OREANDA-NEWS. After an in-depth investigation, the European Commission has concluded that around €290 million of public support granted by Portugal to Estaleiros Navais de Viana do Castelo, S.A. (ENVC), the former operator of shipyards located in Viana do Castelo in Portugal, was not compatible with EU state aid rules. The Commission also found that the aid needs to be paid back by the ENVC and not the new shipyard operator WestSea, which has purchased part of ENVC's assets. There is no economic continuity between ENVC and WestSea because the assets were purchased at market conditions.

ENVC made heavy losses since 2000. Since then, Portugal has directly and indirectly granted continuous subsidies to ENVC via numerous measures, including a capital increase in 2006, several loans granted between 2006 and 2011 to cover operating costs, comfort letters and guarantees to underwrite financing agreements between ENVC and commercial banks. The total value of the support measures amounts to approx. €290 m.

On the basis of its in-depth investigation opened in 2013, the Commission found that no private investor would have accepted to subsidise a loss-making company over 13 years. The measures were therefore not granted on market terms and constitute state aid within the meaning of the EU rules. They gave ENVC a significant economic advantage over its competitors, who had to operate without such subsidies. The Commission further concluded that the measures are not compatible with common rules, in particular the applicable 2004 Guidelines on rescue and restructuring aid, on the basis of which aid to companies in difficulty may be allowed subject to certain conditions:

  • ENVC, at the time, had no realistic restructuring program to ensure the company's long-term viability without further state support.
  • ENVC received repeated aid, at least over the last ten years, in breach of the "one time last time" principle, which allows the grant of rescue or restructuring aid only once in a ten-year period. This is to avoid that market players rely on public money instead of running an effective business and competing on the merits.

Thus, the measures have distorted competition in the Single Market, in breach of EU state aid rules, and ENVC is liable to pay back the value of the advantage it has received.

The Commission decision has taken into account that ENVC is currently in the process of being wound up and that part of its assets (including a sub-concession of the land on which ENVC operated) has been acquired by the private operator WestSea, owned by Martifer and Navalria. Since WestSea only acquired part of the assets and has acquired them at market conditions following an open and competitive tender, the Commission has concluded that WestSea is not the economic successor of ENVC. The obligation to repay the incompatible aid therefore remains with ENVC and is not passed on to WestSea.

Background

ENVC was founded in 1944 and nationalised by Portugal in 1975. It used to operate the largest Portuguese shipyard. It is fully owned by the State through EMPORDEF, a 100% State-owned holding. ENVC has been heavily loss-making since at least 2000, and has had negative equity since at least 2009. In December 2013, the Portuguese state decided to liquidate ENVC and to start selling its assets. The shipyard was acquired by WestSea after an open and competitive tender.

Public interventions in companies that carry out economic activities can be considered free of state aid within the meaning of EU rules when they are made on terms that a private operator would have accepted under market conditions (the market economy investor principle – MEIP). If the MEIP is not respected, the public intervention constitutes state aid in the meaning of the EU rules (Article 107 of the Treaty on the Functioning of the European Union – TFEU), because it procures an economic advantage to the beneficiary that its competitors do not have. The Commission then proceeds to assess whether such aid can be found compatible with the common EU rules that allow certain categories of aid, such as the EU guidelines on rescue and restructuring aid.

Rescue and restructuring aid is very distortive, because it artificially keeps alive companies that would have exited the market without the aid. In order to avoid that inefficient companies rely on public subsidies rather than competing on the merits, such aid may be granted only under very strict conditions. Moreover, a company may receive rescue and restructuring aid only once in ten years.

To determine whether aid has been passed on to new owners in an asset sale, the Commission assesses whether there is economic continuity between the new and previous owner. The Commission uses a set of indicators, such as the scope of the assets sold (assets and liabilities, maintenance of workforce, bundle of assets), the sale price, the identity of the buyer(s), the moment of the sale and the economic logic of the operation. In this case it appears that no such economic continuity exists. Furthermore, as the assets were sold on the basis of an open, transparent and non-discriminatory tender process, the new owner has received the assets at their market value and hence free of aid.