlantique in the second trimestre of 2001. Otherwise, few of the guarantees exceed EUR 200 million. 76 http://www.cofaceCOFACE.fr/dmt/rubc_asscrexp/indexc.htm 77 http://www.COFACE.fr/rub01_gr/gc.htm
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103. COFACE was not entitled to hand out such a big sum for a marketable transaction within the European Union. The state guarantee of 610 mio Euros was specific, granted through State resources and is distorting competition and intra-Community trade, and has be considered to constitute State aid, which was not notified to the European Commission and therefore is illegal state aid. The measure is granted by the State or through State resources. The measure favours AREVA. It affects trade between between Member States. It distorts competition.
104. COFACE is a subsidiary company of Natexis Banques Populaire and of Group Banque Populaire. It is a private company rated AA by Fitch and Aa3 by Moody’s. When granting public guaranties, it acts on the account and behalf of the French state as public agency. This is governed by a contract concluded with the French state – the latest version from 2003 sets the remuneration amount at EUR 62 million. There are four types of guarantees administrated by COFACE on behalf of the state: L’assurance prospection L’assurance-crédit export L’assurance change La guarantie de investissements
105. COFACE manages since 1946, “pour le compte de l’État”, a wide range of credit insurance products on behalf of the State for the purpose of supporting French exports. Cover with public money under this scheme of credit insurance is confined to risks that cannot be insured in the private market. The beneficiaries are companies which market products and services that are, at least partly, of French origin.
106. Transactions are guaranteed by the State and are recorded in separate accounts, which are audited and certified by a designated Statutory Auditor. Similar arrangements exist in most countries and many partners in the CreditAlliance network fulfil this role on behalf of their respective governments.
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107. The aim is to assure non insurable risks, that means risks non marketable on the private insurance market for the benefice of companies working on the export market and whose origins are predominately French.
108. From its budget as “handling agent” or prolonged arm of the French Government in the field of export guarantees on behalf and for account of the French State COFACE gave this guarantee of 610 Mio Euro.
109. Finland is rated A1 by COFACE in line with OECD recommendation and EC legislation, indicating ‘steady political and economic environment“ with „very weak default probability“. TVO’s short term credit rating is as mentioned A-2, long term BBB. Finland is not and cannot be marked as an export target country on the COFACE official map „Politique d’Assurance-Crédit pour 2004“. This is the first time ever that COFACE granted- in violation of EC law - such guarantee for export to EU country.
110. The partners in this venture on the side of the suppliers had asked for export credit guarantees. Export credits insure the exporting company against non-payment for delivered goods; in case of “garantie plafondée“ the insured asks for a maximum amount of the loss which it wishes to be insured. The amount guaranteed for AREVA is 610 million Euros.. AREVA asked for this guarantees in order to facilitate the rating and access for TVO to advantageous financial credits on the international financial market and thus increased attractiveness of the whole transaction.
111. The question of receiving important state export guarantees was crucial for the whole transaction since TVO credit rating has immediately been revised negatively by Standard & Poor in 2002 after the Finnish Parliament had - in May 2002- approved the construction of a new nuclear reactor. Standard & Poor had converted TVO’s credit rating outlook form ‘stable” to “negative” According to quotation of an Standard & Poor’s credit analyst in 2002, this move reflects the increased business and financial risk that would likely result if
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TVO decides to proceeds.”78 The credit rating company Standard & Poor’s had published in December 2003, the credit rating for TVO as A-2 for short term credit rating and BBB for long term rating.79
112. AREVA as public French company received export credit guarantee from the state via COFACE as in this respect public authority. The above displayed table is published on the web page of COFACE under the heading “Assurance-Crédit Export”80
Legal situation
113. Export guarantees are state aid under EC state aid rules. This has been the state of EC law since 1969. In the ECJ Judgment of the Court of 10 December 1969 Commission of the European Communities v French Republic (Joined cases 6 and 11-69)81 gave the most compelling reason for this assessment, which was then supported by the Commission. The Claimant would like to ask the Commission if it has changed its mind. In its meeting on 2 September 2005 the Commission officials involved alleged that they could not see any state aid with regard to the two export guarantees because they
78 See quotation in Nuclear Monitor, June 5, 2002 ( North American Edition) 79 see TVO press declaration of 08.01.2004 entitled “Year 2003 the best production year in the history of the Olkiluoto nuclear power plant - Construction licence application for the new plant unit submitted today”
80 www.COFACE.fr/_docs/gc2_04.pdf 81 [1969] ECR 523.
