(1)

By letter of 28 July 2004, the Italian authorities notified Articles 14, 15 and 16 of Regional Law No 21 of 29 December 2003 (hereinafter referred to as ‘Regional Law No 21/2003’). By letter of 22 September 2004, the Commission requested further information. By letter of 24 January 2005, the Italian authorities requested a deadline extension which was accepted by the Commission by letter of 25 January 2005.

(2)

By letter of 26 January 2005, the Italian authorities stated that the aid provided for in Articles 14 and 15 is being implemented under Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid (2) pending clearance by the European Commission.

(3)

By letter of 29 March 2005, the Commission asked the Italian authorities for further information. Following a reminder sent to them on 27 April 2005, the Italian authorities submitted the requested information by letters of 18 May and 2 June 2006.

(4)

Further information was requested by letter of 10 June 2005. The Italian authorities replied by letters of 12 July and 14 July 2005.

(5)

By letter of 6 September 2005, the Commission informed Italy of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty and Article 62 of the EEA Agreement in respect of the measure.

(6)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union (3). The Commission invited interested parties to submit their comments on the aid.

(7)

The Commission did not receive any comments from interested parties.

(8)

By letter of 10 November 2005, the Italian authorities asked the Commission to suspend the procedure pending the ruling by the Court of Justice in Case C-475/2003 concerning the compatibility of the Italian regional tax on productive activity (IRAP) with Article 33(1) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (4). The Commission accepted the request by letter of 18 October 2005. The Court of Justice has subsequently declared the IRAP to be compatible with Article 33(1) of Directive 77/388/EEC (5).

(9)

By letter of 10 May 2006, the Italian authorities informed the Commission about an amendment to the measures provided for in Articles 14 and 15. By means of this amendment, the measures are implemented under the de minimis Regulation also ‘in the case of a negative decision being adopted by the Commission’.

(10)

Articles 14, 15 and 16 of Regional Law No 21/2003.

(11)

According to the Italian authorities, the measure is designed to promote the setting up of new companies and to narrow the gap between companies in Sicily and companies located in other regions of Italy.

(12)

Moreover, the measure in question is aimed at fostering the integration of the economy of the European Union with the economies of the countries which signed the Final Declaration of the Barcelona Euro-Mediterranean Ministerial Conference on 27 and 28 November 1995 (Barcelona Conference).

(13)

The measure comprises two schemes: Articles 14 and 15 of Regional Law No 21/2003 provide for an exemption from IRAP for certain companies, and Article 16 of the same Law provides for the setting up of the Euro-Mediterranean Financial Services and Insurance Centre.

(14)

Articles 14 and 15 provide for a five-year exemption from IRAP for certain new companies that started operations in 2004 and for certain existing companies.

(15)

Article 14 provides for successive five-year exemptions from IRAP (as from the start of operations) for:

(16)

Article 15 provides for successive five-year exemptions as of 2004 from IRAP payable on the share of the tax bases exceeding the average for the years 2001 to 2003 for all existing companies, except those operating in the chemical and petrochemical sectors.

(17)

Only companies having cumulatively their registered office, their administrative headquarters and their place of business in Sicily are eligible for the aid scheme.

(18)

Article 16 establishes the Euro-Mediterranean Financial Services and Insurance Centre, which comprises subsidiaries or associated enterprises of credit institutions, real estate brokerages, trust companies, insurance companies and finance companies that collect funds on international markets for use exclusively outside of the territory of the Italian State with non-residents. Active within the Centre are also companies providing intermediation and assistance services for international trade. A monitoring committee has been appointed by the President of the Region of Sicily with the task of granting and withdrawing authorisation for companies to operate within the Centre.

(19)

These companies enjoy the following benefits:

(20)

The tax benefits available under the scheme are granted only in respect of transactions with third countries that signed the Barcelona Declaration of 27 and 28 November 1995 (7).

(21)

The precise location of the Centre within Sicily and the criteria for granting authorisation to carry on business at the Centre is to be determined in the implementing regulations.

(22)

The measures stem from the implementation by the Region of Sicily of the tax autonomy granted by Articles 36 and 38 of the Sicilian Regional Statute, which ranks as a constitutional act.

(23)

The Italian authorities estimate that, once they have introduced the above clauses, the budgetary impact of Articles 14 and 15 will be around EUR 170 million (EUR 120 million and EUR 48 million respectively) between 2004 and 2009. They have not provided any estimate of the impact of Article 16.

(24)

Regional Law No 21/2003 entered into force on 30 December 2003, but the coming into force of Articles 14, 15 and 16 is explicitly subject to clearance by the European Commission.

(25)

By letter of 26 January 2005, the Italian authorities informed the Commission that the aid provided for in Articles 14 and 15 was implemented under the de minimis Regulation, pending clearance by the Commission. Subsequently, by letter of 10 May 2006, they stated that the aid provided for in Articles 14 and 15 was implemented under the de minimis Regulation also ‘in the case of a negative decision being adopted by the Commission’.

(26)

The measure provided for in Article 14 has applied with effect from 2005. The Italian authorities have undertaken to apply it for five tax years.

(27)

The measure provided for in Article 15 is also being applied for five tax years, from 2004 to 2009.

(28)

The measure provided for in Article 16 applies from the entry into force of the measure until the tax year following that in which the free trade area referred to in the Barcelona Declaration is effectively put in place (2010).

(29)

In its letter of 6 September 2005, the Commission took the view that the notified aid scheme constituted State aid within the meaning of Article 87(1) of the EC Treaty since State resources are involved, since it is selective through being targeted at particular sectors and/or particular categories of undertaking, since it confers a financial advantage on certain categories of undertaking in terms of a reduced tax burden and since it might distort competition and affect trade at Community level.

(30)

One of the reasons for initiating the procedure was that the Commission had doubts as to whether the aid provided for in Articles 14, 15 and 16 of Regional Law No 21/2003 was compatible with the single market.

(31)

First of all, the Commission had doubts whether the measure fulfilled the conditions set out in the Guidelines on national regional aid (8) (‘the Guidelines’). In fact, according to the notification, the measure would grant operating aid to Sicilian companies meeting the criteria indicated at points 14 and 17 and to companies operating in the Euro-Mediterranean Financial Services and Insurance Centre.

(32)

In point 4.15 of the Guidelines, operating aid may be granted if the measure is justified in terms of its contribution to regional development and its nature and if its level is proportional to the handicaps it seeks to alleviate. In this regard, the Commission doubted whether the Italian authorities had succeeded in justifying the granting of operating aid by demonstrating the existence of any handicaps and gauging their importance and whether the aid would be justified in terms of its contribution to regional development.

(33)

The Commission had doubts that the operating aid provided for in Articles 14 and 15 of Regional Law No 21/2003 could be compatible with the common market and that it would contribute to the creation of new companies and reduce the gap between companies operating in Sicily and companies operating elsewhere in Italy. In this respect, the Commission noted that the link between the lowering of IRAP for beneficiaries (e.g. those covered by Article 15) and the creation of new companies in Sicily is unclear and left unexplained by the Italian authorities. Then, the fact that, in theory, lowering IRAP will increase the number of new companies is not sufficient in itself for the aid to be considered compatible.

(34)

In the notification, the Italian authorities argued that the threshold of EUR 10 million was low enough to ensure that Article 14 applied only to SMEs. The Commission argued that Article 14 was only superficially de facto restricted to SMEs because it did not take into account the number of employees and, above all, the fact that the company benefiting from the measure was a ‘linked’ or ‘partner’ enterprise within the meaning of the SME guidelines (9). Moreover, even if the Italian authorities could prove that only SMEs within the meaning of the guidelines benefit from the measure, the Commission observes that the measure in question still constitutes operating aid.

(35)

Furthermore, the Italian authorities claimed that the prevalence of micro enterprises resulted in higher financing costs and greater labour intensity; labour and debt costs constitute a large part of the IRAP's tax base, thereby placing Sicilian companies at a disadvantage. The Commission noted that, even if the problem facing the Sicilian economy was the high ratio of micro enterprises and its consequences, a general IRAP reduction for companies of all sizes would not address the issue because it was not targeted at micro enterprises. Moreover, the aid did not seem to be designed to address the problems associated with Sicily's island status in that it is not related to extra costs linked to insularity, such as transport costs. For example, it does not seem evident to the Commission that companies operating in the sectors of tourism, hotels and cultural goods encounter particular disadvantages as a result of being located in Sicily (Article 14).

(36)

In addition, the Commission notes that the submissions by the Italian authorities do not contain enough information to guarantee that the aid will be on a declining scale over time. In the example given, it seems that the Italian authorities intend to reduce the proportion of the IRAP exemption. However, this does not guarantee per se that the aid amount will be on a declining scale.

(37)

Furthermore, it does not seem to the Commission that, as Article 15 provides aid to companies of all sizes, the use of data concerning only companies with a turnover of less than EUR 10 million and with fewer than 10 employees in the industrial, ITC and tourist/hotel sectors can demonstrate the proportionality of the measure in question.

(38)

The Commission argued that the measure seems to be materially selective in that the tax advantages provided for in Articles 14 and 15 exclude from the group of possible beneficiaries various categories of company (see point 56), favouring in particular the tourism, hotel, cultural goods, agri-food and ITC sectors. Moreover, the measure seems to favour existing and new industrial companies with a turnover of less than EUR 10 million but excludes those operating in the chemical and petrochemical sectors.

(39)

In their submissions, the Italian authorities stated that companies in the chemical and petrochemical sectors were excluded from the benefit of Article 15 because they were not affected by the high transport costs associated with the island status of Sicily and because the number of companies in those sectors was very small. However, it does not seem to the Commission that companies in all the sectors eligible for the aid measure are affected by high transport costs; moreover, the number of beneficiaries has no influence on the classification of a particular measure as aid.

(40)

Lastly, the Commission noted that the measure discriminates between ‘Sicilian’ and ‘non-Sicilian’ companies in so far as it prevents companies with their registered office in another Member State benefiting from the aid. It seems to the Commission that there is no objective reason to justify this choice on the part of the Italian authorities and that this provision of the aid scheme is, therefore, in breach of Article 43 of the EC Treaty. For this reason, too, the Commission observed that the measure cannot be compatible with the common market (10). It also noted that the measure confers a selective advantage on Sicilian companies in that only taxable undertakings having cumulatively their registered office, their administrative headquarters and their place of business in Sicily can benefit from the scheme. This does not seem to be the case of all companies that carry on a productive or commercial activity in Sicily and are subject to IRAP on that activity. The Italian authorities did not provide any argument about that aspect in their submissions.

(41)

First of all, the Commission argued that the Italian authorities did not clarify in their submissions why they believe that the aid for the establishment of the Euro-Mediterranean Financial Services and Insurance Centre can qualify for the exemption laid down in Article 87(3)(a) of the EC Treaty.

(42)

The Italian authorities stated in their submissions that the measure in question constitutes operating aid. The Commission took the view that the distortion of competition resulting from aid in the financial sector can be very marked and that financial activities do not help significantly to remedy the handicaps faced by regions eligible for the exemption under Article 87(3)(a), as stated in the Commission notice on the application of State aid rules to measures relating to direct business taxation (11) and in various decisions taken since. The Commission recalled that the aforementioned notice clearly states that, in order to be considered compatible with the common market, State aid intended to promote the economic development of particular areas must be ‘in proportion to, and targeted at, the aims sought’. From this perspective, offshore activities and activities that have little or no impact on the local economy are unlikely to be allowed as compatible State aid. The Commission doubted therefore that there is proportionality between the level of aid and the handicap it seeks to offset.

(43)

Lastly, the Commission doubted that the measure provided for in Article 16 could be considered to be a project of common European interest within the meaning of Article 87(3)(b) of the EC Treaty.

(44)

In fact, the main justification put forward by the Italian authorities in support of the aid was that the measure is considered to be a project of common European interest within the meaning of Article 87(3)(b) of the EC Treaty because Article 16 is similar to a provision in Law No 19/1991 on the development of economic activities and international cooperation in the region of Friuli-Venezia Giulia, the province of Belluno and neighbouring areas, which set up the Trieste Financial Services and Insurance Centre, which was found incompatible by the Commission in 2003 after being authorised by it in 1995 under the exemption of Article 87(3)(b) (12) of the EC Treaty. In this regard, the Commission remarked that, in its first decision, the aid for the establishment of the Trieste Financial Services and Insurance Centre was considered compatible with the common market under the exemption in Article 92(3)(c) (now Article 87(3)(c)) and not under the exemption in Article 87(3)(b) (13).

(45)

The Italian authorities claimed that the reasons for overturning the previous decision of compatibility by the Commission are based on the fact that Sicily is a region eligible for state aid under Article 87(3)(a) of the EC Treaty and that, in the present case, the European capital market is not integrated with the African capital market so that favouring this integration in accordance with the Barcelona Declaration remains a major European objective.

(46)

The Commission remarked that each analysis has to be carried out on a case-by-case basis, taking into account the different characteristics of seemingly similar schemes that might though be very significant, as in the economic context. In this connection, it stressed, for example, that the total aid (over the five-year duration of the scheme) provided for the establishment of the Trieste Financial Services and Insurance Centre was capped and that the total amount of loans and investments by companies at the Centre was limited.

(47)

Moreover, the Commission considers that the same reasoning as that applied in 2003 in the case of Trieste still holds in this case, for the following reasons:

(48)

Lastly, after stressing that two of the countries that had signed the Barcelona Declaration, Cyprus and Malta, were already members of the European Union at the time of notification of the present measure, the Commission considers that the situation in the countries that will benefit from investments by the companies established at the Centre differs in many respects from the situation of the eastern European countries in 1995. In particular, the special problems of transition have either never been encountered by many of the signatories to the Barcelona Declaration or have been encountered in the past (for example, Turkey and Israel are clearly free market economies) and the transitional period has ended (for example, in Algeria).

(49)

Therefore, the Commission doubts that Article 16 qualifies for the exemption provided for by Article 87(3)(b) of the EC Treaty.

(50)

The Commission has therefore explained that it considered a more thorough analysis of the issue to be necessary. Such an analysis would need to include any comments made by interested third parties. Only after considering such comments could the Commission decide whether the measure proposed by the Italian authorities affects trading conditions to an extent contrary to the common interest.

(51)

The Commission received no comments from the Italian authorities or from interested third parties wishing to allay the doubts raised when the formal investigation procedure was initiated.

(52)

By notifying the aid scheme with a standstill clause or, in the case of Articles 14 and 15, by implementing it under the de minimis Regulation until authorised by the Commission, the Italian authorities have complied with the procedural requirements of Article 88(3) of the EC Treaty.

(53)

The Commission considers that the measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty for the following reasons:

(54)

The measure involves the use of State resources in terms of tax revenues forgone by the Region of Sicily and corresponding to the reduced tax liability of the beneficiary.

(55)

The measure confers on the beneficiary an economic advantage resulting from the reduction in the effective tax burden, which translates into a financial advantage in terms of a reduced payment of tax from which the companies benefit immediately in the years when the reduction is applied.

(56)

The Commission notes that Articles 14 and 15 have to be examined together because they confer similar advantages on different categories of beneficiary. The two articles combined exclude from the group of possible beneficiaries various categories of undertaking:

(57)

Consequently, the measure favours certain productive sectors, in particular the sectors of tourism, hotels, cultural goods, agri-food and ITC, in which all companies are eligible for the five-year exemptions from IRAP. Secondly, it favours existing and new industrial companies with a turnover of less than EUR 10 million, excluding companies operating in the chemical and petrochemical sectors.

(58)

Even if the Italian authorities were to prove that there were no new companies with a turnover of more than EUR 10 million in industry, excluding the chemical and petrochemical sectors, the measure, according to established case law (15), would amount to a selective measure favouring the abovementioned productive sector because the five-year IRAP exemption is not available to companies active in sectors other than industry.

(59)

Lastly, the measure seems to confer a selective advantage on Sicilian companies in that only the taxable undertakings having cumulatively their registered office, their administrative headquarters and their place of business in Sicily can benefit from the scheme. This does not seem to be the case with all undertakings carrying on a productive or commercial activity in Sicily and which are subject to IRAP on that activity.

(60)

The Commission observes that Article 16 confers selective advantages insofar as only certain companies can benefit from them. Indeed, the advantages are provided only to insurance and finance companies authorised to operate at the Centre. The measure therefore excludes all companies collecting funds on the international markets in order to invest them in the countries referred to in footnote 7 and whose activities with those countries are not carried on at the Centre.

(61)

Moreover, the measure is selective insofar as it excludes insurance and finance companies investing in Italy and in other countries which do not appear on the exhaustive list given in footnote 7.

(62)

Accordingly, the Commission concludes that the proposed measure is selective.

(63)

In accordance with settled case law (16), for a measure to distort competition it is sufficient that the recipient of the aid competes with other undertakings on markets open to competition.

(64)

The Commission observes that the measures contained in Articles 14 and 15 seem to distort competition and affect trade between Member States because they have the effect of relieving beneficiaries of a burden that they would otherwise have to bear.

(65)

In the present case, the beneficiaries are companies of all sizes that operate mainly in industry, excluding the chemical and petrochemical sectors. These companies compete with other companies on markets open to competition so that, in accordance with settled case law, the IRAP exemption potentially distorts competition and affects trade.

(66)

Similarly, the Commission considers that the measure contained in Article 16 distorts competition and affects trade between Member States. Indeed, given the very nature of their business, finance companies, insurance companies, real estate brokerages and trust companies compete with other companies at European level.

(67)

Accordingly, the Commission concludes that the proposed scheme constitutes State aid.

(68)

Insofar as the measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty, its compatibility must be assessed in the light of the exemptions provided for in Article 87(2) and (3). The exemptions in Article 87(2), which concern aid having a social character and granted to individual consumers, aid to make good the damage caused by natural disasters or exceptional occurrences and aid granted to certain areas of the Federal Republic of Germany, do not apply in this case. The measure cannot be considered to be an important project of common European interest or to remedy a serious disturbance in the Italian economy, as provided for in Article 87(3)(b). Nor can the measure qualify for the exemption under Article 87(3)(c), which provides for authorisation to be granted for aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent that is contrary to the common interest. Lastly, the measure does not have as its objective the promotion of culture and heritage conservation as provided for in Article 87(3)(d).

(69)

Article 87(3)(a) provides for the authorisation of aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment. Sicily is a region eligible for that exemption.

(70)

In its decision to initiate the formal investigation procedure, the Commission explained the reasons, summarised in paragraphs 29 to 50, why it doubted that the measure could qualify for the exemption in Article 87(3)(a). Furthermore, it ruled out the possibility that the measure provided for in Article 16 of Regional Law No 21/2003 could qualify for the exemption in Article 87(3)(b), which provides for the authorisation of aid to promote the execution of a project of common European interest or to remedy a serious disturbance in the economy of Italy.

(71)

In the absence of any comments from Italy or interested third parties, the Commission can simply note that these doubts are confirmed.

(72)

The Commission concludes that the measure notified by Italy and described in paragraphs 10 to 28 is not compatible with the common market and is not covered by any of the exemptions laid down in the EC Treaty. The measure must therefore be prohibited. According to the Italian authorities, the aid has not been granted, and therefore there is no need to recover it,

(1)

The aid that Italy is planning to grant to Nuova Mineraria Silius was notified to the Commission by letter of 30 November 2005. The Commission requested further information on 21 December 2005 and Italy replied by letter registered as received on 7 February 2006.

(2)

By letter of 26 April 2006, the Commission informed Italy that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty in respect of the aid.

(3)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union (2). The Commission invited interested parties to submit their comments on the measure.

(4)

A meeting with the Italian authorities took place on 12 May 2006. The same authorities reacted to the initiation of the procedure by means of letters dated 14 July and 30 August. The Commission requested additional information by letter of 18 September 2006, to which Italy replied on 3 November and 31 December.

(5)

The Commission received comments from interested parties. It forwarded them to Italy, which was given the opportunity to react. The reply by the Italian authorities was submitted by letter of 3 November 2006.

(6)

The aid beneficiary would be Nuova Mineraria Silius S.p.A. (hereinafter ‘NMS’), a company wholly owned by the Autonomous Region of Sardinia (‘RAS’). NMS exploits a deposit of fluorite (3) in the municipality of Silius, Sardinia. In 2004 (the most recent year for which data are available) the company had a turnover of EUR 4,96 million and 163 employees.

(7)

NMS was established in 1992 by RAS and the Minmet Financing Company. RAS subsequently assigned ownership (97,5 % in 1996 and currently 100 %) to the public entity Ente Minerario Sardo (‘EMSA’). In 1998 EMSA was put into liquidation. The official receiver was charged with privatising the activities where possible and otherwise with arranging their closure. However, when the attempts to privatise NMS failed and EMSA ceased activities (June 2002), NMS was not wound up.

(8)

Following the failure of the privatisation, Italy notified to the Commission a plan for a new capital injection into the company of some EUR 24 million. According to Italy, the new capital would allow investments in preparation for the exploitation of new, deeper deposits, leading to an increase in the fluorite content of the minerals extracted and in overall production at the mine.

(9)

Italy argued that the measure had been notified solely for purposes of legal certainity as it did not involve State aid, and this for two reasons:

In the alternative, if the Commission concluded that there might be an element of State aid in the planned measure, Italy claims that the aid element would have been limited to the amount in excess of the profits to be obtained from the investment project. According to Italy's calculations, this excess would not be greater than 26 % of the investment, which would be below the threshold for compatible regional aid in the area (4).

(10)

In addition to the notified measure, the information provided by the Italian authorities shows that NMS has benefited in recent years from a continuous transfer of public funds from its single shareholder RAS (5), with the objective of covering losses during the pre-liquidation period. Since 1997, these transfers have amounted to EUR 90,7 million:

The transfers are entered in the company balance sheet under the items ‘ RAS cover for future losses ’ and ‘ EMSA cover for future losses ’.

(11)

Furthermore, the Italian authorities confirmed that NMS had benefited from the following public support:

(12)

In its decision to initiate the formal investigation procedure, the Commission raised doubts as to the compatibility of the above measures with the common market, and in particular their compliance with the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (8) (‘the Guidelines’).

(13)

The Commission's invitation to submit comments on the measure resulted in reactions from three competitors.

(14)

According to the first competitor, the situation at NMS has been critical for the last twenty years and the company is able to survive only thanks to the constant provision of public funds. Even though market prices have increased significantly in the last five years, leading other companies to expand their existing mines or to open new ones, NMS remained unprofitable throughout. Furthermore, it was impossible to privatise because it was not considered viable despite the State aid it had already received. According to this competitor, the aid amounts are spectacular, scandalous, and incredibly disproportionate, as shown by the fact that during 2004 they exceeded the company's turnover two-fold.

(15)

The second competitor expressed its astonishment at the situation. NMS and the other European fluorite producers suffered severely from the adverse market conditions of the 1990s, which were triggered by dumping from China and eased only after 2000. Whereas it was known that NMS received public funds, this competitor claims not to have been aware of the magnitude of the aid, which, in its view, was unreasonably high. On the basis of its own rough calculations, it estimates that the funds received by NMS from RAS during the last five to six years have been about 10 times the amount of a typical investment per tonne applying normal industry standards. This competitor concludes that, as a European producer operating in the very competitive market for fluorite, it cannot accept a situation where a single company is kept afloat by means of large state transfers over many years.

(16)

The third competitor expressed its strong opposition to the granting of aid to NMS that was, in its view, substantial and disproportionate. According to this submission, the amount of financial support intended for a company with such small mining activities appears to represent extremely poor value for money, and it risks being used merely to support uneconomic employment at the mine.

(17)

In their reaction to the initiation of the formal investigation procedure, the Italian authorities announced that RAS had decided not to implement the notified aid and, in view of its financial difficulties, to wind up the company. By letter of 30 August 2006, the Italian authorities confirmed that NMS was indeed to be wound up, as decided by the extraordinary general meeting held on 28 July 2006.

(18)

Italy further claimed (i) that the liquidation of NMS assets would not permit the repayment of RAS financing, (ii) that, with the company's exit from the market, there would be no further effects on intra-Community trade, and (iii) that, under those circumstances, any order to recover the aid could not produce any practical effects. By way of conclusion, Italy requested the Commission to refrain from issuing a recovery order.

(19)

As regards the comments made by NMS competitors, Italy considers that they are no longer relevant insofar as the notification has been withdrawn and the company will be wound up.

(20)

Article 87(1) of the EC Treaty declares incompatible with the common market any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and affects trade between Member States.

(21)

The Commission notes that the measures listed in paragraphs 8 and 10 involve the allocation of state resources attributable to the public authorities. As the public support is directed to one individual company, the selectivity criterion is met. Furthermore, since NMS has been active in the fluorite market, a sector in which trade exists between Member States, the criterion of effect on intra-Community trade is also fulfilled. In particular, the argument by the Italian authorities according to which there would be no effect on intra-Community trade has to be rejected since, according to settled caselaw, when aid granted by a State or through state resources strengthens the position of an undertaking compared with all other undertakings competing in intra-Community trade, the latter must be regarded as being affected by that aid (9). Furthermore, the presence of intra-Community trade is borne out by the observations received from competing suppliers of fluorite in different Member States in reaction to the decision to initiate the procedure.

(22)

As regards the argument in the original notification to the effect that RAS behaved in a manner comparable to that of a market economy investor, the Commission points out that, in view of its performance in recent years and the change in its financial ratios (10), NMS had to be considered a ‘firm in difficulty’ within the meaning of Section 2.1 of the Guidelines.

(23)

Accordingly, and taking into consideration the company's continuing need for loss cover in recent years, it seems very unlikely if there is no improvement in its financial situation that a market economy investor would have committed additional funds of EUR 24 million to a project that had hitherto proved unprofitable. This conclusion is further supported by the fact that all attempts to privatise the company in the period from 1998 to 2002 resulted in failure. This has also been confirmed by the reactions received from competitors in the industry.

(24)

In addition, RAS showed no interest in the past in weighing the costs to be borne in the event of liquidation against the costs of continuing with NMS activities. On the contrary, liquidation was explicitly avoided in June 2002, when it became clear that the privatisation procedure had failed.

(25)

Furthermore, it was apparent from the notification that, to a large extent, RAS had been supporting NMS on the basis of public welfare considerations, such as the fact that it was one of the few industrial companies remaining in the region. However, arguments of that kind are not relevant for a market economy investor.

(26)

Accordingly, as the Commission concluded in the decision initiating the procedure and would again stress, the investments proposed in the original notification, together with all previous contributions from the shareholder designed to cover losses and amounting to EUR 114,7 million constitute State aid within the meaning of Article 87(1) of the EC Treaty. The latter aid (loss cover) is illegal as it was granted in breach of Article 88(3) of the Treaty. As regards the measure in the original notification, the Italian authorities have confirmed that some of the funds had already been granted to the beneficiary in order to undertake some urgent and non-delayable works. Therefore, this part of the aid, totalling an unknown amount, was granted unlawfully.

(27)

As regards the measures mentioned in paragraph 11, it is not contested that they constitute State aid within the meaning of Article 87(1) of the EC Treaty. Nevertheless, Italy has declared that no aid has as yet been paid under Law No 752/82.

(28)

The primary objective of the measures mentioned in paragraphs 8 and 10 seems to be to assist a firm in difficulty. In such cases, provided that the relevant conditions are met, only the derogation in Article 87(3)(c), which permits State aid designed to facilitate the development of certain economic activities where such aid does not adversely affect trading conditions to an extent contrary to the common interest can apply.

(29)

Rescue or restructuring aid to ailing firms is currently governed by the Guidelines.

(30)

The transitional provisions stipulate that the Guidelines will apply for the assessment of any rescue or restructuring aid granted without the authorisation of the Commission (unlawful aid) if some or all of the aid is granted after 1 October 2004, the date of publication of the new Guidelines in the Official Journal of the European Union (point 104). Consequently, the new Guidelines are applicable in the present case as the notification took place in 2005 and at least EUR 11 million of public aid (out of the EUR 90,7 loss cover mentioned in paragraph 10) was granted after 1 October 2004.

(31)

As regards the aid granted under Law No 488/92 and possibly under Law No 752/82, its compatibility must also be assessed in the light of the Guidelines insofar as the Commission considers that aid to firms in difficulty may contribute to the development of economic activities without adversely affecting trade to an extent contrary to the Community interest only if the conditions set out in the Guidelines are met (11). As firms in difficulty are explicitly excluded from the scope of Law No 488/92, the Commission concludes that NMS was not eligible for regional aid under Law No 488/92, the firm already being in difficulty at the time the aid was granted (May 2002) (12).

(32)

For the same reason, the subsidiary argument by the Italian authorities according to which the supposed aid would have to be regarded as falling below the threshold set for regional aid in Sardinia has to be rejected.

(33)

As regards the eligibility of NMS for restructuring aid, the Commission considers that the criteria for compatible aid laid down in the Guidelines are not met. In particular:

(34)

The Commission takes note of the announcement by Italy that RAS has decided not to implement the notified aid of some EUR 24 million and, in view of the financial difficulties of NMS, to wind up the company. However, contrary to the claims by Italy, the Commission considers pursuant to Council Regulation (EC) No 659/1999 (14) laying down detailed rules for the application of Article 93 of the EC Treaty that, in cases of unlawful aid which is not compatible with the common market, effective competition should be restored and that, for this purpose, the aid, including interest, needs to be recovered without delay.

(35)

The Commission finds that Italy has unlawfully implemented, in breach of Article 88(3) of the Treaty, the measures consisting in repeated cover for NMS losses, in the granting of aid to NMS under Law No 488/92 and the Ministerial Decree of 28 December 2000, and potentially in a partial payment of additional aid under the notified measure. In addition, the Commission finds that the aid indicated in the original notification and the aid granted by the Ministerial Decree of 28 December 2000 under Article 9 of Law No 752/82, are neither compatible with the common market nor eligible for any derogation under the EC Treaty. Therefore, the parts of the above measures that have not yet been granted or paid must not be implemented (15), and the aid already paid totalling EUR 98,36 million, including EUR 90,7 million of loss cover (see paragraph 10) and EUR 7,66 million granted by the Ministerial Decree of 9 May 2002 (see paragraph 1), has to be recovered,