On 23 March 2022, the European Commission (the “Commission”) adopted a Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (the “Framework”). In a similar fashion to the temporary framework that the Commission has adopted to address the COVID-19 outbreak (the “COVID-19 Temporary Framework”), and earlier, to deal with the 2008 financial crisis (the “Banking Framework”), the Framework is based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (the “TFEU”), which allows State aid to be granted in order to remedy a serious disturbance in the economy, in this case caused by the Russian aggression against Ukraine and/or by the sanctions imposed or by the retaliatory counter measures taken in response. It sets out the conditions under which the Commission will assess such State aid. Measures that meet all the conditions set out in the Framework must be notified to the Commission and will be considered compatible with the Internal Market if all conditions are indeed met.
The Framework applies from 1 February 2022 for aid granted before 31 December 2022. It provides for four types of aid.
- Liquidity support in the form of guarantees on loans: Member States may grant a guarantee on investment and working capital loans with a duration of up to six years. The guarantee premium and maximum loan amount must be set according to the principles described in the Framework. if duly justified the loan can cover up to the full amount of the liquidity needs for the coming 12 months for SMEs or, in case of large enterprises, 6 months. The guarantee can cover up to 90% of the loan principal if losses are borne proportionally by the State and the credit institution and up to 35% if losses are first attributed to the State.
- Liquidity support in the form of subsidised loans: Member States may grant loans with reduced interest rates with a duration of up to 6 years, in order to finance investment and working capital. The interest rates and maximum loan amount be set according to the principles described in the Framework. If duly justified, the loan can cover up to the full amount of the liquidity needs for the coming 12 months for SMEs or, in case of large enterprises, 6 months.
- Limited amounts of aid: Member States may grant temporary limited amounts of aid to undertakings affected by this crisis. This aid may take various forms; from direct grants and tax or payment advantages to repayable advances, guarantees, loans and equity. It must be granted on the basis of a scheme with an estimated budget. The aid must not exceed EUR 400,000 per undertaking. If, however, the undertaking is active in the agricultural, fisheries and aquaculture sectors, the aid is limited to EUR 35,000 per undertaking.
- Aid for additional costs due to exceptionally severe increase in gas and electricity prices: Member States may support undertakings that are not able to pass on or adapt to exceptionally severe increases in the price of gas and electricity. The aid may take the form of direct grants, tax and payment advantages, repayable advances, guarantees, loans, equity, etc. under a certain aid intensity and aid ceilings. Similarly to the limited amounts of aid, aid for such additional costs can only be granted to undertakings if they are provided for in a scheme.
- The aid may cover up to 30% of the eligible costs, and the aid is capped at EUR 2 million per undertaking.
- In addition, where further aid is needed to ensure the continuation of economic activity, Member States may grant aid exceeding these aid intensities and ceilings. This possibility is limited to energy-intensive businesses, i.e., businesses for which purchases of energy products correspond to at least 3% of the production value, and only where those businesses are incurring operating losses of which at least 50% are due to the eligible increased electricity or gas costs. The aid must nevertheless remain below 50% of the eligible costs and for a maximum of 80% of the operating losses with an absolute maximum of EUR 25 million.
- The aid may be increased to 70% of the eligible costs and an absolute maximum of EUR 50 million for some specific sectors particularly affected, such as production of aluminium and other metals, glass fibres, pulp, fertilizer or hydrogen and many basic chemicals.
The Commission also invites Member States to consider in a non-discriminatory way, attaching to the aid requirements conditions relating to environmental protection or security of supply.
When aid in the form of guarantees or subsidised loans are channelled through credit institutions or other financial institutions, it could also constitute indirect aid to those financial intermediary. To avoid this, financial intermediaries and institutions will be required to demonstrate that they operate a mechanism that ensures that the advantages are passed on to the largest extent possible to the final beneficiaries.
In any case, aid may not be granted to undermine the economic sanctions adopted by the EU and cannot benefit undertakings targeted by such sanctions, owned by entities targeted by these sanctions or simply controlled by Russian persons or entities.
Aid in the form of guarantees and of subsidised loans are almost copycats of the measures provided for under the COVID-19 Temporary Framework. However, the Framework also presents major differences with the COVID-19 Temporary Framework. Although undertakings may already be heavily affected by the COVID-19 crisis, the Framework does not provide for recapitalisation measures.
One noteworthy change is that the Framework does not require aid to be granted only to undertakings that were not in difficulty before Russia’s military aggression of Ukraine, contrary to the COVID-19 Temporary Framework that was only available to undertakings that were viable before the COVID-19 outbreak.
Besides these specific types of aid, Member States can also adopt several types of measures to tackle the consequences of Russia’s military invasion of Ukraine, that fall outside the scope of State aid rules such as general tax reductions benefitting all commercial energy consumers. Such measures must not be notified to the Commission.
In addition, State aid granted to tackle the consequences of Russia’s military invasion of Ukraine may also be authorised under other provisions of the TFEU than Article 107(3)(b). For example, Article 107(2)(b) TFEU enables Member States to compensate companies for the damage directly caused by exceptional occurrences, such as those caused by Russia’s military invasion of Ukraine. Another example would relate to some reductions in harmonised environmental taxes provided that they respect minimum levels as set out in the Energy Taxation Directive and the conditions laid down in the Commission General Block Exemption Regulation.
The Commission has committed to approve swiftly upon receipt of a clear and complete notification. To so allow, Member States and prospective beneficiaries would be well advised to seek State aid expert advice in preparing their notification files.
The Covington State aid team will continue to monitor and update you on the latest developments in EU State aid.