C(2020) 7662 Final

EUROPEAN COMMISSION

Brussels, 3.11.2020 C(2020) 7662 final

PUBLIC VERSION

This document is made available for information purposes only.

Subject: State Aid SA.59014 (2020/N) – Slovenia COVID-19: Reduction of the minimum concession fee caused by natural disasters or exceptional occurrences

Excellency,

1. PROCEDURE

(1) By electronic notification of 14 October 2020, Slovenia notified aid to “Postojnska jama, turizem, gostinstvo in trgovina, d.d. Joint Stock Company” (“the beneficiary”) (“Reduction of the minimum concession fee caused by natural disasters or exceptional occurrences” or “the measure”). Slovenia notified the measure on the basis of Article 107(2)(b) of the Treaty on the Functioning of the European Union (“TFEU”).

(2) Slovenia exceptionally agrees to waive its rights deriving from Article 342 TFEU, in conjunction with Article 3 of Regulation 1/1958,1 and to have this Decision adopted and notified in English.

2. DES CRIPTION OF THE MEAS URE

(3) The Slovenian authorities explained that the COVID-19 outbreak has a significant impact on the Slovenian economy.

(4) As a result of the COVID-19 outbreak, on 12 March 2020, Slovenia declared the epidemic 2 leading to the adoption of several mitigation measures in the

1 Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385.

Anže LOGAR Minister za zunanje zadeve Republike Slovenije Prešernova cesta 25 SI-1001 Ljubljana Slovenija

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - T el. +32 22991111

subsequent weeks. As of 16 March 2020, the provision of services to consumers, including recreational services was prohibited. Moreover, all educational institutions, including museums and the Postojna and Predjama caves, were closed. On 20 March 2020, the Slovenian authorities prohibited all events in public places and, on 30 March 2020, all movement of citizens outside of the municipality of permanent or temporary residence was banned. As a result of the above-mentioned restrictions, the Slovenian authorities expect a loss of 8% in GDP in 2020, which would only partially be recovered in 2021. The tourism industry would be particularly hit by the downturn. The state of epidemic was ceased on 31 May 2020.

(5) During the period between 16 March 2020 until 31 May 2020, the Postojna and Predjama cave systems had to suspend operations in order to comply with the above-mentioned governmental restrictions (recital (4)). The measure aims to compensate the beneficiary, who is the concession holder for the use of the Postojna and Predjama cave systems, for the damage suffered as a result of the COVID-19 outbreak and these governmental restrictions which caused a drastic decrease in the number of reservations and group guests to the caves as shown in the table below.

Number of reservations / group guests in 2020 Month compared to same month in 2019

March -92%

April -100%

May -100%

(6) As a result of the decrease in reservations and visits, the beneficiary suffered a significant economic damage from the closure of the Postojna and Predjama cave systems, resulting in an estimated loss of EUR 3,748 million.

2.1. The nature and form of the measure

(7) The aid would take the following forms:

• a reduction of the base concession fee of 2020 below the minimum base concession fee agreed in the concession agreement;

• a higher than contractually agreed deduction of investments in the Postojna Predjama cave systems from the base concession fee in 2020 and 2021 and;

2 Order declaring an epidemic of the infectious disease SARS-CoV-2 (COVID-19) in the territory of the Republic of Slovenia, Official Gazette No 19/20 (https://www.gov.si/teme/koronavirus).

• an additional deduction that was not yet contractually agreed of interest payments and servicing costs on a new commercial loan 3 the beneficiary will take out to finance investments in the Postojna and Predjama cave systems from 2020 until the end of 2026.

(8) The damage compensated under the measure will be quantified as the reduction in earnings before interest and taxes (“EBIT”) incurred by the beneficiary as a direct consequence of the COVID-19 outbreak and related governmental restrictions (in a comparable manner as in Commission decision in case SA.57459). 4

2.2. National legal basis

(9) The legal basis of the measure is the Agreement on the arrangements for reimbursing investments in the natural values of the Postojna and Predjama cave systems (Dogovor o načinu povračila vlaganj v naravne vrednote Postojnski jamski in Predjamski jamski sistem ) and Government Decision no. 35602- 12/2020, a draft of which was included with the notification.

2.3. Administration of the measure

(10) The authority responsible for administering the measure is the Ministry of the Environment and Spatial Planning.

2.4. Budget and duration of the measure

(11) The Slovenian authorities indicated that the amount of aid withheld from the general State budget under the measure will be EUR 760 143.

