(1)

On 17 January 2007, the Commission requested general information on several Romanian public undertakings, including SC Tractorul U.T.B. SA Brașov (hereinafter Tractorul), in the context of the voluntary liquidation procedure. Romania submitted information by letter dated 15 February 2007. The Commission requested further information on 8 March 2007 and 22 May 2007, which Romania submitted by letters dated 21 March 2007, 25 May 2007 and 31 May 2007. A meeting with the Romanian authorities was held on 3 May 2007.

(2)

By letters of 5 July 2007 and 30 July 2007, the Commission urged the Romanian authorities to annul specific conditions attached to the privatisation contract of Tractorul, indicating at the same time that the failure to suspend any unlawful aid might lead the Commission to adopt a decision on the basis of Article 88(2) of the EC Treaty and of Article 11(1) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (2) (suspension injunction).

(3)

By letters of 8 August 2007 and 10 August 2007, the Romanian authorities submitted additional information.

(4)

By letter dated 25 September 2007, the Commission informed Romania that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of unlawful aid and to issue a suspension injunction. The Commission decision to initiate the procedure with the suspension injunction was published in the Official Journal of the European Union (3). The Commission invited interested parties to submit their comments on the aid.

(5)

By letter of 27 November 2007, Romania submitted its comments. By letter of 28 November 2007, Flavus Investiții SRL (hereinafter Flavus) submitted its comments, which were forwarded to Romania on 5 December 2007. Romania submitted its observations on Flavus’ comments by letter dated 4 January 2008.

(6)

By letter of 12 December 2007, the Commission requested further information, which was submitted by letters of 14 and 15 January 2008.

(7)

On 19 December 2007, the Commission services met with the Romanian authorities, accompanied by representatives of Flavus.

(8)

Tractorul is a state owned company. The Romanian public privatisation agency, AVAS, holds 80,17 % of the shares, 17,15 % being held by a private investment fund, SIF Transilvania, and the remaining 2,67 % by private natural and legal persons. Until the end of 2006, Tractorul was a large producer of tractors and agricultural machinery, located in an industrial area close to the city centre of Brașov. It employed around 2 300 people.

(9)

In 2006, Tractorul made losses of EUR 46 million and accumulated debts of around EUR 250 million, of which EUR 200 million were owed to the State budget. Due to this high level of losses and debts, on 23 February 2007 Tractorul ceased its activities and entered into voluntary liquidation under Government Emergency Ordinance 3/2007.

(10)

AVAS had previously tried several times to privatise the company, however, without any success.

(11)

Tractorul is situated in Brașov, an area eligible for regional aid under Article 87(3)(a) of the EC Treaty.

(12)

At the beginning of 2007, Tractorul had accumulated significant debts, which it could not repay. The Romanian government, however, postponed the insolvency proceeding for 6 months, by adopting GEO 3/2007, during which time AVAS as shareholder had to decide either to privatise or voluntarily liquidate the company.

(13)

On 23 February 2007, AVAS decided to voluntarily liquidate the company. To this end, in May 2007, AVAS organised a public tender for the appointment of a liquidator, determining at the same time in the tender documents the object of the liquidation: two ‘functional modules’ (4), i.e. the production of tractors and the production of iron forged components. The liquidator Casa de Insolvență Transilvania (hereinafter CIT) won the tender and was assigned the management of the sale of Tractorul.

(14)

After identifying the assets which were the object of the liquidation, on 5 July 2007, CIT organised the tender in the form of an open bid for all the company’s assets, comprising real estate (126 ha of land) plus factory buildings, offices and apartments, machinery, intellectual property rights and trademarks. The starting price for the block sale was EUR 77 035 000.

(15)

Several undertakings announced their participation, but only two accepted the starting price of EUR 77 million. Since Flavus was the first undertaking to submit its offer and the other competitor did not offer a higher price, Flavus won the tender. The sales framework contract and the sales purchase agreement were signed shortly after.

(16)

The tender documents stipulated various obligations for the buyer: maintaining the object of activity, i.e. production of tractors, for the next 10 years; rehiring with priority former Tractorul employees; ensuring spare parts and service for the next two years (warranty) and 10 years (post-warranty); supplying cast iron components for the next 5 years.

(17)

The formal investigation procedure was opened due to concerns that the liquidation process was in fact a privatisation with conditions attached requiring the continuation of the production activity of the company, which lowered the sale price and, thus, might have conferred an advantage on the sold entity or the buyer.

