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). 2 • 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. 3 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. 4 178 613 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.