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May 12, 2004

EC says Spain broke yard aid rules

Today the European Commission decided that aid provided to the public Spanish shipyards is not in line with EC rules on State aid to shipbuilding. It is calling for IZAR to repay Euros 308.3 million, plus interest, to State holding company Sociedad Estatal de Participationes Industriales (SEPI).

The Commission has established that , in 1999 and 2000, SEPI granted aid worth Euros 500 million to the civil public shipyards that are today all owned by IZAR.

The Commission says the aid took the form of a capital injection, loans and a purchase price above market value. As IZAR paid back the loans amounting to Euros 192.1 million to SEPI, the sum to be reimbursed by IZAR will amount to Euros 308.3 million, plus interest. The Commission concludes that the above amount constitutes further state aid which, after the approval of a final restructuring package of Euros 1,900 million, can no longer be approved under the EU shipbuilding aid rules.

The focus of today's Commission decision is a number of transactions that took place between 1999 and 2000 involving SEPI and its subsidiaries Astilleros Espanoles (AESA), the former holding company of the public shipyards, and Bazan, the military shipbuilding group.

These transactions resulted in the July 2000 merger of all public Spanish yards into Bazan, which then changed its name to IZAR.

Since the Commission suspected that these transactions might have contained state aid, it opened a formal investigation1 on July 12, 2000. This was was extended on November 28, 2001 and further extended on May 27, 2003.

Based on the facts that have been established during the formal investigation the Commission concludes that the state holding company SEPI undertook the following transactions, which entailed further state aid to the public Spanish shipyards:

An excess purchase price paid by SEPI when AESA sold three shipyards (Cadiz, Juliana and Manises) to SEPI in 1999. According to the Commission's calculation the purchase price paid by SEPI contained an aid element of Euros 55.9 million. The aid benefited the remainder of civil shipyards still owned by ASEA, i.e., Puerto Real, Sestao and Sevilla;

A 1999 SEPI loan amounting to Euros 192.1 million to the three shipyards Cadiz, Juliana and Manises;

A capital injection by SEPI of Euros 252.4 million to AESA in 2000, benefiting the remaining ASEAN civil shipyards Puerto Real, Sestao and Sevilla.

Since Spanish shipyards after the final restructuring package of 1997 are no longer eligible for restructuring aid and since none of aid measures described above could be approved on any other base available under the State aid provisions, the aid identified above should be recovered, says the Commission

"All the shipyards benefiting from the aid were taken over by Bazan/IZAR from SEPI and AESA, respectively, for a symbolic price, and not in open and transparent tendering procedures," says the Commission. "Furthermore, the shipyards benefiting from the aid were, at the time the aid was provided, legal entities but are now profit-centers without legal personality within the IZAR group. For these reasons IZAR is now responsible for the recovery of the aid."

Since, in 2000 IZAR paid back the loan of Euros 192.1 million to SEPI, the sum to be reimbursed by IZAR will amount to Euros 308.3 million, plus interest.

The Commission says it "is aware that the consequences of this decision may be serious for IZAR, its shipyards and its employees. However, the Commission has received numerous complaints from shipyards in other EU Member States, and even from Spanish competitors. Several of the complainants argue that job losses have already occurred in their companies as a result of suspected illegal state aid provided to the public Spanish shipyards over the last years."

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