Recovery Pursuant to Authoritys Decision 148/04/COL Regarding Environmental Tax Measures

Reference is made to the Competition and State Aid Directorate’s (CSA) letter dated 24 October 2005 in which the CSA requests information on the following issues:

1. Please establish and transmit to the Authority a list of all aid recipients and indicate clearly how many and which of these beneficiaries will be subject to the recovery. Please also indicate the recovery amounts for each of the aid recipients.

Such a complete list is still to be established. The Ministry has so far received from the Customs and Excise Directorate (CED) a list of undertakings which had, in the pertinent period, an electricity consumption above 150 GWh. For an explanation for this threshold, see our answer to Q 2 below.

It is necessary however to further process this information, and in consideration to the concerned undertakings, let them comment upon the final list. As soon as the CED as first instance has made its recovery decisions, a list covering those decisions will be transmitted to the CSA.

2. Please indicate how the recovery amounts have been calculated including the application of interest rates.

Please indicate whether and in which manner you have applied the de minimis block exemption for the purpose of recovery (Act referred to under point 1 e in Annex XV to the EEA Agreement, Commission Regulation 69/2001).

According to the Authority’s decision the amount to be paid by undertakings should equal the European Community minimum as laid down in the Energy Tax Directive, i.e. 0.5 euro/MWh. ^{1The Exchange rate used is NOK/Euro 1 October 2002 (Article 13 in the Energy Tax Directive). That gives NOK/Euro = 7.315 (Source: Norges Bank and OJ 2002/C 237/01), and a recovery rate of 0.37 øre/kWh.}>

In principle all undertakings that have used zero-rate electricity should be contacted in order to calculate aid received including interest. However, as the number of undertakings in this group is close to 10 000 this would be excessively burdensome, and it seems reasonable to take a more practical approach. In the Ministry’s letter dated 1 September 2004 to the Authority the Ministry stated that the de minimis Regulation will be applied in order to reduce the number of undertakings to contact.

The Ministry’s target is to identify undertakings with a level of consumption of zero-rate electricity in the pertinent period that, when adjusted for interest, corresponds to a level of incompatible aid exceeding a level of permitted de minimis. When adjusting for interest, ESA’s reference rate is applied. ^{2ESAs reference rates of interest are listed as 6.32 percent in 2003 and 4.62/3.75 in 2004. The Ministry uses the listed rate for 2003, the mean of the listed rates for 2004 and the lowest rate listed for 2004 as a proxy for the 2005-rate. As a simplification, it is assumed that the undertakings received the aid in the middle of the period in 2003, i.e. interest rate accumulates for 5.5 months in 2003. Interest rate accumulates for 12 months in 2004 and 2005.}>

Viewed against this background, the Ministry should contact all undertakings with a consumption of zero-rate electricity in the relevant period exceeding 200 GWh ^{3When converting the euro amount of permitted de minimis to NOK using ESAs listed rate of conversion in 2005 (NOK/Euro = 8,264), the permitted amount of de minimis must not exceed 824 600 NOK. Adjusted for interest rates according to fotnote 2, the permitted level of aid received must not have exceeded 742 000 NOK. NOK 742 000/ 0,37 øre pr. kWh = 200 GWh.}>. However, in order to include a margin, the CED has identified undertakings with a consumption exceeding 150 GWh. As stated earlier, this procedure reduces the number of undertakings to contact considerably, whilst the amount of recovery does not get reduced in the same order of magnitude.

In January 2004 a regional de minimis scheme was introduced in relation to employers' social security contribution. The line of action described above could thus conflict with a direct application of the de minimis Regulation, because there in various degree can be cumulation for the undertakings that are not contacted. However, according to estimations from Statistics Norway based on electricity consumption in 2001 prescribed to 2003, more than 75 percent of the undertakings not being contacted are located in an area where de minimis in relation with the social security contribution is not assigned. For undertakings located in other areas, the numbers of undertakings to contact differ negligible when setting the level of de minimis to one third of the permitted amount vs. the full amount 4If the relevant period is defined as 2003-2006, the undertakings in question are granted a maximum of two thirds of the permitted amount of de minimis in relation with the social security contribution. The Ministry will emphasise that when the threshold (150 GWh) is set lower than the level corresponding to this amount will allow for other possible given de minimis aid.. Based on these estimates, it is suggested, that the Regulation in any event could be used as a reference point in order to implement the Authority’s decision in a proportionate manner.

If the de minimis regulation has been or will be applied, please provide information regarding the respect of the maximum threshold of 100 000 Euros (recital (7) and Article 2 (2) of Regulation 69/2001) and the time period of three years (recital (5) and Article 2 (2) of Regulation 69/2001). The cumulation with other de minimis aid should also be elaborated upon, see Article 3 of Regulation 69/2001.

The Ministry will map the de minimis aid previously granted to the undertakings that are to be contacted. The amount will be reduced in such a way that the maximum threshold of 100 000 Euros will not be exceeded for any undertaking.

3. Please explain in detail the Finance Minister’s statement that the recovery in Norway would take place in the same manner as in Sweden. In this respect, please also explain the background for the statement that the Swedish tax exemption “in reality” was the same as the Norwegian tax exemption and demonstrate what the impact this understanding would have for the recovery process, i.e., whether some undertakings, and which ones, would not be subject to recovery.

