Crisis State aid: The Commission adopts important expansion to its Temporary Crisis Framework

On 28 October 2022, the European Commission adopted the second amendment to its State Aid Temporary Crisis Framework to support businesses affected by Russia's actions in Ukraine and the unfolding energy crisis. 

White & Case provides an overview of the key amendments.

The Temporary Crisis Framework ("TCF") was initially adopted on 23 March 2022 and amended on 20 July 2022 to support companies suffering from the consequences of Russia's actions in Ukraine. 

On 28 October 2022, the Commission adopted the second amendment to the TCF significantly expanding the scope of the possible State aid measures and providing Member States with more flexibility to support the companies weather the unfolding crisis.

What are the key amendments in the TCF?

The validity of the TCF has been prolonged until 31 December 2023. 

The amended TCF contains a number of important changes: this is already evident from its expanded volume - from originally 17 to currently 50 pages. 

The amended TCF significantly expands the scope of possible State aid measures and provides Member States with more flexibility to support the companies weather the unfolding crisis. 

The maximum aid ceilings applicable to limited amounts of aid have been exponentially increased and access to liquidity support for energy companies that must provide financial collateral has been adjusted. 

The amended TCF now also allows Member States to recapitalise companies facing solvency issues and introduces new State aid measures to stimulate companies to reduce electricity demand.

Amendments to the original TCF measures

Exponentially increased limited amounts of aid measures

Member States may notify aid schemes, under which companies may get up to €2 million of State support, a fourfold increase to the initial threshold of up to €500,000. The State aid cap for businesses in the agriculture sector was increased to €250,000 from €62,000 and for the fisheries and aquaculture to €300,000 from €75,000. 

Aid measures may be granted in the form of grants, loans, guarantees as well as other form of tax and payment advantages. 

State guarantees and subsidised loans 

While most of the provisions on subsidised loans remained unchanged, Member States are now enabled to provide guarantees as unfunded financial collateral to central counterparties or clearing members to cover new liquidity needs derived from the need to provide financial collaterals for cleared trading activities on energy markets for energy companies, with – under certain circumstances – even more than 90% coverage.

Aid covering exceptionally severe increases in natural gas and electricity prices

Companies affected by the soaring energy prices could now get up to €4 million of State support, a twofold increase to the initial threshold of up to €2 million. Member States will provide this support based on either past or present consumption, taking into account the need to keep both objectives intact: market incentives to reduce energy consumption and (now explicitly mentioned) to ensure the continuity of economic activities, i.e. to prevent beneficiaries to shift their consumption elsewhere. While in addition the overall aid cap has been increased from 30% to 50% of the eligible costs, which are calculated as the difference between the average energy costs in the eligible period and those in the reference period, another important increase of the potential aid amount results from the decrease of the reference period price factor from 200% to 150%.

In addition, the amended TCF has significantly expanded the possibilities to grant energy price compensation beyond these thresholds, as follows:

• If needed, larger companies may get up to €100 million, if the overall aid does not exceed 40% of the eligible costs;
• Alternatively, "energy-intensive businesses"¹, may get subsidies for 65% of their eligible costs, but the overall aid would be capped at €50 million; 
• Energy-intensive businesses from sectors with high intensity of trade with third countries and emission intensity, such as steel, coal, paper, textile manufacturing, listed in more details in Annex I of the TCF, may receive aid up to €150 million with a relatively generous cap of 80% of their eligible costs; 

In all three of these special cases, the beneficiary's EBITDA in the eligible period, including the overall aid, may not exceed 70% of its EBITDA in the reference period. In addition, in the two special cases concerning Energy-intensive businesses, the beneficiary must demonstrate that it has either a reduction in EBITDA (excluding aid) of at least 40% in the eligible period compared to the reference period, or – as required by the initial TCF – a negative EBITDA (excluding aid) in the eligible period. 

Finally, companies receiving aid to cover for the soaring energy prices, in excess of €50 million, will be required to submit within one year a plan that specifies how they will reduce their carbon footprint or how they plan to implement any of the requirements related to environmental protection or security of supply, such as, for example: covering part of its consumption from renewable sources, or directly investing in renewables; investing in energy efficiency as well as reduction or diversification from natural gas consumption. This requirement applies as from 1 January 2023.

TCF's new State aid measures

Possible recapitalisation of companies under tight conditions

The amended TCF now allows Member States to recapitalize their companies facing solvency issues, albeit under tight conditions. 
The recapitalisation aid provided to companies would have to be: (i) necessary, appropriate and proportionate; (ii) involve adequate remuneration of the State; and (iii) be accompanied by appropriate compensatory measures to preserve effective competition, including divestments of assets or a ban on dividend and bonus payments and acquisitions. 

For each recapitalised beneficiary, the Member State will have to present a long-term viability plan to the Commission and, where considered appropriate by the Commission, notify to the Commission for approval of a restructuring plan in accordance with the Rescue and Restructuring Guidelines within a specified period of time. 

A company that requires recapitalisation but belongs to a larger group of businesses will generally not be considered eligible for aid, except where it can be demonstrated that the company's difficulties are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself. In such cases, however, the group will be required to give a substantial contribution to the costs of the solvency measure. 

Introduction of a new novel type of State aid measure to reduce electricity consumption

The TCF introduces a novel type of aid measure to support the reduction of electricity consumption, in order to slow down the exceptional growth of the electricity prices. 

Conclusions

In summary, the amended TCF takes account of the calls for more flexibility of the State support measures and the particular need to address high energy prices. The newly adopted text clarifies the eligibility of the different aids and increases the ceilings of the limited amounts of aids. It also allows for recapitalisation of companies facing serious solvency issues under tight conditions as well as new measure that supports electricity demand reduction. 

_{1 An 'energy-intensive business' is a legal entity where the purchases of energy products (including energy products other than natural gas and electricity) amount to at least 3.0% of the production value or turnover, based on data from the financial accounting reports for the calendar year 2021. Alternatively, data for the first semester of 2022 may be used, in which case the beneficiary may qualify as 'energy-intensive business' if the purchases of energy products (including energy products other than natural gas and electricity) amount to at least 6.0% of the production value or turnover.}

Jia Liu (White & Case, Associate, Brussels) contributed to the development of this publication.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2022 White & Case LLP}