(12) The measure will enter into force from its approval by the Commission or the entry into force of Government Decision no. 35602-12/2020, whichever comes latest.

2.5. Beneficiary and sectoral scope of the measure

(13) The beneficiary of the measure is Postojnska jama, turizem, gostinstvo in trgovina, d.d. Joint Stock Company, the concession holder of the concession agreement for the use of the Postojna and Predjama cave systems.5

2.6. Basic elements of the measure

(14) The measure takes the form of (i) a reduction of the base concession fee, (ii) a higher than contractually agreed deduction of investments from the base

3 The beneficiary has to demonstrate it obtained three offers from banks and that it choose the most favourable one.

4 Commission Decision of 30 June 2020 in case SA.57459 – Slovenia - Compensation scheme for damage caused by the COVID-19 outbreak, recitals 33 and 36.

5 The concession agreement between the Government of the Republic of Slovenia and the beneficiary was validated by the “Decree on the concession for the use of natural values Postojna Cave System and Predjama Cave System” (Official Gazette of the Republic of Slovenia, No. 77/02 of 30 August 2002), as amended on 24 July 2007 and on 24 July 2020.

concession fee and (iii) an additional deduction of interest payments and servicing costs for a commercial loan from the base concession fee (see recital (7)) to compensate for the damage resulting directly from the COVID-19 outbreak and the related governmental restrictions (see recital (4)).

(15) The damage to be compensated under the measure is the reduction in EBIT during the compensation period (16 March until 31 May 2020) when governmental restrictions in response to the COVID-19 outbreak required the closure of the Postojna cave and Predjama cave systems.

(16) The damage is calculated by comparing the operating profit (EBIT6) of the beneficiary during the eligible period in 2020, i.e. 16 March – 31 May 20207, to the operating profit in the corresponding period in 2019, when no such restrictions were in place. The operating profit is calculated in a comparable manner as in Commission decision in case SA.57459, as follows:

EBIT = KDP - PO, where

EBIT = operating profit 8,

KDP = gross operating income 9,

PO = operating expenses.10

The damage thus calculated amounts to EUR 3,748 million.

(17) The damage will be compensated by a reduction of the concession fee, consisting of three components:

• a reduction of the concession fee below the contractually agreed minimum concession fee worth EUR 371 584, which will be applied on 31 December 2020;

• a higher than contractually agreed deduction of investments in the Postojna Predjama cave systems from the concession fee worth EUR 209 945, which will be applied in 2020 and 2021;

• an additional deduction of interest payments and servicing costs for a commercial loan the beneficiary will take out to finance investments in the Postojna and Predjama cave systems from the concession fee worth EUR

6 Annex 2 of the Instructions on the submission of annual and final reports and other data of business entities, Official Gazette of the Republic of Slovenia, Nos. 86/16 and 76/17.

7 As the beneficiary only calculates its monthly EBIT in its bookkeeping, the EBIT for March 2019 and 2020 is calculated as the proportional part of the respective months.

8 Accounting standards and data (“AOP”) 151.

9 AOP 156.

10 AOP 127. Operating expenses include Costs of goods, Materials and services, Labour costs, Write offs and other operating expenses.

178 613 that was not yet contractually agreed, which will be applied from 2020 until the end of 2026.

The compensation will thus total EUR 760 142 or 20.29% of the damage sustained by the beneficiary.

(18) Before the COVID-19 outbreak, the beneficiary had to pay concession fees to the Slovenian government to the amount of 35% of its annual revenue from entrance fees and other revenue generated by the use of the Postojna and Predjama cave systems, but not less than EUR 1,7 million (minimum concession fee) per year and not more than EUR 3 million per year. If the beneficiary made approved investments in fixed assets in the Postojna and Predjama cave systems, those could be deducted from the concession fee. If the minimum concession fee is applied, the deductions could run up to 20% of the concession fee. If a higher concession fee is applied, they could run up to 35%.

(19) The Slovenian authorities explained that in 2020 the beneficiary proposed investments worth 35% of the reduced concession fee. In order to get the liquidity for the planned investments, the beneficiary will take out a commercial loan, the capital repayments of which will be covered by a corresponding reduction of the concession fee in the next years.

(20) The Slovenian authorities confirmed that the measure will only compensate the damage directly suffered as a result of the COVID-19 outbreak and the governmental restrictions described under recital (4).

