Societe CdF Chimie azote et fertilisants SA and Societe chimique de la Grande Paroisse SA v Commission of the European Communities. [1990] EUECJ C-169/84 (12 July 1990)

Judgment 1 By application lodged at the Court Registry on 2 July 1984, Compagnie française de l' azote ( Cofaz ) SA, Société CdF Chimie azote et fertilisants SA and Société chimique de la Grande Paroisse SA brought an action under the second paragraph of Article 173 of the EEC Treaty for the annulment of the Commission' s decision of 17 April 1984 whereby the Commission terminated the procedure under Article 93(2 ) of the EEC Treaty initiated by letter of 4 November 1983 addressed to the Netherlands Government concerning the tariff system for natural gas prices in the Netherlands . 2 On 25 October 1983, the Commission decided to initiate the procedure under Article 93(2 ) of the EEC Treaty following a complaint lodged by various French nitrate fertilizer producers against the application by the Netherlands of a preferential tariff system for Dutch fertilizer producers for the supply of natural gas intended for the manufacture of ammonia . 3 According to the Commission, the aid scheme in question originally consisted of a system whereby the Netherlands Government, through Gasunie, a company owned directly or indirectly as to 50% by the Netherlands State, granted special rebates to Dutch ammonia producers by means of a two-tier tariff structure which had the effect of reducing the cost of natural gas used as a feedstock by those producers . 4 In the course of that procedure, on 13 March 1984 the Commission delivered a reasoned opinion in which it found that that tariff structure constituted a State aid within the meaning of Article 92(1 ) of the EEC Treaty and did not qualify for any of the derogations provided for in Article 92(3 ). 5 By telex message dated 14 April 1984, the Netherlands Government informed the Commission that Gasunie had abolished the contested tariff and added to its industrial tariff structure, with retroactive effect to 1 November 1983, a new tariff known as tariff F for very large industrial users established in the Netherlands, other than those in the energy industry, which fulfilled the following conditions : ( a ) consume at least 600 million m3/year; ( b ) have a load factor of at least 90%; ( c ) agree to total or partial interruption of supplies at the discretion of Gasunie; ( d ) accept supplies of gas of varying calorific values . 6 The new tariff F is invoiced at the price applicable under tariff E, which is applied to users whose annual consumption is between 50 million and 600 million m3, less 5 Netherlands cents/m3 . However, it emerged during the proceedings that the minimum annual consumption required of tariff F users is 500 million m3 . 7 The Commission considered that Gasunie' s new tariff system was compatible with the common market; it therefore decided at its meeting of 17 April 1984 to terminate the procedure that it had initiated against Gasunie under Article 93(2 ) of the EEC Treaty . By letter dated 24 April 1984 the Commission informed the applicants that after a detailed examination of the technical aspects of the new tariff it had reached the conclusion that the latter, which formed part of the general tariff structure for users in the Netherlands and did not discriminate between sectors, contained no element of State aid . It considered that Gasunie achieved considerable savings on the cost of supply by reason of the high load factor and the supply conditions applicable to very large industrial users . In its view the tariff F price level did not fully reflect the total value of the supply savings accruing to Gasunie by virtue of such contracts . Finally, the Commission stated that tariff F was justified from the economic and commercial points of view when compared with the prices invoiced to other large consumers . 8 It was against that decision to terminate the procedure that the applicants instituted the present proceedings, claiming that it is vitiated by manifest errors in the assessment of essential information, particularly with regard to the conclusion that tariff F can be regarded as forming part of the general tariff structure for users in the Netherlands, that that tariff is not for the benefit of a specific industrial sector and that it is justified by the value of the supply-cost savings available to Gasunie in respect of very large industrial users . 9 By judgment in Case 169/84 Cofaz v Commission [1986] ECR 391, the Court declared the application admissible . 10 By order of 27 February 1986, the Court ( Second Chamber ) directed that an experts' report be prepared . The experts presented their report (" the experts' report ") on 23 December 1987 . 11 By order of 16 March 1988, following the withdrawal from the proceedings of Compagnie française de l' azote ( Cofaz ) SA, the Court ordered the removal of that company' s name from the list of applicants . 12 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure, the submissions and arguments of the parties and the conclusions of the experts, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court . The place of tariff F within the general tariff structure for users in the Netherlands 13 In their first submission, the applicants maintain that, contrary to the view expressed by the Commission in its decision, the tariff at issue is a special tariff merely superimposed upon the general tariff structure for users in the Netherlands but not forming an integral part of it . 