Commission Opens In-Depth Investigation Into Polish Aid For BVG

By Ulrika Lomas, for LawAndTax-News.com, Brussels

18 March 2008

The European Commission has opened a formal investigation under EC Treaty state aid rules into public funding of over EUR47m for an investment project by BDN Sp. z o.o. Sp.k. belonging to the German-based BVG Medien Beteiligungs GmbH (BVG).

The investment is intended to fund a new rotogravure printing plant in Nowogrodziec, south-west Poland.

However, the Commission has expressed doubts as to the compatibility of the project with the EU rules on regional aid, especially regarding the extent of production capacity created by the project.

The opening of an in-depth investigation gives interested parties the possibility to comment on the proposed measure. It does not prejudge the outcome of the procedure.

Competition Commissioner Neelie Kroes commented:

"The rotogravure market is growing less quickly than the economy as a whole and the BVG project intends to create a lot of new capacity. We need to make sure that the aid would not unduly distort competitive conditions in this market."

BVG is setting up a new plant in the Polish region of Lower Silesia for the printing of magazines, commercial catalogues and inserts with rotogravure technology.

Lower Silesia is an area with an abnormally low standard of living and high unemployment, eligible for regional aid under Article 87 of the EC Treaty. BVG's investment in the region would amount to EUR160mn.

Poland intends to support the project through corporate tax exemptions of up to EUR47mn, in the framework of an authorised scheme for regional development.

However, because of the large size of the investment project, it had to be individually notified to the Commission, to ensure that the aid is in conformity with the EU rules on regional aid for large investment projects, in particular as regards the market share of the beneficiary and the capacity increase resulting from the project.

Regions with structural disadvantages, like Lower Silesia, are in general entitled to grant investment aid to compensate for the regional handicap. However, large aid amounts present a higher risk of distorting competition, and large-scale projects often suffer less from regional handicaps and therefore need less aid.

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