In 2011, the company Finnfjord AS (‘Finnfjord’), was granted NOK 175 million in State aid from the Energy Fund Scheme (see below) for the construction of an energy recovery system at its ferrosilicon production plant. That award of aid was approved by the Authority by Decision No 39/11/COL(1).

9.6.2016 | EN | Official Journal of the European Union | L 152/47 ---|---|---|--- * * * EFTA SURVEILLANCE AUTHORITY DECISION No 110/15/COL of 8 April 2015 declaring incompatible the NOK 16 million additional aid from Innovation Norway to Finnfjord AS (Norway) [2016/905] [non-confidential version] (*1) THE EFTA SURVEILLANCE AUTHORITY (‘THE AUTHORITY’), Having regard to the Agreement on the European Economic Area (‘the EEA Agreement’), in particular to Article 61 and Protocol 26, Having regard to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (‘the Surveillance and Court Agreement’), in particular to Article 24, Having regard to Protocol 3 to the Surveillance and Court Agreement (‘Protocol 3’), in particular to Article 7(5) of Part II, Whereas: I. FACTS 1\. Procedure (1) | In 2011, the company Finnfjord AS (‘Finnfjord’), was granted NOK 175 million in State aid from the Energy Fund Scheme (see below) for the construction of an energy recovery system at its ferrosilicon production plant. That award of aid was approved by the Authority by Decision No 39/11/COL (1). ---|--- (2) | Following pre-notification discussions that were initiated in November 2012, the Norwegian authorities, by letter of 26 June 2013, notified the additional aid from Innovation Norway (‘IN’) to Finnfjord, pursuant to Article 1(3) of Part I of Protocol 3 (2). It is this measure that is the subject of the current decision. ---|--- (3) | By letter dated 5 July 2013 (3), the Authority requested additional information from the Norwegian authorities. By letter dated 19 August 2013 (4), the Norwegian authorities responded. By letter dated 28 August 2013 (5), the Authority made a further request for information. By letter dated 18 September 2013 (6), the Norwegian authorities responded. By letter dated 13 November 2013 (7), the Authority informed the Norwegian authorities that it had adopted Decision No 445/13/COL initiating a formal investigation into the notified measure. ---|--- (4) | By e-mail dated 21 February 2014 (8), the Norwegian authorities provided their comments to the decision. On 10 April 2014, following prolonged discussions with the Norwegian authorities and Finnfjord concerning confidential information, the decision was published in the Official Journal of the European Union and the EEA Supplement (9). Finnfjord was the only third party to submit comments (10). By letter dated 13 May 2014 (11), these comments were forwarded to the Norwegian authorities. By letter dated 6 June 2014 (12), the Norwegian authorities provided comments to the third party comments. By e-mail of 25 September 2014 (13), Finnfjord provided further comments. By e-mail of 8 October 2014 (14), the Authority requested further information from Finnfjord. By emails of 24 and 27 October 2014 (15), Finnfjord responded. By letter dated 27 October 2014 (16), the additional comments and information were forwarded to the Norwegian authorities. By letter dated 12 November 2014 (17), the Norwegian authorities responded. Between November 2014 and January 2015, the Authority had informal contacts by e-mail and telephone with the Norwegian authorities and Finnfjord. ---|--- 2\. The notified measure — the NOK 16 million grant (5) | The notified proposed measure is a direct grant of NOK 16 million from IN to Finnfjord. It is intended to partly cover the increase in the project's costs from NOK [680-720] million to NOK [approximately 800] million. ---|--- (6) | IN informed Finnfjord of its decision to grant the notified measure by letter dated 10 December 2012. ---|--- 3\. Loans from IN and SNN (7) | IN has explained that Finnfjord needed an additional NOK [80-95] million to complete the energy recovery project. The NOK 16 million therefore only covered part of the cost increases. ---|--- (8) | At the same time as it provided the NOK 16 million direct grant to Finnfjord, IN also provided Finnfjord with a loan of NOK 18 million. At the time, Finnfjord had already borrowed NOK 100 million from IN in connection with the same project. None of the loans have been notified to the Authority. IN holds that they have been granted on market terms and therefore do not involve State aid within the meaning of Article 61(1) of the EEA Agreement. ---|--- (9) | In parallel with the NOK 18 million loan from IN, Finnfjord secured a loan of NOK [45-60] million from the financial institution SpareBank 1 Nord-Norge (‘SNN’). Finnfjord's existing loans from SNN in connection with the project totalled NOK [300-325] million. ---|--- (10) | In sum the NOK 16 million direct grant, and the two loans of NOK 18 million and NOK [45-60] million covered the NOK [80-95] million cost increase. ---|--- 4\. Innovation Norway (‘IN’) (11) | IN is a public entity established by the Act on Innovation Norway (18). It is owned by the Norwegian State through the Ministry of Local Government and Regional Development (51 %) and by all of the 19 Norwegian County Authorities (49 %). IN is financed by public resources. ---|--- 5\. Enova SF (‘Enova’) (12) | Enova SF (‘Enova’) is a state enterprise (19) wholly owned by the Norwegian State through the Ministry of Petroleum and Energy. It is responsible for managing the Energy Fund Scheme, a State aid scheme for the promotion of environmental protection approved by the Authority by Decisions No 125/06/COL (20) and No 248/11/COL (21). Enova is financed by public resources. ---|--- (13) | Under the Energy Fund Scheme, Enova arranges