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March 24, 2022

New State Aid Temporary Framework In The Wake Of The Aggression Against Ukraine By Russia

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Key Takeaways

  • To mitigate the negative economic and social consequences of Russian military aggression against Ukraine and to lessen the effect of the restrictive economic measures taken in response to the crisis, as well as retaliatory counter measures, the European Commission adopted the Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (Framework).
  • The Framework will only apply for a limited duration, until December 31, 2022.

To mitigate the negative economic and social consequences of Russian military aggression against Ukraine and to lessen the effect of the restrictive economic measures taken in response to the crisis, as well as retaliatory counter measures, the European Commission adopted the Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (Framework).

The Framework sets out the possibility for Member States to grant:

  • Limited amounts of aid of up to EUR 35,000 for companies affected by the crisis and active in the agriculture, fisheries and aquaculture sectors. Up to EUR 400,000 per undertaking for any undertaking affected by the crisis, active in other sectors, where such aid is to be granted on the basis of a state aid scheme and in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity
  • Temporary liquidity support in the form of guarantees and/or subsidised loans to all companies affected by the current crisis (subject to caveats around financial institutions)
  • Aid (in any form) for additional costs due to exceptionally high gas and electricity prices to partially compensate companies, in particular intensive energy users, for energy price increases

Undertakings targeted by economic sanctions adopted by the European Union are excluded from the Framework. These undertakings include but are not limited to: (i) persons, entities or bodies specifically named in the legal acts imposing those sanctions, (ii) undertakings owned or controlled by persons, entities or bodies targeted by sanctions adopted by the European Union, (iii) undertakings active in industries targeted by sanctions adopted by the European Union, insofar as the aid would undermine the objectives of the relevant sanctions.

The Framework will only apply for a limited duration, until December 31, 2022. The European Commission is set to review the Framework before this deadline date.

In Depth


General Background to the Framework

The Framework is intended to supplement measures that can already be taken under Article 107(2)(b) TFEU, which permits "aid to make good the damage caused by […] exceptional occurrences". In accordance with this article, Member States are already able to mitigate damage directly caused by the Russian military invasion such as certain direct effect of economic sanctions or other restrictive measures taken in response to the invasion. Such measures may also be granted to undertakings in difficulty. Note, however, that measures taken under Article 107(2)(b) TFEU still require notification to the Commission for formal approval.

As a background explanation for the Framework, which is based on Article 107(3)(b) TFEU (State aid "to remedy a serious disturbance in the economy of a Member State"), the text explains that the "Russian military aggression against Ukraine, the sanctions imposed and the counter measures taken […] will have economic repercussions on the entire Internal Market." The Framework states that a "coordinated economic response of Member States and EU institutions is crucial to mitigate the immediate social and economic negative repercussions in the EU, to preserve economic activities and jobs, and to facilitate the structural adjustments needed in response to the new economic situation created by the Russian military aggression against Ukraine."

By way of an example of potential economic repercussions, the Framework refers to shrinking demand, interruption of existing contracts and projects, with the consequent loss of turnover, disruptions in the supply chain, in particular of raw materials and pre-products or other inputs no longer available or economically affordable. The Framework also refers to the significant impact on the energy market (with increases in gas and electricity prices) and the impact of the geopolitical crisis provoked by Russia's aggression against Ukraine on the agriculture, food processing, fisheries and aquaculture sectors.

In relation to the high gas and electricity prices, the Framework refers to the Commission's "October Communication" and "Communication REPowerEU". These instruments provide a "toolbox" of measures aimed at tackling rising energy prices and replenishing gas stocks for next winter, including diversifying gas supplies, speeding up the roll-out of renewable gases and replacing gas in heating and power generation. The October Communication and Communication REPowerEU are available here and here respectively.

Preliminary Clarifications Under the Framework

The Framework first sets out some general clarification on State aid, before setting out the specific measures being introduced:

  • The Framework recalls that measures benefiting non-commercial energy consumers do not constitute State aid, provided they do not indirectly benefit a specific sector or undertaking. Measures targeting commercial energy consumers do not constitute State aid, provided that they are of general nature and benefit all energy commercial consumers equally (e.g., general reductions in taxes or levies, reduced rate to the supply of natural gas, etc.).

