In response to the conflict in Ukraine, on March 10, 2022, the European Commission (Commission) submitted a draft Temporary Crisis Framework (TCF) for state aid measures to support the EU economy to the member states for consultation (cf press release). A final version of the TCF, which may still contain a number of changes, is expected to be published and valid before the end of this month.
What falls under the TCF and how is it used?
The draft TCF is a soft law document and sets out how the Commission intends to assess the measures taken by Member States to address the economic consequences of the Ukraine crisis and the related economic sanctions. Sanctioned and Russian-controlled companies would be excluded (directly or indirectly) from actions taken under the TCF.
In general, non-selective support measures available to businesses in a Member State (e.g. general tax or levy reductions) and measures that benefit consumers rather than businesses (e.g. social payments to non-professional energy consumers) are not covered by the TCF covered as they do not constitute State Aid.
Which Member State measures are considered compatible with EU state aid rules?
The draft TCF covers different types of Member State measures, all of which have to be notified by the Member States to the Commission for approval. It lays down the conditions under which the Commission examines and approves measures falling under Article 107(3)(b) TFEU (aid “to remedy a serious disturbance in the economy of a Member State”) in this context. In particular, Member States would be allowed to grant the following under certain conditions.
- Temporary liquidity support for companies affected by the consequences of the conflict in Ukraine. This support could come in the form of Guarantees or subsidized loanswhich are dealt with separately in the TCF.
- help for additional costs due to the exceptionally strong increase in gas and electricity prices. This support could come in any form, including limited grants to partially compensate businesses, particularly heavy energy users, for increases in energy prices.
The concrete TCF measures could be used cumulatively to support individual sectors or companies affected by the consequences of the crisis. They can also be combined with COVID-Temporary Framework measures (provided they do not overcompensate individual beneficiaries).
The specific measures under the TCF would complement the existing possibility of granting “disaster assistance” (Article 107(2)(b) TFEU) to compensate for damage directly caused by the conflict, including certain direct effects of economic sanctions or other more restrictive measures , which affect the beneficiary in its economic activity (or a specific part of its economic activity). In addition, rescue and restructuring aid measures (Article 107(3)(c) TFEU) remain possible as usual.
Which Companies likely to receive aid under the TCF?
The Commission considers that the combined impact of the conflict and resulting economic sanctions has caused serious disruption across all economic sectors and across Member States, with particular focus on the following.
- The energy sector and energy-intensive industries: the energy industry is struggling with the sharp and sudden increase in energy prices. The same applies to energy-intensive industries in which production is already being cut back (the steel and chemical industries are likely to be particularly affected). For example, VNG, a gas trader and supplier, has reportedly already applied for state aid, and Leag, a coal-fired power plant operator, has reportedly received a credit facility from Germany’s state-owned KfW bank. France is also reportedly considering privatizing EDF in the context of the current crisis.
- Deliver Chain stores and disruptions in trade flow: these have already led to extraordinarily high and unexpected price increases for numerous raw materials and preliminary products. Most notable were the disruptions to EU imports from Ukraine of certain products, notably grains and vegetable oils, and EU exports to Ukraine.
What is the impact on banks and the financial sector?
The draft TCF recognizes the impact of the current crisis on financial markets, particularly with regard to liquidity concerns.
In this regard, the draft TCF states that when banks are provided with “disaster assistance”, such assistance is not aimed at maintaining or restoring the viability, liquidity or solvency of an institution or entity. Consequently, such aid would not qualify as “exceptional public financial assistance” under either the Bank Recovery and Resolution Directive (BRRD) or the Single Resolution Mechanism (SRM) Regulation. However, this aid must be limited to ‘direct damage resulting from the current crisis’, meaning that there must be a causal link between the current crisis and the damage suffered.
However, should banks require direct support in the form of liquidity, recapitalization or impaired asset measures, the Commission will assess whether the measure meets the conditions of Article 32(4)(d)(i), (ii) or (iii) of the BRRD and Article 18 (4)(d)(i), (ii) or (iii) of the SRM Regulation. If this is the case, the bank receiving such direct support would not be considered to be – or likely to be – in default.
The TCF is expected to become applicable before the end of March 2022. The draft for consultation provides that the Commission will review these rules before December 31, 2022, based on important competitive or economic considerations and international developments. Depending on the evolution of the situation in Ukraine, the Commission may also provide further clarifications on its approach to specific issues.
Measured against the COVID-19 Temporary Framework, which has now been in place for over two years, this new TCF is likely to remain in place as the current crisis unfolds.