(21) The Slovenian authorities explained that the aid will not exceed the total amount of the damage suffered, as the aid will be granted proportionally to the duration when the concession could not be utilized due to the closure of the cave.

(22) The Slovenian authorities have further confirmed that:

• The payment to the beneficiary will be net of any amount recovered by insurance, litigation, arbitration or other source for the same damage and that the authorities will recover the insurance amount from the beneficiary in case the aid paid out before the insurance.

• Any potential amounts paid in excess of the damage suffered as a direct result of the COVID-19 outbreak and the governmental restrictions will be recovered.

• There will be no payment made to the extent that the beneficiary is responsible for the damage suffered by not conducting its activities with due diligence or in compliance with applicable legislation, or to the extent that the beneficiary did not take the necessary measures to mitigate the damage.

2.7. Cumulation

(23) The Slovenian authorities have confirmed that aid provided under the measure cannot be cumulated with other aid for the same part of the damage already compensated under the present measure.

(24) The Slovenian authorities further confirm that any aid granted to the beneficiary of the notified measure will not be cumulated with aid granted under the measure approved in case SA.57459(2020/N). The beneficiary has not received and will not receive any aid under the measure approved in case SA.57459.

2.8. Monitoring and reporting

(25) The Slovenian authorities have committed to provide a report no later than one year after the approval of the Commission specifying the amount of compensation and recoverable advances granted and including a summary of all recoveries ordered under the measure.

3. AS S ESSMENT

3.1. Legality of the measure

(26) By notifying the measure before putting it into effect, the Slovenian authorities have respected their obligations under Article 108(3) TFEU.

3.2. Existence of State aid

(27) For a measure to be categorised as aid within the meaning of Article 107(1) TFEU, all the conditions set out in that provision must be fulfilled. First, the measure must be imputable to the State and financed through State resources. Second, it must confer an advantage on its recipients. Third, that advantage must be selective in nature. Fourth, the measure must distort or threaten to distort competition and affect trade between Member States.

(28) The measure is imputable to the State, since it is based on legal acts from the Slovenian government as set out in recital (9). In addition, the measure is administered by the Ministry of the Environment and Spatial Planning (recital (10)). It is financed through State resources, since it is withholding from the State’s general budget part of the concession fee that was due to be paid in 2020 from the State’s general budget. Moreover, the deductions of investments and of interest payments and servicing costs of a loan are also funded from State resources, since they will be recognised as deductible items from the base concession fee and therefore amount to less revenues for the State (see recital (17)).

(29) The measure confers an advantage on the beneficiary in the form of reduction of the concession fee (recital (17)). The advantage corresponds to the amount of the reduction under the measure. The measure thus relieves the beneficiary of costs that it would have to bear under normal market conditions.

(30) The advantage granted by the measure is selective, since it is awarded only to the beneficiary (see recital (13)).

(31) As regards the deductions of interest payments and servicing costs of a loan of the beneficiary, the Commission observes that it benefits directly that beneficiary, whereas it does not amount to direct or indirect aid towards the respective financial institution granting the loan, which thus benefits at most from secondary economic effects of the measure in favour of the beneficiary. In any event, any indirect advantage conferred upon the respective financial institution by the

measure as aid granted under Article 107(2)(b) TFEU to compensate the beneficiary (i.e. Postojnska jama, turizem, gostinstvo in trgovina) for direct damage suffered as a result of the COVID-19 outbreak would not have the objective to preserve or restore the viability, liquidity or solvency of that financial institution. As a result, such indirect aid (if any) does not qualify as extraordinary public financial support under Directive 2014/59/EU of the European Parliament and of the Council (the BRRD) nor under Regulation 806/2014 of the European Parliament and of the Council (the SRM Regulation).

(32) The measure is liable to distort competition, since it strengthens the competitive position of the beneficiary. It also affects trade between Member States, since the beneficiary is active in the tourism sector, in which intra-Union trade exists.

(33) In view of the above, the Commission concludes that the measure constitutes State aid within the meaning of Article 107(1) TFEU. The Slovenian authorities do not contest that decision.

3.3. Compatibility

(34) Since the measure involves aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether that measure is compatible with the internal market. Following the notification of the Slovenian authorities, the Commission has examined the notified measure pursuant to Article 107(2)(b) TFEU. This assessment has led to the following observations.

