In November 2010, Germany notified the Commission that it intended to provide up to regional aid to BMW (BMWG.DE) for the construction of a production site in Leipzig, eastern Germany for the BMW “i3” electric car and the “i8” hybrid rechargeable car.
The EU regional aid guidelines (see IP/05/1653) allow the granting of aid for investment projects if – on balance – their positive impact on regional development outweighs the distortion of competition brought about by the aid.
In recent years, the Commission has assessed a series of projects in the automotive sector in order to verify that this balance test is met and that the aid is necessary and proportionate for implementing the investment (case numbers SA.34118 (Porsche), SA.36754 (Audi), and SA.34998 (Ford)).
In its July 2014 decision (2011/C) (ex 2010/N), the Commission authorised only €17 million out of the €45 million originally notified by Germany, representing the cost differential between the two locations of Munich and Leipzig under consideration by the BMW Board once, inter alia, structural investment, planning costs, fixed costs and cost of materials etc were taken into account.
€17M therefore represented the minimum amount necessary to change the location decision of the aid recipient [BMW] from Munich, which is situated in a more economically developed region, to Leipzig in eastern Germany.
The Commission’s decision was appealed by BMW, supported by the Land of Saxony, to the General Court of the European Union, who argued that the Commission had fallen into manifest error in calculating the incentive effect necessary.
In BMW and Saxony’s view, the aid amount necessary to provide a proportionate incentive effect should not only have only compensated for the disadvantages of the site location (€17M) but should also have included a further €29M for other “unquantifiable” costs associated with the risks of an investment in a completely new car at a new location some 500 km from its principal manufacturing base, to the maximum extent permitted under the Commission’s regional aid guidelines.
The Commission rejected these counter-arguments stating that internal BMW documents dating from 2009 supplied by the German Government in fulfillment of its notification obligation to the Commission showed that, without the regional aid in question, the investment costs for Munich would have been €17M lower than for Leipzig.
The Commission also noted the strategic advantages of Leipzig as compared to other locations. In addition to the fact that BMW already had a manufacturing presence in the city meaning that it could easily increase production, it was not necessary for BMW to commence construction from zero, that the Leipzig production location was not far from locations producing carbon fibre reinforced plastic materials, that there no communication difficulties, that protection of know-how was ensured and, lastly, the location was not particularly far from BMW’s existing research centre.
BMW i3 electric car (Image credit: Pixaby)
In its judgement of 12th September 2017 (T-671/14), the General Court dismissed BMW and Saxony’s appeals on all counts, and in doing so, re-confirmed a number of fundamental principles which underpin the application and assessment of regional aid:
- It is not an appropriate use of State Aid to eliminate all investment risk associated with a particular project. On the contrary, such risks are the responsibility of the undertaking receiving aid, all the more so since the other disadvantages claimed by BMW were unquantified (and partly unquantifiable) but part and parcel of any normal commercial investment decision (recital 105);
- The fundamental logic of the Regional Investment Guidelines that the costs covered by State Aid are to be calculated before the commencement of works. Therefore aid may only be granted under aid schemes if the recipient has submitted an application for aid and the authority responsible for administering the scheme has subsequently confirmed in writing that all the conditions necessary for the approval of aid have been fulfilled. In any case, the aid intensity must not go beyond the actual funding gap of the investment project (recital 125).
- The appellant’s assertions that it is possible to grant aid [up to] the authorised ceilings was also explicitly rejected as it implicitly (incorrectly) suggests that there is no requirement to conduct an assessment of the proportionality of the amount of aid or of whether the positive effects of the aid outweigh the negative effects on trade between Member States and distortion of competition (recital 107); lastly,
- That case law dictates that the Commission can only declare aid compatible with the Internal Market only if that aid contributes to the objectives specified in, this case, Article 107(3) TFEU. In other words, Member States cannot be permitted to make payments (or “over compensate”) aid beneficiaries which would exceed the minimum necessary to achieve objectives which, under normal conditions, an aid recipient would not have undertaken. To do otherwise would represent an unconditional financial subsidy to the aid recipient, and would serve no purpose that could be compatible with State Aid rules the Court ruled (recital 120).
[Transparency statement: A member of the author’s family owns a BMW i3!]