ANNOUNCEMENT 17 Sep 2010In September 2010, the government of Bulgaria announced a change in private-sector financial support.
NUMBER OF INTERVENTIONS
the letter from the EC to Bulgaria - Brussels, 15.12.2010 C (2010) 9423 final. Available from : < http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_N402_2010 >
the letter from the EC to Bulgaria - Brussels, C (2011) 7727. Available from : < http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_31250 >
On 17 September 2010, the Bulgarian authorities notified the European Commission their intention to grant rescue aid to the Bulgarian State Railways EAD (BDZ).
BDZ is a 100% State-owned single-member joint stock Company, which is active in the markets oftransport of passengers and transports of goods.
The global economic and financial crisis has brought about an important reduction in business activity and transportation of both passengers and freight on domestic and international level. In 2009, the decline of freight deepened as a result of the decline in the production of key rail freight customers. Furthermore, the public service obligations imposed upon BDZ by the State, as a sole passenger carrier providing passenger services throughout the country at affordable price, left the Company with a deficit of more than BGN 137 million for the period 2005-2009.
The notified measure will be granted in the form of a loan or a loan guarantee provided by the State. The loan will have an overall amount of EUR 127.4 million. The measure is designed to meet the short term cash-flow requirements of the Company within the next six month until a restructuring plan is provided.
The commission found that the measure constitutes State aid within themeaning of Article 107(1) of the EC Treaty and gave the followingassessment:
"'...' the measure provides BDZ EAD with a selective economic advantage as it is designed to allow the beneficiary to have access to liquidity. The measure therefore favors a single undertaking on an open market.
Thirdly, the Commission has analyzed whether the measure distorts or threatens to distort competition. In this respect, the Commission first observes that Bulgaria has opened the market for rail freight transport in 2002 to other domestic operators.
The EU rail freight market was first open to competition on 15 March 2003 '...' Then the second package liberalized all international rail freight transport on 1 January 2006 and national rail freight from 1 January 2007.
With regards to passenger transport, as from 1 January 2010 the third package opened the market for international passenger transport. '...'
Furthermore, in principle, both rail freight and rail passenger transport are in competition with other modes of transport, in particular by road, but on certain routes also by airplane and by inland waterway and short-sea shipping.
The Commission therefore concludes that the measures distorts or threatens to distort competition in the internal market. '...' Therefore, the measure under scrutiny is liable to affect EU trade." (par. 25-37 of the letter from the EC to Bulgaria - Brussels, 15.12.2010 C (2010) 9423 final)
The European Commission has decided not to raise objections to the measure in the ground that it is compatible with the internal market on the basis of Art. 107 (3) (c) TFEU.
Restructuring aid to BDZ - State aid SA.31250
Following this rescue aid, on 18 May 2011, the Bulgarian authorities notified to the Commission restructuring aid in favour of BDZ Holding EAD as well as the refund of excise duties to BDZ Holding EAD for the use of electric traction power.
The Restructuring Plan identifies the increase of long-term liabilities, the ineffective organisational structure of BDZ group, the high costs of the group, in particular for salaries and social security contributions, as well as the maladministration of assets (many assets are redundant) as main issues to be tackled for returning the company to viability. To deal with those issues, the Restructuring Plan includes the following financial and other restructuring measures.
(a) As regards the long-term liabilities, the Restructuring Plan foresees financial restructuring, mainly consisting in the reimbursement of long-term liabilities and other debts.
(b) As regards the ineffective organisational structure of BDZ group, several measures are foreseen, in particular the setting up of a holding structure. BDZ Holding should be the "management centre" for strategic development and control; rolling stock currently owned by BDZ Holding should partly be transferred to its subsidiaries, partly be sold or discarded.
(c) Concerning the maladministration of assets, BDZ group intends to overhaul rolling stock; redundant rolling stock shall be sold or discarded. Additionally, BDZ group intends to invest in new passenger cars and locomotives.
(d) Concerning BDZ group's cost structure, costs shall be significantly reduced, e.g. by making employees redundant (overall, 5 718 employees should be made redundant in the period 2009-2014). In order to decrease expenditures, the Restructuring Plan also foresees the optimisation of processes and activities as well as an increase in energy efficiency.
(e) As regards revenue, for rail freight transport, a flexible and market-oriented pricing policy should be introduced. New routes shall be developed to increase the number of tons of freight transported. As regards passenger transport, revenues shall be increased by making the use of BDZ Passenger's services more attractive, in particular by investing in new rolling stock. The Restructuring Plan also foresees the creation and introduction of a passenger ticket issuing and reservation system. (par. 19 of the letter from the EC to Bulgaria - Brussels, C (2011) 7727)
Bulgaria is of the view that the capital increase constitutes state aid to BDZ Holding, which should be declared compatible with the Internal Market on the basis of the Rescue and Restructuring Guidelines. In addition, they bring forward that part of the cancellation of old debts could be compatible on the basis of the Railway Guidelines. (par. 22 of the letter)
Regarding the EC assessment on the restructuring plan, the Commission has several doubts concerning compliance of the measure at stake with the conditions of the Rescue and Restructuring Guidelines and decided to initiate the formal investigation procedure. (details par. 60-84 of the letter)
The Commission als reminds Bulgaria that Article 108(3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/1999, which provides that all unlawful aid may be recovered from the recipient. (par. 90 of the letter)
A state measure in the GTA database is assessed solely in terms of theextent to which its implementation affects the extent of discriminationagainst foreign commercial interests. On this metric, the state aidproposed here is discriminatory.