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complied allegedly –what the Complainant disputes- with the OECD rules on export guarantees. The existence of a state aid cannot be doubtful after the Court’s judgement in 1969 which has been approved several times. Against the arguments of the French Republic the Court ruled: “A preferential rediscount rate for exports, granted by a state in favour only of national products exported and for the purpose of helping them to compete in other Member States with products originating in the latter, constitutes an aid within the meaning of Article 92 the observance of which it is the Commission’s task to ensure.”82 The reason for this position is plain. A state export guarantee removes an element of risk which the undertaking would have to bear – this and not the costs to the state are relevant.83 There is another reason why these export guarantees for intra-community trade are potentially violating EC state aid rules and that is that in those secure markets they usually compete with commercial export guarantee providers (whereas in the typical export guarantee for a politically insecure trade, those providers do not compete). As former Commissioner Van Miert put it: “Whether these agencies are public or private raises in itself no problem. There is a problem, however, when public agencies can benefit from state aids (guarantees, free reinsurance, exemption from taxes, etc.) which private agencies are not able to obtain and therefore suffer from distorted competition. The Commission's intention is to eliminate the distorted effects of such aids with the aim of creating market conditions under which private and public export credit agencies compete with each other on an equal footing.”84 Unfortunately the current understanding in the Commission seems to have gravitated away from this earlier opinion.85
114. The Complainant cannot understand why the Commission does not want to comply with this clear ECJ judgment (besides being on of the first infringement proceedings initiated by the Commission herself ever). Unlike the Commission officials in the meeting of there might not be a requirement for
82 Ibid. para. 20. 83 A Evans, European Community Law of State Aid (Claredon: Oxford 1997), 32. 84 OJ 1993 C297/29. 85 See further Jonathan Wood, “Export Credit Insurance” 1994, 9(5) Journal of International Banking Law, 193, 195.
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such state aid to be communicated to the Commission but that does not change the character of the aid.
115. This position has repeatedly been confirmed by the Commission herself.86 This is particularly the case where ‘poorly ranked’ undertakings are enabled to obtain loans at market rates.87 This seems to be an enforcing factor here. The whole financial package for the TVO reactor was influenced by the provision of export guarantees. The Commission has repeatedly declared that the state export guarantees are a particular concern where “the guarantee is necessary for the survival of the company concerned.”88 This also seems to be the case here – the Commission has thus for not investigated if the fix price, i.e. the core of the purchase, could have been possible without the state export guarantee.
116. The Commission seems to think that because an export guarantee allegedly complies with OECD rules there is no illegal state aid. This view is not without legal mistakes and the Complainant points out that there might be the danger for the Commission of severely underusing its discretion to investigate EC Treaty infringements or even committing a grave legal error. The Commission alleges that all state export guarantees comply with the OECD code. The Complainant has reason to believe that his might not be the case due to the very high amount granted to the undertaking.
117. The Complainant is also of the view that the Commission herself does not automatically rely on Council decisions implementing OECD Agreements. In a recent decision the Commission herself explained: “Finally, the Commission disagrees with the Netherlands that the aid should only be assessed on the basis of Council decisions based on the OECD export credit rules. State aid within the meaning of Article 87(1) of the Treaty to the shipbuilding
86 Communication of the Commission to the Member States pursuant to Article 93 (1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export- credit insurance (Text with EEA relevance), [1997] OJ C 281/4. 87 See Commission decision 94/694 ([1994] OJ L279/29) concerning capital increase and credit guarantees in favour of TAP. 88 Commission communication C 26/9 ([1995] OJ C 121/4 concerning Credit Lyonnaise and decision 95/547 ([1995] OJ L308/92 giving conditional approval to Credit Lyonnaise.
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industry has necessarily to be assessed on the basis of the applicable rules that the Commission imposed itself (the framework on State aid to shipbuilding) in order to apply the derogations to the incompatibility of State aid as foreseen by the Treaty.”89 In other words the Commission usually does not only blindly assess the OECD rules but all EC law concerned.
118. This broader perspective is particularly important in the present case. The OECD rules and the Council decision of 22 December 2000 replacing the Decision of 4 April 1978 on the application of certain guidelines in the field of officially supported export credits90 have to be assessed against the broader framework of EC law. It should be recalled that short-term export insurances and guarantees are already subject to fair competition between commercial export guarantee and state export guarantee providers (see Communication of the Commission to Member States amending the communication pursuant to Article 93(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export-credit insurance (Text with EEA relevance)91). The commercial provision of export credit products is also subject to EC law (Council Directive 98/29/EC of 7 May 1998 on harmonisation of the main provisions concerning export credit insurance for transactions with medium and long-term cover92). However state export credit providers are not subject to the rules of this directive. The main reason for these decisions is the possible distortion of competition between producers of different Member states and of competition between commercial and state providers.
119. The OECD rules and the corresponding Council decision are only concerned with exports – indeed the Council decision itself is based on Article 132 ECT which specifically refers to “exports to third countries”. The Complainant thus alleges that the Council decision is not applicable where, as in the present case, no exports to third countries occur. Within the common market there are no exports to third countries – it is questionable if the exchange of
89 2005/122/EC: Commission Decision of 30 June 2004 on the State aid which the Netherlands is planning to implement in favour of four shipyards to support six shipbuilding contracts (notified under document number C(2004) 2213) (Text with EEA relevance), [2005] OJ L 39/48. 90 [2001] OJ L 32/1. 91 Official Journal C 217, 02/08/2001 p. 2. 92 Official Journal L 148, 19/05/1998 p. 22.
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goods within the Community can indeed be considered an export at all (see Part Three – Community Policies – Title I – Free Movement of Goods, Articles 23 pp. ECT). The Complainant alleges that in the present case the Commission committed a grave legal mistake by applying a Council decision which concerns exports to state export guarantees which are provided purely within the Union and its common market.
