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Assuming that € 1 = PLN 4. The majority
Assuming that € 1 = PLN 4. The majority shareholder of TB with about 78.1 % is the GórnoRestrukturyzacyjny (Upper Silesian Rewhose main shareholder was until October 2005 with 51.3 % Eurofaktor SA (whose shareholders are private investors, such as Bonum Sp. z o.o. 37.25%, ING TFI 13.40%, Polmetal Sp. zo.o. 11.31%, Stabilo Group Sp. zo.o. 10.93% and other private investors). In October 2005 Stabilo Group Sp. zo.o. purchased Eurofaktor’s shares. The other shareholders of GFR are the Upper Silesian Fund SA with 39.2%, whose main shareholder is TB has currently 4 subsidiaries, namely: P.U.R.M. (Przedsibiorstwo Usug Remontowo Mechanicznych) Sp. z o.o. (100% owned by TB), which provides machinery and equipment maintenance to TB. In December 2005 TB spun off its exhaust systems business for the automotive sector into this subsidiary, which was renamed (hereinafter “”). On top of 76 employees in the original company, additional 227 employees were transferred to TB-Automotive on 1 December 2005. Huta Buczek S

p. z o.o. (hereinafter “”, 100% owned by
p. z o.o. (hereinafter “”, 100% owned by TB), which is TB’s spun off rolling mill rolls facility, with 227 employees, and which Buczek – HB – Z.P.R. Sp. z o. o. (hereinafter “TB-ZPR”, which is 18% owned by HB-rolls while the remaining shares are held by the company’s employees) which manufactures drawn tubes, and provide tube cutting & processing services, with 100 employees. TB still owns TB-ZPR’s production equipment, which is leased to it. P.U.T. (Przedsibiorstwo Usug Transportowych) “SAMKOL” (100% owned by HB-rolls), which provides transportation services for TB and has 27 employees, and is currently being wound up. In 2002, the above mentioned restructuring plan was drawn up in order to overcome the financial difficulties. oncentration of the company’s activities on the welded calibrated tubes business, to which all new investments were to be directed. Already in 2002 the equipment for ALU coated steel strip was purchased in order to produce exhaust systems for the automotive industry. Moreover,

the monopolistic position in Poland, wa
the monopolistic position in Poland, was to be continued but ideally spun off in order to find a strategic investor. Finally the high alloy steel tubes production, which has a very low capacity utilisation rate, was to be continued without any additional investments. Altogether investments of PLN 25 million were envisaged. The restructuring plan also confirms that in the years 1997 – 2001 HB-TB had received state aid amounting to a net grant equivalent of PLN 4,422,411. The NRP allocated an aid amount of PLN 16,184,411, which corresponds to the aid already granted in 1997 to 2001 plus the envisaged aid in the restructuring 3. Receipt of state aid TB did not obtain the potential (net grant equivalent) state aid amounting to PLN 11.762 million attributed to it under the NRP. In fact, it received PLN 9.527 million less. Indeed, the public debt write offs and public liabilities rescheduling had not taken place by the end of 2003. Apparently, an attempt to do so was only the Polish State Office for Co

nsumer and Competition Protection (herei
nsumer and Competition Protection (hereinafter “OCCP”) did not allow any write-off of the real estate tax liability after 2003.Moreover TB states “that for financial reasons, [it] did not manage to take benefit from redemption of liabilities towards ZUS.”According to the consultant the company received only PLN 2.235 million (net grant equivalent) of state aid. PLN 2.045 million of this aid was related to R & Confirmed in the company’s updated restructuring plan of September 2005, p. 71. Confirmed in the company’s updated restructuring plan of September 2005, p.71. Final report of the Commission’s independent consultant of April 2005, p. 14. Institution PLN 000 PLN 000 (NGE) PFRON (2002) Installment arrangement 136 PFRON (2003) Installment arrangement 270 Sub-Total installments Municipality of Sosnowiec Debt write off 2,964 Tax Office Debt write off 163 Debt write off 265 Sub-Total write off’s Installment arrangement 6,014 Total Financial restructuring 9,812 Emplo

yment restructuring 823 R & D 3,790
yment restructuring 823 R & D 3,790 TOTAL AID 14,425 D, and PLN 190,400 for employment restructuring. This can be summarised as follows: PLN '000 NGE 2002 Total Difference (Actual minus Plan) (422) In addition, the company indicates in its 2005 updated business plan that it has obtained a budgetary grant for employment restructuring for a period from 2004 to 4. (Non-) Implementation of the 2002 plan TB has not fully implemented the restructuring plan for the following reasons: TB was not able to obtain financial support from creditors and local financial institutions as stipulated in point 9 (c) of Protocol No. 8. In fact, already in 2003 TB-HB was again in financial difficulties because its bank had reduced its credit facilities. This situation was only overcome through the entry of a financial investor, GFR, which took over a significant number of bonds which were converted into long term loans. However, according to the consultant, TB has still to secure long-term support from financia

