Smurfit Kappa overturns EC plant funding verdict

By Mark Astley

- Last updated on GMT

Related tags European union

Court overturns EC aid decision after Smurfit Kappa pressure
Smurfit Kappa has successfully overturned a European Commission (EC) decision that saw a rival firm awarded funding of more than €80m to build a new corrugated case material plant in Germany.

The Ireland-based firm urged the European Court of Justice to reverse the April 2008 verdict, which saw Progroup-owned Propapier PM2 awarded around €83m to help fund the construction of a paper mill in Eisenhüttenstadt, in the Brandenburg-Nordost region of Germany.

Smurfit Kappa argued that the EC failed to initiate a formal investigation on the effect of the aid on competition in the region, as required by its own regulations.

Progroup-owned Propapier PM2 spent €640m on top of the aid to establish the plant, which began operations in March 2010.

Following months of deliberation, the court annulled the 2008 decision and ordered the European Commission and Propapier PM 2 to pay the legal costs incurred by Smurfit Kappa. approached Smurfit Kappa following the judgement, but no comments were forthcoming before publication.

Decision annulled

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

It added that the EC was faced with difficulties in assessing the criteria that would justify the initiation of a formal investigation.

The European Court of Justice ruled that “the Commission not only misconstrued the scope of the Guidelines, but also failed to exercise its discretion.”

“The applicant is therefore justified in submitting that, by failing to take account of the criteria required for its assessment, the Commission did not put itself in a position to overcome all doubts as to the compatibility of the aid in question with the common market,” ​said the European Court of Justice ruling.

“Accordingly, without there being any need to assess the admissibility of the other arguments of the action to rule on whether they are well founded, the Court finds that the contested decision must be annulled,” ​it added.

Regional development

In October 2007, German authorities notified the EC of their intention to grant investment aid of €83m to Propapier PM2 for the construction.

The project was designed to create around 150 direct jobs and more than 450 indirect jobs in the region, which the EC regards as a disadvantaged area with an abnormally low standard of living and high unemployment.

The EC initially approved the aid, following an assessment to determine whether the market share of Propapier and the production capacity created by the investment remain below the thresholds set in the Regional Aid Guidelines.

In cases where the thresholds are not exceeded, the effect of the aid on competition is deemed to be outweighed by its positive contribution to regional development.

The EC judged that Progroup’s share of the markets for corrugated case material and corrugated board would remain significantly below the 25% threshold, before and after the planned investment and that the additional production capacity created through the project would remain below 5% of the apparent consumption of the product concerned in the EEA. approached Propapier in regards to the court ruling, but the firm declined to comment.

Related topics Processing & packaging

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