competitions for aid where the winning projects are the ones with the best energy result per NOK of aid (22). ---|--- 6\. Finalisation of the energy recovery project and disbursement of the last tranche of aid from Enova (14) | Enova only disperses the last 20 % of an individual aid measure when it has approved a final project report (23). According to a Finnfjord press release (24), the energy recovery system was up and running on 30 October 2012. On 22 November 2012, the final report from Finnfjord was approved by Enova. On 23 November 2012, Enova disbursed the last NOK 35 million of aid (20 % of the total aid amount of NOK 175 million). ---|--- 7\. The recipient — Finnfjord AS (‘Finnfjord’) (15) | Finnfjord is a family-owned limited liability company. The plant supported by the proposed aid is located in Finnsnes in the County of Troms, the second northernmost county in Norway. ---|--- 8\. Cost increases (16) | In the notification leading to the Authority's Decision No 39/11/COL of 9 February 2011 approving NOK 175 million in aid from Enova to Finnfjord, the budget for Finnfjord's energy recovery project was estimated at NOK 511,66 million. The aid was awarded for the replacement of the existing cooling system with an energy recovery unit. The intention was to annually generate 224 GWh of electrical power and recover 125 GWh of process steam. The estimated annual energy production thus amounted to 349 GWh. ---|--- (17) | According to the current notification, by February 2011, the estimated budget had already increased by NOK 190 million from NOK 511,66 million to NOK 700 million. Despite this substantial increase, on 7 February 2011 Finnfjord's board decided to go ahead with the project. Finnfjord did not at that time apply for more aid. The notified aid is not intended to cover the cost increases that led to the NOK 700 million estimate. ---|--- (18) | The cost increase stemmed largely from Finnfjord's decision to exclusively focus the project on electricity production from steam (and not recover the process steam) by acquiring a more powerful steam turbine. The turbine was ordered on 7 January 2011. A legally binding contract for the turbine was concluded on 23 February 2011. By letter dated 16 February 2011, Finnfjord informed Enova that it had ordered the more powerful turbine which would yield an annual production of 344,5 GWh of electrical energy. This higher electrical energy production was thus close to the estimated total production of 349 GWh of electricity and steam. On that basis, Finnfjord requested the exclusion of the steam production from the aided project. By letter dated 17 February 2011, Enova approved the change to the project. ---|--- (19) | Throughout the project phase, Finnfjord supplied Enova with progress reports. In its report dated 30 April 2012, Finnfjord referred to further cost increases related to the turbine building, steam and condensation pipes, and ditches. The additional costs amounted to approximately NOK 5 million. Finnfjord still aimed at keeping the total project costs below the NOK 700 million estimate. ---|--- (20) | In its progress report dated 29 June 2012, the total cost estimate remained at NOK 700 million. However, by that time, it was estimated that the project would incur an additional NOK [5-10] million in increased costs. This cost increase was discussed by Finnfjord's board in a meeting on 19 June 2012. The Norwegian authorities have not explained why the total cost increase of NOK [10-15] million ([…]) did not lead to an adjustment of the total cost estimate of NOK 700 million in the progress report of 29 June 2012. ---|--- (21) | The Norwegian authorities have explained that Finnfjord, at one point during the spring of 2012 entered into informal discussions with Enova about obtaining additional aid to cover the increased project costs. On 5 July 2012, following the informal contacts, Finnfjord formally applied for additional aid from Enova. At that time, Finnfjord had revised its total cost estimate to NOK [730-760] million. ---|--- (22) | The information provided to the Authority indicates that Finnfjord, on the basis of a budget review finalised on 31 July 2012, had concluded that the project would incur additional costs and the total cost estimate was increased to between NOK [740] million and NOK [approximately 800] million. The cost increases related to: adaptations of existing machinery, adaptations of three existing furnaces, adaptations of smoke ducts, installations in the turbine building and other buildings, longer production shortfalls than expected, and finalisation of the work and the installations. Finnfjord requested additional aid from Enova to ensure that the project would meet its internal requirements of profitability. Finnfjord elaborated on the reasons for the cost increases in its progress report dated 12 September 2012. ---|--- (23) | In early August 2012, Finnfjord informally discussed with Enova the potential postponement of the works on the third furnace and classifying it as a separate project in order to apply for more aid from Enova on the basis of it being a new project. ---|--- (24) | By letter dated 20 August 2012, Enova rejected the application for aid. ---|--- (25) | When Finnfjord's board met on 25 September 2012 the total cost estimate had been set to NOK [approximately 800] million. In that meeting Finnfjord's board considered three alternative courses of action: | (i) | Completing the project by financing the cost increases by way of the company's general cash flow. ---|--- (ii) | Postponing the works on the third furnace, classifying it as a separate project and applying for more aid from Enova. ---|--- (iii) | Obtaining NOK [80-95] million of additional financing from Enova (aid), SNN (loan) and IN (loan and aid) in order to complete the project. ---|--- (26) | The board decided to proceed according the third alternative. ---|--- (27) | IN has provided the Authority with an extract of the board meeting protocol regarding the third alternative. Concerning the applications to Enova and IN for more aid the extract provides the following: ‘Potential grants/loans from Enova and [IN] will be used directly to reduce the liquidity loan applied for [from SNN].’ (25). ---|--- (28) | According to IN, the board concluded that the first course of action would essentially mean that the project would be financed at the expense of Finnfjord's creditors, which would be legally unadvisable and not a tenable solution in the long term. Also, according to IN, the board did not consider the second alternative a viable course of action as it concluded that the postponement of the works on the third furnace would be prohibitively expensive. ---|--- (29) | In their comments to the Authority's decision to open the formal investigation, the Norwegian authorities have clarified that the final total cost amounted to NOK [approximately 800] million. The Norwegian authorities have not clarified when this was finally settled. ---|--- 9\. Overview of the cost increases Date, event | Estimated budget in NOK million ---|--- Initial budget as described in Decision No 39/11/COL of 9 February 2011 | 511,66 7 February 2011, Finnfjord board meeting | [680-720] 5 July 2012, Finnfjord applies to Enova for more aid | [730-760] 31 July 2012, Finnfjord budget review | [740-790] 25 September 2012, Finnfjord board meeting | [740-790] Final total cost | [approximately 800] 10\. IN's award of aid and the NOK [80-95] million package (30) | On 28 August 2012, Finnfjord initiated an informal dialogue with IN and SNN in order to obtain the NOK [80-95] million necessary to finance the completion of the project. ---|--- (31) | By letter dated 1 October 2012, Finnfjord formally applied for additional loans from SNN. Finnfjord applied for additional loans and grants from IN on 11 October 2012, without specifying an aid amount. ---|--- (32) | It appears that SNN prior to mid-October 2012 had offered Finnfjord a loan of NOK [80-95] million. However, SNN made the offer conditional on collateralisation to the detriment of the collateralisation of a pre-existing loan from IN (26). IN did not accept this solution. Finnfjord, SNN and IN instead negotiated the following NOK [80-95] million financing package: | (i) | The aid grant from IN of NOK 16 million. ---|--- (ii) | A short-term loan of NOK 18 million from IN with a rate of [5-9] % (adjustable in accordance with IN risk loan policy) collateralised pari passu with a pre-existing loan of NOK 100 million from IN. ---|--- (iii) | A short-term loan of NOK [45-60] million from SNN with an interest rate of […] months NIBOR (27) \+ [300-600] bps collateralised pari passu with a pre-existing loan of NOK [300-325] million from SNN. ---|--- (33) | The NOK [80-95] million financing package was formalised and accepted by Finnfjord by way of a supplementing coordination agreement signed by SNN, IN and Finnfjord on 12 December 2012. Such agreement, aimed at regulating the relationship between the three parties, covered the loan agreement between Finnfjord and SNN dated 12 December 2012, the loan agreement between Finnfjord and IN dated 10 December 2012. ---|--- (34) | Whilst the loans from IN and SNN have been disbursed, the NOK 16 million of aid to Finnfjord will only be disbursed with the Authority's approval. ---|--- 11\. Comments 11.1. Comments submitted by the Norwegian authorities in response to the opening of the formal investigation (35) | IN stresses that it, at the time when it decided to conditionally grant the NOK 16 million, did not consider lending the money to Finnfjord, as the company did not have sufficient collateral to cover new loans up to NOK [80-95] million. ---|--- (36) | As to why Finnfjord did not apply for more aid from Enova in February 2011, IN clarifies that Enova unilaterally reduced the amount from NOK 200 million and stressed that the NOK 175 million award represented an exceptionally high aid intensity and that no other project could expect to receive similar support. Finnfjord therefore considered that an application for further aid would be unsuccessful. However, the company changed its approach when it became aware of Enova's decision to award NOK 350 million in aid to an almost identical project carried out by Elkem AS (28). ---|--- (37) | IN has submitted a revised spreadsheet taking into accounts comments made by the Authority in the decision to open the formal investigation. Based on the final project cost of NOK [approximately 800] million, a project lifetime of 15 years and a verified gradual increase in electricity production over the first three years to a maximum annual capacity of 344,5 GWh, using the Enova model, the rate of return without the NOK 16 million of aid is calculated to [approximately 9] %. With the aid, the rate of return would be [approximately 11] %. IN submits that the project therefore is not profitable, given Finnfjord's general investment policy of requiring a rate of return in the range of [10-20] % for such investments outside the company's core business activities. ---|--- (38) | IN stresses that Finnfjord based the decision to go ahead with the project on its own internal calculations, which differ from the calculations presented above (based on the Enova model). IN notes that it has not been provided with Finnfjord's internal calculations. IN notes that the seemingly conflicting views between IN and Enova most likely stem from the difference between Enova's