l institutions.TB had only partially red
l institutions.TB had only partially reduced its investment costs as stipulated in point 9 (c) of Protocol No. 8. Indeed, the consultant confirmed in 2005 that this obligation was only partly met.TB only partially managed to implement employment restructuring as parts of its cost savings programme. In fact, employment was reduced from 550 to 294 only thanks to the spinning off of the rolls department into HB-rolls but not because of This was confirmed by the figures provided by Poland in its submission of its bi-annual monitoring report, e.g. for 2003, see Report No. 2, Annex 5 of the OCCP, page 5. The fact that TB’s 2005 business plan indicates a smaller amount, which excludes apparently R & D, is not See updated Business plan of September 2005, p. 83. Final ESC report of April 2005, p. 15. Final report of ESC of April 2005, p. 13. Final report of April ESC of 2005, p. 15. According to the latest Monitoring report of Poland of March 2006 TB had as off 31 December 2005 the following outstan

ding public liabilities: social insuranc
ding public liabilities: social insurance fees ZUS of around PLN 14.131 million; tax on property (to the Gmina (municipality) of Sosnowiec) of about PLN 5.459 million; payments PFRON of PLN 0.834 million; The debt towards public creditors thus rose to PLN 20.4 million (around € 5.1 million) in 2005, including interest. According to the consultant the amount annually increased by 16 %. However, since December 2003 the company has at least met its current liabilities towards the above mentioned bodies. According to the Polish authorities, the public authorities being creditors to TB have taken some measures to enforce their claims. In particular, the municipality of Sosnowiec has frozen the company’s bank accounts to enforce its claims and has obtained around PLN 1 million. In addition, the municipality has obtained under Article 66 of the tax ordinance a transfer of assets for its debt worth about PLN 1 million. Moreover, repayment of the debt to ZUS was enforced by freezing the bank accounts and o

btaining a forced mortgage of PLN 14 mil
btaining a forced mortgage of PLN 14 million. It is not clear what kind of enforcement measures PFRON has taken.Apparently, in 2004 TB managed to repay about PLN 5 million (PLN 1.2 million to ZUS and 3.8 million to the municipality office) from the sale of idle assets. However, the freezing of bank accounts has not been effective as all financial means passing through the accounts are used to pay the employees’ salaries. Therefore, the outstanding debt is being enforced mainly by realising charges against real estate, and acquiring permanent usufruct. The value of these assets is, however, unclear. In addition, it is not clear whether other creditors have similar mortgages and, if so, whether the mortgages of the public creditors have priority. Poland argued in its letter of September 2005 that TB expects to receive about PLN 25 million by selling assets, which are leased to its subsidiaries TB-HB (PLN 9 million) and TB-ZPR (PLN 6 million) as well as one of its premises worth PLN 4.5 million. Theref

ore, Poland considers that it would not
ore, Poland considers that it would not be in the interests of the public bodies to intensify enforcement action, e.g. by declaring the company bankrupt because in bankruptcy there would be a risk that public creditors would not receive the amount owed to them. TB has outstanding liabilities to its majority owner Eurofaktor of PLN 36 million and to other trade creditors of 8 million, thus altogether at least 74 million. Cf. interim report for Poland ESC of February 2006, p.16. According to the letters of 23 June 2005 and 16 May 2005 no enforcement measures were taken. 1. Applicable law Point 1 of Protocol No 8 provides that “notwithstanding Articles 87 and 88 of the EC Treaty, state aid granted by Poland for restructuring purposes to specified parts of the Polish steel industry shall be deemed to be compatible with the common market” if, , the conditions set out in the Protocol are met. The grace period for granting restructuring aid to the Polish steel industry under the Europe Agreement was ex

tended by the Council until 31 December
tended by the Council until 31 December 2006. This arrangement was recognised in Protocol No 8 as part of Poland’s accession to the European Union. In order to achieve this objective, it covers a time-frame extending before and after accession. More precisely, it authorises a limited amount of restructuring aid for the years from 1997 to 2003 and forbids any es to the Polish steel industry between 1997 and 2006. In that respect, it clearly differs from other provisions of the Accession Treaty such as the interim mechanism set out in Annex IV (the cerns state aid granted before accession in so far as it is “still applicable after” the date of accession. Protocol No 8 can therefore be regarded as which, for the matters that it covers, Consequently, while Articles 87 and 88 EC would normally not apply to aid granted before accession and which is not applicable after accession, the provisions of Protocol No 8 extend state aid monitoring under the EC Treaty to the Polish steel industry between 1997 and Th

