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Jej Ekscelencja Commission europenne B1049 Bruxelles Belgique Europe


EUROPEAN COMMISSION State aid N105/2007 - PolandGuarantee scheme for export contracts ROCEDUREKUKE operates both on its own as a commercial insurer according to the Insurance Act private part and on

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Document on Subject : "Jej Ekscelencja Commission europenne B1049 Bruxelles Belgique Europe"— Transcript:

1 Jej Ekscelencja Commission européenne, B
Jej Ekscelencja Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefon: 00-32-(0)2-299.11.11. EUROPEAN COMMISSION State aid N105/2007 - PolandGuarantee scheme for export contracts ROCEDURE KUKE operates both on its own as a commercial insurer, according to the Insurance Act ("private" part), and on behalf of the State Treasury as an Export Credit Agency under the provisions of the Act of 7 July 1994 on export insurance guaranteed by In order to ensure transparency in the financial relations between KUKE and the State Treasury, KUKE has a separate bank account ("National Interest Account") with the Polish central bank for all its activities conducted on behalf of the State Treasury. The commercial activities of KUKE are run on separate accounts with commercial banks. In case of bankruptcy, the funds accumulated in the National Interest Account are not KUKE receives from the State budget a fee of 20% of the premiums collected from its public activities to cover its administrative expenses with these activities. KUKE can also Costs are allocated between the private and the public part according to an analytical accounting system involving cost centres. Percentage ratios are calculated at least once a year for each activity carried out by each cost-generating administrative unit. The overall cost allocated to each operation is the sum of the proportional costs of all administrative The National Interest Account is not subject to corporate income tax, since it is, in fact, an the fee received by KUKE from the State for administering this account is subject to normal taxation. Decisions on the applications are taken by the Export Insurance Policy Committee, which is made up of one representative fro

2 m each of six Ministries appointed by th
m each of six Ministries appointed by the Prime The present scheme entered into effect on 20 December 2006. The legal basis of the scheme is article 2(2) of the Act of 7 July 1994 on export insurance guaranteed by the State Treasury as supplemented by Resolution 111/2006 of the Export Insurance Policy Committee of 20 December 2006. The other public and private activities developed by KUKE are not covered by the present notification. The Polish authorities notified the scheme for reasons of legal ceThe guarantee scheme is open to companies in all sectors having a registered office in Poland, subject to a positive credit risk assessment (see below under section "The scoring system"). Companies in financial difficulties within the meaning of the Guidelines on State aid for rescuing and restructuring firms in difficulty are excluded from the application of the scheme by Article 3(1)1) of Resolution 111/2006. The guarantees related to export contracts issued by KUKE are re-guaranteed by the State Treasury. These guarantees are issued at the request of exporters for the direct benefit of foreign importers. They relate to the performance of the exporter and insure the importer against the risk of default by the exporter. The guarantees are classified according to the following categories: Tender guarantees (bid bonds) compensate the importer in case the Polish exporter that won a tender refuses to sign the contract under the terms proposed in the tender or otherwise violates obligations inherent to the tender procedure. The bid bonds are submitted before participating in the tender procedure; Advance payment guarantees which compensate the importer for an advance payment to the Polish exporter in case the latter fails to meet its contractual obligat

3 ions; Performance guarantees which comp
ions; Performance guarantees which compensate the importer does not perform or only partially performs on its contractual obligations and refuses to remedy the damages, compensateractual penalties; Warranty guarantees which compensate the importer in case the Polish exporter refuses to remedy the damages or to compensate losses incurred during the Before issuing a guarantee, KUKE performs a detailed risk assessment of the exporter's owing three elements: Financial risk analysis based on financial statements for the last three years. A series of nine profitability and liquidity indicators are assessed. A number of points is assigned for each indicator and a maximum of 70 points can be obtained in this category; Sector risk analysis on the basis of KUKE's experience with claims and loss ratios in domestic risk analysis, economic sectors are divided into ten risk groups, with scoring points ranging from 0 to 15Age of the company based on statistical data available and KUKE's experience with claims, with scoring points ranging from 0 to 15 in four categories OJ C 244 of 1 October 2004, p. 2. This is different from the other products offered by KUKE, commonly named export credits, which represent insurance against the risk of default by the foreign importer (for the direct benefit of the exporter). Thus, the notified scheme does not concern export guarantees. […] Business secret. […] Business secret. Depending on the total number of scoring points obtained in companies are classified in one of the following five risk categories: Risk level High Number of points 0 – 40 41 - 50 51 - 60 61 - 70 71 - 100 All companies scoring less than 31 points are considered not to be financially viable and will not be eligible for guarantees.

