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17.8.2012 Official
Journal
of
the
European
Union L
220/1
II
(Non-legislative acts)
DECISIONS
COMMISSION DECISION
of 3 August 2011
on the aid SA. 26980 (C 34/09 (ex N 588/08)) which Portugal is planning to grant to Petrogal
(notified under document C(2011) 5546)
(Text with EEA relevance)
(2012/466/EU)
THE EUROPEAN COMMISSION,
(3) The
Commission
decision
to
initiate
the
procedure
was
published in the Official Journal of the European Union ( 2 ).
The Commission called on interested parties to submit
their comments.
Having regard to the Treaty on the Functioning of the European
Union, and in particular the first subparagraph of Article 108(2)
thereof,
(4) The
Commission
received
comments
from
the Associao
das Indústrias da Petroquímica, Química e Refinao ( 3 ), from
the Confederao da Indústria Portuguesa ( 4 ), from Associao
Having regard to the Agreement on the European Economic
para a eficiência energética ( 5 ), from Competitor No 2 ( 6 ), a
Area, and in particular Article 62(1)(a) thereof,
competitor undertaking of Petrogal ( 7 ), from Competitor
No 1 ( 8 ) ( 9 ), from Unio Geral de trabalhadores ( 10 ), from
the Municipality of Sines ( 11 ), from Confederao Geral dos
Trabalhadores Portugueses ( 12 ) and from the Associao
Having called on interested parties to submit their comments
Industrial Portuguesa ( 13 ).
pursuant to those provisions ( 1 ) and having regard to their
comments,
(5)
By letters dated 9 March, 10 March, 17 March and
19 March 2010 the Commission forwarded these
Whereas:
comments to Portugal, which was given the opportunity
to react; its observations were received by letter dated
8 April 2010.
1. PROCEDURE
(1) By
letter
dated
19
November
2009,
the
Commission (6) By
letters
dated
15
and
28
July
2010
( 14 ), the
informed Portugal of its decision to initiate the
Commission requested further information, which was
procedure laid down in Article 108(2) of the Treaty in
provided by Portugal by letters dated 16 and
respect of regional ad hoc aid in favour of an investment
23 August 2010, respectively.
project by Petroleos de Portugal, Petrogal S.A. (‘Petrogal’),
concerning its refinery activities in Sines and Matosinhos
( 2 ) See footnote 1.
(the ‘investment project’). By letter dated 9 December
( 3 ) Letter dated 26 February 2010.
2009, Portugal provided the non-confidential version of
( 4 ) See footnote 3.
the opening decision for its publication.
( 5 ) See footnote 3.
( 6 ) In accordance with Article 6(2) of Regulation (EC) No 659/1999,
this interested party has requested its identity to be withheld from
the Member State concerned on grounds of potential damage.
( 7 ) See footnote 3.
(2) By
letter
dated
17
December
2009,
Portugal
asked
for
an
( 8 ) See footnote 6.
extension of the delay to submit its comments by one
( 9 ) Letter dated 1 March 2010.
month. On 22 December 2009, the Commission
( 10 ) Letter dated 2 March 2010.
accepted this request. By letter dated 21 January 2010,
( 11 ) Letter dated 10 March 2010.
the Portugal submitted its comments.
( 12 ) Letter dated 11 March 2010.
( 13 ) Letter dated 18 March 2010.
( 14 ) Portuguese version of the letter (English version was sent on
( 1 ) OJ C 23, 30.1.2010, p. 34.
22 July 2010).

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L 220/2
EN
Official Journal of the European Union
17.8.2012
(7) By
letters
dated
4
and
5
August
2010,
the
Commission (17) By
letter
dated
24
June
2011,
the
Commission
asked
asked Competitors No 1 and No 2 for clarifications,
Portugal to clarify outstanding information regarding
which were provided by letters dated 10 and
the diesel fuel market. By letters dated 30 June and
15 September 2010. By letter dated 20 September
14 July 2011, Portugal submitted this information. By
2010, these clarifications were submitted to Portugal
letter dated 20 July 2011, the Portuguese authorities
for comments.
submitted their agreement that the Commission adopts
this decision in the English language.