The statement referred to was given by the previous Finance Minister, and the Ministry does not find it appropriate to comment upon his statement as such. However, the Ministry will comment upon why Decision 148/04/COL can be implemented in the same manner as in Sweden.

The Swedish tax scheme assessed by the Commission was in its main effects limited in the same way as the Norwegian exemption. Seen from the point of view of the Norwegian recipients they have thus been in the same situation as their Swedish competitors. As aid instruments should at the outset be dealt with according to their effects, it seems thus reasonable that the two parallel decisions (by the Commission and by the Authority) are also implemented in the same way.

It seems that the European Commission has acknowledged that its decision can be implemented without including the use of electricity in processes outside the scope of the new Energy Tax Directive. In order not to discriminate Norwegian recipients under the Norwegian scheme, it seems appropriate to do the same in Norway.

If the purpose of the said statement is to suggest that undertakings which use electricity as an “ingredient” in the production process should not be subject to recovery, the Authority would like an explanation on how such an approach can be reconciled with the fact that the same point of view was argued as a subsidiary plea before the EFTA Court in Joined cases 5-7/04, Norway v. the Authority, judgment of 2l July 2005 without it having an impact on the Court’ s findings.

The Ministry would like to emphasise that the Ministry is not questioning the legality of Decision 148/04/COL. The issue of legality was finally addressed in the proceedings in the above mentioned cases. The issue now is what room of manoeuvre is left open when effectuating that decision, i.e. calculating the exact amount to be recovered.

It is true, as pointed out by the CSA, that Norway argued before the EFTA Court that Decision 148/04/COL was partly void due to the fact that the use of electricity as an “ingredient” was not excluded from the Authority’s Decision. However, the Court did not assess that particular plea. The Court rather concluded that the aid scheme as such was illegal.

The Authority’s decision does not fix the amount of aid to be recovered, and that is not required. It is sufficient for the Authority to include the information enabling Norway to work out, without overmuch difficulty, that amount (Case 102/87 France v Commission [1988] ECR 4067, paragraph 33).

However, it seems that a decision regarding an aid scheme does not automatically entail that all aid awarded under that scheme is illegal. As stated – in general terms - by the Commission in para. 44 of its decision 2003/442/EC (O.J. 2003 L 150 p. 52) – also referred to by AG Geelhoed (footnote 21) in his opinion in case C-88/03:

“This Decision relates to the scheme as it stands and should be implemented immediately, recovering unlawful aid declared incompatible. The Commission would remind Portugal that a negative decision on an aid scheme does not prejudice the possibility that certain advantages granted under the scheme might be considered, either totally or in part, as not being aid or as aid compatible with the common market, on its own merits (for example, on the grounds that the individual benefit is covered by the de minimis rules or that it is granted within the framework of a future decision or by dint of exemption regulations).” (Emph. by the Ministry).

A similar view may be the reason why the EFTA-court, in Case E-2/05 – EFTA Surveillance Authority v The Republic of Iceland, responded to a plea by the Defendant, that some activities under the aid scheme were outside the EEA Agreement, in the following way (para. 24):

“Finally, the Defendant’s argument that, by adopting a decision that covers, inter alia, aid granted to an undertaking operating in the trade of fish, the Applicant has exceeded its competences and thereby acted ultra vires is also unfounded. The Court notes that lack of competence is a ground on which a decision can be regarded as non-existent. However, where, as in the present case, a decision deals with a general aid scheme covering various activities, the possibility that a particular activity may fall outside the scope of the EEA Agreement cannot affect the legality of the decision as such. Consequently this argument must be rejected.” (Emph. by the Ministry).

The Ministry is thus of the opinion that to assess whether to exclude electricity used in those processes that are outside the scope of the Energy Tax Directive when calculating the amount to be recovered, is not equal to in fact reopening the case regarding the aid scheme as such. The Ministry recalls that the EFTA Court did not assess the relevant plea from the Government.

The Ministry has noted that the Commission in the parallel Swedish case seems to have presupposed that the assessment of whether to exclude a particular use of electricity when calculating the amount to be recovered, should be decided on the implementing stage. In this respect, the Ministry refers to the fact that the Commission’s decision did not deal with the issue of excluding from recovery those processes that are outside the scope of the Energy Tax Directive.

In any event, the Authority must in the case at hand be free to apply the principles of the Energy Tax Directive when the scope of the recovery claim is discussed. The Court has held that the Authority was not obliged to apply this directive directly (cf. para. 179 of the judgment), but nothing precludes the Authority from relying on the directive when the Authority’s discretion is performed on the recovery stage. Rather, the principles of homogeneity and equality between economic operators within the EEA clearly supports comparable implementations of the parallel decisions in Sweden and Norway.

4. Please communicate to the Authority the time frame during which the recovery of aid from all aid beneficiaries will have been completed.

Our goal is to have completed the recovery early next year. As mentioned under Q 1 above a list will be forwarded to the CSA as soon as the CED has as first instance made its recovery decisions. The Ministry will then update the CSA on the time frame.

Yours sincerely,