(18)

First, according to the information available at that moment, which was mostly based on press articles, the Commission had grounds to assume that AVAS envisaged attaching to the sale of Tractorul certain conditions which would ensure the maintenance of the production and the current employment level. The Commission suspected that these conditions were liable to lower the sale price and might have deterred other potentially interested parties from even submitting a bid.

(19)

Second, the Romanian authorities failed to provide any conclusive information that the voluntary liquidation involving the sale of the functional modules would be the most advantageous outcome for the State as shareholder and the creditors as opposed to judicial liquidation. The Commission had doubts whether a market economy operator would have bundled valuable land close to the Brașov city centre with obsolete factory buildings and machinery instead of parcelling up the land which is not necessary for the production activity and selling it off separately, thereby possibly obtaining a higher price.

(20)

Since, despite the Commission’s repeated warnings, the Romanian authorities carried out the public tender for the viable modules and concluded the sales contract with the winner of the tender shortly afterwards, the Commission issued a suspension injunction at the same time.

(21)

Romania argues that, when selling the viable modules of Tractorul, AVAS acted like a market economy operator, obtaining the highest possible price. Thus, no State aid was involved.

(22)

First, Romania argues that Tractorul was not privatised, but in fact went into voluntary liquidation. While privatisation involves the sale of the company’s shares from the State to third parties and the company continues to exist, voluntary liquidation involves the sale of the company’s assets, the payment of its debts to the creditors according to the order established by law and the distribution of any surplus amount to shareholders. At the end of the operation the company ceases to exist and is deleted from the company register.

(23)

Further, Romania explains that the voluntary liquidation of the company was organised by means of an open, transparent, non-discriminatory and unconditional tender. This tender was widely publicised in the local and national press.

(24)

The tender of the viable modules was unconditional, so that the sale price was not lowered. The sale purchase agreement between Tractorul and Flavus does not stipulate any obligation for the buyer to maintain the activity for a period of 10 years or to employ a particular number of employees from the former company. Thus, the sale price represents the market value of Tractorul.

(25)

Second, Romania argues that, although AVAS intended to sell the two functional modules separately, the independent liquidator, CIT, recommended after an initial assessment the sale of the entire industrial platform as a whole, as it would be more advantageous than a piece-by-piece sale, in particular since the industrial platform contains also some unattractive assets (i.e. plots of land which do not have access to any local infrastructure and/or are located near the city waste dump, the buildings are outdated etc.), which could probably not be sold individually.

(26)

According to this evaluation report, the sum of the total assets included in Tractorul amounted to around EUR 100 million. In order to avoid additional liquidation and maintenance costs of selling the assets individually, the liquidator offered the assets as a whole (functional module) and calculated a discount of 23 %. Thus, the starting price was of EUR 77 million and represented the market value. Moreover, no competitor offered a higher price.

(27)

Finally, Romania explained that the voluntary liquidation was allowed under the national company law (Law 31/1990) and under the special law for speeding up privatisations (Law 137/2002). Romania gave assurances that voluntary liquidation was a faster procedure implying lower costs for the undertaking. At the same time, the creditors have identical control tools at their disposal to ensure that their rights are not being breached.

(28)

By letter of 24 October 2007, Flavus intervened in the Commission proceedings as an interested party.

(29)

First, Flavus argues that the tender of Tractorul was open, transparent and non-discriminatory. It was widely advertised in the local and national press.

(30)

Second, Flavus substantiates that there were no conditions attached to the sale of Tractorul’s viable modules. The requirement to maintain the object of activity (i.e. production of tractors) for the next 10 years could not qualify as a condition since it did not imply the obligation to effectively produce tractors. Moreover, Flavus explains that it has bought the viable modules because of the economic potential of the land for real estate development and has no intention to restart tractor production on the site. Thus, the requirement was not onerous, but a mere administrative procedure to register the object of activity with the Trade Registry.

(31)

Also, as regards the obligation to rehire as a priority former Tractorul employees, Flavus argues that this was not an onerous condition liable to lower the sale price.

(32)

In conclusion, Flavus argues that the alleged conditions attached in the tender document did not lower the sale price. This is also reflected by the evaluation report drafted by an independent expert appointed by the liquidator to carry out an evaluation of Tractorul.

(33)

Article 87(1) of the EC Treaty states that, save as otherwise provided in the Treaty, any aid granted by a Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the common market, insofar as it affects trade between Member States.