The Framework explains that the transport of refugees and the transport of humanitarian supplies does not in principle fall under EU State aid rules insofar as the State exercises its public powers (as opposed to carrying out an economic activity) and insofar as the transport services are not purchased at a level above the market price. The Framework also sets out some general points applicable to any aid to be granted under the Framework. More specifically it explains that:

  • The Framework sets out the criteria for the compatibility assessment that the Commission will apply to State aid granted by the EU Member States under Article 107(3)(b) TFEU, including the requirement for the State aid measures to fall within the scope of the Framework and to be "necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member State concerned". The Framework stipulates that Member States should inform the Commission of their intentions and notify plans to adopt measures "as early and comprehensively as possible." The Commission will provide guidance and assistance to Member States in this process.
  • The Framework allows for aid to be provided to undertakings in difficulty, "[c]onsidering the specific situation of two subsequent crises that have affected undertakings in multiple ways."
  • Aid granted under the Framework may not be conditional on the relocation of a beneficiary's activity from another country within the EEA to the territory of the Member State granting the aid. The Framework considers that such a condition would be harmful to the internal market.
  • "Undertakings under sanctions adopted by the EU" are excluded from receiving aid under the Framework. These undertakings include but are not limited to: (i) persons, entities or bodies specifically named in the legal acts imposing those sanctions, (ii) undertakings owned or controlled by persons, entities or bodies targeted by sanctions adopted by the EU, (iii) undertakings active in industries targeted by sanctions adopted by the EU, insofar as the aid would undermine the objectives of the relevant sanctions.

Measures Supported by the Framework

(a) "Limited Amounts of Aid"

Under the Framework, and beyond the existing allowances based on Article 107(3)(c) TFEU, temporary, limited amounts of aid may be provided to undertakings affected by Russian aggression against Ukraine and/or by the sanctions imposed, or by the retaliatory counter measures taken, insofar as the following conditions are met:

  • The overall aid may not exceed a certain threshold, i.e., up to EUR 35,000 for companies affected by the crisis and active in the agriculture, fisheries and aquaculture sectors and up to EUR 400,000 per undertaking for undertakings affected by the crisis and active in other sectors.
  • Aid is to be granted on the basis of a scheme with an estimated budget.
  • Aid may not be granted after December 31, 2022.
  • Aid is granted to undertakings affected by the crisis.
  • Aid is to be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity, provided the total nominal value of such measures does not exceed the overall cap of EUR 35,000 (agriculture, fisheries and aquaculture) or EUR 400,000 per undertaking in all other sectors. All figures used must be gross, which means before any deduction of tax or other charges.
  • Measures granted in the form of repayable advances, guarantees, loans or other repayable instruments may be converted into other forms of aid such as grants, provided that the conversion takes place by June 30, 2023 at the latest, and providing compliance with the remaining conditions of the Framework.

For undertakings in the primary production of agricultural products, fishery and aquaculture sectors, the following additional rules apply:

  • The aid granted to undertakings active in the processing and marketing of agricultural products is conditional on not being partly or entirely passed on to primary producers, and is not fixed on the basis of the price or quantity of products put on the market by the undertakings concerned, nor purchased from primary producers, unless, in the latter case, the products were either not put on the market or were used for non-food purposes (such as distillation, methanization or composting by the undertakings concerned)
  • Aid to undertakings in the primary production of agricultural products may not be fixed on the basis of the price or quantity of products put on the market
  • Aid to undertakings in the fishery and aquaculture sectors may not concern any of the categories of aid referred to in Article 1(1)(a) to (k) of the fishery and aquaculture de minimis Regulation (no. 717/2014) (e.g., aid for the purchase of fishing vessels, aid for exploratory fishing, etc.).

(b) Liquidity Support in the Form of Guarantees

The Framework considers that public guarantees for a limited period and loan amount may be an "appropriate, necessary and targeted solution" to ensure access to liquidity to undertakings affected by the current crisis. The Framework lists the following conditions to be met by such guarantees for them to be deemed compatible with the Internal Market:

  • Member States may provide State aid in the form of public guarantees on new individual loans to undertakings affected by the current crisis, insofar as guarantee premiums are set at minimum level, which increases progressively in accordance with the duration of the guaranteed loan (and as determined by the table in para. 47 of the Framework).
  • Member States may also notify schemes, whereby guarantee duration, guarantee premiums and guarantee coverage may be modulated for each underlying individual loan principal. The Framework stipulates that a flat premium may be used for the entire duration of the guarantee, if it is higher than the minimum premiums for the first year set out in the table in para. 47 of the Framework for each type of beneficiary, as adjusted according to guarantee duration and guarantee coverage under the relevant paragraph in the Framework.
  • Guarantees should relate to investment and/or working capital loans and need to be capped both in terms of amount and duration (as set out in para. 47(e) and (f) of the Framework).
  • Guarantees are to be granted by December 31, 2022.
  • The pass-on of the advantage should, to the largest extent possible, be ensured when guarantees are not provided directly to final beneficiaries, but to credit institutions or other financial institutions as financial intermediaries.

