EUROPEAN COMMISSION

Brussels, 01.12.2008 C (2008) 7715

PUBLIC VERSION

WORKING LANGUAGE

This document is made available for information purposes only.

Subject: N 93 /2008 () – Direct grants for investment projects

Sir,

1. PROCEDURE

(1) By electronic notification of 25 February 2008, registered at the Commission on the same day (A/3670) the Italian authorities notified the Commission of the above-mentioned measure concerning regional investment aid.

(2) By letters dated 17 March 2008 (D/51302), 27 June 2008 (D/52566) and 10 September 2008 (D/53499) the Commission requested additional information on the measure in question. The Italian authorities provided the information by e-mails dated 6 May 2008 (A/8505), 16 July (A/14643) and 27 October 2008 (A/22572).

2. DESCRIPTION OF THE AID MEASURE 2.1. Objective of the aid scheme

(3) The notified measures pursue a regional development objective. The notified scheme provides for investment aid towards small and medium-sized enterprises in the industrial and handicraft sectors which are active in the areas of region Sardinia satisfying the conditions set forth in the derogation provided by Article 87(3)(c) EC Treaty, in conformity with the Commission decision of 28 November 2007 on the Italian regional aid map 2007-2013.1

1 State Aid N 324/2007 Italy – " Regional aid map 2007-2013"

S.E. On. Franco FRATTINI Ministro degli Affari esteri P.le della Farnesina 1 I - 00194 Roma

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11. 2.2. Legal basis

(4) The legal base of the scheme is:

– Art. 30 lett. a) of Regional Law n 17 of 20 April 1993 – Implementing acts adopted by Decision (Deliberazione della Giunta regionale) n 48/28 of 29.11.2007. 2.3. Administration of the scheme

(5) The scheme will be operated by Regione Sardinia.

2.4. Geographical scope of the scheme

(6) The scheme is applicable to the assisted areas in the province of , the province of Ogliastra, the except the coast municipalities and the following communes: , San Teodoro, , , Bono, Bottida, , Burgos, , , , Escalaplano, Escolca, Esterzili, Gergei, Isili, Nuragus, Nurallao, Nurri, Orroli, Sadali, Serri, Seulo, Villanovatulo provided that they qualify, under the derogation laid down in Article 87 (3) (c) of the EC treaty, as assisted areas of Sardinia as defined in the regional map in force at the time of aid awarding.

2.5. Duration of scheme

(7) Under the notified scheme aid can be granted from the date of the approval of the measure by the Commission until 31 December 2013.

2.6. Budget of scheme

(8) The estimated yearly budget amounts at EUR 6 million until 31.12.2013 (overall budget to EUR 36 million).

2.7. Beneficiaries

(9) The beneficiaries of the scheme are small and medium enterprises, as defined by Commission recommendation 2003/361/CE of 6 May 2003, OJ L 124 of 20.5.2003. The foreseen number of beneficiaries is in the range of 11 to 50.

(10) The scheme provides aid to firms active in the following sectors: processing and marketing of agricultural products listed in annex I of the EC Treaty2 mining and quarrying, manufacturing industry, textiles, pulp and paper, chemical and pharmaceutical industry, industrial machinery, electrical and optical equipment, motor vehicles, transport, computer and related activities, as well as research and development, technical testing and analysis, other business and activities (as defined by NACE code rev 1.1 n° 74.87.5 and 74.87.7)

2 The Italian authorities confirmed that the scheme applies to the sector of processing and marketing of agricultural products listed in annex I of the EC Treaty only to the extent laid down in the Community guidelines for State aid in the agriculture and forestry sector 2007-2013 (OJ C 319, 27 December 2006, p.1)

2 (11) The scheme does not apply to undertakings that are in difficulty in the meaning of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty3, as well as to the following sectors: production of agricultural products listed in annex I of the EC Treaty, coal and steel, shipbuilding, synthetic fibres, transport, fisheries and aquaculture. Furthermore, it does not apply to export- related activities, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity to aid contingent upon the use of domestic over imported goods.

2.8. Nature and form of the aid

(12) The aid will be awarded for initial investment projects in the form of direct grants, which are granted on a discretionary basis.

2.9. Mechanism of granting the aid

(13) Applicants for aid submit applications to the Region. The Region approves the application for aid in the light of a preliminary assessment of the respect of the conditions of the scheme. The aid granting takes places within 30 day from completing the verification of the financial technical and economic aspects of the project. The aid will be paid out in maximum five instalments, the first of which when the project starts and the others on the basis of the progress in the project execution.

2.10. Eligible expenses

(14) Only projects for which expenses are incurred after the date of publication of the final scheme on the internet are eligible for receiving aid under the scheme.

(15) Eligible expenses are costs related to the setting up of a new establishment, the extension of an existing establishment, the diversification of the output of an establishment into new, additional products, a fundamental change in the overall production process of an existing establishment and the acquisition by an independent investor of capital assets directly linked to an establishment which had closed or which would have closed had it not been purchased.