and IN's internal rules and practices. ---|--- 11.2. Third party comments from Finnfjord in response to the publication of the decision to open the formal investigation (39) | Finnfjord refers to what it perceives to represent an apparent contradiction in the Authority's decision where the Authority on the one hand does not exclude outright that the aid could have incentive effect in the case at hand, but at the same time raises the question whether Finnfjord considered stopping, reducing or halting the project. Finnfjord stresses that although its board had the ambition, up until the board meeting of 25 September 2012, to complete the project, this should not be classified as an expression of a desire or an ability to complete the project at any cost. According to the company, the facts and figures made available to the Authority clearly demonstrate that Finnfjord would be unable to pay for the completion of the project without the additional financing. Finnfjord could not offer any additional collateral, thus it could not have secured further loan financing. Finnfjord therefore rejects the preliminary view of the Authority that the aid would be viewed as a welcome but not strictly necessary element in the financing package. ---|--- (40) | Like IN, Finnfjord stresses that the reduction of the Enova aid from NOK 200 million to NOK 175 million was a unilateral policy decision by Enova's board. Finnfjord points to what it considers to be a number of inconsistencies in Enova's statements about the incentive effect of additional aid to the project, and stresses that the seemingly conflicting views of Enova and IN about the incentive effect of the aid is of no consequence since Enova's policy is more restrictive than what the Environmental Aid Guidelines (‘EAG’) (29) allow for. ---|--- (41) | With regard to the assessment of whether aid is the appropriate instrument, Finnfjord appears to reject the idea that this assessment should be made on the basis of the specific circumstances of the case at hand, and instead refers back to Decision No 39/11/COL, where the Authority found that the initial grant of NOK 175 million of aid was an appropriate instrument to trigger the investment in the project prior to its implementation. ---|--- (42) | With regard to the question of proportionality, the company stresses that the project has become more than twice as costly than initially estimated. The rate of return of 12,35 % was in the lower end of the range of profitability required by Finnfjord. The updated rate of return of [approximately 9] % without the NOK 16 million of aid, is explained to be far lower than Finnfjord would have accepted ‘if it could have acted on its own free will’. Even the rate of return of [approximately 11] % with the NOK 16 million in aid is held to be a rather modest return. Finnfjord refers to the aid award as a reasonable burden sharing between IN and SNN, and underlines that the loan capital of the project has increased significantly. The risk of default is carried by the company alone. Thus, in the view of Finnfjord, the aid clearly does not lead to overcompensation. ---|--- (43) | Finnfjord is of the view that additional aid from IN will not undermine the competition mechanism under the Energy Fund Scheme. Finnfjord stresses that the competition mechanism under the Energy Fund Scheme merely prevents the least efficient projects from receiving aid when the amounts applied for exceed the budget of the scheme. The company invites the Authority to consider whether a preference for the competitive mechanism under the Energy Fund Scheme could interfere with the Norwegian authorities' right to organise its administration of public funds. In that context, Finnfjord states that it doubts that the Authority, beyond the rules on cumulation, has a valid legal basis for ensuring that individual aid awards do not interfere with the workings of an aid scheme. Finnfjord explains that the notified aid is distributed in an open and transparent manner. ---|--- 11.3. Second round of third party comments from Finnfjord (44) | During the course of the formal investigation, the Authority received a second round of third party comments from Finnfjord, wherein the company elaborates on how its lack of liquidity in the fall of 2012 would have led to the project being stopped without the additional financing package which in turn was triggered by the granting of aid by IN. Finnfjord makes reference to the Authority's decision in the Helguvík Aluminium Smelter case (30) to substantiate why the notified aid to Finnfjord has incentive effect. ---|--- (45) | The company provides statements from SNN, Finnfjord's accountant and chairman as evidence for the necessity of the aid. The company furthermore provides a spreadsheet featuring an updated calculation of the net present value of the project (verified by IN) which gives a [marginally negative return] % with the aid. Finnfjord makes reference to Authority and Commission practice (31) relating to cases of unforeseen cost in innovative projects where aid grants expressed, not as a fixed amount, but rather as a percentage of an unknown total cost were found to be compatible with the functioning of the State aid rules. ---|--- (46) | At the request of the Authority, Finnfjord subsequently provided copies of the two financing agreements concluded by SNN, IN and Finnfjord on 14 June 2011 and 12 December 2012 as well as documentation pertaining to the absence of unpledged collateral. ---|--- 11.4. Comments from the Norwegian authorities to the third party comments (47) | The Norwegian authorities have provided comments to the two rounds of third party comments from Finnfjord. The Norwegian authorities agree with Finnfjord and have clarified minor factual issues concerning the source of funding of the proposed NOK 16 million grant. As the disbursement of funds from the relevant sources is applied in a uniform manner, these clarifications have not proven to be essential for the Authority's assessment of the notified measure. ---|--- II. ASSESSMENT 1\. Presence of State aid (48) | Article 61(1) of the EEA Agreement reads as follows: ‘Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States 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 shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement.’ ---|--- (49) | This implies that a measure constitutes State aid within the meaning of Article 61(1) of the EEA Agreement if the following conditions are cumulatively fulfilled: the measure: (i) is granted by the State or through state resources; (ii) confers a selective economic advantage to the beneficiary; and (iii) is liable to impact on trade between Contracting Parties and to distort competition. ---|--- (50) | The aid measure must be granted by the state or through state resources. In that context, it is recalled that IN is a public entity. Its grants are funded by the Norwegian State. The notified measure is therefore financed by state resources and transferrable to Finnfjord under the control of a public entity controlled by the state. Thus, the Authority considers that state resources are involved. ---|--- (51) | In order to constitute State aid, the notified measure must confer on Finnfjord advantages that relieves it of charges that are normally borne from its budget. The measure must furthermore be selective in that it favours ‘certain undertakings or the production of certain goods’. The NOK 16 million direct grant is a transfer of cash that Finnfjord would not have received in its normal course of business. The proposed grant is intended exclusively for Finnfjord. Therefore, the Authority concludes that this direct grant provides a selective economic advantage to Finnfjord. ---|--- (52) | The measure must be liable to distort competition and affect trade between the Contracting Parties to the EEA Agreement to be considered State aid within the meaning of its Article 61(1). According to settled case-law, the mere fact that a measure strengthens the position of an undertaking compared with other undertakings competing in intra-EEA trade, is considered to be sufficient in order to conclude that the measure is liable to affect trade between Contracting Parties and distort competition between undertakings established in other EEA States (32). Finnfjord produces ferrosilicon and microsilica, which it sells on the European market (33). Thus, the Authority concludes that the aid affects trade between the Contracting Parties to the EEA Agreement and distorts competition in the EEA as the beneficiary is active in a sector where trade between Contracting Parties takes place. ---|--- (53) | Based on the above findings, the Authority concludes that the notified measure in the form of a direct grant of NOK 16 million from IN to Finnfjord constitutes State aid within the meaning of Article 61(1) of the EEA Agreement. ---|--- 2\. Procedural requirements (54) | Pursuant to Article 1(3) of Part I of Protocol 3, ‘the EFTA Surveillance Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid (…). The State concerned shall not put its proposed measures into effect until the procedure has resulted in a final decision’. ---|--- (55) | By letter dated 26 June 2013, the Norwegian authorities notified the aid measure of NOK 16 million. The aid has been granted conditionally subject to the Authority's approval and has consequently not been disbursed. ---|--- (56) | With reference to the information provided, it appears that the aid has been granted on the basis of an aid scheme that had not been notified to the Authority as the Norwegian authorities considered it to be covered by the then applicable General Block Exemption Regulation (the ‘GBER’) (34). The grants from Enova and IN represent investment aid to the same undertaking for the same investment project. The Norwegian authorities therefore concluded that the aid to Finnfjord had to be individually notified as it, in cumulation with the aid from Enova, exceeded the threshold for which individual awards of aid are subject to the notification obligation (35). ---|--- (57) | On the basis of the above, the Authority concludes that the Norwegian authorities have complied with their obligations stemming from Article 1(3) of Part I of Protocol 3. ---|--- 3\. Compatibility — Legal basis (58) | IN argues that the aid to Finnfjord is compatible with Article 61(3)(c) of the EEA Agreement as aid for environmental protection. IN stresses that the aid at hand does not represent a form of rescue aid. ---|--- (59) | On the basis of Article 61(3)(c) of the EEA Agreement ‘aid to facilitate the development of certain economic activities or of certain economic areas’ may be considered compatible with the functioning of the EEA Agreement, where such aid does not affect trading conditions and competition in the EEA to an extent that is contrary to the common interest. ---|--- (60) | By Decision No 39/11/COL the Authority approved the initial aid from the Energy Fund Scheme to Finnfjord's energy recovery project after having carried out a detailed assessment of that aid in accordance with chapter 5 of the EAG. The Authority concluded that the notified aid from Enova contributed to the protection of the environment by incentivising Finnfjord to carry out an energy saving measure that it would not have carried out without the aid. ---|--- (61) | On 16 July 2014, after having opened the formal investigation, the Authority adopted a new set of Guidelines