State aid for the mining sector in the European Union, with special reference to the uncompetitivecoal mines

26. July 2013. / Mining

The status of coal mines in the European Union

Despite the European Union’s efforts to increase the share of renewable energy in the total energy production, European countries continue to rely on coal. As these are very costly activities, the EU applies different forms of financial and other incentives for the development of mining activities.

In order to overcome the harmful effects of the negative impact of coal production on the environment, the member states allocatevarious forms of grants and other assistance. In addition, another important reason for the allocation of various forms of government aid is the fact that coal brings new jobs.

Closure of mines that are no longer competitive due to the economic unprofitability brings economic, social, environmental and other consequences. Since the solution of these problems requires large financial resources, it is necessary to provide mechanisms for the allocation of aid, which would not be inconsistent with the general prohibition of state aid.

The Council adopted ‘Decision on State aid’ to enable the closure of uncompetitive coal mines. The Decision, which has been in force since the beginning of 2011, is an act of secondary legislation which is binding for state actors, althoughthe different forms of guidelinesrather belong to so-called “soft” law.

The Decision sets conditions for compatibility of the aid related to the closure of uncompetitive mines with the internal market. Theaid may be used only to cover the cost associated with the use of coal for electricity generation, combined heat and power generation, production of coke and using fuel in blast furnaces in the steel industry. The Decision also regulates the aid in connection with the closure of production units that operate at a loss, and helps to cover the extra costs. In order for the aidbeing allocated for closure of coal production units or covering their current losses to be declared compatible with the internal market,certain conditions must be fulfilled.

Member States are also required to repay the aid taken if the target coal production unit wasnot closed as planned.

State aid for covering exceptional costs is appropriated for companies that either conducted earlier or still conduct activities related to the production of coal in order to cover those costs arising from the closure of coal production units that are not related to current production.

The plan of Member States for the closure of coal production units must include the identification of such units, real or estimated production costs for each of production units per year, the estimated annual production of coal for the unit being the subject of a plan for the closure and the annual estimated amount of aid for closure.

In addition to these obligations, States must providereport ontotal aid they intend to grant to the coal industry, with all the data necessary for the calculation of the foreseeable production costs and their relation to closure plans. They shall also notify the Commission of the amount and calculation of benefits paid during the coal year not later than six months after the end of the calendar year.

Non-earmarked allocation of assistance is not allowed. The aid may not be transferred to other production units that are not part of the plan for closure or other business activities of the same company.

For all other issues regarding the compatibility of aid assessment procedures with internal market,general provisions on state aid shall be applied. Thus, the Commission may conduct the preliminary and subsequent control of state aid procedure. The preliminary control procedure shall be conducted once the subject aid is notified. With regard to the notified state aid the Commission may adopt several different decisions.

Practical examples in relation to assistance for the closure of uncompetitive coal mines exist in Romania, Germany and Slovenia.The mining activity is still an important resource for the production of energy in the European Union, but its role has declined over time giving the way to increasing share of renewable energy sources.

In order to mitigate the negative effects of the closure of uncompetitive coal mines, it is necessary to allocate significant resources. Accordingly, this decision responds in a good way to the desires of Member States to finalize this process as painless as possible and the Commission’s efforts to preserve competition in the internal market.

The established practice will be of great importance for Serbia, given the challenges that the closure of the mines carries along, which is especially true for training and retraining of workers who become redundant, in order to avoid increasing the already high unemployment.

The implementation of measures towards eliminating the harmful effects of mining activities on the environment, and possible decisionsof Serbian Commission for State Aid Control on return of illegal state aid are recognized as particular problems in the future.

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