(8) By
letters
dated
17
September
and
1
October
2010,
the
Commission requested further information from
Portugal. Portugal replied on 18 and 29 October 2010.
2. DETAILED DESCRIPTION OF THE STATE AID
2.1. The beneficiary
(9) By
letters
dated
13
October
2010,
Competitors
No
1
and (18) The
beneficiary
of
the
State
aid,
Petróleos
de
Portugal
—
No 2 were asked specific details regarding their replies
Petrogal, S.A. (hereinafter referred to as ‘Petrogal’), is a
dated 10 and 15 September 2010, respectively.
100 % subsidiary of Galp Energia, SGPS, S.A. (‘Galp Ener
gia’). The main shareholders of Galp Energia are ENI
SpA ( 15 ) (33,34 %), Amorim Energia BV (‘Amorim Ener
(10) By letters dated 21 and 28 October 2010, the
gia’) ( 16 ) (33,34 %), Parpública Participaes Públicas (‘Par
Commission asked Portugal for additional information.
pública’)(SGPS) ( 17 ) (7 %), Fidelity International Limited
By letters dated 12 November, Portugal replied.
(2,01 %), Caixa Geral de Depósitos SA (‘CGD’) ( 18 )
(1 %), and others (23,31 %). Galp Energia is the holding
company of the Galp Energia Group (‘Galp’). Galp
Energia is active in the petroleum product market
(11) By
letter
dated
10
November
2010,
Competitor
No
1
(which includes refining and marketing activities, such
submitted clarifications to its letter dated 15 September
as non-retail and retail sales) as well as in the gas market.
2010. On 12 November 2010, these clarifications were
submitted to Portugal for comments, which were replied
on 19 November 2010.
(19) The
holding
company
was
originally
set
up
on
22
April
1999 under the name of GALP — Petróleos e Gás de
(12) By
letter
of
30
November
2010,
the
Commission
asked
Portugal SGPS, S.A., mainly for the purpose of trading in
Portugal for additional information. By letter of
oil and natural gas, bringing together two pre-existing
20 December 2010 Portugal submitted its reply.
Portuguese government owned companies which were
placed under Galp Energia’s control namely Petrogal,
focusing on petroleum products, and GDP — Gas de
(13) By
letter
dated
11
November
2010,
the
Commission
Portugal, SGPS, S.A., focusing on natural gas ( 19 ).
asked Portugal to submit a cost-benefit analysis of the
investment project. On 1 December 2010, Portugal
( 15 ) ENI S.p.A. (‘ENI’) is the leading Italian-based energy company, listed
submitted the requested information.
on the Milan and New York (NYSE) stock exchanges. Its operations
in Exploration & Production, Gas & Power, Refining & Marketing of
oil products, Petrochemicals and Engineering, Construction and
Drilling services span over 70 countries. ENI’s refining capability
(14) By
letter dated 6 January 2011, Portugal submitted
is extended to Italy, Germany and Czech Republic. In Italy, it is
information regarding Petrogal’s shareholders.
composed of five wholly 100 % owned refineries and a 50 %

interest in the Milazzo refinery in Sicily. As for refineries outside
Italy, ENI has limited participations in refineries is Germany and in
the Czech Republic. In Germany ENI holds an 8,3 % interest in the
(15) On
12
January
2011,
a
meeting
was
held
between
the
German SCHWEDT refinery and a 20 % interest in BAYERNOIL, an
integrated pole that includes the Ingolstadt, Vohburg and Neustadt
Portuguese authorities, Petrogal’s representatives and the
refineries. ENI's refining capacity in Germany amounts approxi
Commission. By letter dated 25 January 2011, Portugal
mately to 70 kbbl/d mainly used to supply ENI's distribution
submitted information regarding some of the issues
network in Bavaria and Eastern Germany. As for the activity in
raised during the meeting (e.g. market assessment,
the Czech Republic, ENI has an overall stake of 32,4 % in eska
incentive effect of the aid).