The notion of exceptional occurrences within the meaning of Article 107(2)(b) TFEU

(35) Article 107(2)(b) TFEU stipulates that aid to make good damage caused by natural disasters or exceptional occurrences shall be compatible with the internal market. Neither the TFEU nor other Union legislation contains a precise definition of the notion of ‘exceptional occurrence’. As they constitute exceptions to the general prohibition of State aid within the internal market laid down in Article 107(1) TFEU, the Commission, in line with the consolidated Union case- law 11 has consistently held that the notions of ‘natural disaster’ and ‘exceptional occurrence’ referred to in Article 107(2)(b) TFEU must be interpreted restrictively.

(36) The characterisation of an event as being an exceptional occurrence is made by the Commission on a case-by-case basis, having regard to its previous practice in the field 12. In this regard, the following indicators relating to the event concerned

11 Judgement of the Court of Justice of 11 November 2004, Spain v. Commission, C-73/03, ECLI:EU:C:2004:711, paragraph 37 and judgment of the Court of Justice of 23 February 2006, Giuseppe Atzeni and others, in joined cases C-346/03 and C-529/03, ECLI:EU:C:2006:130, paragraph 79.

12 Exceptional occurrences which have been accepted in the past by the Commission include war, internal disturbances and strikes, and, with certain reservations and depending on their extent, major industrial accidents which result in widespread economic loss, see Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020, paragraph 330 (OJ C 204, 1.07.2014, p. 53).

must be cumulatively met: (i) unforeseeable or difficult to foresee 13; (ii) significant scale/economic impact14; and (iii) extraordinary15.

COVID-19 as an exceptional occurrence

(37) Following the first reports of cases of acute respiratory syndrome (COVID-19) in the Chinese Wuhan municipality at the end of December 2019, the Chinese authorities have identified a novel coronavirus (SARS-CoV-2) as the main causative agent, which had not been previously identified in humans. The outbreak has rapidly evolved, affecting not only other parts of China but spreading to the majority of countries worldwide. Specific sectors and areas are particularly affected by the outbreak, be it because of national outbreak control measures, travel restrictions or supply chain disruptions.

(38) The WHO declaration of a pandemic 16, associated with the public health risk deriving from the absence of therapeutics or vaccines for the novel COVID-19 determine the exceptional nature of the circumstances. The rapidness of the spread can cause enormous consequences both in terms of fatal outcomes in high- risk groups and in terms of economic and societal disruption17. The necessity to adopt and encourage the respect of measures of lockdown aimed at interrupting transmission chains stems from this acknowledgement. Such measures can result in far-reaching disruption of various economic sectors. This disruption is thus clearly outside the normal functioning of the market.

(39) In view of the above, this event qualifies as an exceptional occurrence as it was not foreseeable, as it clearly distinguishes itself from ordinary events by its

13 Commission Decision of 1 August 2008 in case SA.32163, Remediation of damage to airlines and airports caused by seismic activity in Iceland and the volcanic ash in April 2010, Slovenia, recital 31.

14 Elements taken into account by the Commission to consider that the occurrence reached a significant scale: negative consequences cannot be contained (Commission Decision of 4 October 2000 in case NN 62/2000, Régime temporaire d'aides aux entreprises victimes des intempéries et de la marée noire – France), or because of the number of dead or injured people (Commission Decision of 11 April 2012 in case SA.33487, Agricultural and fisheries aid to compensate for damage due to exceptional occurrence (red mud "Aluminium accident"), Hungary, recital 35; Commission Decision of 2 May 2002 in case N241/2002, Régime en faveur des entreprises victimes de la catastrophe industrielle de Toulouse, France, recital 19), the immense ecological and economic damage (Commission Decision of 11 Abril 2012 in case SA.33487, recital 36), the amount of material damage despite the local character of the industrial accident (Commission Decision of 2 May 2002 in case N 241/2002, recital 19).

15 In its Decision of 19 May 2004 in case C-59/2001 (OJ L 32, 6.2.2007, p. 14), the Commission considered that the (alleged) fall in sales of poultry meat in a Member State not directly affected by the dioxin contamination, did not constitute in itself an exceptional occurrence. It was yet an unforeseeable event, but formed part of the normal commercial risks to which an undertaking is exposed.

16 WHO Director-General's opening remarks at the media briefing on COVID-19 on 11 March 2020, https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media- briefing-on-covid-19---11-march-2020.

17 ECDC’s Rapid Risk Assessment, Outbreak of novel Coronavirus disease 2019 (COVID-19): increase transmission globally – fifth update, 2 March 2020.

character and by its effects on the affected undertakings and the economy in general and therefore lies outside of the normal functioning of the market. 18

(40) In this context, the COVID-19 outbreak can be considered as an exceptional occurrence within the meaning of Article 107(2)(b) TFEU.