(c) Liquidity Support in the Form of Subsidised Loans

The Framework also considers that subsidised interest rates for a limited period and loan amount may be an "appropriate, necessary and targeted solution" to ensure access to liquidity to undertakings affected by the current crisis. The Framework lists the following conditions to be met by such guarantees to be deemed compatible with the Internal Market:

    • Loans may be granted at reduced interest rates, which are at least equal to the base rate (i.e. 1 year IBOR or equivalent as published by the Commission as per the Communication from the Commission on the revision of the method for setting the reference and discount rates) available either on February 1, 2022 or at the moment of notification, plus the credit risk margins as set out in para. 50(b) of the Framework.
    • Member States may provide loans directly to undertakings affected by the current crisis
    • Member States may also notify schemes, in accordance with the credit risk margins set out in para. 50(b) of the Framework, but whereby the loan maturity and the level of credit risk margins may be modulated, for example, by applying a flat credit risk margin for the entire duration of the loan, if it is higher than the minimum credit risk margin for the first year for each type of beneficiary, as adjusted according to the loan maturity set out in para. 50 of the Framework.
  • Loan contracts are to be signed by December 31, 2022 and should relate to investment and/or working capital needs. They should also be capped both in terms of amount (as set out in para. 50(e) of the Framework) and duration (in principle, six years).
  • The pass-on of the advantage should be ensured, to the largest extent possible, when loans are not provided directly to final beneficiaries but to credit institutions or other financial institutions as financial intermediaries.

(d) Aid (in any form) for Additional Costs due to Exceptionally High Gas and Electricity Prices

Apart from the measures outlined above, the Framework also refers to the possibility of granting "temporary support [to] alleviate [the] exceptionally severe increases in the price of natural gas and electricity, which undertakings may not be able to pass on or adapt in the short-term" (Support Measures).

The Framework lists the following conditions to be met by any such Support Measures in order to be deemed compatible with the Internal Market:

  • Support Measures are to be granted by December 31, 2022.
  • Support Measures may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal gross value of such measures remains below the applicable aid intensity and aid ceilings.
  • Support Measures granted in the form of repayable advances, guarantees, loans or other repayable instruments may be converted into other forms of aid such as grants, provided the conversion takes place by 31 March 2023 and are complaint with the remaining conditions of the Framework.
  • Support Measures are to be granted on the basis of a scheme with an estimated budget. Measures can be limited to investments that support specific economic sectors of particular importance to the economy, or to the security and resilience of the internal market, but these limits need to be designed broadly and not lead to an artificial limitation of potential beneficiaries.
  • The eligible costs that may be targeted by the Support Measures are the increase in gas and electricity costs linked to the Russian aggression against Ukraine, in comparison with a reference period (Eligible Cost) between January 1, 2021 until December 31, 2021 (Reference Period). Support Measures can be granted in relation to the gas and electricity consumption of the undertaking from February 1, 2022 until December 31, 2022 (Eligible Period). That price increase shall be calculated as the difference between the unit price unit price paid by the undertaking in a given month in the Eligible Period and the double (200%) of the unit price paid by the undertaking on average for the Reference Period.
  • The Support Measures may not exceed 30% of the eligible costs up to a maximum of EUR 2 million at any given point in time.

Support Measures may be paid by way of advance payment (i.e., before eligible costs have been incurred) on the basis of estimations but the ceiling is to be verified ex-post. Any payment that exceeds the thresholds as set out in the Framework, is to be paid back no later than six months after the eligible period has ended.