Rafinerska, which includes two refineries, Kralupy and Litvinov.
ENI’s share of refining capacity amounts to 53 kbbl/d. In 2007,
refining throughputs on ENI’s own account in Italy and outside
Italy were 37,15 mmtonnes.
(16) By letters dated 24 January, 16 March and 12 April
( 16 ) Amorim Energia is based in the Netherlands. Its main shareholders
2011, the Commission requested additional information
are Esperanza Holding B.V. (45 %), Power, Oil & Gas Investments
B.V. (30 %), Amorim Investimentos Energéticos, SGPS, S.A. (20 %)
on the potential counterfactual scenario to the
and Oil Investments B.V. (5 %). Portuguese investor Américo
investment project, to which Portugal replied by letters
Amorim controls, directly or indirectly, 55 % in Amorim Energia,
dated 7 February, 4 April and 29 April 2011 respect
the other 45 % being owned by Sonangol, through its control of
ively. By email dated 7 June 2011, the Commission
Esperanza Holding B.V. Sonangol is Angola’s state oil company.
requested information not submitted by Portugal in
( 17 ) Parpública is the holding company for the Portuguese state’s equity
previous letters. By email dated 9 June 2011 and
stakes in several companies.
( 18 ) CGD is a financial institution wholly-owned by the Portuguese
letters dated 11 and 17 June 2011, Portugal submitted
state.
information regarding some of these issues.
( 19 ) Source: Galp Energia's website: http://www.galpenergia.com

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EN
17.8.2012 Official
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(20) Galp Energia’s business also includes retail and wholesale marketing of refined petroleum products in
the Iberian Peninsula. It is the market leader in Portugal ( 20 ), and has a growing presence in Spain.
(21) Petrogal owns the sole two refineries in Portugal. The refineries are in Sines and Matosinhos. The
refining business comprises all refining, supply and logistics activities. Petrogal is the largest marketer
of petroleum products in Portugal, as well as one of the largest in the Iberian Peninsula. It effectively
manages all the imports of crude oil, and a part of the imports of refined products into Portugal; it
also manages 80 % of the storage capacity of crude oil and refined products ( 21 ) and has an important
position in Portugal’s logistics infrastructure for oil products.
(22) Petrogal has an extensive product range that includes gasoline, diesel fuel, jet fuel, fuel oil, naphtha,
LPG, bitumen and several aromatic products. The refining business is responsible for the supply of oil
products to Petrogal’s retail, wholesale and LPG marketing divisions, to competitors and foreign
customers, and for the operation of their refining assets and logistics tools. Petrogal stores and
transports its products using either its wholly-owned storage assets, or affiliated logistics companies.
(23) Figure
1
presents
Petrogal’s
ownership
and
controlling
rights:
The Shareholders’ Agreement
(24) A
shareholder
agreement
was
signed
on
29
December
2005
between
Amorim
Energia,
ENI
and
Rede
Eléctrica Nacional de Portugal (REN), with CGD joining the agreement on 28 March 2006 (the
‘Shareholders’ Agreement’). The Shareholders’ Agreement entered into force on 29 March 2006 for
a period of eight years. According to Article 20, first paragraph c) of the Portuguese Securities Code,
voting rights attached to Galp Energia shares owned by parties to the Shareholder’s Agreement are
reciprocally assigned to the other parties. Consequently, Galp Energia is considered to be jointly
controlled by the shareholders that are parties to the Shareholders’ Agreement.
(25) According
to
Portugal,
it
results
from
the
Shareholders’
Agreement
that
shareholders
and,
in
particular, ENI, cannot control and solely define strategies between their own refining activities
and Petrogal’s refining activities.
