Introduction |
The worldwide financial crisis has hit Romania’s economy rather hard.
Banks have become much more reluctant to provide financing and,
consequently, companies are experiencing difficulties in accessing
credit. The lack of capital blocks business activity which seriously
affects the whole economy. In such a context, companies may consider
obtaining financing from state aid schemes for which they are qualified.
State aid matters are regulated at the European Union level, and such
regulations are directly applicable to Romania as an EU member state.
The European Commission recognized that there is a legitimate need for
state aid to tackle the current crisis under certain circumstances, and
so the Competition Directorate of the European Commission established an
Economic Crisis Team. The member states may contact this crisis team
with regard to any state aid related measures in order to properly and
timely design their national state aid schemes in accordance with the
regulations adopted at the EU level, taking into consideration the fact
that the aid policy of a state plays an important role in diminishing
the harmful effects of the financial crisis in the real economy. |
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State Aid Concept |
General considerations
State aid is defined as an advantage in any form whatsoever conferred on
a selective basis to “undertakings” by national public authorities.
Because a company that receives government support obtains an advantage
over its competitors, the Treaty of the European Communities (the “EC
Treaty”) generally prohibits state aid unless it is justified by
reasons of general economic development. To ensure that this prohibition
is maintained and that the exemptions are applied equally across the EU,
the European Commission monitors the compliance of state aid granted at
the national level with EU rules.
The European Commission must first determine whether a company has
received state aid. This comes into question if the support meets the
following criteria: there has been an intervention by the state or
through state resources which can take a variety of forms (e.g., grants,
interest and tax relief, guarantees, government holdings of all or part
of a company, or the provision of goods and services on preferential
terms, etc.); the intervention confers an advantage to the recipient on
a selective basis, for example to specific companies or sectors of the
industry, or to companies located in specific regions; competition has
been or may be distorted; and the intervention is likely to affect trade
between and among the EU member states. By contrast, general measures
are not regarded as state aid because they are not selective and apply
to all companies regardless of their size, location or sector, as, for
instance, general taxation measures or employment legislation.
In accordance with EU regulations, the following types of aid are
considered as compatible with the EU common market: aid having a social
character, granted to individual consumers, provided that such aid is
granted without discrimination related to the origin of the products
concerned; and aid in order to repair the damage caused by natural
disasters. Additionally, the following types of support may be
considered compatible with the common market: aid to promote the
economic development of areas where the standard of living is abnormally
low or where there is serious underemployment; aid to promote the
execution of an important project of common European interest or to
remedy a serious disturbance in the economy of a member state; aid to
facilitate the development of certain economic activities or of certain
economic areas where such aid does not adversely affect trading
conditions to an extent contrary to the common interest of the European
Communities; and aid to promote culture and heritage conservation where
such aid does not affect trading conditions and competition in the
Community to an extent that is contrary to the common interest.
Generally, state aid becomes more acceptable if it aims at the increase
of the innovative capacity and the development of small and medium
enterprises, or is intended for the development of human capital
(training, job creation etc.). As noted above, the European Commission
supervises the compliance of national state aid schemes with the EU
regulations. The objective of such state aid control is, as laid down in
the EC Treaty, to ensure that government interventions do not distort
competition and intra-community trade.
Specific legal provisions in Romania
Government Emergency Ordinance No. 117/2006, as approved by Law 137/2007
(“GEO 117”), is the normative act that regulates the national procedures
in the field of state aid. GEO 117 provides, among other things, for the
obligations of the Romanian authorities that may grant state aid and the
beneficiaries of such state aid schemes, as well as the applicable
sanctions in the event of a breach of these obligations. Based on GEO
117, the power to authorize state aid plans was transferred from the
Competition Council to the European Commission. The Competition Council
now basically represents the contact point in the relations between the
European Commission and public authorities and institutions that are
state aid grantors, and beneficiaries involved in the state aid
procedures.
Unlawful state aid
If the European Commission decides that a state aid measure violates the
law, the beneficiary will have to reimburse the equivalent amount of the
state aid whose reimbursement was decided by the European Commission. In
such a case, the Competition Council has the obligation to transmit
immediately to the state aid grantor a copy of the European Commission
decision, and the grantor must then transmit immediately to the
beneficiary a copy of such decision. Also, the state aid grantor must
undertake all necessary measures in order to implement the European
Commission decision. If the beneficiary does not reimburse the state for
the aid it received, the grantor, based on the European Commission
decision, is entitled to submit a claim to the Bucharest Court of Appeal
requesting that the court annul the act based upon which state aid was
granted in the first place and order the reimbursement of the amount
granted as state aid, plus the corresponding interest. A second appeal
may be submitted against the decision of the Court of Appeal before the
High Court of Cassation and Justice of Romania. |
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Particular State Aid Schemes |
As a matter of principle, the fields of activity and regions for which
state aid schemes are to be applied are determined considering the
impact that such aid, once provided to certain fields of activity or
regions, will have in regional development or in the redress of certain
activities. There are particular state aid schemes that may be of
substantial interest to companies that, at this point, are searching for
financing opportunities in their fields of activity. Below are a few
such state aid schemes that might be attractive to potential
beneficiaries.
State Aid Scheme for a Sustainable
Economical Development
This state aid scheme for a sustainable economical development, approved
by the Government Decision No. 1680/2008, is in force since the 1st of
January 2009, and has as its purpose regional development by stimulating
investments and by creating new jobs in certain areas. The scheme is
applicable to the undertakings that are created in accordance with the
provisions of Law 31/1990, as further amended and completed (the “Company
Law”), and that cumulatively fulfill the following conditions: they
perform an initial investment having a value that exceeds the equivalent
in lei of €30 million; and they generate at least 300 jobs as a result
of such initial investment. The investments and the jobs that are to be
created may be in all sectors of activity, except for the ones expressly
mentioned in the annex to the aforementioned Government Decision
including, among others, commercial fishing, or the manufacturing or
trading of agricultural products. This state aid scheme is not
applicable to the undertakings that are considered as undertakings in
difficulty, or to the undertakings against which a decision of recovery
of state aid has been issued by the European Commission, if such
decision has not been implemented yet.