14 In support of that claim, they state first that tariff F is entirely secret and that the supply contract containing that tariff is negotiated direct with certain users on a confidential basis . Secondly, the availability of tariff F is subject to conditions wholly different from those laid down for the other tariffs . The threshold for its applicability is calculated per customer and not per plant, so that the consumption of various operations can be consolidated . Moreover, the tariff is applied as from the first cubic metre of gas used, whereas for tariffs B to E the successive bands of tariffs A to D are applied for the quantities covered respectively by those tariffs . 15 However, as is pointed out in the experts' report, contrary to the applicants' claim, tariff F is a public tariff whose conditions of availability are public and perfectly open, by contrast with the previous system, which was embodied in contracts entered into direct between Gasunie and Netherlands ammonia producers . Secondly, like tariff E, tariff F is also applicable to individual plants . Finally, like tariffs A to E, tariff F is available to all customers who fulfil the objective conditions prescribed for its application . 16 As the applicants state, tariff F differs from the other tariffs applied by Gasunie in that a user who satisfies the conditions for the application of that tariff has the benefit of it as from the first cubic metre consumed . However, it is apparent from the Commission decision of 17 April 1984 that the statement that that tariff forms part of the general tariff structure for users in the Netherlands does not constitute an essential ground of that decision . Consequently, the Commission' s error in that respect cannot justify annulment of its decision . 17 It follows that the applicants' first submission must be dismissed . The specifically sectoral application of tariff F 18 The applicants allege that tariff F was introduced solely for Dutch ammonia producers, so that it is specific to a single industrial sector and is discriminatory in character . 19 They claim that the qualifying conditions for tariff F were chosen deliberately so as to favour Dutch producers of ammonia intended for the manufacture of nitrate fertilizers, since only undertakings of that kind are in a position to consume at least 500 million m3 of gas per year and also fulfil the 90% load factor requirement . 20 The Commission contests that argument, contending that a contract for the application of that tariff exists between Gasunie and an undertaking which does not produce ammonia . Since the tariff is generally applied there can be no question of aid . 21 Article 92 of the Treaty applies only to aid granted by States or through State resources which favours certain undertakings or the production of certain goods . 22 The fact that an undertaking which is not in the ammonia manufacturing industry is charged tariff F does not undermine the finding that it is to that industrial sector that the tariff is essentially intended to apply . The experts' report shows that the Dutch ammonia producers which benefited from the previous tariff system all continue to benefit from that tariff . It is also apparent from the experts' report that tariff F continues to be applied to four of those producers even though their annual consumption of gas is less than 500 million m3 . Furthermore, according to the experts' report, on 23 June 1986 Gasunie gave a commitment to Nederlands Stikstof Maatschappij NV that it would review the level of the tariff F rebate if the new price for gas threatened to harm its competitiveness . 23 It is apparent from the foregoing considerations that the applicants' submission that tariff F is sectoral in nature since it applies to certain undertakings, namely Dutch ammonia producers, must be upheld . The value of the savings accruing to Gasunie from the tariff F contracts 24 In its letter of 24 April 1984, in which it informed the applicants of the contested decision, the Commission stated in particular that the price difference of 5 cents/m3 between tariffs E and F was justified by the difference in the cost of the service provided . To account for that difference in cost, the Commission referred to the considerable savings in respect of supplies accruing to Gasunie as a result of the high load factor and the supply conditions applied to very large industrial users . According to the Commission, the tariff F price level did not fully reflect the value of the savings in respect of supplies accruing to Gasunie by virtue of those contracts . 25 In its reply of 1 April 1986 to the question put to it by the Court, the Commission gave the reasons for which the difference between tariffs E and F did not cover the total value of the savings available to Gasunie from those contracts . It stated that the price reduction in relation to tariff E was 5 cents/m3, whereas the total value of the savings was of the order of 5.5 to 7 cents/m3, as shown below : Objective conditions Saving ( cents/m3 ) Volume consumed and regularity of offtake 3 Interruption of supply 1-2 Variation in quality of gas 1.5-2 _____________________ Total 5.5-7 26 The applicants maintain on the contrary, on the basis of a report prepared by a French natural gas expert, that the objectively justified difference between tariff E and tariff F should be about 1 cent/m3 and cannot exceed 1.6 cents/m3 . The aid thus amounts, in their view, to 4 or at least 3.4 cents/m3 . In those circumstances, the Commission' s conclusion that the price difference of 5 cents/m3 between tariffs E and F is consistent with the difference in the cost of the service provided is vitiated by a manifest error of appraisal . 27 In order to establish whether the above argument is well founded, it is necessary to determine the value of the savings on the cost of the service provided which Gasunie can achieve when supplying natural gas to undertakings capable of fulfilling the conditions laid down for entitlement to tariff F . 