120. But even if the Council decision were applicable, it would have to be interpreted in the light of the common market (if not the common market for the elements of a nuclear facility – the decision should be considered with a view to the common energy market). The purpose of an export guarantee is to cover country risks. Per definition there are no country risks between the member states in a common European market. This understanding is confirmed by an economic analysis. Within a common market and indeed a European Union of close political cooperation the risk of one member state versus another cannot be assessed because with regard to most economic activities both member states are bound by the same rules. This is even truer in the present field of nuclear power where a specialised treaty instrument provides for the closest possible cooperation. It also constitutes a prohibited discrimination on the grounds of nationality (Article 12 ECT) because only companies from the Member state who’s authority grants the export credit can enjoy such right. Indeed the Complainant alleges that were the Commission to interpret the Council decision otherwise she would violate Article 28 ECT because a state export guarantee granted exclusively to a company in the territory of one Member state for the export to another can be considered a measure having equivalent effect to a quantitive restriction on imports because other companies from other member states are effectively in economic terms barred from importing to that same Member state. [CHECK.]
121. But the Council decision in itself poses also questions of legality. It just annexes the OECD Agreement on export credits. This Agreement contains special provisions for export credits for nuclear power plants (ANNEX II: Sector Understanding on Export Credits for Nuclear Power Plant). This Annex provides undue and unfair treatment for all exports related to nuclear power
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plants. It is inconsistent with the fundamental principle of equal treatment which has long been established in ECJ case law and is contained in Article 19 of the Declaration on Fundamental Rights in the European Union which were solemnly declared at the Nice Summit and which the Council in this decision did not observe.
122. The special treatment of nuclear plants is also an inconsonance with OECD Recommendation on Common Approaches on Environment and Officially Supported Export Credits, which are will soon translate into a Council decision,93 Art.2, to be seen in the fact that the export credit guarantee in question does not reduce the potential for trade distortion neither does it promote the level playing field. Also the obligation of prevention and mitigation of adverse environmental impacts of the projects (Art.3) is not certainly being achieved by awarding an unprecedented amount to a nuclear power plant project, which is a priori classified as Category A, i.e. potential to have significant adverse environmental aspects (Art.6) Objections have been raised in the National Assembly of France (Yves Cochet) and in the Senate (Marie Christine Blandin) as to the lack of transparency and publicity of the discussion precedent to the decision on granting COFACE. The objections concerned also the fact that Finland is in no way a developing or dangerous country and it should be only Areva bearing the risk of possible delays and extra costs of the project.94 It is to be noted that AREVA is the only company to be ever granted an export credit guarantee for a contract with a buyer from EU Member State.
123. In conclusion it should be noted that export subsidies always and directly affect competition in the market place between rival potential suppliers of goods and services. Recognising their pernicious effects, the Commission, as the guardian of competition under the Treaty, has always strictly condemned export aid in intra-Community trade.95
93 Commission working document - Integrating environmental considerations into other policy areas- a stocktaking of the Cardiff process, COM/2004/0394 final. 94 Marie Christine Blandin: (www.senat.f/senateurs/blandine_marie_christine/questions/questions_ectites.html#COFACE), Yves Cochet : (www.yvescochet.net) 95 In its seventh report on competition policy (1977), point 242, the Commission stated that export aids in intra- Community trade 'cannot qualify for derogation whatever their intensity, form, grounds or purpose’.
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124. Already in 1977 the Commission made it undoubtedly clear that export aid in intra-Community trade “cannot qualify for derogation whatever their intensity, form, grounds or purpose96. This has since been common ruling, as outlined especially in the 1997 Communication of the Commission to the Member States pursuant to Article 93 (1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export- credit insurance.97
125. According to the European Commission the purpose of the 1997 communication is to remove distortions of competition due to State aid in the sector of export-credit insurance, where there is competition between public or publicly supported export-credit insurers and private export-credit insurers.98
126. In particular, the sector directly concerned by such competition, and therefore by the 1997 communication, is that of export-credit insurance relating to short-term export-credit risks on trade within the Community and with countries outside it. These risks are defined in the 1997 communication as so- called “marketable risks”. Marketable risks are those risks which may not be covered by export-credit insurers with the support of the State. Only those risks which are not marketable can be publicly supported.
127. First of all aid given under this scheme can only be given for risk assurance which are not marketable.
128. Concluding from these principles the present support to the public company AREVA by COFACE as “Garantie délivrée pour le compte de l’État” constitutes state aid.
96 7th Commission report on competition policy (1977), point 242 97 Official Journal C 281 , 17/09/1997 P. 0004 - 0010 98 Communication of the Commission to Member States amending the communication pursuant to Article 93(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export credit Insurance (2001/C 217/02), Official Journal of the European Communities C 217/2, 2.8.2001,
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129. It is from public budget to a public company, having as consequence that one state company can help itself by way of credit insurance from state budget and thus being the worst case scenario for non-market behaviour.
130. In the case of TVO and Finland the conditions for non marketable risks are clearly not fulfilled. COFACE was not allowed to give this guarantee to a French public company AREVA for its venture with TVO in Finland for delivery and installation of the specific EPR reactor.
131. The whole transaction was not notified to the European Commission.
Conclusion
Again since state aid has been given but not notified we formally ask the European commission for infringement procedures and to demand the immediate dissolution of the guarantee transaction.
Swedish State guarantee
132. Again, we also formally ask the European Commission whether SEK, the Swedish Export Credit Agency gave similar support to one, several or all partners in this transaction involved. The same considerations that apply to the French state export guarantee also apply here and should be considered mutatis mutandis.