4 In application of the general exclusion
In application of the general exclusion of companies in difficulties from the application of the present scheme, Poland submitted that the following companies will be considered as being in difficulties and therefore not eligible: Limited companies, where more than half of their registered capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months; Unlimited companies, where more than half of their registered capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months; Whatever the type of company concerned, where they fulfil the criteria under domestic law for being the subject of collective insolvency proceedings. Before 20 December 2006, the premiums charged for the various types of guarantees issued by KUKE were the following : […]Advance payment and performance guarantees […]*% for guaranteed amounts below PLN 35 million illion o […]*% for guaranteed amounts above PLN 100 million Warranty guarantees: […] Business secret. Annual premiums as percentage of the guaranteed amount. Business secret. […]*% for guaranteed amounts below PLN 15 million […]*% for guaranteed amounts between PLN 15 and 50 million […]*% for guaranteed amounts above PLN 50 million. In order to make the premiums charged more market-oriented and more strictly related to the underlying risks, the Polish authorities commissioned a study on premium rates for contractual and other types of guarantees available to companies in the Polish market to an independent institution. The study assessed the range of premiums charged

5 by 17 banks, which are representative of
by 17 banks, which are representative of the Polish market. On the basis of the market assessment, it was recommended that the premium rates for contractual guarantees should vary between 1.6% and 6% of the guaranteed amount per year in order to reflect market nks charged different premiums depending on several factors, among which the type of collateral provided and the type of guarantee On the basis of this study, the base rate of the premium to be paid by exporters for the guarantees was set at […]*% per year for the exporter graded as average risk. This rate applies to an advance payment or performance guarantee issued for a period of less than 2 In order to keep the premium within market levels, the Polish authorities have committed to undertake at least one annual market check. For higher than average risk exporters, the premium base rate of […]*% will be increased by […]*% and for high risk exporters it will be increased by […]*%. For lower than average risk exporters, the premium will be decreased by […]*% and for low risk exporters, it will be decreased by […]*%. The premium base rate will also be decreased or increased depending on the type of guarantee, additional securities provided by the exporter and the period of validity of the guarantee, in accordance with the following criteria: Type of guarantee : a reduction in the base rate of […]*% for a tender guarantee and an increase of […]*% for a warranty guarantee given the inherent risk of each Additional securities : in case securities are provided, the risk is lower and the premium base rate will be reduced by an amount which varies according to the classification of the collateral – movables […]*%, real estate […]*%, blocking of funds on the applicant's bank account or on a bank escr

6 ow account […]*% and cash deposit […]*%.
ow account […]*% and cash deposit […]*%. In case the securities cover only part of the guaranteed amount plus the estimated statutory interest charged during its validity period, proportional reductions will be applied; Validity of the guarantee : Taking into account the positive correlation between the validity period of the guarantee and the unpredictability of the applicant's risk, the premium will be increased by […]*% for guarantees with more than 2 years of The base rate applies to advance payment and performance guarantees (see paragraph 23). The following tables summarise the premium to be charged for each type of guarantee, depending on the risk level of the exporter, the collateral provided and the validity of the – Premium for guarantees Risk level Type of collateral provided Lower than average Higher than average Tender guarantees No collateral Movables Real Estate Blocked funds Cash deposit […]* Advance payment and performance guarantees No collateral Movables Real Estate Blocked funds Cash deposit […]* Warranty guarantees No collateral Movables Real Estate Blocked funds Cash deposit […]* In case the collateral does not cover the entire liability, the premium for the respective type of collateral is only applied to the amount covered by the collateral. 7 Table 3 – Premium for guarantees valid for more than 2 years Risk level Type of collateral provided Lower than average Higher than average Tender guarantees No collateral Movables Real Estate Blocked funds Cash deposit […]* Advance payment and performance guarantees No collateral Movables Real Estate Blocked funds Cash deposit […]* Warranty guarantees No collateral Movables R