( 20 ) According to Petrogal's website, in 2005, through its network of service stations (837 in Portugal and 223 in Spain),
Petrogal had a 37 % retail market share, based on sales volumes, in Portugal and a 9 % retail market share in the
Iberian Peninsula. In the wholesale market, it supplied more than 4 300 industrial and commercial users with an
aggregate of 5,5 million tonnes of refined petroleum products, representing a 51 % market share in Portugal and
11 % in the Iberian Peninsula.
( 21 ) Data included in the Report by the Portuguese Competition Authority on the Fuel Market in Portugal, 2 June 2008,
p. 9 — as published on the website: http://www.concorrencia.pt/Publicacoes/Autoridade.asp

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L 220/4
EN
Official Journal of the European Union
17.8.2012
2.2. The Petrogal investment project
the decision taken by the Board of Directors on 5 March
2008) and were due by 31 December 2010. Full
(26) The
investment
project
serves
to
reconfigure
and
expand
production capacity is expected to be reached by 2011.
the existing refinery units in Sines and Matosinhos, the
only two existing refineries in Portugal. In addition, the
investment project aims at improving integration and
synergy effects between the two refineries. It opens the
2.3. Single investment project
possibility of using heavier crudes.
(33) Portugal
suggests
that
despite
the
geographic
distance
between the two refineries (some 450
km to be
covered by sea transport), the investment project
(27) The
investment
project
aims
mainly
at
increasing
the
should be considered as a single investment project
production of diesel fuel to the detriment of gasoline.
(SIP) within the meaning of paragraph 60 of the
The investment project concludes that the increased use
Guidelines on national regional aid for 2007-2013 ( 24 )
of heavy crude oil will reduce raw materials cost and will
(hereinafter referred to as ‘RAG’). The Portuguese auth
lend flexibility to the origin of crude oils to be processed.
orities confirm that Petrogal has not received State aid in
the three years previous to the start of the notified
investment project.
(28) The
investment
project
for
the
conversion
of
the
Mato
sinhos refinery consists more precisely in the
construction of a new vacuum distillation unit for
obtaining vacuum gas oil (VGO) and a new visco-
2.4. Costs of the investment project
reduction unit (visbreaker) for the soft thermal cracking
(34) The investment in Sines represents investment costs of
of the resulting vacuum residue.
EUR [ ] in nominal value. The Sines refinery is to receive
aid worth EUR [ ] (nominal value), resulting in an aid
intensity of 16 %. Regarding the Matosinhos refinery, the
(29) The
investment project for conversion of the Sines
investment amounts to EUR [ ] (nominal value) and the
refinery aims at the construction of a new hydrocracker,
refinery is to benefit of aid worth EUR [ ] (nominal
namely a unit for hydrocracking vacuum gas oil, for the
value), corresponding to an aid intensity of 13 %.
production of diesel and jet fuel. According to the
investment project, the hydrocracker unit will use, as
feedstock, vacuum gas oil and visbreaker gas oil
produced both at the Matosinhos and Sines refineries,
(35) The
eligible
expenditures
of
the
investment
project
are
thereby making full use of the processing capacity of
EUR 974 064 894 at present value (EUR 1 058 934 146
the national refining equipment. It will treat around [ ]
in nominal value) and consist exclusively of equipment
barrels per day, using around [ ] Ktonnes/annum of
(no land or buildings). The aid amount for both refineries
atmospheric residue as primary feedstock.
amounts to EUR 121 091 314 in present value (EUR
160 484 007 in nominal value), corresponding to an
aid intensity of 12,43 %. The breakdown per year of
eligible expenditures is presented in the Table 1:
(30) The
products
obtained
by
hydrocracking
(LPG,
heavy
naphtha ( 22 ) and diesel) are [ ] hydrogenated, which
gives them a superior quality. As a result of the
investment project, it is expected that only the
Table 1
production of diesel and heavy naphtha will increase.
