On 28 October 2022, the European Commission (the “Commission”) adopted the  second amendment to its Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (the “Framework”). The second amendment to the Framework extends its duration by one year until 31 December 2023.

The four most important things you need to know about this amendment are:

  • Maximum aid amounts have been increased;
  • Guarantees or subsidised interests can now cover larger amounts of loans when taken by large energy utilities companies that provide financial collateral for trading activities on energy markets. Exceptionally, guarantees can also be provided as unfunded financial collateral directly to central counterparts or clearing members to cover the liquidity needs of energy companies, to clear their trading activities on energy markets;
  • To achieve the EU targets of reducing electricity consumption in response to high energy prices, Member States may provide compensation for genuine reductions in electricity consumption; and
  • State recapitalisations are not subject to detailed rules as under the COVID-19 Temporary Framework, however the Commission highlights the general principles it will use to assess them on a case-by-case basis. 

Increased amount of aid

  • The amendment quadruples the amount of aid that Member States may grant to companies affected by the crisis to €2 million. In the agricultural and fisheries sectors, the amounts are raised to €250,000 and €300,000, respectively.
  • The conditions under which compensation for additional costs due to exceptionally severe increases in natural gas and electricity prices can be granted have been relaxed. The amendment increases the maximum amount of aid that can be granted from €2 million to €4 million. Now, 50% of the eligible costs can be covered by the aid, compared to 30% previously, and up to 70% of the previous consumption can be used as a reference to determine the additional costs (in contrast to the 60% initially provided for).
  • For beneficiaries suffering from a reduction in economic performance, the aid could even reach up to €100 million.
  • Maximum aid for energy-intensive users is increased from €25 million to  €50 million. The maximum aid amount is increased from €50 million to €150 million for energy-intensive users active in a particularly affected sector, such as the production of aluminium and other metals, glass fibres, pulp, fertilizer or hydrogen and many basic chemicals.

Coverage of collaterals for trading activities on energy markets

  • Whereas the Framework already allows Member States to guarantee loans, including for trading activities on energy markets, it nevertheless limits the amount of loans for which a guarantee can be granted. The Framework provides a similar limitation for subsidised loans. These limitations have been lifted for large companies providing financial collateral for trading activities on energy markets, subject to there being an appropriate justification.
  • Furthermore, Member States may exceptionally provide a guarantee as unfunded financial collateral directly to central counterparts or clearing members to cover the liquidity needs of energy companies, to clear their trading activities on energy markets.

Compensation for electricity reduction consumption

  • To compensate companies for the electricity consumption reduction needed to reach the targets imposed on EU Member States under Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices (see our blog post), Member States may establish aid schemes in compliance with existing State aid rules, or with the following conditions as set out in the amendment:
    • the aid must provide financial compensation only where the amount of electricity consumed is lower than expected. Whether consumption reduction is genuine may be verified through different methodologies, account being taken of high price incentives to reduce consumption, incentives from other payments or schemes (e.g. subsidies previously received to improve the energy efficiency of a building), weather conditions, or “gaming risks”;
    • the aid must contribute to reaching the targets of reducing electricity consumption by 5% in peak hours or 10% overall;
    • the aid must be granted following a competitive bidding process;
    • beneficiaries will be selected based on the lowest unit cost of additional consumption reduction (in EUR/MWh), and overcompensation must be clawed-back; and
    • beneficiaries must commit not to increase their overall gas consumption and not to consume off-peak more than a certain proportion of the compensated electricity consumption reduction in peak hours.

Solvency support

Contrary to the temporary framework that the Commission adopted to address the COVID-19 outbreak (the “COVID-19 Temporary Framework”), the amendment does not devote a specific section to solvency support. It does however provide general principles relating to how the Commission will assess, on a case-by-case basis, the solvency support provided to address the financial needs of companies that would otherwise cease or downsize operations and threaten markets of systemic importance. These principles are:

  • the aid must be necessary, appropriate and proportionate, without exceeding the minimum needed to ensure the viability of the company;
  • the aid cannot be granted to a company in a group, unless it can be demonstrated that the company’s difficulties are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself;
  • the State must be appropriately remunerated;
  • measures to mitigate competition distortions must be taken, such as divestments, bans on bonuses, bans on dividend payments or bans on acquisitions, as laid down in the 2014 Rescue and Restructuring Aid Guidelines; and
  • for each beneficiary, Member States must undertake a long-term viability assessment and, where considered appropriate by the Commission, notify to the Commission for approval a restructuring plan in accordance with the Rescue and Restructuring Aid Guidelines, within a specified period of time.

The Covington team will continue to monitor the developments and keep you updated.

Photo of Johan Ysewyn Johan Ysewyn

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner…

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner of the Brussels office.

Clients turn to Johan when they need cutting-edge competition and regulatory advice. He has been advising some of the world’s leading companies for over 30 years on their most complex competition issues. Johan is “an exceptional lawyer who is solution-oriented, has a remarkable ability to rapidly understand our business and has excellent reactivity.” (Chambers Global) Johan “attracts considerable praise for his reliable practice, as well as his great energy and insight into cartel proceedings.” (Who’s Who Legal)

Johan represents clients from around the world in dealings with competition authorities as well as in court litigation. He has in-depth knowledge of regulatory procedures and best practices as well as longstanding relationships with key regulators, in particular at the European Commission. He has also an active advisory practice covering a range of areas of interest to corporates, including the interplay between ESG goals and competition law, the impact of competition law enforcement on digital markets and broad strategic compliance issues.

Johan’s experience spans many industry sectors, with recent experience in telecoms and information technology, media, healthcare, consumer goods, retail, energy and transport. He has advised on several of the most major merger investigations in recent years. In addition, he has represented clients in many conduct investigations.

Johan’s practice also has a strong focus on global and European cartel investigations. He has acted for the immunity applicants in the bitumen and marine hose cartels, and acted for defendants in alleged cartels in financial services, consumer goods, pharmaceuticals, chemicals, consumer electronics and price benchmarking in the oil sector. He has acted for the European Payments Council in the first European Commission investigation into standardisation agreements in the e-payments sector. Johan has written and lectured extensively on international cartel and leniency-related issues. He co-authors the loose-leaf European Cartel Digest and lectures on cartel law and economics at the Brussels School of Competition.

Johan is also one of the leading experts on EU State aid issues, working both for beneficiaries and governments. He has advised a number of leading banks and governments, as well as represented major European airlines. From the cases that can be publicly disclosed, he has been involved in the Fortis, KBC, Dexia, Arco, Citadele, airBaltic and Riga Airport State aid cases.

Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics has developed a cutting-edge expertise in State aid law, with a strong background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public…

Carole Maczkovics has developed a cutting-edge expertise in State aid law, with a strong background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public and private entities, which she successfully represents in administrative and judicial proceedings on complex State aid and regulatory matters before the European Commission as well as before the Belgian and European courts. She also assists clients with the application of the new EU Foreign Subsidy Regulation and UK subsidy control regime.

Carole has published many articles on State aid law and on regulated network industries, and contributes to conferences and seminars on a regular basis. She is a visiting lecturer at King’s College London and at the Brussels School of Competition on the application of regulation and competition law (including State aid) in the railway sector. Carole gives trainings on State aid law at EFE, in Paris. She has been recently appointed as Academic Director of the European State aid Law Institute (EStALI).