European Commission publishes "Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia"

Practical Law UK Legal Update w-034-9265 (Approx. 7 pages)

European Commission publishes "Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia"

by Practical Law Competition

Background

Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) enables the European Commission to approve additional national support measures to remedy a serious disturbance to the economy of a member state. Such disturbance must affect the whole or an important part of the economy of the member state concerned, and not merely that of one of its regions or parts of its territory.

On 10 March 2022, the European Commission announced that it had sent to member states for consultation a draft proposal for a state aid Temporary Crisis Framework to support the EU economy in the context of the crisis in Ukraine (see Legal update, Commission statement on proposal for a Temporary Crisis Framework to support the economy in context of the crisis in Ukraine).

On 23 March 2022, the Commission announced that the Temporary Crisis Framework had been adopted and published the text of the Framework on its website.

Temporary Crisis Framework

The state aid Temporary Crisis Framework to support the economy in the context of Russia's aggression against Ukraine recognises that the EU economy is experiencing a serious disturbance. To remedy that, the Temporary Crisis Framework provides for three types of aid.

Limited amounts of aid

Beyond the existing possibilities based on Article 107(3)(c) TFEU, temporary limited amounts of aid to undertakings affected by the Russian aggression against Ukraine and/or by the sanctions imposed or by the retaliatory counter measures taken in response can be an appropriate, necessary and targeted solution during the current crisis.

The Commission will consider such state aid compatible with the internal market on the basis of Article 107(3)(b) of the TFEU, provided that all the following conditions are met:

The overall aid does not exceed EUR400,000 per undertaking at any given point in time. The aid may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures does not exceed the overall cap of EUR400,000 per undertaking; all figures used must be gross, that is, before any deduction of tax or other charges.
The aid is granted on the basis of a scheme with an estimated budget.
The aid is granted no later than 31 December 2022.
The aid is granted to undertakings affected by the crisis.
The aid granted to undertakings active in the processing and marketing of agricultural products is conditional on not being partly or entirely passed on to primary producers and is not fixed on the basis of the price or quantity of products put on the market by the undertakings concerned or purchased from primary producers, unless, in the latter case, the products were either not put on the market or were used for non-food purposes such as distillation, methanization or composting by the undertakings concerned.

This aid does not need to be linked to an increase in energy prices, as the crisis and the restrictive measures against Russia affect the economy in multiple ways, including physical supply chain disruptions.

By way of exception, aid granted to undertakings active in the primary production of agricultural products, fishery and aquaculture sectors, the overall aid must not at any point in time exceed EUR35,000 per undertaking.

Measures granted in the form of repayable advances, guarantees, loans or other repayable instruments may be converted into other forms of aid such as grants, provided the conversion takes place by 30 June 2023 at the latest and the above conditions are complied with.

Liquidity support in form of State guarantees

To ensure access to liquidity to undertakings affected by the crisis, public guarantees on loans for a limited period and loan amount can be an appropriate, necessary and targeted solution during the current circumstances.

The Commission will consider such state aid in the form of public guarantees as compatible with the internal market on the basis of Article 107(3)(b) of the TFEU provided:

Public guarantees are provided on new individual loans made to undertakings.
Guarantee premiums are set per individual loans at a minimum level, which shall increase progressively as the duration of the guaranteed loan increases, as set out int eh Communication. As an alternative, member states may notify schemes, whereby guarantee duration, guarantee premiums and guarantee coverage may be modulated for each underlying individual loan principal.
The guarantee is granted by 31 December 2022 at the latest.
The overall amount of loans per beneficiary, for which a guarantee is granted shall not exceed:
- 15% of the beneficiary's average total annual turnover over the last three closed accounting periods ; or
- 50% of energy costs over the 12 months preceding the month when the application for aid is submitted;
- upon appropriate justification to be provided by the member state to the Commission for its assessment (for example in connection with the challenges faced by the beneficiary during the current crisis), the amount of the loan may be increased to cover the liquidity needs from the moment of granting for the coming 12 months for SMEs and for the coming six months for large enterprises. The liquidity needs already covered by aid measures under the COVID-19 Temporary Framework cannot be covered by measures adopted under this Communication. The liquidity needs should be established through self-certification by the beneficiary.
The duration of the guarantee is limited to maximum six years, unless modulated, and the guarantee may not exceed:
- 90% of the loan principal where losses are sustained proportionally and under same conditions by the credit institution and the State; or
- 35% of the loan principal, where losses are first attributed to the State and only then to the credit institutions (i.e. a first-loss guarantee); and
- in both of the above cases, when the size of the loan decreases over time, for instance because the loan starts to be reimbursed, the guaranteed amount must decrease proportionally.
The guarantee shall relate to investment and/or working capital loans.
Guarantees may be provided directly to final beneficiaries or to credit institutions and other financial institutions as financial intermediaries. The credit institutions or other financial institutions should, to the largest extent possible, pass on the advantages of the public guarantees to the final beneficiaries. The financial intermediary must be able to demonstrate that it operates a mechanism that ensures that the advantages are passed on to the largest extent possible to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates than without such public guarantees.

Liquidity support in form of subsidised loans

In order to ensure access to liquidity to undertakings affected by the crisis, subsidised interest rates for a limited period and loan amount may be an appropriate, necessary and targeted solution during the current circumstances. For the same underlying loan principal, loans granted shall not be cumulated with aid granted in the form of a State guarantee (see above) and vice versa. Loans and guarantees granted under this Communication may be cumulated for different loans provided the overall amount of loans per beneficiary does not exceed certain thresholds. A beneficiary may benefit in parallel from multiple subsidised loans provided the overall amount of loans per beneficiary does not exceed specified ceilings.

The Commission will consider state aid in the form of subsidised loans in response to the current crisis as compatible with the internal market on the basis of Article 107(3)(b) of the TFEU, provided the following conditions are met:

The loans are not granted to credit institutions or other financial institutions.
The loans may be granted at reduced interest rates, which are at least equal to the base rate (1 year IBOR or equivalent as published by the Commission) available either on 1 February 2022 or at the moment of notification, plus specified credit risk margins. As an alternative, member states may notify schemes whereby the loan maturity and the level of credit risk margins may be modulated.
The loan contracts are signed by 31 December 2022 at the latest and are limited to maximum six years, unless modulated.
The overall amount of the loans per beneficiary shall not exceed:
- 15% of the beneficiary’s average total annual turnover over the last three closed accounting periods; or
- 50% of energy costs over the 12 months preceding the month when the application for aid is submitted;
- with appropriate justification provided by the member state to the Commission (for example in connection with the challenges faced by the beneficiary during the current crisis), the amount of the loan may be increased to cover the liquidity needs from the moment of granting for the coming 12 months for SMEs and for the coming six months for large enterprises. The liquidity needs already covered by aid measures under the COVID-19 Temporary Framework shall not be covered. The liquidity needs should be established through self-certification by the beneficiary.
Loans shall relate to investment and/or working capital needs.
Loans may be provided directly to final beneficiaries or through credit institutions and other financial institutions as financial intermediaries. In such a case, the credit institutions or other financial institutions should, to the largest extent possible, pass on the advantages of the subsidised interest rates on loans to the final beneficiaries. The financial intermediary must be able to demonstrate that it operates a mechanism that ensures that the advantages are passed on to the largest extent possible to the final beneficiaries without conditioning the granting of subsidised loans under this section to refinancing existing loans.

Aid to compensate for high energy prices

Member states will be able to partially compensate companies, in particular intensive energy users, for additional costs due to exceptional gas and electricity price increases. This support can be granted in any form, including direct grants. It must be granted no later than 31 December 2022.

The definition of energy intensive users is set by reference to Article 17(1)(a) of the Energy Taxation Directive, that is, businesses for which the purchase of energy products amount to at least 3% of their production value.

The overall aid per beneficiary cannot exceed 30% of the eligible costs, up to a maximum of EUR2 million at any given point in time. When the company incurs operating losses, further aid may be necessary to ensure the continuation of an economic activity. To that end, member states may grant aid exceeding these ceilings, up to EUR25 million for energy-intensive users, and up to EUR50 million for companies active in specific sectors, such as production of aluminium and other metals, glass fibres, pulp, fertilizer or hydrogen and many basic chemicals.

The Temporary Crisis Framework will help target support to the economy, while limiting negative consequences to the level playing field in the single market.

Safeguards

The Temporary Crisis Framework includes a number of safeguards as well as those noted abpve:

Proportional methodology. There should be a link between the amount of aid that can be
granted to businesses and the scale of their economic activity and exposure to the economic effects of the crisis, by taking into account their turnover and energy costs.

Sustainability requirements. Member states are invited to consider, in a non-discriminatory way, setting up requirements related to environmental protection or security of supply when granting aid for additional costs due to exceptionally high gas and electricity prices. The aid should therefore help businesses to tackle the current crisis while at the same time laying the ground for a sustainable recovery.

Duration

The Temporary Crisis Framework will be in place until 31 December 2022. The Commission will assess before that date if it needs to be extended. During its period of application, the Commission will also keep the content and scope of the Framework under review in the light of developments regarding the energy markets, other input markets and the general economic situation.

Comment

Executive Vice-President Margrethe Vestager, in charge of competition policy, said:

In this critical moment the European Union continues to stand with Ukraine and its people. We must oppose this cruel invasion as it is also our freedom that is at stake. The sanctions adopted by the EU and its international partners have severely affected the Russian economy. These sanctions also take a toll on the European economy and will continue to do so in the coming months. We need to mitigate the economic impact of this war and to support severely impacted companies and sectors. And we need to act in a coordinated manner. With this in mind, the Commission will enable Member States to use the flexibility foreseen under state aid rules to tackle this unprecedented situation, while protecting the level playing field in the single market.

The Temporary Crisis Framework complements the existing state aid toolbox with many other possibilities already available to member states, such as measures providing compensation to companies for damages directly suffered due to exceptional circumstances, and measures outlined in the Commission Communications on energy market developments.

The new framework will enable Member States to grant limited amounts of aid to companies affected by the current crisis or by the related sanctions and countersanctions; ensure that sufficient liquidity remains available to businesses; and compensate companies for the additional costs incurred due to exceptionally high gas and electricity prices.

These types of measures will be available also to companies that qualify as being in difficulty, as they may face acute liquidity needs due to the current circumstances, arriving on the heels of the coronavirus pandemic. Sanctioned Russian-controlled entities will be excluded from the scope of these measures.

To give one example: if Member States want to minimise the impact of the sharp increase of input costs, they can immediately introduce schemes to grant up to EUR400,000 per company affected by the crisis. The Commission is ready to work with Member States immediately to find workable solutions that preserve this important part of our economy, using the full flexibility under State aid rules.

In order to preserve the level playing field in the Single Market, the new Temporary Crisis Framework includes a number of safeguards. Member States are also invited to include sustainability requirements for granting aid for the additional energy costs linked to the high gas and electricity prices. The Commission will continue to monitor the situation and provide the necessary support to governments and citizens.

European Commission publishes "Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia" | Practical Law