Eligible costs
(in EUR)
2007 2008 2009 2010 Total
(31) According to the investment project, part of the heavy
Tangible
[ ] (*) [
] [
] [
] 1
058
934
146
naphtha produced in the Sines refinery will be shipped to
fixed assets
Matosinhos as raw material for Petrogal’s aromatics
plant ( 23 ), which will be a further step to increased inte
(*) Costs for preparatory engineering studies.
gration of both refineries. The increased production of
heavy naphtha is an inevitable technical consequence of
the conversion project in Sines.
2.5. Financing of the investment project
(36) Petrogal
plans
to
finance
this
investment
project
from
(32) The
works
on
the
investment
project
started
in
2008
(the
using its own resources, in addition to the State aid it
first order was issued on 14 March 2008 as a result of
has applied for (EUR 160 484 007 in nominal value).
There are no other State aid sources of financing
( 22 ) Naphtha is a light fraction of refined crude oil between gases and
foreseen. The investment project benefits also from
petroleum. It is used as feedstock by the petrochemical industry as
European Investment Bank loans totalling EUR
its cracking supplies several products and it can also be used as a
500 million, approved in 2009. The beneficiary’s own
component for gasoline (light naphtha) or to produce reformate
contribution to eligible expenditure accounts for 36 %.
(heavy naphtha).
( 23 ) The remaining part is immediately reused in Sines refinery in its
internal process.
( 24 ) OJ C 54, 4.3.2006, p. 13.

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17.8.2012 Official
Journal
of
the
European
Union L
220/5
2.6. Regional aid ceiling
Table 2
(37) In
accordance
with
the
Portuguese
regional
aid
map
for
2007-2013 (
Year
estimated taxable

25 ), the regions of Alentejo and Norte, in
Income
Taxes
Utilisation of the
tax credit (*)
which the Sines and Matosinhos refineries are
respectively located, are eligible for regional aid under
2008
the derogation foreseen by Article 107(3)(a) of the
Treaty with ceilings for regional investment aid to large
2009
enterprises of respectively 40 % and 30 % gross grant
equivalent (GGE).
2010
2011 [
] [
]
2.7. Contribution to regional development
2012 [
] [
] [
]
(38) The investment project is supposed to lead to the
creation of approximately 150 direct jobs and of 450
2013 [
] [
] [
]
indirect jobs in both regions. Moreover, according to
the information submitted by Portugal, approximately
2014 [
] [
] [
]
3 000 temporary jobs will be created during the
construction period.
2015 [
] [
] [
]
2016 [
] [
]
2.8. Form of aid
160 484 007
(39) The
State
aid
is
to
be
granted
as
ad
hoc
aid
which
was
(*) Income generated in a given year will be taxed in the following year,
designed in applying the provisions of an expired aid
and in this way the utilisation of the tax credit only takes effect in the
scheme (N 97/99) based on Decree law No 409/99 of
subsequent year.
15 October 1999.
(43) Portugal confirmed that the aid for the investment
(40) Following the Resolution of the Portuguese Council of
project would not be cumulated with aid received for
Ministers of 6 March 2008, two contracts were signed on
the same eligible costs from other local, regional,
10 March 2008 between the Portuguese Government,
national or EU sources.
Petrogal and Galp Energia, for the purpose of granting
the State aid. The two contracts were: ‘contract for the
granting of tax benefits’ and the ‘investment contract’ (the
‘aid contracts’).
(44) In addition, the aid is granted under the condition that
Petrogal will maintain the investments in the assisted
regions for a minimum period of five years after
completion of the investment project.
(41) The
signed
aid
contracts
foresaw
the
concession
of
the
tax credit linked to the completion investment project.
The aid would be a tax credit to be deducted from future
payments of corporate income tax. The amount of the
tax credit would be calculated by the Portuguese auth
(45) Portugal confirmed that the granting of the aid was
orities as a percentage of the eligible investment. The tax
subject to the Commission’s clearance.
credit would only be used for taxes generated by the
investment project. In the event that tax credit could
not be fully deducted, any pending tax credit could still
be deducted, until the expiry of the contract (namely
(46) Petrogal applied for State aid with regard to the
31 December 2016).
investment project on 22 January 2007. On 23 January
2007, the Portuguese authorities confirmed in writing to
Petrogal that, subject to detailed verification, the
investment project met the conditions of eligibility laid
2.9. Aid amount
down in the ‘fiscal scheme’ before the start of work on
the project.