(16) The eligible costs for initial investment include value of lands, buildings, and machineries, costs of construction, infrastructure and technical equipment exclusively related to the project. To be eligible, the assets acquired have to be new.

(17) Replacement investment is excluded from the scheme.

(18) The lease of assets different from land and buildings can be taken for costs related to the acquisition of tangible or intangible assets in case the lease takes the form of financial leasing and only if the contract contains an obligation to purchase the asset at the expiry of the term of the lease.

3 OJ C 244, 1.10.2004. 3 (19) The costs of lease of land and buildings can be included within costs eligible for receiving the aid at the condition that the lease continues for at least five years after the completion of the investment project.

(20) Since the beneficiaries qualify as small and medium-sized enterprises, the costs of preparatory studies and consultancy costs linked to the investment are eligible costs. Moreover, the scheme provides that consultancy costs are limited to an aid intensity up to 50% of the actual costs incurred.

(21) The total amount of eligible expense for a single project cannot be lower than EUR 250.000.

2.11. Applicability to large investment projects and individual notification requirement

(22) The present scheme does not cover aid for large investment projects, as defined in section 4.3 of the Guidelines on national regional aid4 (hereinafter "regional guidelines"), which are subject to individual notification obligation.

2.12. Aid intensity

(23) Aid is calculated in reference to material and immaterial investment costs resulting from the initial investment project.

(24) Aid granted under the scheme cannot in any case exceed 40% of the amount of eligible expenses.

(25) In addition, aid amount under the scheme cannot exceed maximum aid intensities as provided for in the applicable regional map in force at the time of awarding of the aid, and those intensities have to be also respected in case of cumulation of aid granted under the scheme with any other aid, i.e.:

Until 2010 Standard Top- up Applicable Intensity ceiling intensity Small firms 25 + 20 GGE 45% GGE Medium firms 25 + 10 GGE 35% GGE

2011-2013 Standard Top- up Applicable Intensity ceiling intensity Small firms 15 + 20 GGE 35% GGE Medium firms 15 + 10 GGE 25% GGE

The maximum allowed aid intensity does not exceed the applicable regional aid ceiling determined in the regional aid map for Italy. The maximum allowed aid intensity established for large enterprises varies according to the above-mentioned map from 25% Gross Grant Equivalent until 31.12.2010 to 15% Gross Grant

4 Guidelines on national regional aid for 2007-2013, OJ C 54, 4.03.2006 4 Equivalent from 1.1.2011 until 31.12.2013. Small and medium sized enterprises5 (with the exception of SMEs in transport sector) are eligible for a further bonus of 20%-point and 10%-point Gross Grant Equivalent, respectively.

(26) Intensities of aid granted under the scheme will be expressed in gross grant equivalent which is the discounted value of the aid expressed as a percentage of the discounted value of the eligible costs.

2.13. Starting date of the project and incentive effect principle

(27) The scheme identifies as starting date of the project the day when the construction works have started or when the first commitment to order equipment is placed, excluding preliminary feasibility studies.

(28) Under the present scheme aid may be granted if the works on the project start only if: (i) the aid beneficiary has submitted an application for aid; and (ii) the Regional administration has subsequently confirmed in writing that, subject to detailed verification of the financial technical and economic aspects, the project in principle meets the condition of eligibility (sector of activity, size of the beneficiary firm and aid ceilings) laid down by the scheme before the start of works on the project. If works begins before the conditions above are fulfilled, the whole project will not be eligible for aid.

2.14. Own contribution

(29) In all cases, the recipient’s contribution to the financing of the aided investment will be at least 25%, either through its own resources or by external financing, in a form which is free of any public support.

2.15. Maintenance of the investment and of the newly created jobs

(30) The scheme foresees that the investment must be maintained at least for 5 years as well as that the newly created jobs that were declared necessary to the implementation of the project shall be maintained for at least 3 years from the conclusion of the project.

2.16. Cumulation of aid

(31) The scheme foresees the possibility of cumulating the aid granted under this scheme with aid having the same objective granted from other (regional, community and national) sources under the condition that the total amount of aid will not exceed the applicable aid intensity ceilings prescribed by the regional aid map 2007-2013.

(32) The Italian authorities explained that the mechanism put in place for respecting the cumulation rules is in line with the provisions of p. 74 of the regional guidelines. In particular, the aid beneficiary has to provide a declaration concerning aid already received. The respect of the cumulation rules is normally verified through these declarations when retaining the aid applications. The declarations might be subject

5 As defined by the Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, OJ L 124 of 20 May 2003. 5 of a veridical check. Moreover, where aid calculated on the basis of (material or immaterial) investment costs is combined with aid calculated on the basis of wage costs, it will be verified that the scheme respects the intensity ceilings laid down for Sardinia.

(33) Aid granted under the present scheme will not be cumulated with de minimis support in respect of the same eligible expenses.

2.17. Outstanding recovery orders

(34) The Italian authorities ensured to suspend the payment of any aid under the notified aid scheme to any undertaking that has benefited from earlier unlawful aid declared incompatible by a Commission Decision, until that undertaking has reimbursed or paid into a blocked account the total amount of unlawful and incompatible aid and the corresponding recovery interest.