133. FRAMATOME ANP Siemens may have together with TVO or in similar constellations asked for support by SEK, (AB Svensk Exportkredit), the Swedish Export Credit Agency.
134. As already mentioned it is a fact that Sweden gave via SEK in 2003 ‘substantial financial commitment for the new nuclear power plant to be built in
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Finland by Teollisuuden Voima Oy (TVO)”.99 Since 2003 the Kingdom of Sweden is 100 % owner of SEK100.
Combined influence of the different support schemes
135. The Complainant alleges that only the combination of these different state aids made the offer of a fix price for the EPR possible and thus indirectly provided one single state aid to TVO. The Commission should carefully investigate if due to the fix price TVO was the final recipient of the alleged aid. The Complainant reserves the right to challenge this combination in court because it will by 2009 result in a significant distortion of the trans-European energy market.
136. State aid in the Community is beginning to adopt a more market oriented approach. It would be entirely out of sync with the current discussions if with regard to this transaction the Commission chose a myopic view on the relevant market. The market affected by the state aids here is not only the market for the construction of nuclear power plants (or power plants in general) it is the trans- European energy market. Only the broadest possible market definition fully assesses the extent to which the combination of the different aid schemes distort intra-Community competition with regard to this important sector.
137. The common effect of the individual aid schemes but also and more significantly of their specific combination lead to a distortion of competition and had a detriment effect on trade between Member States. Teollisuuden Voima Oy offers its goods and services in competition with other European electricity generating corporations outside Finland and inside Finland. Therefore, any state aid given to TVO will distort the competition and affect trade between Member States. As in order to construct and operate nuclear power plant, TVO must be able to find financial resources and obtain
99 See SEK Annual report 2003, page 18, under the chapter heading ‘sek involved in many environment and energy projects” 100 see SEK “Analysis -Swedish Export Credit Corporation SWEDEN, Europe/M.East/Africa ,November 2004”
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advantages under the same normal market conditions to which other individuals on the market are subjected to.
138. The distortion of competition which results from this state aid allows TVO to reflect the low construction costs into the price of electricity produced from it. EU common electricity market is already distorted by many subsidies and incentives for nuclear power such as EURATOM loans, state guarantees, export credits etc. The aim of the Directives 2001/77/EC and Directive 2003/54 is to reach level playing field for all kinds of energy generators. Continuous state aids for nuclear power represents a serious obstacle to achieving this aim. The Community level of the potential distortion is further enhanced by the fact that the aid is of an international nature, i.e. German government supporting Finnish developer.
139. The result of the damaging distortion of competition through illegal state aid can already be felt by the Complainant’s membership. The competitive situation has already been negatively influenced to the detriment of energy producers relying on RES. The Complainant expect this situation to become even more severe once TVO reactor connects to the public grid in 2009. The Commission is underusing its discretion in infingment procedures if it completely disregards the influence of the illegal state aid on the energy market.
Fixed Price contract and market distortion according to Article 82 ECT
140. We formally ask the European Commission to investigate if the transaction does not constitute predatory pricing in the sense of Article 82 ECT, done by market dominating companies and by means of a “dumping” fixed price offer. This is particularly important should the Commission come to the conclusion that no state aid exists. If the state aid granted did not distort competition, then the only conclusion that the Complainant can draw are illegal activities of the parties and indeed the Member state authorities involved.
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141. TVO concluded a fixed price contract with Framatome-ANP for EUR 3 billion. The cost estimate includes the plant delivery, site construction work, supporting services, project management and interests during the construction work for which TVO is responsible.101 Framatome-ANP is likely to have to pay the exceeding costs which are expected to occur due to ambitious timeline, necessary additional safety improvements requested by the Finnish authorities, material costs increase. Significant exceeding of total cost is expected due to rising price of steel alone.102 When the price was debated at the Finnish parliament in spring 2002 the figures mentioned for the new atomic plant were 1,7 – 2,5 billion euros.
Standard & Poor´s states already the price of 3.2 billion EUR, according to 2003 figures. Framatome’s CEO, Ralf Guldner admitted, that the situation is troublesome for his company, given the rising prices of raw materials. The issue of a fixed price is causing problems within the industry itself. German utilities have told Electricite de France that its asking price for a share in an EPR to be built in France is too high. They calculated that the EDF’s asking price represents cost per installed megawatt of about 25% higher than the price charged to TVO for building Olkiluoto3.103 This dispute is continuing up to date with insistence of EDF that they need 25 % higher prices than in the TVO deal, even though the German bidders involved in the negotiations around the new Nuclear Reactor Project in Flamanville/France underline that “ EDF has got to understand that the first-of-a-series argument doesn't really stand up anymore since the reactor is going to have a world market."104 142. The IEA in its report from February 2004 urged the Finnish government to also consider another option for cutting climate change emissions in case the EPR will not be ready in 2009 as planned. IEA emphasised that Olkiluoto 3 will be the first atomic reactor ever built in a deregulated market which can cause unforeseen problems. The report also stressed that all over the world atomic energy projects have exceeded the calculations planned and they have
101 www.tvo.fi 102 Tekniika&Talous magazine, 19.5.2004 103 Platts nuclear news Flashes, May 25, 2004 104 Nucleonics Week, Volume 46 / Number 46 / November 17, 2005 Copyright Platts 2005 A Division of The McGraw-Hill Companies, Inc.,
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not been able to keep to the planned building schedules.105 The TVO’s company officials admit themselves that the construction time schedule „is tight106“.