(42) Portugal intends to grant regional aid amounting to EUR
160 484 007 in nominal value to be awarded as from
2011. Table 2 below, provided by the Portuguese auth
orities, details the schedule of the granting of the aid:
(47) Portugal committed itself not to exceed the maximum
aid amount and the maximum aid intensity as laid
( 25 ) The Portuguese regional aid map was approved by the Commission
by Decision of 7 February 2007, case N 727/06 (OJ C 68,
down in this Decision, even in the case of lower or
24.3.2007 p. 26).
increased eligible expenditures.

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L 220/6
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Official Journal of the European Union
17.8.2012
2.10. General provisions
into a new establishment, nor a diversification of the
output of an existing establishment into new, additional
(48) Portugal
committed
itself
to
submit:
products. It could however be considered to include
certain ‘extension’ and ‘fundamental change of the
— within two months of granting the aid, a copy of the
production process’ aspects.
document sent to Petrogal notifying the entry into
force of the aid contracts;
Regional coherent development
— on a five-yearly basis, starting from the date of
(52) The
Commission
pointed
out
in
the
opening
decision
approval of the aid by the Commission, an inter
that, as the aid measure has to be assessed as an ad
mediary report (including information on the aid
hoc aid, Portugal needed to demonstrate that the
amounts being paid, on the execution of the aid
investment project contributes towards a coherent
contract and on any other investment projects
regional development strategy within the meaning of
started at the same establishment/plant);
paragraph 10 of the RAG.
— within six months after the grant of the last tranche
(53) In
particular,
the
Commission
expressed
doubts
in
the
of the aid, based on the notified granting schedule, a
opening decision as to whether the expected contribution
detailed final report.
to regional development really outbalances the sectoral
effects resulting from the aid (EUR 160 million aid,
3. GROUNDS FOR INITIATING THE FORMAL INVESTI
creating only 150 direct jobs).
GATION PROCEDURE
(49) In its decision to initiate the formal investigation
(54) In this context, the Commission pointed out that there
procedure pursuant to Article 108(2) of the Treaty (‘the
were grounds to doubt the necessity of the aid, as is
opening decision’), the Commission expressed doubts as
apparent from the Petrogal’s 2008 financial accounts,
regards the compatibility of the aid with the provisions
the investment project is part of its industrial strategy
of the RAG. In this respect, the Commission expressed
and is likely to be carried out in a counter-factual
doubts in the opening decision regarding the issues
scenario analysis without aid. The Commission
mentioned in recitals 50 to 64.
indicated that the aid did not seem necessary for the
implementation of the investment (for which works
3.1. Compatibility with the general provisions of the
started in 2008) and that Petrogal could have considered
RAG
other locations for the investment. Unnecessary aid is
unlikely to contribute to regional development and
Initial investment
might result in unacceptable distortions of competition.
(50) Paragraph 34 of the RAG describes the standard
categories of an initial investment ‘an investment in
Formal incentive requirement
tangible and intangible assets’ relating to:
(55) The Commission in the opening decision doubted
whether the formal incentive effect requirements laid
— the setting up of a new establishment;
down in paragraph 38 of the RAG were met. In case
of ad hoc aid, the competent authority should have
— the extension of an existing establishment;
issued a letter of intent, conditional on the Commission’s
approval, to award aid before works started on the
project.
— diversification of the output of an establishment into
new, additional products;
(56) In
this
respect,
the
Commission
expressed
doubts
in
the
— a fundamental change in the overall production
opening decision as to whether Portugal’s written confir
process of an existing establishment.
mation that, subject to detailed verification, the
investment project was eligible for State aid did indeed
meet the requirements of paragraph 38 of the RAG.