3. ASSESSMENT

3.1. State aid character of the scheme (35) According to the proposed aid measure, the aid in the form of direct grants is provided to undertakings carrying out investments on the territory of the region Sardinia.

(36) The aid foreseen under this scheme constitutes an economic advantage because it allows the beneficiaries to reduce the investment costs that they should normally face in order to develop this type of projects. It may therefore distort or threaten to distort competition.

(37) The measure is selective because it applies only to potential beneficiaries that carry out new investment projects in Sardinia, as described above.

(38) In view of the fact that the scheme concerns sectors and undertakings involved in trade between Member States, there is a risk that the aid could affect that trade.

(39) Finally, the aid is provided by public authorities through State resources within the meaning of Article 87(1) of the EC Treaty.

(40) Consequently, the proposed aid measure constitutes state aid within the meaning of Article 87(1) of the EC Treaty.

3.2. Legality of the aid measure

(41) The Italian authorities have fulfilled their obligation according to Article 88(3) of the EC Treaty as the scheme will be implemented only after approval by the Commission.

3.3. Compatibility of the aid measure

(42) Having established that the notified scheme involves State aid within the meaning of Article 87(1) of the EC Treaty, it is necessary to consider whether the scheme can be found to be compatible with the common market.

6 (43) The Commission has examined the proposed aid measure in the light of Article 87(3)(c) of the EC Treaty and, in particular, in the light of the regional guidelines. This assessment has lead to the following observations:

– No aid will be granted to firms involved in the production of the products listed in Annex I to the EC Treaty, coal industry, steel, shipbuilding, synthetic fibres and fishery as to p. 8 of the regional guidelines.

– Aid will be granted to investments in the processing and/or marketing of agricultural products listed in annex I of the EC Treaty only to the extent laid down in the Community guidelines for State aid in the agriculture and forestry sector 2007-2013.

– Assistance to firms in difficulty and/or for the financial restructuring of firms in difficulty is excluded from the scheme, as to p. 9 of the regional guidelines.

– Although the scheme applies to certain selected activities, the scheme still ensures compliance with p. 8 of the regional guidelines, maintaining the multisectoral and open character of the scheme.

– The scheme relates to initial investment as to p. 34 of the regional guidelines; in fact it covers initial investment in relation to the setting-up of a new establishment, the extension of an existing establishment, the diversification of the output of an establishment into new, additional products or a fundamental change in the overall production process of an existing establishment. Expenses on purchases of movable assets, in the transport sector, are not eligible as to footnote 48 of the regional guidelines.

– Investment aid is calculated as a percentage of the discounted value of the investment's eligible material and immaterial costs as to p. 41 of the regional guidelines.

– The scheme includes a reference to the regional aid map in force and the aid intensity ceilings are in conformity with the Italian regional aid map in force, including the adjustment of the ceilings in accordance with p. 67 of the regional guidelines.

– The duration of the scheme is in line with the duration of the regional map. The notified scheme will expire on 31 December 2013.

– The incentive effect conditions as to p. 38 of the regional guidelines have to be fulfilled.

– The aid measure includes a clause stipulating that the beneficiary makes a financial contribution of at least 25% of the total eligible costs and that this contribution will be free of any public support as to p. 39 of the regional guidelines.

– The scheme excludes the award of aid to projects which have started before the entry into force of the legal basis, in accordance with p. 108 of the regional guidelines.

7 – Replacement investments are excluded from the scheme as to p. 34 of the regional guidelines.

– The scheme ensures that the assets acquired are new, as to p. 54 of the regional guidelines.

– The conditions of the lease taken for costs related to the acquisition of tangible and intangible assets are in conformity with p. 53 of the regional guidelines.

– The scheme contains a clause ensuring that the eligible costs of investments in intangible assets are used exclusively in the establishment receiving regional aid, are regarded as amortisable assets, are purchased under market conditions and are included in the capital assets of the firm and remain in the establishment receiving the regional aid for three years for SMEs as to p. 56 of the regional guidelines.

– The scheme includes in the eligible costs for SMEs the costs of preparatory studies and consultancy costs linked to investment, at a maximum aid intensity of 50% of the actual costs incurred as to p. 51 of the regional guidelines.

– The aid is conditioned on the obligation of maintaining the investment or the jobs created during a minimum period of three years as to p. 40 of the regional guidelines (add in description).

(44) In view of the above, the Commission considers that the notified aid scheme is compatible with the common market in accordance with Article 87(3) (c) of the EC Treaty.

4. DECISION

(45) The Commission has accordingly decided to consider the aid scheme compatible with the EC Treaty. (46) The Commission reminds the Italian authorities that the reporting conditions described in the Commission Regulation (EC) N°794/2004 implementing Council Regulation (EC) N° 659/1999 laying down detailed rules for the application of Article 93 of EC Treaty have to be respected. (47) The Commission further reminds the Italian authorities that all plans to modify this aid scheme have to be notified to the Commission.

Yours faithfully, For the Commission

Neelie KROES Member of the Commission

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