143. The expected price per MWh for the electricity produced is not available to the public, but it is estimated by the partners in this transaction to be less than 25 EUR/MWh.107
144. TVO’s estimated cost of the new power unit output was 2.2 eurocents/kWh, which is in serious conflict with OECD assessment made in 1998 estimating the cost up to 3.1eurocents/kWh.108
145. The following facts further increase to the circumstance that the whole transaction is economically not viable for Framatome ANP but a risky venture, based on the urgency to have a European show case at all cost for further expansion of their EPR reactor, in Europe and elsewhere, especially in China thus greatly distorting the European energy market in hindering other competitors especially from other energy sources to produce and supply on the Finnish market.
146. Licensing procedure in Finland is in hands of Radiation and Nuclear Safety Authority (STUK) and governed by the Nuclear Energy Act and Decree. The requirements for granting the construction license are prescribed in the sections 18 and 19 of the Nuclear Energy Act, the requirements for granting operation license are prescribed in the section 20 of the Act109. The licenses are granted by the Government and STUK makes a statement on the application for the licenses and attaches its safety statements. A supporting statement of the municipality intended to be the site of the planned nuclear facility must is also a prerequisite for an approving decision in principle.110 The operation license is granted only for a fixed term, usually for ten years. In its preliminary safety
105 http://library.iea.org/dbtw-wpd/textbase/npsum/finland2003SUM.pdf (downloaded) 106 http://www.tvo.fi/370.htm 107 www.olkiluoto.info 108 http://www.antenna.nl/wise/587/5514.html 109 http://www.stuk.fi/saannosto/19870990e.html 110 http://www.stuk.fi/english/npp/licences.html110 Licensing procedure chart and the list of relevant regulation, viz Attachement No.1
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assessment, STUK states that “none of the plants concepts in TVO’s application do, as such, meet all Finnish safety requirements...the necessary design alterations could be made during the construction license application phase....the structural designs of all the plant concepts would require some modification”. Also, STUK implies that TVO is not capable of running the plant at its status quo by suggesting that “...TVO must develop its organisation, working practices and know-how during the possible construction phase to take responsibility for safety planning for the facilities entire operating life.” The supplementary safety assessment requires provisions to be made for an impacting large passenger or military plane. 111
147. The preliminary safety assessment by STUK was concluded as following: “No such insuperable principal safety technical barriers have been found that would prevent accepting this reactor type in Finland. However there are several planning details that need to be further developed in things like the planning of the reactor core, the emergency boroning of the reactor, wading the containment building, the performance of the reactor’s emergency cooling systems, recycling arrangements of the emergency cooling and controlling of a serious accident. Cooling of a melted core, which relates to controlling a serious accident, is very complex in the EPR and that’s why it is difficult to prove that it would work in the case of a serious accident.”112
148. In October 2003 when TVO had announced that the EPR is their main candidate, the head of the department of nuclear power plant control in STUK, Mr. Juhani Hyvärinen described the needs for changes as following: - One of the biggest changes is needed to the system that prevents significant releases in the „worst case“ accident, meaning the melting of the reactor core or other serious damages to the core. The system the EPR now has is a kind of a „catcher“ in the bottom of the containment, which can stand heat and catches and cools the core in case of melting. According to Mr Hyvärinen, the basic idea is good but the realisation
http://www.stuk.fi/english/npp/5th_npp.html111 www.stuk.fi 112 2 . The full text of the assessment can be found at http://www.stuk.fi/english/npp/5th_npp.html
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“clumsy” and it looks like it has to be changed. These changes will require also changes in the containment. - There is a water spraying system to cool the fuel in case of a melt down accident. The capacity of this system must be doubled. - The cladding tube needs steel „panels“ in addition to the originally planned ferro - concrete to make the cladding tube dense enough. - STUK requires bigger systems for stopping the chain reaction and cooling the reactor in case of an emergency. - In addition to these, STUK considers that the current safety solutions are not good enough to stand a terrorist attack with a passenger aircraft.113
149. It is also noteworthy, that after the number of accidents in the existing Olkiluoto plants has risen unusually in 2003, STUK has ordered TVO to develop a plan to improve safety culture.
150. As to the process of licensing, the public in Finland has not been given a chance to participate in the project after the parliament vote. They had to hand out their statements after it was made clear by STUK that the EPR model as such would not meet the Finnish safety criteria, but before it was known how Framatome ANP is going to meet the challenges.114
151. After TVO submitted its construction application on January 8, 2004, the Finnish Ministry of Trade and Industry received 70 opinions and statements regarding this application, most of them from abroad. No deadline for STUK statement and related safety assessment has been set, but it is expected by the end of this year. The Government is expected to be deciding on the construction license in the beginning of 2005.115
Conclusion
152. We therefore formally ask the European Commission to investigate in infringement on the bases of Article 82 ECT and we reserve the right to further
113 http://www.greenpeace.se/files/2500-2599/file_2552.pdf , page 2 114 www.olkiluoto.info 115 http://www.valtioneuvosto.fi/vn/liston/base.lsp?r=82993&k=en&old=754
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submission concerning questions especially related to market dominance and we ask the European Commission to open the respective infringement procedures.