The aid is actually represented by the award from the state budget of
non-refundable amounts of money. A beneficiary can receive, based on
this scheme, the equivalent in lei of a maximum amount of €28.125
million, if it intends to perform the initial investment and create jobs
in any region of Romania, except for a region in the Bucharest-Ilfov
area, where the maximum amount is the equivalent of €22.5 million. State
aid is actually granted if the project has a stimulating effect, by
complying with one or more of the following criteria: a substantial
increase of the dimensions of the project as a result of the award of
state aid; a substantial increase in the finalization of the project; or
if the project would not have been accomplished in that region without
such state aid.
In order to ensure the compatibility of this scheme with other regional
state aid schemes, the undertakings cannot benefit from the state aid
provided based on the scheme if they have already received, in order to
cover the same costs, other state aid or de minimis aid from
other state aid grantors. This state aid scheme is available for the
period 2009-2013, and the Ministry of Economy and Commerce (“MEC”),
which is the grantor of this scheme, must publish on its website the
budget for each year and the date from when the undertakings may apply
for the award of state aid. In case the beneficiaries fail to comply
with any obligation undertaken as a pre-requisite to the awarding of
state aid or with any condition set by the grantor within the state aid
scheme, the beneficiaries will have to face the sanctions to be applied
by such grantor, leading to reimbursement of such state aid.
State Aid Scheme for Regional Development by
Stimulating Investments
This state aid scheme, approved by the Government Decision No. 753/2008,
is applicable to large undertakings that are set up in accordance with
the provisions of the Company Law and that cumulatively fulfill the
following conditions: they perform an initial investment having a value
exceeding the equivalent in lei of the amount of €100 million, and the
value of the eligible costs exceeds the equivalent in lei of the amount
of €50 million; and they generate at least 500 jobs as a result of this
initial investment. As previously noted, this state aid scheme is
applicable to “large undertakings”, actually representing the
undertakings that are not included in the definition of “small and
medium enterprises” (“SMEs”) set forth in Law 364/2004. According
to this law, SMEs are the undertakings that cumulatively fulfill the
following conditions: they have an annual median number of employees
smaller than 250; they accomplish a net turnover of up to €50 million,
in its equivalent in lei, or they hold assets that do not exceed the
equivalent in lei of €43 million, according to the last approved
financial situation of the company. Just as the previously mentioned
scheme, this state aid scheme is not applicable to the undertakings that
are considered as undertakings in difficulty, or to the undertakings
against which a decision of recovery of the state aid has been issued,
if such decision has not yet been implemented. This scheme is available
for the period 2008-2012.
“De Minimis” State Aid Scheme for the
Development or Modernization of Undertakings
The beneficiaries of this de minimis state aid, approved by the
Government Decision No. 1164/2007, may be undertakings that cumulatively
fulfill the following conditions: they are set up in accordance with the
provisions of the Company Law; they are headquartered and perform their
activity in Romania; they perform activities in one of the areas
mentioned in the annex to the Government Decision, such as the
manufacturing of clothing, wood products, glass, glass products or
furniture, printing activities, or administrative services; for a period
of 3 fiscal consecutive years before the date of the request; have not
received any de minimis aid or, if received, the cumulated amount of
such aid did not exceed the equivalent in lei of €200,000; at the moment
of requesting the state aid they present an investment plan that
reflects the manner in which the amounts will be used; they do not have
debts; they are not subject to any enforcement, judicial reorganization,
dissolution, or bankruptcy procedure; they are not considered
undertakings in difficulty; no decision of reimbursement of state aid
has been issued by the European Commission against them or, if issued,
such decision has already been implemented. This scheme is available
until 2011.
Potential State Aid in the Electricity and
Gas Field
The Competition Council has approved a state aid scheme of €28.4 million
for the support of investments in the extension and modernization of
distribution networks for gas and electricity. The Competition Council
has transmitted the notice to the European Commission and, if approved
by the European Commission, the scheme will be implemented. According to
this scheme, investment projects may be developed in any region of
Romania, and will have to be maintained in that respective area for at
least 3 years in the case of SMEs, and for 5 years in the case of large
enterprises. The projects must be co-financed, the maximum value to be
granted as state aid being 50%, except for the Bucharest-Ilfov region
where the value is a maximum of 40% of the eligible costs of the
investment. Applicants must not be economical distressed, they must not
be under a procedure of reimbursement of state aid considered unlawful
or abusively used, and they must prove their capability to co-finance
the project. They may not have any debts to the local or central budget
and they must have the necessary human resources in order to develop the
projects. If approved by the European Commission, this scheme will be
available until 2013. |
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Conclusion |
By
stimulating investments in specific regions and, consequently, the
creation of new jobs, state aid measures actually support both the
business environment and the economy itself. In times of financial
crisis, when the lack of financing has already had a disastrous impact
on companies that have seen their projects buried, the support coming
from state aid schemes may be just the solution to keep the economy
afloat, prevent the further increase of unemployment, and provide the
requisite incentive to new investment.
However, since the award of state aid is regulated in much detail, and
the infringement of the regulations has severe consequences for the
beneficiary -- including the obligation to reimburse the entire amount
granted as state aid together with the interest -- it is important for
the undertakings intending to apply for state aid schemes to obtain
qualified legal advice before and during the application procedure, as
well as during the implementation of the project developed based on such
state aid support. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2009 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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