Replacement investment which does not meet any of
these conditions is explicitly excluded from the scope
of the definition of initial investment.
3.2. Assessment of the aid under the provisions for
aid to large investment projects
(51) In
this
respect,
the
Commission
expressed
doubts
in
the
Single investment project
opening decision as to whether the investment project,
which aims at modernising and better integrating the two
(57) Portugal notified the investment project in the two
refineries, increasing the production of diesel (and collat
refineries as a single investment project (‘SIP’).
erally naphtha) while at the same time reducing the
According to paragraph 60 of the RAG, an initial
production of gasoline, could be considered as initial
investment is deemed to be a SIP when it is economically
investment. The Commission considered that the
indivisible, taking into account the technical, functional
investment project did not constitute an investment
and strategic links and the immediate proximity.

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17.8.2012 Official
Journal
of
the
European
Union L
220/7
(58) In
this
respect,
the
Commission
expressed
doubts
in
the
strengthen the European competitiveness in the petro
opening decision considering the distance between the
chemical and refining sector. If the investment project
two refineries. Besides, the consideration of the
could not be finalised or if it lacked the support
investment project as a SIP would imply the application
necessary for its completion, this could have serious
of an adjusted regional ceiling, on the basis of the scaling
consequences regarding the autonomy and support for
down percentage in accordance with paragraph 67 of the
the petrochemical chain.
RAG.
Assessment of the aid under the provisions of paragraphs 68
Attraction of new investment and development of new products
and 69 of the RAG
(66) The
new
PTA
(Purified
Terephthalic
Acid)
production
(59) The
Commission
raised
doubts
in
the
opening
decision
unit planned by Artensa (Artenius — Produo e Comer
as regards the assessment of the aid under the provisions
cializao de cido Tereftálico Purificado e Produtos
of these two paragraphs of the RAG.
Conexos, S.A. which is a Spanish subsidiary of La Seda
de Barcelona S.A) in Sines will substantially increase La
Seda’s naphtha requirements. Consequently, the increased
(60) More specifically, the Commission was unable to
production of naphtha by Petrogal’s hydrocracking unit
conclude on the relevant products concerned by the
is crucial for the realisation of La Seda’s investment,
investment project. It remains unclear whether the
estimated at around EUR 400 million.
products are exclusively diesel and naphtha, as claimed
by Portugal, or whether other products from the refining
activity should be taken into account. The potential
substitutability of refinery products from the supply
Reduction of diesel deficit and gasoline surpluses
side has to be considered along with the fact that
naphtha may be considered an intermediate product
(67) According
to
AIPQR,
the
investment
project
will
reduce
within the meaning of paragraph 69 of the RAG.
the diesel deficit at European level.
(61) The Commission raised doubts as regards the relevant
product market and whether it is to be considered
Regional development and international recognition
being at ex-refinery level for both diesel and naphtha,
(68) AIPQR
considers Petrogal’s contribution essential for
as claimed by Portugal.
making feasible and promoting the development of the
Competitiveness and Technology Centre of the Refining,
Petrochemical and Industrial Industries, as part of the
(62) The
Commission
raised
doubts
as
to
whether
the
relevant
geographic markets for the products concerned should be
Portugal strategy for the promotion of key industries
defined at national, regional (Iberian Peninsula) or the
for the national and regional economies.
European Economic Area (‘EEA’) level.