Other financing support to the project
Supplier credits and bilateral loans
153. We also have information on further financial resources in this transaction where we ask the Commission for investigation in order to see whether state aid may be involved:
154. In addition to the syndicated loan, TVO will also have access to financial resources through suppliers’ credit of 587 million EUR maturing between 2009- 2021 and through bilateral loans totalling 550 million EUR maturing between 2009-2013. Funds from the syndicated credit and most bilateral loans may be used for general corporate purposes.116
155. Fortum Oy will invest EUR 185 million, entitling to approximately 400 MW of the new plant’s capacity.
156. TVO states, that in January 2004, a total of EUR 180 million was taken out as shareholder loans from corporations which have subscribed the new series B shares issued in December. Total price of this issue was EUR 16 million and new shares will be issued during 2004-2009 amounting to EUR 712 million to cover internal financing share of Olkiluoto 3.117
157. There are 61 entities taking part in the financing and the companies will get their shares of the electricity produced. About 40% of the electricity is for general use, the rest is for the industry.
2.standardandpoors.com, under section “Credit Ratings >> Energy116 www.standardandpoors.com 117 http://www.tvo.fi/uploads/TVO%20Vuosik%20Eng2003(1).pdf
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158. TVO also receives EUR 549 million loans from the State Nuclear Waste Management Fund in 2003. 118 The Fund is governed by Section 38 of Nuclear Energy Act 990/87. It is independent from the state budget, controlled by Ministry of Trade. Loans from the Fund are regulated by Section 52, which also states that „The interest charged for loans from the Fund, granted under subsection 1 or 3, shall be a minimum of the base rate of the Bank of Finland increased by two percentage points.“ So far, TVO has assets of EUR 760 million in this Fund.
Infringement of EC Public Procurement Rules
159. The Complainant notes with dismay that the Commission did not investigate the public procurement violations. All Commission officials involved were all taken by surprise when asked about the public procurement issues in the Meeting on 2 September 2005. This is another violation of good administrative procedure and the Complainant reserves its right to ask the Ombudman for an intervention in the current case.
160. In connection with the tendering and purchase of the Nuclear Reactor from Framatome/ANP-Siemens there are several factors which point towards infringement of EC procurement rules in Finland on different levels. We formally ask the European Commission to investigate.
Violation of the Public Procurement Directive 93/38/EC
Obligation to run public procurement procedure for electricity received from Olkiluoto 3
161. According to our knowledge, public authorities such as the city of Helsinki or other public authorities engaged themselves in this structure to purchase electricity from Olkiluoto 3 for a specific price. Therefore the question arises whether the public authorities should have been obliged to organise public procurement for the supply of electricity before agreeing to receive electricity from the new nuclear power plant.
118 http://www.tvo.fi/uploads/Vuosikertomus%202003%20Eng(2).pdf, page 12
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162. As already described above the public shareholders of TVO are: Fortum Heat and Power (26.6%), Oy Mankala Ab (8.1%), Etelä Pohjanmann (6.5%) and Kemira Oy (1.9%). But there are further 57 entities taking part in the financing and will get their shares of the electricity produced. Between them are public entities.119
163. The A series shares entitle the shareholders to the electricity generated in existing Olkiluoto 1 and Olkiluoto 2 nuclear power plants, the B series shares will entitle shareholders to electricity from the new nuclear power plant and the C series shares entitle shareholders to the share of electricity of Meri-Pori coal- fired power plant. This new division of shares to A, B and C series is effective from December 2003. The companies which subscribed B shares also provided shareholder loan to TVO amounting to EUR 180 million. Total price of B shares issue was EUR 16 million and new shares will be issued during 2004- 2009 amounting to EUR 712 million to cover internal financing share of Olkiluoto 3. All public authorities own shares of A, B and also C series.120
119 Electricity companies participating in Oliluoto 3 are: Alajärven Sähkö Oy, Esse Elektro Kraft Ab, Etelä-Pohjanmaan Voima Oy, Etelä-Savon Energia Oy, Fortum Power and Heat Oy ,Graninge Energia Oy, Haminan Energia Oy, Helsikni kaupunki, Hiirikosken Energia Oy, Iin Energia Oy, Imatran Seudun Sähkö Oy, Jylhän Sähköosuuskunta, Järviseudun Sähkövoiman Kuntayhtymä,Kaakon Energia Oy, Kemira Oyj, Keravan Energia Oy, Keskusosuuskunta Oulun Seudun Sähkö, Kokemäen Sähkö Oy, Kokkolan kaupunki/energialaitos,Korpelan Voima kuntayhtymä, Kruunupyyn kunta/sähkölaitos, KSS Energia Oy, Kumera Oy, Kymenlaakson Sähkö Oy, Kumppivoima Tuotanto Oy, Köyliö Säkylän Sähkö, Lahti Energia Oy, Laihian Sähkö Oy, Lammaisten Energia Oy, Lankoksen Sähkö Oy, Lehtimäen Sähkö Oy, Leppäkosken Sähkö Oy, Oy Metsä-Botnia,M-Real Oy, Myllykoski Oyj, Mäntsälän Sähkö Oy, Nurmijärven Sähkö Oy, Oulun kaupunki/Oulun Energia,Outokumpu Oyj, Paneliakosken Voim Oy, Pietarsaaren kaupunki/energialaitos,Pohjolan Voima Oy, Porin kaupunki, Porvoon Energia Oy, Pohjois-Karjalan Sähkö Oy, Päijät-Hämeen Voima Oy, Rauman Energia Oy, Rautaruukki Oyj, Rovakaira Oy, Sallila Energia Oy, Savon Voima Oy (Atro), Seinäjoen Energia Oy,Stora-Enso, Suur-Savon Sähkö Oy, Tornionlaakson Sähkö Oy, UPM- Kymmene Oyj, Uusikaarlepyyn kaupunki/liikelaitos, Vaasan Sähkö Oy, Vantaan Energia Oy, Vatajankosken Sähkö Oy, Vetelin Sähkölaitos, Vimpelin Voima Oy, Ääneseudun Energia Oy,Pohjolan Voima
120 http://www.tvo.fi/uploads/Vuosikertomus%202003%20Eng(2).pdf, page 6
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164. The shareholders provide TVO with EUR 180 million loans and also they agreed to buy TVO’s shares to be issued during 2004-2009 for the amount of EUR 712 million.