7 eal Estate Blocked funds Cash deposit
eal Estate Blocked funds Cash deposit […]* In case KUKE has a significantly different risk perception of a given applicant when compared to other applicants, there is a possibility to deviate from the scoring and pricing systems mentioned above. In this context, the following elements will be taken into Quantitative elements : relation between the requested guarantee amount and the scale of activity of the applicant. In case the guarantee amount is disproportionate to the applicant's scale of activity, KUKE may refuse an application despite a positive financial assessment; Technical and financial ability to fulfil contractual obligations : information on performance of previous cKUKE's experience and other non-financial information : past experience of contractual relations between KUKE and the applicant. In case of good past experience (no claims paid, positive financial results) it is possible to upgrade the applicant's risk level. Conversely, the applicant's risk level may be downgraded in case of negative past experience. Whenever a high risk exporpast experience with KUKE, the application will be refused. Other information concerning the applicant, such as court proceedings, financial obligations not reflected in the financial statements and auditor's reservations to the financial statements, may result in downgrading the applicant's risk level and, consequently, increasing the premium rate. On account of the above-mentioned elements, the Export Insurance Policy Committee may upgrade the applicant's risk level by one category at the most and downgrade it by one or more categories. The maximum nominal amount of guarantees that KUKE can issue is set yearly in the Budgetary Act. The Export Insurance Policy Committee established an additi

8 onal limit for the maximum amount that c
onal limit for the maximum amount that can be covered by one single guarantee (3% of the annual limit) and one for the maximum amount that can be guaranteed for one single exporter (7% of the annual limit). In the past, the average annual amount of all guarantees issued by KUKE has been PLN 1 361 million (around EUR 358 million). The amounts covered by the individual guarantees are highly variable and have ranged from […]*% to […]*%. The average guarantee amount is […]*%. The duration of the guarantees has averaged 391 days. The amount of the guarantee cannot exceed 80% of each obligation stipulated in the Article 5(a) of the Act of 7 July 1994 on export insurance guaranteed by the State Treasury. The following table summarises the main profitability indicators of KUKE in the last three years – Profitability indicators (amounts in PLN million) No. Indicator 2004 2005 2006 Total 1 Premiums received 2 Assets recovered 3 Fee paid by the State 4 Claims paid by KUKE 5 Profitability (1+2-3-4) In the last three years, the income generated by the guarantee scheme, including premiums received and assets recovered, exceeded the costs, which include the administrative expenses of running the scheme and the claims paid, by […]*. KUKE had positive SSESSMENT OF THE AID MEASUREScope of the notification The notification concerns a part of the public activities of KUKE – the guarantee scheme for export contracts. It does not concern the other (public or private) activities of KUKE. Therefore, the present decision is without prejudice to any possible Commission position on the other activities developed by KUKE and on the overall relation between the State According to Commission's information, the fee paid by the State to KUKE as remuneration covers th

9 e administrative costs related to the ru
e administrative costs related to the running of the scheme. Thanks to the separation of the commercial activities of KUKE from its activities undertaken on ubsidisation of the commercial part of KUKE is prevented, even if surplus is created on the National Interest Account. The Commission therefore does not consider it necessary for the purposes of the present case to enquire whether the fee contains over-compensation. ticle 87(1) of the EC Treaty According to Article 87(1) of the EC Treaty, "any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort In line with other guarantee schemes assessed by the Commission, profitability must be assessed from the point of view of the State. Thus, the fee paid by the State to KUKE for running the scheme is taken into account, rather than the real costs incurred by the latter. competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.". The Commission outlined its approach on the assessment of State guarantees in the Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees (hereafter "Notice”). As described in point 17 and footnote 2 of this decision, the present scheme covers guarantees relating to the performance of the exporter and insures the importer against the risk of default by the exporter. Therefore, the scheme does not concern export credit guarantees within the meaning of point 1.2 of the Notice, and the Notice is applicable. Point 4 of the Notice contains conditions, the fulfilment of which is considered to exclude the presence of aid. According to point 4.3

10 , a guarantee scheme, which fulfils al
, a guarantee scheme, which fulfils all the following conditions, does not constitute state aid under Article 87(1) of the EC Treaty, because it does not provide an advantage to the beneficiaries: the scheme does not allow guarantees to be granted to borrowers who are in financial difficulty; the borrowers would in principle be able to obtain a loan on market conditions from the financial markets without athe guarantees are linked to a specific financial transaction, are for a fixed amount, do not cover more than 80% of each outstanding loan or other financial obligation (except for bonds and similar instruments) and are not open-ended; the terms of the scheme are based on a realistic assessment of the risk so that the premiums paid by the beneficiary enterprises make it, in all probability, self-financing; the scheme provides for the terms on which future guarantees are granted and the overall financing of the scheme mustthe premiums cover both the normal risks associated with granting the guarantees and the administrative costs of the scheme, including, where the State provides the initial capital for the start-up of the scheme, a normal return on that capital. Point (a) above The provisions of the scheme explicitly exclude firms in difficulty, in the sense of the uing and restructuring firms in difficultyPoint (b) above OJ C 71 of 11 March 2000, p. 14. The Commission is currently assessing restructuring state aid given to three Polish shipyards (Gdynia, Gdansk and Szczecin), which have benefited from guarantees extended by KUKE in the past. However, since these cases deal with companies in difficulties, all the guarantees from which they have benefited in the past and will benefit until that

