Wednesday, February 26, 2020

EU Slaps On Half a Million Euro Bill for Illegal State Aid to Rail Freight Group

European Commission Penalises Company After a Decade of Hard Times
Shipping News Feature

ROMANIA – EUROPE – The European Commission (EC) has found that rail freight operator CFR Marfa received at least €570 million of incompatible State aid from Romania through a debt write-off and failure to collect debts from the company. The EC says that Romania must now recover the illegal aid, plus interest, from CFR Marfa. Executive Vice-President Margrethe Vestager, in charge of competition policy, commented:

"The rail freight market is an essential component of any economy's transport links. Certain public support measures in favour of the state-owned incumbent CFR Marfa have given them an unfair economic advantage vis-à-vis other operators. They consist of the cancellation of public debts and the failure of public creditors to collect debts from the company. This is in breach of EU State aid rules. Romania will now have to recover the incompatible aid."

CFR Marfa is the incumbent rail freight transport services provider in Romania. The company, which is fully state-owned, has been in economic difficulties for a number of years. It has a high level of debt, mainly towards the Romanian rail infrastructure manager CFR Infrastructura, which is also fully state-owned, and in turn had high debts to the national social security and tax administration agencies for several years.

Unlike passenger rail transport, the rail freight transport market in Romania is highly competitive, with numerous private operators, some having gained considerable market share following liberalisation of the market in 2007. In March 2017, the Association of Romanian Private Rail Freight Operators filed a formal complaint with the Commission alleging that CFR Marfa had received State aid in breach of EU rules.

On 18 December 2017, the Commission opened an in-depth investigation to establish whether several Romanian measures in favour of CFR Marfa were in line with EU State aid rules, specifically:

  • a debt-to-equity swap amounting to around €363 million (RON 1,669 million ) in 2013;
  • the failure to collect social security debts and outstanding taxes of CFR Marfa, as well as debts towards CFR Infrastructura, since at least 2010.
The Commission found that actions by the State enforcing CFR Marfa's social security debts and outstanding taxes towards the State budget as of June 2013 were ‘market conform’.

However, with respect to the remaining identified measures, the Commission found that, in the present case, the State acted in its capacity as a public authority rather than a shareholder of the company. Furthermore, even if the State had acted in its capacity as shareholder, and therefore the private market economy operator test was applicable, no private operator would have written-off its debt or abstained from actively enforcing the repayment of debts for years without a sufficient monetary compensation. As a result, the Commission concluded that the public support from Romania gave CFR Marfa an unfair economic advantage over its competitors. Therefore, these measures constitute State aid within the meaning of EU rules.

As CFR Marfa has been a company in difficulty since at least 2009, the Commission assessed the various measures under its Rescue and Restructuring Guidelines. EU State aid rules allow a State intervention for a company in financial difficulty under specific conditions, requiring in particular that the company is subject to a sound restructuring plan to ensure its return to long-term viability, that the company contributes to the cost of its restructuring, and that competition distortions are limited. In the present case, these conditions were not met: no sound restructuring plan was notified to the Commission, there was no contribution to the cost of a restructuring by the company, nor were compensatory measures to ensure that competition distortions are limited in place.

The Commission therefore concluded that the public funding granted by Romania to CFR Marfa, totalling a combined amount of at least €570 million plus interest, is incompatible with EU State aid rules and therefore needs to be recovered by Romania.

As a matter of principle, EU State aid rules require that incompatible State aid is recovered without delay in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.

The Commission says that it is well aware of the sensitive sector in which CFR Marfa operates and therefore the decision provides six months for the implementation of the recovery decision instead of the usual four months period.

CFR Marfa was incorporated as a joint stock company on 1 October 1998, following the reorganisation of the Romanian Railways incumbent, Societatea Naţională Căile Ferate Române ("SN CFR"). CFR Marfa provides rail freight transport services of, inter alia, domestic coal, cement, chemical products, grain and oil, wood, salt and metals.