on State aid for environmental protection and energy 2014-2020 (the ‘EEAG’) (36), replacing the EAG (37). The Authority applies the EEAG from the date of their adoption (38), also to awards of individual aid notified prior to the adoption of the EEAG where it is called upon to take a decision after the date of adoption (39). ---|--- (62) | The Authority approved the aid from Enova as an energy saving measure. The EEAG do not contain a chapter on energy savings, instead a chapter on energy-efficiency has been introduced (40). The Authority assesses the compatibility of the notified aid on the basis of the energy-efficiency chapter of the EEAG. ---|--- (63) | The Authority notes that its assessment of the compatibility of the notified measure in the case at hand would not have been materially different had it applied the EAG. To demonstrate this, the relevant principles of both the EEAG and the EAG are referred to in the following. ---|--- 4\. Scope of the formal investigation procedure (64) | In the decision to open the formal investigation procedure, and assessing the notified measure under the then applicable EAG, the Authority stressed that, given the fact that it has already assessed the compatibility of the aid from Enova to the Finnfjord energy recovery project, it did not doubt that the additional aid, due to its relatively small amount compared to the initial aid, is aimed at a market failure. Furthermore, on the assumption that the aid would have incentive effect and would be necessary, the Authority had no doubts that the distortions of competition and effect on trade would be limited so that the overall balance would be positive. These issues will therefore not be dealt with in the following. ---|--- (65) | The subject matter of the following assessment is whether the notified aid has incentive effect and is necessary. ---|--- 5\. Compatibility assessment 5.1. The aid does not have incentive effect nor is it necessary (66) | According to the EEAG (41), in order to be compatible with the functioning of the EEA Agreement, aid needs to provide an incentive effect. Whether the notified aid is necessary to produce a real incentive to undertake investment which would not otherwise be made is a crucial element in the compatibility assessment. It has to be verified whether the aid is necessary to provide an incentive effect for the investment, i.e. whether the aid actually contributes to changing the behaviour of the recipient so that the level of environmental protection is increased (42). ---|--- (67) | As a general rule, the Authority will consider that no incentive effect exists when the project has started before the submission by the recipient of an application requesting the aid (43). As the case at hand relates to the issue of additional aid to cover the increased costs of an ongoing project, the Authority cannot rely on the presumption for the existence of an incentive effect for aid applications submitted prior to the start of works. In February 2011, Finnfjord initiated the NOK 700 million project on the basis of NOK 175 million granted in aid. ---|--- (68) | However, the Authority does not exclude the incentive effect of aid to a project that has started when the grant of aid unequivocally ensures the completion of projects that would otherwise not have been completed or adding environmental protection that would otherwise not come to fruition (44). In assessing the incentive effect of the aid in this light, the counterfactual situation, i.e. what the company would do without the aid, needs to be closely examined. ---|--- (69) | The company completed the project in October 2012 without the aid having been disbursed. On the basis of the information and evidence provided, the Authority does not consider that Finnfjord realistically considered stopping, reducing the scope of or halting the project after February 2011 until its completion in October 2012. More specifically and with reference to the conclusions drawn in the board meeting of 25 September 2012, it appears that the company, due to the prohibitive cost involved, did not seriously consider stopping nor postponing the project, as a whole or in part, nor reducing its scope. The board meeting protocol from 25 September 2012 states that Finnfjord intended to seek additional loan financing from SNN and additional aid from Enova and IN, and that any potential aid would be used directly to reduce the loan Finnfjord would seek to obtain from SNN. ---|--- (70) | This finding has arguably been supported by the company in its comments to the Authority's decision to open the formal investigation procedure. Although the company refers to its need for an additional NOK [80-95] million in funding and appears to state that the very situation in which it found itself indicates that the company considered abandoning the project, this is contradicted by other statements made by the company where reference is made to the absence of ‘free will’ (see recital 42 above) and, most of all, by the fact that Finnfjord completed the project without the aid having been disbursed. ---|--- (71) | If the company did not consider itself to have any option other than continuing the project, the aid would not provide the company with any incentive because the company would — with or without the aid — have completed the project. In other words, the counterfactual scenario is that Finnfjord would finalise the project without delays and without reducing its scope also without the aid. ---|--- (72) | The Authority is unconvinced by the argument that the aid was the trigger for the NOK [80-95] million financing package and necessary for, in particular, the NOK [45-60] million loan from SNN. Even if the SNN loan provides as