e decision may be taken after Poland’s a
e decision may be taken after Poland’s accession under Article 88 (2) EC because, in the absence of specific provisions in Protocol No 8, the normal rules and principles should apply. Consequently Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 Point 18 (a) of Protocol No 8 gives the Commission the power to take “appropriate steps requiring any company concerned to reimburse any aid granted in breach of the conditions laid down in this Protocol […] if monitoring of the restructuring shows that the commitments for the transitional arrangements contained in this Protocol have not been fulfilled”. This provision requires the Commission to initiate the appropriate procedure in case of a breach of the commitments undertaken in Protocol No 8. This can be See Decision of 5.7.2005 in case C 20/04 Huta Czestochowa (not yet published) and decision of a.s, OJ C 22 of 27 January 2005, p.2. OJ L 83 of 27 March 1999, p 1. Finally, the same rat

ionale also applies to the aid granted b
ionale also applies to the aid granted between 1997 and 2001. The fact that viability of the firm has not been achieved points at non-implementation of the plan and misuse of the aid. Finally, since TB will be liquidated, as is stipulated in the new plan, at this stage the Commission doubts that it can agree to any change of the restructuring plan Point 18 (c) of Protocol No 8 gives the Commission the power to take “appropriate steps requiring any company concerned to reimburse any aid granted in breach of the conditions laid down in this Protocol […] if monitoring of the restructuring shows that Poland in the course of the restructuring period has granted additional incompatible state aid to the steel industry and to the benefiting companies in particular.” This provision requires the Commission to initiate the appropriate procedure in case of granting any additional aid to the Polish steel industry. Point 6 third paragraph of Protocol No. 8 clearly prohibits any additional restructuring aid except

that granted in accordance with point 6
that granted in accordance with point 6. Point 6, paragraph 2 limits the aid granted to TB-HB to the years 1997 to 2003. Hence, Point 18 (c) in conjunction with point 6 authorises the Commission to follow up any aid granted to a Polish The Commission is concerned that state aid in the sense of Article 87 (1) EC was granted to TB after 2003 as regards first the budgetary grant for employment ounting to PLN 877.000. Secondly the Commission doubts whether the non enforcement of the outstanding debt involves As regards the latter the Commission recalls that Article 87(1) EC covers interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect. This has in particular been confirmed in cases where a public body with responsibility for collecting social security contributions tolerates non or late payment of such contributio

ns, as its conduct undoubtedly gives the
ns, as its conduct undoubtedly gives the recipient undertaking a significant commercial advantage by mitigating, for that undertaking, the burden associated with the normal application of the social security system.In other words, where a public authority agrees to defer payments it undoubtedly confers an appreciable advantage. Instead it could have demanded immediate repayment of the total amount of its debts, if necessary by relying on the mortgage in its favour. Such advantage is capable of being classified as state aid for the Case C-256/97 [1999] ECR I-3913 para. 21. Case T-36/99 , not yet reported, para. 146. seems therefore to confer an advantage on TB. Such state aid would be incompatible with the common market, as point 6 of Protocol No. 8 prohibits any restructuring aid to the Polish steel industry other than that explicitly allowed for Finally the Commission cannot see any other reasons which could justify the aid in question. In particular, it cannot conclude that the conditions for

aid for R & D purposes are fulfilled,
aid for R & D purposes are fulfilled, especially in view of the fact that for a company in 5. Beneficiary of aid The Commission considers that the beneficiary of the aid is the TB group, including all its subsidiaries, possibly with the exception of TB-ZPR. In particular, HB-rolls and TB-Automotive are clearly part of the economic entity of TB group as they are 100 % owned by TB. Indeed, they are the result of a mere legal restructuring of the company whereby the rolls assets have just been transferred to HB-rolls and the automotive exhausts productions assets to TB-Automotive without any proper consideration. Moreover, it is also evident that the whole group, and in particular HB-rolls and TB-Automotive, benefited from the restructuring aid. In fact the aid enabled, despite the financial distress of the firm, the setting up of the production which is now performed by TB-Automotive. Finally, if some R & D should have been performed, this was clearly to the benefit of the activities of HB-rolls and T

B-Automotive. V. CThis decision shall be
B-Automotive. V. CThis decision shall be regarded as a decision to initiate the formal investigation procedure within the meaning of Article 88 (2) EC Treaty and Council Regulation (EC) No 659/1999. The Commissidown in Article 88(2) of the EC Treaty, requests Poland to submit its comments and to provide all such information as may help to assess the aid, within one month of the date of receipt of this letter. In particular, information should • information as regards the use of the granted state aid to the TB-group and evidence of that the aid has indeed been used for the envisaged purpose (in the absence of that information the Commission assumes that aid has been misused); This would also be the case in the absence of Protocol No. 8, as point 1 of the Communication from the Commission on Rescue and Restructuring aid and closure for the steel sector (OJ C 70 of 19.03.2002, p. 8) states that restructuring aid in the steel sector is not compatible with the common market. For the Commission Member of