The Framework also foresees specific rules for aid "necessary to ensure the continuation of an economic activity":

  • Undertakings are eligible if they are an "energy-intensive business" within the meaning of the Energy Taxation Directive, i.e., where the purchases of energy products (including energy products other than natural gas and electricity) amount to at least 3% of the production value.
  • The undertaking is eligible if it incurs operating losses, whereby the increase in the Eligible Cost must amount to at least 50% of the operating loss in the Eligible Period.
  • The overall aid may not exceed 50% of the Eligible Costs and may amount to a maximum of 80% of the operating losses of the undertaking.
  • The overall aid may not exceed EUR 25 million per undertaking at any given point in time.
  • For energy-intensive undertakings in a sector or sub-sector listed in Annex I of the Framework, the overall aid may be increased to a maximum of 70% of the Eligible Costs related to the production of the products in the sectors or subsectors listed in Annex I and may amount to a maximum of 80% of the operating losses of these activities. The overall aid may not exceed EUR 50 million per undertaking at any given point in time, whereby activities not listed in Annex I cannot receive more than EUR 25 million.

Measures Granted through Financial Intermediaries

The Framework also provides some further guidance on measures granted through financial intermediaries:

  • State aid granted under the Framework to undertakings, through banks as financial intermediaries, shall benefit those undertakings directly but may confer an indirect advantage on the financial intermediaries. However, the Framework recognizes that under the safeguards of sections 2.1 and 2.2 (as summarized in the last bullet point of section (a) and (b) of this article), "such indirect advantages do not have the objective to preserve or restore the viability, liquidity or solvency of the credit institutions." As a result, such aid is not considered extraordinary public financial support under the Bank Recovery and Resolution Directive (Directive 2014/59/EU, "BRRD") or the Single Resolution Mechanism (Regulation 806/2014, "SRM"), and the aid would not be assessed under the State aid rules applicable to the banking sector.
  • State aid granted under Article 107(2)(b) TFEU to compensate for direct damage suffered resulting from the current crisis and which "does not have the objective to preserve or restore the viability, liquidity or solvency of an institution or entity" would also not be qualified as extraordinary public financial support under the BRRD and SRM, and the aid would also not be assessed under the State aid rules applicable to the banking sector.

Finally, the Framework also provides guidance in case the banks themselves, due to the Russian invasion of Ukraine and the related restrictive measures, would need "extraordinary public financial support" in the form of liquidity, recapitalisation or an impaired asset measure. In this case, an assessment under the BRRD and SRM is required to ensure the bank receiving such extraordinary public financial support would not be deemed "failing-or-likely-to-fail". To the extent such measures address problems linked to Russian invasion of Ukraine and the related restrictive measures, they would also fall under point 45 of the 2013 Banking Communication, which sets out an exception to the requirement of burden-sharing by shareholders and subordinated creditors.

Cumulation principles

State aid measures falling within the scope of the Framework may be cumulated with:

    • Aid under the de minimis Regulations (available here (general), here (agriculture), here (fishery and aquaculture) and here (services of general economic interest)) or with aid under Block Exemption Regulations (available here ( General Block Exemption Regulation), here (agriculture and forestry), and here (fishery and aquaculture) provided the provisions and cumulation rules of those regulations are respected.
    • Aid under Article 107(2)(b) TFEU insofar as there is no overcompensation of damage suffered by the beneficiary.
  • Aid under the COVID-Temporary Framework (available here) provided that overcompensation is avoided and the cumulation rules therein are respected. The Framework clarifies that when loans or guarantees are granted to the same beneficiary under the COVID-Temporary Framework and under this Framework, and when the overall amount of the loan principal is calculated on the basis of self-declared liquidity needs of the beneficiary, those liquidity needs may only be covered once with aid.
  • One another in line with the requirements in the specific sections of the Framework and subject to the following conditions:
    • For the same underlying loan principal, guarantees granted under the Framework may not be accumulated with aid granted for liquidity support in the form of subsidised loans (and vice versa) or with aid granted under sections 3.2 or 3.3 of the COVID-19 Temporary Framework.
    • Loans and guarantees granted under the Framework may be accumulated for different loans provided the overall loan amount per beneficiary does not exceed the ceilings set out in point 47(e) of the Framework.
    • A beneficiary may benefit in parallel from multiple measures under the section on guarantees in the Framework provided the overall amount of loans per beneficiary does not exceed the ceilings set out in point 47(d), (e) and 50(e) of the Framework. Likewise, a beneficiary may benefit in parallel from multiple subsidised loans under the section on subsidies loans in the Framework provided the overall amount of loans per beneficiary does not exceed the ceilings set out in point 50e) of the Framework.

Duration

The Framework is applicable as of February 1, 2022 and, given that it is necessitated by the current exceptional circumstances, only applies for a limited duration, until December 31, 2022. It is set to be reviewed by the Commission before then "on the basis of important competition or economic considerations, as well as the international developments."

 

 

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