a condition that the NOK 16 million aid be granted by IN, the funds (both from SNN and IN) were disbursed without the Authority's prior approval of the additional aid. This demonstrates the severability of the loans from the aid grant. A creditor setting the actual disbursement of aid as a condition for further financing would have awaited for the Authority's clearance prior to disbursing further loan capital if this determines the existence of the financing package. Additionally, the information provided to the Authority does not indicate that Finnfjord would have to immediately repay the loans in the event that the Authority would not approve the aid. ---|--- (73) | In order to be compatible with the functioning of the EEA Agreement, aid must be necessary. The aid must not subsidise the costs of an activity that an undertaking would anyhow incur and must not compensate for the normal business risk of an economic activity (45). However, aid for additional costs incurred due to unforeseeable external factors, which cannot be seen as part of the normal business risk of the economic activity at issue, could be held to be compatible with the functioning of the EEA Agreement (46). ---|--- (74) | The Authority notes that Finnfjord in February 2011, when faced with the cost increase from NOK 511,66 million to NOK 700 million, decided to move forward with the project without applying for any further aid. Thus, the relevant cost for this investigation is the NOK [80-95] million increase from NOK 700 million to NOK [approximately 800] million. This represents an increase of approximately […] %. ---|--- (75) | Based on the information provided, as described in recital 22 above, the cost increases stemmed from: adaptations of existing machinery, adaptations of three existing furnaces, adaptations of smoke ducts, installations in the turbine building and other buildings, longer production shortfalls than expected, and finalisation of the work and the installations. These represent the types of cost increases that the company would be expected to take into account when planning for this type of project, and constitute the normal business risk of the economic activity at issue. They cannot be considered to be caused by external factors and do not appear unforeseeable in nature. The case at hand can therefore be distinguished from the Helguvík Aluminium Smelter case (47), referred to by Finnfjord. In that case the aid beneficiary had difficulties in obtaining financing during the exceptional 2008 financial crisis in Iceland, a circumstance that can rightly be classified as an unforeseeable external factor. On the basis of the above, it is the view of the Authority that what the Norwegian authorities are proposing with the notified aid measure is to compensate Finnfjord for the normal business risk of the project that it undertook. ---|--- (76) | The Authority acknowledges that the outcome of its assessment may potentially have been different had the Norwegian authorities, instead of proposing two fixed amount aid disbursements (from Enova and then later from IN), granted aid to cover a certain percentage of the eligible costs of the project. This would especially be the case when the scope of the unforeseeable additional costs is substantial and linked to the fact that the project is innovative and the fact that the costs thereby, by their very nature are difficult to estimate in advance. However, this contention is not relevant for the set of facts that the Authority faces in the case at hand. ---|--- (77) | The Authority stresses that it is up to the Norwegian authorities to demonstrate that the conditions for the derogation from Article 61(1) of the EEA Agreement are satisfied (48). The facts and arguments presented by the Norwegian authorities (and Finnfjord) have not convinced the Authority that the notified aid from IN has incentive effect or that it is necessary. ---|--- (78) | On the basis of the above, the Authority has concluded that notified aid to Finnfjord from IN lacks incentive effect and that it is not necessary. As the aid for those reasons alone is not compatible with the functioning of the EEA Agreement, the Authority will not assess the appropriateness of the aid nor its proportionality. ---|--- 6\. Conclusion — the aid is not compatible (79) | Based on the information submitted by the Norwegian authorities, the Authority has concluded that the proposed NOK 16 million cash grant from IN to Finnfjord constitutes state aid within the meaning of Article 61(1) of the EEA Agreement. ---|--- (80) | The Authority has concluded that this aid is not compatible with the functioning of the EEA Agreement. Consequently, the Norwegian authorities are not authorised to implement it. ---|--- (81) | The Authority requests the Norwegian authorities to forward a copy of this decision to Finnfjord immediately. ---|--- HAS ADOPTED THIS DECISION: Article 1 1\. The NOK 16 million direct grant to Finnfjord notified by the Norwegian authorities on 26 June 2013 is incompatible with the functioning of the EEA Agreement. 2\. It may therefore not be implemented. 