(34)

Article 295 of the EC Treaty provides that Community rules are neutral as regards public and private ownership. According to Article 86(1) of the EC Treaty, public undertakings are equally subject to State aid rules.

(35)

In accordance with consistent European Court (5) case law and Commission rules and practice on State aid in the context of privatisations (6), when a Member State owns or sells undertakings, or otherwise purchases or sells shares of undertakings, no State aid is present if the Member State’s behaviour is consistent with that of a private market economy investor.

(36)

Therefore, when the privatisation takes place by sale of shares on the stock exchange, it is generally assumed to be under market conditions and not to involve aid. When the privatisation is carried out through a trade sale, it can similarly be assumed that no aid is involved if the following conditions are fulfilled: first, the company is sold by a competitive tender that is open to all comers, transparent and non-discriminatory; second, no conditions are attached which are not customary in comparable transactions between private parties and which may potentially reduce the sale price; third, the company is sold to the highest bidder; and fourth, bidders must be given enough time and information to carry out a proper valuation of the assets forming the basis for their bid (7). In other cases, trade sales must be examined for possible aid implications and must therefore be notified.

(37)

In such cases, assessing whether a transaction concerning State assets involves an aid generally requires evaluating whether a market economy operator placed in a similar situation would have behaved in the same way, i.e. would have sold the company at the same price. In applying the market economy investor principle, non-economical considerations, such as for example industrial policy reasons, employment considerations or regional development objectives, which would not be acceptable to a market economy operator, cannot be taken into account as reasons for accepting a lower price and, on the contrary, point to the existence of aid. This principle has been repeatedly explained by the Commission (8) and consistently confirmed by the Court (9).

(38)

Therefore, if any of the requirements mentioned above are not fulfilled, the Commission considers that the public sale must be examined for possible aid implications and, thus, must be notified (10). Consequently, by respecting these requirements, the State would be sure to obtain the highest price, i.e. the market price, for its assets and, thus, no State aid is involved.

(39)

By imposing certain conditions on the buyer, the State potentially lowers the sale price and thus forgoes additional revenues. Also, conditions can deter potentially interested investors from submitting a bid in the first place, so that the competitive environment of the tender is disturbed and even the highest of the offers eventually submitted does not necessarily represent the actual market value (11).

(40)

By imposing such conditions and thus accepting that it will not receive the best price for the owned shares or assets, the State does not act like a market economy operator, who would try to obtain the highest possible price. Instead the State chooses to sell the undertaking at a price below the market value. A market economy operator would not have an economic interest in attaching comparable conditions (in particular such as maintenance of the level of employment, conditions beneficial for the geographical region concerned or ensuring a certain investment level) but would sell the company to the highest bidder, who would then be free to determine the future of the acquired company or assets (12).

(41)

This does not mean that all conditions in a privatisation automatically lead to State aid elements being present. First, conditions which are also common for such kind of transactions between private parties (i.e. certain standard indemnities, proof of the financial standing of the bidder, or compliance with national labour market rules) are not problematic. Second, even conditions which appear to be unusual between private parties only show the existence of state aid if they are liable to reduce the sale price and provide an advantage. The fact that such conditions do not amount to aid needs to be demonstrated on a case by case basis (13).

(42)

When initiating the procedure under Article 88(2) of the Treaty, the Commission had doubts whether the sale of Tractorul was conducted on the basis of an open, transparent, non-discriminatory and unconditional tender. According to the information available at that stage, which was based mostly on press articles, the Commission suspected that, according to the tender documents published by AVAS in order to appoint the liquidator, AVAS decided to sell off Tractorul as functional modules and already at an early stage attached conditions to ensure the maintenance of the production activity for the next 10 years and the re-hiring of former employees. The Commission considered that these conditions were liable to lower the sale price, and, thus, by attaching them, the State did not act like a market economy operator. In conclusion, the conditions might have resulted in State aid.

(43)

On the basis of the information provided by Romania, the Commission notes that the conditions attached to the sale of Tractorul were formulated in such a manner that they did not impose any onerous obligations on potential buyers, as they were mere formal requirements. The condition to maintain the object of activity for the next 10 years referred to the registration of the object of activity, i.e. production of tractors and other agricultural devices, in the Trade Registry, and does not oblige the buyer to continue the actual production of tractors. The acquirer, Flavus, explained that their legal advisor had also confirmed that the clause would not imply the necessity to carry out any productive activity. In any event, they do not intend to re-start any production activity at the site.