165. Directive 93/36/EEC of 14 June 1993 coordinates procedures for the award of public supply contracts, which is transposed by Finish Law on Public Procurement 1505/1992. The Finnish Decree on public supply contracts concerning the procurement of goods and services, and on works contracts exceeding given threshold values (380/1998) implements the above Directive. The Finnish Decree on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors (381/1998) implements the Directive 93/38/EEC coordinating the procurement procedures of entities operating in the water, energy, transport and telecommunication sectors..
166. All those public authorities which do fall under the scope of Directive 93/36/EEC are obliged to public procurement procedure with regards to their supply of electricity from TVO and could not engage themselves in long term supply agreements with TVO without public tendering procedure. We therefore formally ask the Commission to investigate if public partners on the Finnish side of the transaction would fall within the discretion of the above Public Procurement Rules concerning public entities involved.
Violation of Public Procurement Rules by TVO for the Purchase of the new Nuclear Power Station
167. As outlined in detail below TVO had to follow all relevant Public Procurement Rules. We formally ask the European Commission to investigate how the procurement proceeded in detail and to evaluate if public procurement laws were fully observed.
168. In case of non-appliance we ask the Commission to order a new procurement procedure.
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169. We ask for infringement procedures concerning the violation of public procurement rules by TVO when knowing of predatory fixed price scheme proposed by Framatome/ANP/Siemens.
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TVO tender characteristics
170. The tender was launched by TVO in October 2002 with deadline for March 2003. TVO requested bids for a light water plant unit with either a boiling water or pressurised water reactor with an electric power capacity of 1.000 to 1.6000 MW.121 Tenders have been submitted to TVO by three vendors and for four designs: Framatome ANP: European Pressurised Water Reactor (EPR) of 1600MWe and SWE-1000 of 1200MWe, General Electrics: European Simplified Boiling Water Reactor (ESBWR) of 1390MWE and Russian Atomstoryexport: VVER-91/99 of 1060MWe.
171. Since the considerate size of the new nuclear power plant and in view of the non-discriminatory ruling of Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC consistently asks for removal of various barriers and asks Member States to refrain from discrimination. TVO was in our view obliged to ask for state aid clearance and was obliged to reject the offer of Framatome ANP .
Violation of the Public Procurement Directive 93/38/EC by TVO
172. Directive 93/38/EEC coordinating the procurement procedures of entities operating in the water, energy, transport and telecommunications sector („Directive“) applies to TVO. 173. This maybe questionable since Art. 2 paragraph 1 (a) of the Directive provides that this Directive shall apply to contracting entities which are public authorities or public undertakings.
174. TVO cannot be considered as a “public undertaking“ since public authorities may not exercise directly or indirectly a dominant influence, nor can such influence be presumed. The ownership structure of TVO shows that it is
121 http://www.tvo.fi/301.htm
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56.9% private owned and 43.1% public owned company. There is also a number of public authorities involved in the private investor’s shareholding structure. However, the public authorities do not hold the majority of TVO’s capital, nor its voting rights, neither can they appoint more than half of TVO’s administrative, managerial or supervisory body (Art.1, para 2).
175. On the other hand Art. 2. paragraph 1 (b) of the Directive states that it should apply to “contracting authorities” which when they are not public authorities or public undertakings, have as one of their activities any of those referred to in paragraph 2 or any combination thereof and operate on the basis of special or exclusive rights granted by a competent authority of e Member State.“
176. Art.2 paragraph 3 than states that a contracting entity shall be considered to enjoy special or exclusive rights in particular where - in case of paragraph 2 (a)- the entity supplies with drinking water, electricity, gas or heat a network which is itself operated by an entity enjoying special or exclusive rights granted by a competent authority of the Member State concerned.
