On 23 March 2022, the European Commission adopted a Temporary Crisis Framework for State Aid measures to support the economy following aggression against Ukraine by Russia. This sets out how and under what conditions Member States can support undertakings affected by the economic consequences of the crisis.
Introduction
The European Commission’s new Temporary Crisis Framework for State Aid measures to support the economy following aggression against Ukraine by Russia (the “Temporary Crisis Framework”, now published in the Official Journal of the European Union of 24 March 2022, 2022/C 131 I/01) aims to provide Member States with a basis for adopting State aid measures to support undertakings affected by the crisis. The Commission sees a large number of potential adverse effects for undertakings, such as shrinking demand, an interruption of existing contracts and projects with a resulting loss of turnover, as well as disruptions in supply chains (e.g. of raw materials). In addition, other inputs might no longer be available or even become unaffordable. The energy market has also been hit hard by the increase in electricity and gas prices in the EU.
State aid measures that mitigate the economic consequences of the crisis and the economic sanctions imposed in this connection, as well as the consequences of the counter-measures taken by Russia, are therefore to be assessed in accordance with the requirements of the Temporary Crisis Framework.
Process
How the Temporary Crisis Framework operates will take some getting used to, but it is in line with the system prescribed by the EU Treaties, with the Commission having to approve all State aid in advance. The model is similar to the (proven) temporary framework model known from the financial and coronavirus crises, i.e. the Temporary Crisis Framework is not “self-executing”. This means that the crisis framework cannot yet be used as a direct basis for support measures; instead, for the time being, it only provides the Member States with (very precise) requirements as to how their aid schemes must look in order to be approved by the Commission.
However, experience with the previous temporary frameworks in the context of the coronavirus and financial crises has shown that a wave of Member State regulations can be expected soon (in Germany, for example, from the German development bank KfW), which will adopt these requirements exactly as they stand and then be approved by the Commission at short notice. Following this multi-stage process (which took only a few days for many Member States during the coronavirus crisis), the national funding agencies can grant the support measures directly and unbureaucratically.
The Commission has provided Member States with various aid measures and criteria that it will take into account when assessing the compatibility of measures. These three or four measures will be discussed briefly below.
General requirements
When notifying the aid, Member States must show that it is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member State concerned and that all the requirements of the Temporary Crisis Framework are fulfilled. No aid may be granted to undertakings that are subject to EU sanctions. The Temporary Crisis Framework does not generally exclude undertakings in difficulty “UID” – unlike the temporary framework in connection with the coronavirus crisis.
Limited amounts of aid
The Commission makes it possible for Member States to grant limited amounts of aid of up to EUR 400,000 (including in the form of direct grants) to undertakings affected by the crisis. Aid of up to EUR 35,000 per undertaking may be granted for undertakings active in the primary production of agricultural products or in the fishery and aquaculture sectors.
Liquidity support in the form of guarantees or subsidised loans
Member States may also provide liquidity support in the form of guarantees or subsidised loans to undertakings affected by the current crisis. There is a limit on both the duration of the guarantees or loan agreements (maximum of six years) and the overall loan amount per beneficiary. The State guarantee may not exceed 90% of the loan principal where losses are sustained proportionally and under the same conditions by the credit institution and the State, or 35% of the loan principal in the case of a first-loss guarantee. Guarantees may be granted for investment and/or working capital loans; loans for investment and/or working capital needs.
Aid for additional costs due to exceptionally severe increases in natural gas and electricity prices
The Commission also provides for aid for additional costs due to exceptionally severe increases in natural gas and electricity prices. Temporary support is intended to alleviate exceptionally severe increases in the price of natural gas and electricity which undertakings may not be able to pass on or adapt to in the short-term. The aid may be granted in various forms (direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans or even equity). The overall aid per undertaking must not exceed 30% of the eligible costs up to a maximum of EUR 2 million.
Additional support may be warranted in particular for energy-intensive undertakings. Under certain conditions, therefore, Member States may grant aid of up to EUR 25 million per undertaking (limited to 50% of the eligible costs and a maximum of 80% of the operating losses of the undertaking). For energy-intensive undertakings active in a sector or sub-sector listed in the Annex to the Temporary Crisis Framework, the overall aid may even be increased to a maximum of EUR 50 million per undertaking (not exceeding 70% of the eligible costs related to the production of the products in the sectors or sub-sectors listed in the Annex and a maximum of 80% of the operating losses of these activities).
Member States are also invited to consider setting requirements related to environmental protection or security of supply (for example, by requiring investments in energy efficiency or investments to reduce or diversify natural gas consumption).
Outlook
The Temporary Crisis Framework applies until 31 December 2022, and the Commission will consider whether an extension is necessary before the end of this period. Changes to the Temporary Crisis Framework cannot be ruled out, in particular in light of experiences with the temporary framework in the context of the coronavirus crisis, which was adjusted a total of six times. In addition to the above aid measures under the Temporary Crisis Framework, the Commission also explicitly refers to other possibilities (for example, aid to make good the damage caused by exceptional occurrences, Article 107(2), letter b TFEU). It now remains to be seen whether Member States will make use of all the options on offer and to what extent. It is however likely that they will take rapid action, and undertakings affected by the crisis should therefore keep a close eye on developments.
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