11 time when they will no longer be conside
time when they will no longer be considered as companies in difficulties are assessed together with the other forms of aid included in the respective restructuring state aid packages. The present decision is without prejudice to any Commission decision with regard to these three cases. will ensure that high risk exporters are not eligible. Therefore, it can be assumed that all exporters eligible under the scheme are in principle able to obtain loans from the financial markets under normal conditions. Point (c) above According to the information submitted by Poland, the guarantees, which are linked to specific export transactions, are issued for a fixed amount and cannot cover more than 80% of each individual obligation. Therefore it can be concluded that this point of the Notice is met. Point (d) above The new scoring system for export contract guarantees is based on an individual risk assessment according to a wide range of objective criteria. The base level premium […]*% was set on the basis of a reliable independent study. Furthermore, different premiums are allocated to different types of risk, with higher premiums being charged for guarantees that are more likely to default. Therefore, the revenues will also increase according to the risks that are run by issuing the guarantees. The correct level of the premiums charged is checked and adjusted in accordance with the data obtained via the performed at least once a year. The Polish authorities provided evidence showing that the guarantee scheme in place until 20 December 2006 was generally profitable. Given that the system in place since that date generally implies higher premiums and a stricter relation between the premium level and the underlying risk, it can be assumed that, in all probab

12 ility, the scheme will remain Consequent
ility, the scheme will remain Consequently, the Commission concludes that the system devised by Poland appears to be self-financing. However, due to the current lack of empirical data on the new system, which would allow the confirmation of such assumptions, the scheme needs to be reviewed in accordance with its actual performance, in particular on the basis of the data obtained within the annual monitoring exercise. Point (e) above The information provided by Poland shows that the conditions for granting guarantees are specified in detail and that these cond least once a year. Point (f) above The Polish authorities indicated that no capital for the start-up of the scheme was fact that KUKE was already Information supplied by Poland indicates that in the last three years (2004-2006), the scheme’s revenues (from premiums and asset recoveries) exceeded its costs (administrative costs and the costs of the claims), even though in one year a negative See paragraphs 18 to 20 above. result occurred. Since the spread of premiums was established taking into account this past experience, it can be expected that the scheme will also in the future be able to cover its costs. This, however, needs to be reviewed at some point in time on the basis of data gathered from the annual monitoring exercise. For the reasons mentioned above, the Commission comes to the conclusion that the system that Poland introduced on 20 December 2006 for export guarantees complies with the conditions set out in the Notice and therefore does not constitute state aid within the meaning of Article 87(1) of the EC Treaty. However, in line with previous cases where empirical data on the working of the scheme is missing, the Commission considers it appropriate to limit the validity of th

13 is decision to 31 December 2011. The Pol
is decision to 31 December 2011. The Polish authorities have accepted to re-notify the measure before that date, allowing the Commission to review the scheme, taking into account factual data Notification requirement / legality The Polish authorities notified the scheme for reasons of legal certainty, since they Although the measure has already entered into force on 20 December 2006, there was no ities to notify it, since it does not constitute state aid. The measure has therefore been legally implemented. The present decision does not prejudge any Commission position on the guarantees ONCLUSIONOn the basis of the foregoing assessment, the Commission decided that the notified Polish guarantee scheme does not constitute state aid in the meaning of Article 87(1) of the EC Treaty. However, the measure must be re-notified before 31 December 2011, at which point in time the Commission needs to review the functioning of the system, if it is to be maintained. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/commun . Your request should be sent by registered letter or fax to: European Commission Directorate-General for Competition Case N35/2006 – France – Guarantee scheme for shipbuilding financing and bonding and case N512/2003 – Germany – Guarantee scheme for ship financing. Directorate State Aid II Rue de la Loi/Wetstraat, 200 For the Commission Member of the Comm