28 In view of the contradictory information given by the Commission and the applicants regarding the savings which may be achieved by Gasunie as a result of the conditions laid down for entitlement to tariff F ( volume consumed, load factor, possibility of interrupting supplies and of substituting another quality of gas ), the Court decided to obtain the assistance of economic experts independent of the parties . The parties' arguments must therefore be appraised in the light of the conclusions of the experts . ( a ) The savings attributable to the volume of gas consumed and the load factor 29 The Commission considers that the savings on the cost of supply accruing to Gasunie from contracts concluded for the application of tariff F, as compared with tariff E contracts, by reason of the volume of gas consumed and the regularity of offtake ( load factor ) must be evaluated at 3 cents/m3 . 30 The experts considered that the savings attributable to the volume of consumption and the load factor of tariff F users by comparison with those in respect of tariff E users fall within the following approximate range ( in cents/m3 ): For the volume of gas supplied ( minimum : 600 x 106 m3/year ): 0.07-0.242; For regularity ( load factor ): 0.273-0.512 . They also stated that the total savings in respect of volume and load factor must be lower than the sum of the higher values indicated above, in view of the relationship between the load factor and the volume consumed by customers on tariff F by comparison with customers on tariff E . 31 In view of the detailed and consistent reasoning of the experts' report, based on precise information, it must be concluded that in evaluating the savings resulting from the volume consumed and the load factor as 3 cents/m3, the Commission overstated them by a factor of five in comparison with the estimate contained in the experts' report . 32 It follows that the Commission committed a manifest error of assessment in that respect . ( b ) The savings attributable to the possibility of interrupting supplies of gas 33 The applicants consider that, having regard to the market conditions prevailing in the Netherlands, there is no real possibility of Gasunie' s having to interrupt supplies since its production and delivery capacities are such that it is able to meet any exceptional demand . 34 The applicants also maintain that the possibility of interrupting supplies does not give rise to savings for Gasunie, that it does not give rise to any rebate for other customers and that the grant of a rebate on that basis to Dutch ammonia producers in general is unjustifiable . 35 The Commission contends that the possibility of interrupting supplies is not merely theoretical, since one ammonia producer was partially deprived of supplies of gas during the winter of 1983/84 . It also contends that that possibility reduces Gasunie' s need to invest in additional safety devices and therefore represents a concrete saving for it . The Commission considers that the value of the savings to Gasunie of the clause allowing interruption of the supply of gas in the tariff F contracts is between 1 and 2 cents/m3 . 36 It is apparent from the experts' report that the conditions for the supply of gas in the Netherlands, set out in a general contract, are the same for all types of industrial consumers . However, there are special conditions for customers on tariff F . 37 It is therefore necessary to establish whether there are differences in the ways in which Gasunie exercises the right to interrupt supplies to the two groups of customers . 38 The general contract, which also extends to tariff E, provides in that connection that "if it proves necessary to reduce or interrupt gas consumption as a result of supply difficulties, the supplier shall be authorized to issue instructions in that regard and the customer shall be obliged to comply with them ". The corresponding special conditions contained in the tariff F contract are as follows : "On first request by Gasunie, the customer shall be obliged to reduce or suspend, as the case may be, his offtake in accordance with Gasunie' s directions . If Gasunie should exercise this right, the customer shall not be entitled to lodge any complaint concerning unequal treatment . Gasunie shall endeavour as far as possible to give the customer at least 12 hours' advance notice of any such request for a decrease or suspension of consumption . Any suspension of offtake pursuant to this article shall be regarded as a case of force majeure for the customer ." 39 It follows from the foregoing that customers on tariff F are subject to essentially the same obligations as those on tariff E in the event of Gasunie' s exercising its right to interrupt the supply of gas . 40 As the applicants point out, if Gasunie must seek possibilities of interrupting its supply it should as a matter of priority address itself to industrial users which use gas as a fuel . In most cases they have equipment at their disposal which enables them to substitute another fuel for gas . By contrast, ammonia producers use the gas as a raw material and have no alternative but to halt production if their supply of gas is interrupted . 41 As regards the Commission' s statement that one ammonia producer experienced a partial interruption of gas supplies from Gasunie, it must be observed that the Commission produced no supporting evidence and the experts found that Gasunie did not interrupt supplies to any ammonia producer even during the particularly severe winter of 1984/85 . 42 In view of those considerations, it must be stated that Gasunie derives no economic advantage from the tariff F special clauses allowing interruption of supply . It follows that by estimating that such an advantage was worth 1 to 2 cents/m3 the Commission committed a further manifest error of assessment . ( c ) The savings attributable to substitutability ( the possibility of varying the calorific value of the gas supplied ) 43 The applicants claim that substitutability does not give rise to any substantial saving since, because of the time-consuming and detailed adjustments which it entails, the transfer from one gas to another can only be effected for a long period and therefore can be carried out for all industrial sectors . 