3\. The formal investigation procedure is hereby closed. Article 2 This Decision is addressed to the Kingdom of Norway. Article 3 Only the English language version of this decision is authentic. Done at Brussels, 8 April 2015. For the EFTA Surveillance Authority Oda Helen SLETNES President Helga JÓNSDÓTTIR College Member * * * (*1) In this non-confidential version of the decision, information covered by the obligation of professional secrecy has been taken out. Where information has been taken out, this is marked with […]. Where figures have been excluded, a range within which the figure exists, has, where appropriate, been indicated. (1) OJ C 278, 22.9.2011, p. 6 and EEA Supplement No 51, 22.9.2011, p. 1. (2) Events Nos 676810, 676812, 676814-676816, 676819, 676822, 676823, 676825-676827, 676829 and 676832-676834. (3) Event No 677212. (4) Events Nos 680603-680605 and 680866-680868. (5) Event No 681073. (6) Events Nos 683806, 683807, 683809, 683810, 683813, 683814, 683817 and 683819. (7) Event No 686086. (8) Event No 700230. (9) OJ C 108, 10.4.2014, p. 2 and EEA Supplement No 22, 10.4.2014, p. 19. (10) Letter from Finnfjord, undated, registered by the Authority on 16 April 2014 (Event No 705906). (11) Event No 708022. (12) Event No 710453. (13) Events Nos 723413-723421 and 723424. (14) Event No 725001. (15) Events Nos 726975-726980 and 726985. (16) Event No 726981. (17) Event No 729928. (18) LOV 2003-12-19-130 Lov om Innovasjon Norge. (19) In Norwegian: Statsforetak. Enova is organised in accordance with Act No 71 of 30.8.1991 on state enterprises. (20) EFTA Surveillance Authority Decision No 125/06/COL of 3 May 2006 regarding the Norwegian Energy Fund (Norway) (OJ L 189, 17.7.2008, p. 36) and EEA Supplement No 43, 17.7.2008, p. 1. (21) OJ C 314, 27.10.2011, p. 4 and EEA Supplement No 58, 27.10.2011, p. 2. (22) The competition for aid under the Energy Fund Scheme is described in the Authority's Decision No 248/11/COL (cited above), paragraphs 27-36. (23) See the Authority's Decision No 248/11/COL (cited above), paragraph 37. (24) Available on Finnfjord's website: http://www.finnfjord.no/weve_got_the_power (25) Letter from the Norwegian authorities dated 18 September 2013 (Event No 683806). Translation by the Authority: ‘Eventuelle tilskudd/lån fra Enova og Innovasjon Norge, vil gå til direkte reduksjon av omsøkte likviditetslån.’ (26) According to IN: ‘When Finnfjord […] applied for financing of [80-95] million NOK, [SNN] had already approved a loan of the same amount, but with terms on security that was unacceptable for [IN]’ IN letter to the Authority dated 18 September 2013, p. 12. (27) Norwegian Inter Bank Offered Rate. (28) That aid was approved by the Authority by Decision No 304/13/COL (OJ C 330, 14.11.2013, p. 7 and EEA Supplement No 63, 14.11.2013, p. 5). (29) OJ L 144, 10.6.2010, p. 1 and EEA Supplement No 29, 10.6.2010, p. 1. (30) Decision No 344/09/COL Helguvík Aluminium Smelter (OJ C 294, 3.12.2009, p. 17 and EEA Supplement No 64, 3.12.2009, p. 10). (31) Inter alia, the Authority's Decision No 503/08/COL Test Centre Mongstad (OJ C 297, 20.11.2008, p. 11 and EEA Supplement No 69, 20.11.2008, p. 2) and the Commission Decision in Case N 117/2007 Decontamination of the site ‘Neue Maxhütte Stahlwerke GmbH’ by ‘57 Profi-Start GmbH’ (OJ C 275, 16.11.2007, p. 2). (32) Case E-6/98 Norway v EFTA Surveillance Authority [1999] Ct. Rep. 76, paragraph 59; Case 730/79 Philip Morris v Commission EU:C:1980:209, paragraph 11 where it is stated that ‘When State financial aid strengthens the position of an undertaking compared with other undertakings competing in intra- Community trade the latter must be regarded as affected by that aid’. (33) As described in the Authority's Decision No 39/11/COL (cited above). (34) Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation) (OJ L 214, 9.8.2008, p. 3), incorporated into point 1j of Annex XV to the EEA Agreement. See Article 6(1)(b) in conjunction with Article 7(1) of the then applicable GBER. Article 6(1)(b) reads as follows ‘This Regulation shall not apply to any individual aid, whether granted ad hoc or on the basis of a scheme, the gross grant equivalent of which exceeds the following thresholds (…) (b) investment aid for environmental protection: EUR 7,5 million per undertaking per investment project;’. (35) Article 7(1) reads as follows: ‘In determining whether the individual notification thresholds laid down in Article 6 and the maximum aid intensities laid down in Chapter II are respected, the total amount of public support measures for the aided activity or project shall be taken into account, regardless of whether that support is financed from local, regional, national or Community sources.’ (36) Not yet published in the OJ or the EEA Supplement, but available on the Authority's website: http://www.eftasurv.int/state-aid/legal-framework/state- aid-guidelines/ (37) Point 237 of the EEAG. (38) Point 237 of the EEAG. (39) Point 238 of the EEAG. The Authority notes that it will apply the EAG to aid awarded on the basis of approved aid schemes when it is called upon to take a decision after the EEAG became applicable. In the case at hand however, it is the Authority's understanding that the notified aid is not granted on the basis an aid scheme approved by the Authority. (40) In Point 14(2) of the EEAG, ‘energy-efficiency’ is defined as an amount of saved energy determined by measuring and/or estimating consumption before and after implementation of an energy-efficiency improvement measure, whilst ensuring normalisation for external conditions that affect energy consumption. (41) Points 139 and 44 of the EEAG. See also Points 171-173 of the EAG as well as its points 27-29. (42) Point 44 of the EEAG. See also Point 142 of the EAG. (43) Point 45 of the EEAG. See also Point 143 of the EAG. (44) Case T-162/06 Kronoply v Commission EU:T:2009:2, para. 85. Upheld on appeal Case C-117/09 P Kronoply v Commission EU:C:2010:370. (45) Point 44 of the EEAG. (46) Case T-162/06 Kronoply v Commission EU:T:2009:2, para. 88. (47) Cited above. (48) Case C-106/09 P Commission v Government of Gibraltar and United Kingdom EU:C:2011:732, para. 147. Case C-372/97 Italy v Commission EU:C:2004:234, para. 81. C-364/90 Italy v Commission EU:C:1993:157, para. 20. Case T-68/03 Olympiaki Aeroporia Ypiresies AE v Commission EU:T:2007:253, para. 34. * * *