(44)

Similarly, the obligation to give priority to former employees of Tractorul or to provide spare parts and components are not onerous obligations. They were included in the tender documents as best-effort clauses, and thus are not mandatory and binding for the new owner.

(45)

The Romanian authorities explained that AVAS was motivated to attach these symbolic requirements by the wish to maintain the renown of the undertaking and its products, which can still be found to a large extent on the Romanian market.

(46)

In view of the above considerations, the Commission concludes that, since these conditions did not have an onerous character and this was obvious for all potential buyers from the formulation of the tender documents, they did not lower the sale price and did not have the potential to deter potential investors from submitting a bid, and therefore did not involve the loss of state resources for the State. This conclusion is also supported by the fact that none of the four bidders participating in the tender were even remotely involved in tractor manufacturing. Thus, the Commission considers that the conditions attached did not entail State aid.

(47)

When initiating the procedure under Article 88(2) of the EC Treaty, the Commission expressed doubts that the voluntary liquidation involving the sale of the viable modules would be the most advantageous outcome for the State as shareholder and the creditors as opposed to judicial liquidation or a piece by piece sale.

(48)

Romania argues that AVAS acted like a market economy operator and obtained the highest possible price for Tractorul. To this end, AVAS appointed an independent liquidator by means of an open, transparent, non-discriminatory and unconditional tender, who would carry out the voluntary liquidation.

(49)

On the basis of the information provided by Romania, the Commission notes that, initially, AVAS intended to sell separately the two viable modules — the tractor plant and the cast-iron forge and foundry. However, based on its own evaluation of the 37 individual assets, CIT, the liquidator recommended the sale of the industrial platform as a whole in order to maximise the proceeds, and only in the event that no potential buyer expressed interest in acquiring the area as a whole would it proceed to a piece by piece sale of the company’s assets.

(50)

The liquidator substantiated the advantages of such a comprehensive sale. First, the maps provided by the Romanian authorities show that several land plots are situated at the back of the industrial platform, near the city waste dump, and are not connected to any road, so that in fact they are not individually accessible. Second, the value of the individual assets of the industrial platform varied significantly depending on their individual location, the state of the buildings and the existence of access to local infrastructure. Third, the majority of potential investors were interested in the area for real estate development; out of 26 tender documents acquired in total, 17 were bought for the entire Tractorul platform.

(51)

Consequently, the liquidator considered that it was most likely that the less attractive assets could not be sold on an individual basis to a potential investor. As a result, such assets would generate additional administration and maintenance costs for Tractorul and ultimately for AVAS as the owner. Also, the parcelling of the land would generate substantial administrative costs, e.g. expenses for cadastral measurement and land registration.

(52)

The strategy of selling Tractorul as a whole was also subsequently approved by AVAS.

(53)

As regards the price obtained, the Commission notes that according to the evaluation report commissioned by the liquidator, the asset value of Tractorul (i.e. the sum of the value of the 37 individual assets) was around EUR 100 million, on which the liquidator applied a 23 % discount for bundled assets, thereby giving a starting sale price of EUR 77 million. Such a discount is based on the liquidator’s experience and on the fact that a block sale bears significant advantages as opposed to a piece by piece sale.

(54)

The procedure chosen by the liquidator for the sale of Tractorul was the method of competitive tender. According to the procedural rules established in Government Decision No 577/2002, if at a certain stage there are at least two bidders, and no one bids higher at that stage (which was predetermined before the bid at 5 %), the bidder with the lowest registration number wins the tender (14). Since Flavus and a second investor accepted the starting price, but none of them was willing to overbid, Tractorul was sold for EUR 77 million to the bidder with the lowest registration number, i.e. Flavus. Consequently, the liquidator obtained the market price for the company’s assets and did not therefore forego state resources.

(55)

In view of the above, the Commission concludes that, given the particularities of this case, by selling the assets of Tractorul as a whole, AVAS obtained the market price for them, did not therefore forego state resources, and behaved like a market economy operator.

(56)

Based on the above assessment, no conditions were attached to the sale of Tractorul which were liable to lower the sale price or deter potential investors from submitting a bid. By selling all the assets as a whole under the voluntary liquidation procedure, AVAS obtained the highest price on the market, did not forego state resources and acted like a market economy operator. Consequently, the sale of Tractorul does not involve State aid.

(57)

The Commission finds that the sale of Tractorul by the Romanian privatisation Agency, AVAS, on 6 July 2007 does not constitute aid,