44 The Commission considers that in so far as substitution is not possible for domestic consumption or for export but a degree of substitutability is necessary to enable Gasunie to reduce its costs of storing H gas, delivery to very large consumers, namely those on tariff F, enables it to reduce its expenses . The Commission estimates the saving involved as between 1.5 and 2 cents/m3 . 45 With respect to the possibility for Gasunie of switching to qualities of gas not conforming to the specifications laid down in the contract, it must be stated that even though, as indicated in the experts' report, it is true that unlike tariff F customers tariff E customers must be consulted by Gasunie in order to agree on a reasonable solution, the fact remains that according to the experts a number of tariff E and tariff F customers are supplied from the same supply point and are therefore subject to the same conditions concerning the possibility of substitution . 46 According to the information provided by the experts, tariff F customers cannot all be supplied alternatively with G gas or H gas because the grid layout does not permit it . They mention in particular a plant whose annual gas offtake represents about 30% of the total tariff F offtake and which cannot be supplied with H gas . 47 On the other hand, the experts found that certain plants not on tariff F could be connected to both the H and G networks . In view of those considerations, they concluded that no economic advantage deriving from the tariff F special clauses could be identified . 48 Accordingly, it must be stated that by estimating the savings available by virtue of the substitutability clause as between 1.5 and 2 cents/m3, the Commission committed a manifest error of assessment . ( d ) The total value of the savings attributable to the various conditions 49 In the opinion requested of them by the Court as to the total value of the savings on the cost of supply accruing to Gasunie from tariff F contracts in comparison with tariff E contracts, the experts stated that it was difficult to identify total savings in excess of 0.5 cents/m3, regard being had inter alia to other factors such as the operational flexibility of the Groningen field and the extremely favourable characteristics of the Netherlands gas grid, in particular the looping and the large diameter of the pipelines ( up to 48 inches ) enabling 45% of the throughput to be allocated to exports, characteristics which ensure high in-pipe storage capacity . 50 In the experts' opinion, it follows that the value of the savings in Gasunie' s costs resulting from the conditions applied to tariff F customers, by comparison with those applied to tariff E customers, is much lower than the price difference between those two tariffs . The experts infer that the rebates granted to tariff F customers must be attributable to other considerations . 51 Consequently, by stating that the price difference of 5 cents/m3 between tariffs E and F corresponded to the difference in the cost of the services provided, the Commission committed a manifest error of appraisal . The applicants' submission in that regard must therefore be upheld . 52 It follows from all the foregoing considerations that the Commission' s decision of 17 April 1984 terminating the procedure initiated under Article 93(2 ) of the EEC Treaty with regard to the tariff structure for natural gas prices in the Netherlands, which was brought to the applicants' notice by a letter from the Commission dated 24 April 1984, must be declared void . Costs 53 Under Article 69(2 ) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs . Since the Commission has failed in its submissions, it must be ordered to pay the costs, including two-thirds of those incurred in respect of the experts' report prepared in accordance with the order of 27 February 1986 . 54 However, under Article 69(4 ) of the Rules of Procedure, a party who discontinues or withdraws from proceedings is to be ordered to pay the costs, unless the discontinuance or withdrawal is justified by the conduct of the opposite party . Compagnie française de l' azote ( Cofaz ) SA withdrew from the proceedings by letter received at the Court Registry on 29 December 1987, that is to say after the interlocutory judgment of 28 January 1986 ( Case 169/84, supra ) and after the experts' report had been submitted ( 23 December 1987 ). The withdrawal was not justified by the conduct of the Commission but was for reasons specific to the company concerned . That applicant must therefore be ordered to pay one-third of the costs incurred by the Commission before it withdrew, including one-third of those relating to the abovementioned experts' report . On those grounds, THE COURT ( Sixth Chamber ) hereby ( 1 ) Declares void the Commission' s decision of 17 April 1984 terminating the procedure initiated under Article 93(2 ) of the EEC Treaty with regard to the tariff structure for natural gas prices in the Netherlands, which was brought to the applicants' notice by a letter from the Commission dated 24 April 1984; ( 2 ) Orders the Commission to pay the costs, including two-thirds of those incurred in respect of the experts' report prepared in accordance with the order of 27 February 1986; Orders Compagnie française de l' azote ( Cofaz ) SA to pay one-third of the costs incurred by the Commission prior to its withdrawal from the proceedings, including one-third of the costs incurred in respect of the abovementioned experts' report . © European Communities, 2001 All rights reserved BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII