EU Commission overturns Propapier ruling despite opposition from Smurfit Kappa

It concluded the positive effects of the aid on regional development outweigh its negative effects on competition.

Re-assessed the case

FoodProductionDaily reported in 2012 Smurfit Kappa​ successfully urged the European Court of Justice to reverse the April 2008 verdict, which saw Progroup-owned Propapier PM2 awarded around €83m to fund the construction of a paper mill.​

The Ireland-based firm called for an “annulment”​ of the decision at the time, arguing the EC failed to fulfil its obligation to initiate a formal investigation procedure, contrary to its own regulations.

The Commission has re-assessed this case, after the annulment of its original decision of 2008 by the EU General Court, in light of the guidance provided by the court (case T-304/08​).

In a separate investigation, the Commission found a waste water plant and surrounding infrastructure built by the German state do not involve state aid, as they are general infrastructure, not dedicated specifically to Propapier. Moreover, the wastewater treatment fees charged to Propapier cover the incremental costs and involve no state aid.

In 2008, the Commission approved €43.4m public financing granted by Germany to Propapier for a €350m project to build a paper production plant in Eisenhüttenstadt (IP/08/532​).

Disadvantaged region

Eisenhüttenstadt is part of a disadvantaged region with high unemployment and low income, eligible for regional aid. Following an appeal by Propapier's competitor Smurfit Kappa, the EU General Court annulled the 2008 decision in July 2012 because the Commission should have assessed whether the positive effects of the aid on regional development outweigh the negative ones.

The Commission then opened an investigation in May 2013 to assess the balance of the positive and negative effects of the aid, and investigate concerns that a situation of structural overcapacity may have existed in the relevant paper sectors at the time of the investment decision and may have been maintained or reinforced by the aid.

The Commission's investigation found the aid measure is in line with the applicable 2007 regional aid guidelines (see IP/05/1653​), in particular the rules on large investment projects.

Moreover, the aid was necessary to trigger the investment in the region and proportionate to the regional handicaps it seeks to alleviate.

A 2007 study concludes additional investments were necessary in the sector to meet growing demand; hence the sector was not in a situation of structural overcapacity. The Commission also took account of the creation of 600 jobs through the investment and concluded the positive effects far exceeded the negative ones.

Illegal state subsidies

In October, 2010 the Commission opened an investigation following a complaint by a competitor of Propapier, alleging Germany granted illegal state subsidies by constructing a dedicated waste water treatment plant, a new road and a parking lot, as well as enlarging the Oder-Spree-Canal, all to the benefit of Propapier.

Furthermore, the fees charged by the public waste water treatment plant for processing waste water were alleged to be lower than what a private investor would charge for these services.

The Commission's investigation found the various infrastructure projects financed through State resources in the newly extended industrial park where the Propapier plant is situated are not exclusively dedicated to the paper mill but are open to all potential customers on equal terms. They are therefore general infrastructure measures and do not constitute selective advantages in favour of Propapier.

The Commission also found the fee charged by the local waste water treatment facility to Propapier involves no state aid because it covers the incremental cost of the service provided. This approach has also been applied for the assessment of other infrastructure measures, most importantly for airport, port and research infrastructure.

Propapier is a large enterprise belonging to Progroup, which is active in the production and sale of corrugated case material and corrugated board. The newly built paper plant in Eisenhüttenstadt produces two types of corrugated case material, namely testliner and fluting made from recycled fibre. The investment started in 2007 and was completed in 2010.

The non-confidential version of the decisions is available under the case numbers SA.23827​ (investment aid) and SA.36147​ (infrastructure aid) in the State Aid Register​ on the competition​ website once any confidentiality issues have been resolved.