State aid: Commission approves €500 million Luxembourgish scheme to support companies in context of Russia’s invasion of Ukraine

(Source: European Commission)

The European Commission has approved a €500 million Luxembourgish guarantee scheme to support companies across sectors in the context of Russia’s invasion of Ukraine. The scheme was approved under the State aid Temporary Crisis Framework, adopted by the Commission on 23 March 2022, based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (‘TFEU’), recognising that the EU economy is experiencing a serious disturbance.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This €500 million guarantee scheme will enable Luxembourg to mitigate the economic impact of Putin’s war in Ukraine and to further support companies across sectors affected by the current geopolitical crisis and the related sanctions. We continue to stand with Ukraine and its people. At the same time, we continue working closely with Member States to ensure that national support measures can be put in place in a timely, coordinated and effective way, while protecting the level playing field in the Single Market.”

The Luxembourgish support measure

Luxemburg notified to the Commission, under the Temporary Crisis Framework, a €500 million loan guarantee scheme to provide liquidity support to companies in the context of Russia’s invasion of Ukraine.

In light of the high degree of economic uncertainty caused by the current geopolitical situation, the scheme is aimed at ensuring that sufficient liquidity is available for the companies in need through the granting of a State guarantee on new loans to companies by enabling banks to continue lending to the real economy.

The measure will be open to companies of all sizes and sectors active in Luxemburg, with the exception of the financial sector.

Under the scheme, the beneficiaries will be entitled to receive new loans for up to six years that will be covered by a State guarantee not exceeding 90% of the loan amount.

The maximum loan amount per beneficiary that can be covered by the State guarantee is equal to either (i) 15% of the beneficiary’s average total annual turnover over a predefined time period; or (ii) 50% of the company’s energy costs incurred over a 12-month period.

The Commission found that the Luxembourgish scheme is in line with the conditions set out in the Temporary Crisis Framework. In particular, (i) the maturity of the loans cannot exceed six years; (ii) the annual interest rates on the loans respect the minimum levels set out in the Temporary Crisis Framework; and (iii) the guarantees will be granted by 31 December 2022 at the latest.

Furthermore, the public support will come subject to conditions to limit undue distortions of competition, including safeguards to ensure (i) a link between the amount of aid granted to companies and the scale of their economic activity; and (ii) that the advantages of the measure are passed on to the largest extent possible to the final beneficiaries via the financial intermediaries.

The Commission concluded that the Luxemburgish guarantee scheme is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Crisis Framework.

On this basis, the Commission approved the aid measure under EU State aid rules.

Background

On 23 March 2022, the Commission adopted the State aid Temporary Crisis Framework to enable Member States to use the flexibility foreseen under State aid rules to support the economy in the context of Russia’s invasion of Ukraine.

The Temporary Crisis Framework provides for the following types of aid, which can be granted by Member States:

  • Limited amounts of aid, in any form, of up to €35,000 for companies affected by the crisis active in the agriculture, fisheries and aquaculture sectors and of up to €400,000 per company affected by the crisis active in all other sectors;
  • Liquidity support in form of State guarantees and subsidised loans; and
  • Aid to compensate for high energy prices. The aid, which can be granted in any form, will partially compensate companies, in particular intensive energy users, for additional costs due to exceptionalgas and electricity price increases. The overall aid per beneficiary cannot exceed 30% of the eligible costs, up to a maximum of €2 million at any given point in time. When the company incurs operating losses, further aid may be necessary to ensure the continuation of an economic activity.  Therefore, for energy-intensive users, the aid intensities are higher and Member States may grant aid exceeding these ceilings, up to €25 million, and for companies active in particularly affected sectors and sub-sectors up to €50 million.

Sanctioned Russian-controlled entities will be excluded from the scope of these measures.

The Temporary Crisis Framework includes a number of safeguards:

  • Proportional methodology, requiring a link between the amount of aid that can be granted to businesses and the scale of their economic activity and exposure to the economic effects of the crisis; and
  • Eligibility conditions, for example defining energy intensive users as businesses for which the purchase of energy products amount to at least 3% of their production value.

The Temporary Crisis Framework will be in place until 31 December 2022. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended. Moreover, during its period of application, the Commission will keep the content and scope of the Framework under review in the light of developments regarding the energy markets, other input markets and the general economic situation.

The Temporary Crisis Framework complements the ample possibilities for Member States to design measures in line with existing EU State aid rules.  For example, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Furthermore, Article 107(2)(b) of the Treaty on the Functioning of the European Union enables Member States to compensate companies for the damage directly caused by an exceptional occurrence, such as those caused by the current crisis.

Furthermore, on 19 March 2020, the Commission adopted a Temporary Framework in the context of the coronavirus outbreak. The COVID Temporary Framework was amended on 3 April8 May29 June13 October 2020, 28 January and 18 November 2021.

The non-confidential version of the decision will be made available under the case number SA.102724 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

More information on the Temporary Crisis Framework and other actions taken by the Commission to address the economic impact of Russia’s invasion of Ukraine can be found here.

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