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State aid: Commission requests Austria to recover around €55 million from buyer of Bank Burgenland
The European Commission has decided under EC state aid rules that Austria must recover some €55 million from Austrian insurance group Grazer Wechselseitige (GRAWE) following an in-depth investigation into the privatisation of Bank Burgenland. The investigation, opened in December 2006 (see IP/06/1849), found that the Austrian regional government of Land Burgenland had not behaved like a private market seller when it sold Bank Burgenland to the second highest bidder, GRAWE, disregarding a substantially higher offer from an Austro-Ukrainian consortium. The Commission decision confirms that a public vendor needs to clearly distinguish its role as a seller of an asset on an open market, and its role as a public authority who had granted state aid in the form of a guarantee to Bank Burgenland. A private seller would not have taken existing guarantee liabilities into consideration but would have taken the highest bid. By not doing so, Land Burgenland provided an undue competitive advantage to GRAWE that constitutes incompatible state aid. To remedy the distortion of competition and eliminate the aid, Austria must therefore recover the advantage from GRAWE, , on the basis of the difference between the price offered by the Austro-Ukrainian consortium and the price paid by GRAWE, i.e. around € 55 million.
Competition Commissioner Neelie Kroes said: “Through the recovery of the aid from GRAWE, Land Burgenland will receive what Bank Burgenland was worth at the time of the sale. The Commission has an obligation to intervene in such cases where there is a distortion of competition. "
The privatisation of Bank Burgenland was a condition for the approval of a restructuring aid for Bank Burgenland by the Commission in 2004. In March 2006, following a third and finally successful public tender, Land Burgenland sold Bank Burgenland to GRAWE for €100.3 million. However, a consortium of the Austrian companies SLAV AG and SLAV Finanzbeteiligung GmbH and of the Ukrainian joint stock companies Ukrpodshipnik and Ilyich, the only other bidder at the final stage, had offered €155 million.
Following a complaint by the Consortium, the Commission opened a formal investigation (see IP/06/1849) to examine whether a private market operator would have considered GRAWE's lower offer to be the best bid. If that was not the case, Austria would have foregone state revenues of around €55 million and GRAWE would have received an economic advantage of the same value.
The Commission's investigation revealed that Austria's decision was largely driven by the existence of 'Ausfallhaftung', a legal guarantee given by Austria that covered at the time of the sale around €3.1 billion of Bank Burgenland liabilities. That coverage which would remain in place after the privatisation for existing liabilities and be phased out until 2017.
Austria claimed that the sale to GRAWE at a much lower price was justified by the reduced risk of drawing on its guarantee obligation deriving from 'Ausfallhaftung'. Austria further argued that GRAWE had indeed paid a price above the value set by prior evaluations and, given all circumstances, had presented the best bid.
In its assessment, the Commission applied the fundamental principle that the roles of the State as a market participant (here: seller of an asset) and as public authority (here: grantor of state aid) must be clearly distinguished. The Commission therefore concluded that the risks related to 'Ausfallhaftung' should not have been taken into account in the assessment of the bids: the guarantee was provided by the state pursuing a public interest goal and not an economic objective as a market participant. Moreover, the Commission found that, even if the guarantees were taken into account, the risk of insolvency of Bank Burgenland after a sale to the consortium compared to the risk after a sale to GRAWE was not such as to outweigh the reduced price GRAWE hadpaid. Furthermore, the Commission clarified that the market price of Bank Burgenland had been established by a public tender and therefore prior evaluations were irrelevant
The Austrian authorities also argued that the Financial Market Authority would not have authorised a sale to the Austro-Ukrainian consortium. The Commission found no evidence to support this argument.
In the absence of an objective justification, acceptable to a private market vendor, to accept a significantly lower price for the sale of Bank Burgenland, the price difference between the two offers gives an unfair advantage to GRAWE over its competitors and constitutes incompatible state aid that needs to be recovered.
The recovery of the aid is based on the nominal price difference between the two bids, amounting to €54.7 million. As the final bids differ in a number of points, Austria will have to determine the exact aid amount by adjusting this nominal value difference accordingly.
Background
Until privatisation, Bank Burgenland still benefited from 'Ausfallhaftung'. Following an agreement between the Commission and Austria under EU state aid rules (E 8/2002) 'Ausfallhaftung' had to be abolished by 1 April 2007.
The non-confidential version of the decision will be made available under the case number C 56/2006 in the State Aid Register on the DG 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 State Aid Weekly e-News.
See also MEMO/08/282.