Causal link between the COVID-19 outbreak and the damage compensated by the measure

(41) From 12 March and until 31 May 2020, as an immediate consequence of the COVID-19 outbreak, the Slovenian authorities adopted the governmental restrictions described in recital (4) to limit the spread of COVID-19.

(42) These events severely affected the beneficiary. Data on the number of visitors (see recital (5)) show that the beneficiary suffered a significant economic damage from the closure of the Postojna cave and Predjama cave system, resulting in an estimated loss of EUR 3,748 million, calculated by comparing the operating profit in the compensation period to the operating profit in the reference period.

(43) The proposed aid measure intends to compensate the damage caused to the beneficiary during the months that it had to suspend its operations in order to comply with these governmental restrictions. The period for the calculation of damage is limited to 16 March 2020 – 31 May 2020, when the governmental restrictions in response to the COVID-19 outbreak were in force.

(44) The Commission therefore concludes that: (i) there is a direct causal link between the damage suffered by the beneficiary and the exceptional occurrence, i.e., the COVID-19 outbreak and the related restrictions; and (ii) the measure is directly linked to that damage.

Proportionality of the aid

(45) In order to be compatible with Article 107(2)(b) TFEU, the aid must be proportional to the damage caused by the exceptional occurrence. Aid must not result in overcompensation of damage and should only make good the damage caused by the exceptional occurrence.

(46) The beneficiary has suffered a significant economic damage from the closure of the Postojna cave and Predjama cave systems in the compensation period from 16 March until 31 May 2020, resulting in an estimated loss of EUR 3,748 million compared with the corresponding period in 2019 (recitals (15) and (16)).

(47) Aid granted under the measure consists of (i) a reduction of the base concession fee, (ii) a higher than contractually agreed deduction of investments from the base concession fee and (iii) an additional deduction of interest payments and servicing costs for a loan from the base concession fee to compensate for the damage (foregone revenues adjusted for variable costs) caused by the COVID-19 outbreak and the governmental restrictions (recital (4)) that led to a large turnover decline of the beneficiary (recital (6)). The measure is therefore limited in its scope.

18 See also Commission Decision of 12 March 2020, SA.56685 - Denmark - Compensation scheme for cancellation of events related to COVID-19, OJ C 125, 17.4.2020, p. 8.

(48) The maximum aid intensity of the measure is 20.29% of the damage sustained by the beneficiary (recital (17)). The measure therefore does not lead to overcompensation.

(49) Moreover, the Slovenian authorities have put in place the following additional safeguards, so that the compensation under the measure does not exceed what is necessary to make good the actual damage suffered and thus meets the above- mentioned criteria.

(50) First, as described in recital (20) only damage caused by the exceptional occurrence of COVID-19 and the governmental restrictions will be taken into account. In addition, any State aid already received by the beneficiary for the same eligible costs as well as any expenses for which they have a claim for compensation (e.g. due to insurance, litigation, arbitration awards or other sources) will be subtracted from the compensation amount (see recitals (23) and (24)).

(51) Second, as described in recital (22), no payment will be made to the beneficiary if it is responsible for the damage suffered, by not conducting its activities with due diligence or in compliance with applicable legislation, or in case it did not take the necessary measures to mitigate the damage.

(52) Third, as mentioned in recital (22), the Slovenian authorities recover any potential amounts paid to the beneficiary in excess of the damage suffered as a direct consequence of governmental restrictions implemented in response to the COVID-19 outbreak.

(53) Fourth, aid received under the measure cannot be cumulated with other aid for the same part of the damage already compensated under the present measure (see recital (23)) and will not be cumulated with aid granted under the measure approved in case SA.57459(2020/N) (see recital (24)).

(54) Slovenia has therefore ensured that the compensation under the measure will not exceed the damage directly suffered by each beneficiary from the loss of revenue caused by the COVID-19 outbreak.

(55) In view of the above, the Commission considers that the measure is compatible with the internal market in accordance with Article 107(2)(b) TFEU.

4. CONCLUSION The Commission has accordingly decided not to raise objections to the aid on the grounds that it is compatible with the internal market pursuant to Article 107(2)(b) TFEU.

The decision is based on non-confidential information and is therefore published in full on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm.

Yours faithfully,

For the Commission

Margrethe VESTAGER Executive Vice-President