LEAK: EU Commission to provide more financial support for businesses amid energy price crisis

Pictured: The European Commission headquarters, Brussels

By amending the temporary crisis framework for state aid, the EU Commission is reacting to growing complaints by business associations who call for more state support to prevent a wave of company closures.

The amended framework also comes at a time when member states and the Commission worry that Germany’s latest subsidy package of up to €200bn, meant to shield its companies and households from soaring energy prices, could undermine the level playing field in the single market. The main amendments deal with an extension of the scope to companies with solvability problems, an increase in the amount of aid a company can receive from EU member states, and a stronger focus on support for companies to save energy.

Solvency problems

In the draft communication, the Commission argues that the crisis had aggravated the situation for companies to a degree that new support tools were needed.

“This might in particular be the case where the current crisis leads not only to liquidity needs but also to considerable losses that may undermine the beneficiary’s ability to service its debt and point at potential solvency needs,” the document reads.

The Commission, therefore, suggests that member state governments can also deliver solvency support to companies. This means that state aid does not limit itself to ensuring the short-term survival of cash-strapped companies but can also be made available to those with medium-term problems to service their debt. However, this can only happen under certain circumstances and conditions.

For example, the aid “may not exceed the minimum needed to ensure its viability,” and companies belonging to a larger business group are generally not eligible for such support. Moreover, “state aid must be granted on terms that afford the state a reasonable remuneration such as an appropriate share of future gains in value of the beneficiary”, according to the draft communication.

Higher limits

The draft communication also increases the maximum amount of state aid that an undertaking can receive under the temporary framework from €500,000 to €750,000. For agricultural undertakings and companies in the fishery or aquaculture sector, this ceiling is also increased by 50%, to €93,000 and €112,500, respectively.

Additionally, the deadline for the latest possible time to grant state aid was extended by a year to 31 December 2023.

As before, it will be possible to provide more state aid for additional costs incurred to companies due to exceptionally severe increases in natural gas and electricity prices.

However, according to the draft proposal, a previous limitation of this aid to a total of €2 million per company will in the future be a yearly limitation, which means that companies that reached the limit this year could apply for more state aid in 2023.

The same applies for companies that need even more aid to ensure the continuation of an economic activity and for whom the aid should not exceed €25 million per year.

According to the draft proposal, there will be some additional and specific profitability criteria for companies to benefit from such a large chunk of aid.

Specifically, the EBITDA (earnings before interest, taxes, depreciation, and amortisation) of a company will have to have been positive in 2021 and it will have to have shrunk by at least 50-60% since February 2022.

Reduce electricity consumption

Apparently in reaction to the EU emergency measures decided in September, which include a mandatory target to reduce electricity consumption by 5% at peak hours, the Commission’s draft communication also introduces a new category for more state aid for the additional reduction of electricity consumption.

“That support might help alleviate the exceptional increase in electricity prices by reducing consumption for more expensive electricity generation technologies (presently based on gas),” the document reads.

“Guidance is needed to ensure that flexibility is framed by criteria aimed at ensuring a level playing field and the preservation of the integrity of the single market.”

The criteria laid out in the temporary state aid framework aim to ensure that the additional state aid is only paid for “additional electricity not consumed compared to the expected consumption”.

Janos Allenbach-Ammann with support from Luca Bertuzzi, EurActiv.com

This article first appeared on EurActiv.com, an edie content partner