177. This means that one has to evaluate if the Finnish transmission system is such a network enjoying special or exclusive rights granted by the Finnish state. Finland’s national transmission system operator is Fingrid Oy122. It was created by Government in November 1996 when the Government bought the electricity transmission assets of IVO (state-owned) and PVO in the two then existing transmission networks. It now owns more than 99% of the grid as well as all major interconnections. It has the following shareholders: Finland : 12%, PVO: 25% (PVO holds 56,8% of TVO) Fortum : 25% (Fortum is a state company, which holds 26,6% of TVO), Institutional owners: 38%. The following voting rights are given: Finland: 16.7% PVO: 33.3% Fortum: 33.3%
122 www.fingrid.fi
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Institutional owners: 16.7%
178. Overall, the Finnish state holds 37% of shares and 50% of votes in Fingrid Oy123.
179. According to Section 4 of the Finnish Electricity Market Act 386/1995 and Decree 518/1999 any interested entity can construct a power line, subject to a licence issued by the Finnish Electricity Market Authority. Thus, Fingrid does not have a statutory monopoly on transmission facilities.
180. Fingrid sets its own transmission prices and functions as common carrier – it has the obligation of carrying the load of every potential customer, connecting all generation installations and duty to extend the infrastructure. Fingrid also owns 20% of Nord Pool, the Nordic interstate transmission system. But it was the Finnish state which bought the network from PVO and IVO in 1996 for FM 7 billion to resell consequently Fingid’s shares on the market, while still holding 50% of votes.
181. In our view this initial investment, which was the largest financial operation on Finland’s domestic market ever carried out, constitutes some special position of Fingrid. This links it to the direct applicability of procurement rules.
182. Therefore TVO was obliged to follow Public Procurement rules.
Violation of procurement rules by TVO due to non enquiry into state aid schemes
183. According to our investigation and the above fact presentation TVO was fully aware of the above predatory pricing scheme of Framatome/ANP and also of the COFACE guarantee. Therefore TVO, knowing that it was done by public support, TVO was obliged to demand of the applicant in the tendering process to ask if state support schemes were notified to the European Commission. The tendering agency should ask in cases of “abnormally low” offers and according
123 IEA report,1999, saved, ownership structures printed into file
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to Art. 34 Directive 93/38/EEC coordinating the procurement procedures of entities operating in the water, energy, transport and telecommunications sector which provides: „Contracting entities may reject tenders which are abnormally low owing to the receipt of State aid only if they have consulted the tenderer and if the tenderer has been unable to show that the aid in question has been notified to the Commission…“. 184. TVO was aware that Siemens and AREVA were asking for state guarantees. This was published in the press at least and broadly concerning details on the question of Siemens in negotiating with HERMES.
185. Already preamble, recital 9 of Directive 93/38/EEC states that „…to ensure a real opening-up of the market and a fair balance in the application of procurement rules in these sectors requires that the entities to be covered must be identified on a different basis than by reference to their legal status.“
186. Directive 93/38/EEC, Art. 4 states: „1. When awarding supply, works or service contracts, or organising design contests, the contracting entities shall apply procedures which are adapted to the provision of this Directive. 2. Contracting entities shall ensure that there is no discrimination between different suppliers, contractors or service providers“.
187. Art.30 provides: “2. The system, (…), shall operate on the basis of objective criteria and rules to be established by the contracting entity….“ “5. In reaching their decision as to qualification or when the criteria and rules are being updated, contracting entities may not: - impose conditions of an administrative, technical or financial nature on some suppliers, contractors or service providers which are not imposed on others,…“
188. In our opinion, TVO would have needed to enquire whether the above received COFACE guarantee had been notified to the European Commission and to reject the offer since no such notification was submitted to the European Commission. Since the considerate size of the new nuclear power plant and in view of the non-discriminatory ruling of Directive 2003/54/EC TVO was in our
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view obliged to ask for state aid clearance and was obliged to reject the offer of Framatome ANP. Concerning all the related facts around the fixed-price offer and concerning the probably higher costs to be expected we refer to Par. 120 to 132 of this complaint.
189. Again we ask the European Commission to open infringement procedures.
Infringement of EEA Agreement
190. We reserve the right for further submission but ask the Commission to enquire if the AGREEMENT ON THE EUROPEAN ECONOMIC AREA (EEA Agreement) and especially Chapter Two “State Aid” and Article 61(1) of the EEA Agreement are not violated and subsequently to also open infringement procedures. This is a necessary examination since EEA Member state Norway is one of the direct neighbours to Finland and has import links to Finland as shown above under par. 16. The same considerations that apply in the Community context with regard to the OECD Agreement are also true with regard to EFTA. Particularly since the only countries bound by EFTA competition rules are Lichtenstein, Norway and Iceland. These countries share a common understanding on discrimination and market distortion.
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191. Article 61 (1) asks as following: “Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States 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 Contracting Parties, be incompatible with the functioning of this Agreement.” We suggest investigating under considering the above arguments on state aid violation in this EEA investigation procedure.
Formal legal demand
192. We ask the European Commission to open formal main procedure on all above grounds for violation of EC law.
193. We ask to receive reasoned interim decisions in writing concerning all above complaint points.
194. We repeat that so far only DG Comp was reacting to this complaint concerning the state aid parts (CP238/04) . We had a constructive discussion with DG COMP and this adjusted complaint gives a thorough reflection and reaction to the arguments exchanged with DG Comp during meeting.
195. We did not receive any acknowledgement of any of the other services of the Commission which are obliged to evaluate our complaint.
196. We underline necessity to receive these acknowledgements in due time and repeat that our complaint was introduced almost one year ago and the question of non- action procedure against the European Commission arises.
Dr. Dörte Fouquet Rechtsanwältin
16th of November 2005
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