Environmental impact
(63) Moreover,
the
Commission
raised
doubts
as
to
whether
Petrogal, and the Galp Energia and ENI groups to which
(69) According
to
AIPQR,
the
diesel
fuel
obtained
by
hydro
Petrogal belongs, had a market share below 25 % of the
cracking is of superior quality, ensuring more efficient
relevant market, in accordance with paragraph 68(a) of
combustion and minimisation of contaminants in
the RAG.
exhaust emissions. The quality of the diesel fuel
products and also, the energy efficiency which should
be achieved with the investment project, will permit to
(64) Finally,
in
accordance
with
paragraph
68(b)
of
the
RAG,
fulfil Petrogal’s 2008-11 energy efficiency plan.
the Commission raised doubts, in respect of all the
products concerned, as to whether the production
capacity created by the investment project exceeds 5 %
of each relevant market, measured using apparent
Social and economic impact
consumption data, and in that case, whether the
average annual growth rate of that product’s apparent
(70) Furthermore, AIPQR considers that the investment
consumption over the last five years is above the
project will contribute to social and economic sustain
average annual growth rate of the European Economic
ability of Matosinhos and Sines regions and to national
Area’s GDP.
social and economic sustainability, if considered as a
whole.
4. COMMENTS FROM INTERESTED PARTIES
4.1. Comments from the Associao das Indústrias
4.2. Comments from the Associao para a eficiência
da Petroquímica, Química e Refinao (AIPQR)
energética (COGEN)
Necessity of the investment project
Supply of diesel-oil
(65) AIPQR
considers
the
investment
project
as
essential
for
(71) The
investment
project
is
relevant:
more
flexibility
of
boosting the Portuguese economy and as a way to
supply and increased autonomy in diesel-oil.

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L 220/8
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Official Journal of the European Union
17.8.2012
Creation of new jobs
national average and it will result in the creation of
roughly 5 000 temporary jobs during the construction
(72) According to COGEN, the investment project will create
period.
a major opportunity in terms of technological innovation
and create around 150 direct jobs and around 500
indirect medium-level jobs, all permanent.
4.4. Comments from the Unio Geral de Trab
alhadores (‘UGT’)
Energy efficiency
Promotion of regional development
(73) From
an
energy
point
of
view,
COGEN
considers
that
the
(77) UGT
considers
that
the
investment
project
will
promote
conversion projects for both refineries will allow 14 %
regional development and have a positive impact on the
energy savings. Furthermore, COGEN highlight that the
economic development and social and territorial
investment project will also make feasible another type of
cohesion of the regions concerned. The regions
investment not covered by the investment project — the
concerned are characterised by high unemployment
installation of two 82 MW cogeneration units, one at
levels, by a business structure that shows little diversity
each refinery — resulting in an increased capacity of
and by a GDP per capita that lies below the national
around 12 % in this technology in Portugal.
average. The investment project will have a significant
impact on the industrial fabric of both regions and
Portugal as a whole, since both upstream and down
4.3. Comments from the Confederao da Indústria
stream activities will be developed, in particular in
Portuguesa (‘CIP’)
areas such as mechanical and civil engineering, electricity
or even, commerce and catering.
Balancing of supply and demand between diesel fuel and
gasoline
(74) CIP
considers
that
the
investment
project
addresses
the
Creation of new jobs
Portuguese situation which is characterised by:
(78) UGT
considers
that
the
investment
project
will
create
more and better jobs, particularly at a time when
(i) a discrepancy between vehicle diesel consumption
unemployment is growing rapidly due to the economic
and Portugal’s existing processing capacity, the
and social crisis. The investment project is designed to
result of which is a chronic need for large imports
create 150 jobs directly in both refineries, many of them
of diesel fuel and the sale abroad of excess gasoline;
highly skilled. A further 450 jobs are expected to be
created indirectly, while 5 000 temporary jobs will be
created during the construction period. The investment
(ii) future fuel oil surpluses caused by the fact that fuel
project will contribute to maintain some of the 2 050
oil is no longer used in electricity generation and
existing jobs which could be jeopardised without the
that there are disincentives to use fuel oil in
investment project.
industry in general, which are set out in the
Portuguese National Climate Change Programme;
Environmental impact
(iii) international market trends related to an increase in
(79) Furthermore,
UGT
considers
that
the
investment
project
purchases of heavier and more acidic fractions of
will help meeting rigorous environmental and safety
crude oils, which would provide more flexibility in
standards as the refineries will be equipped with more
terms of the choice of crude oils;
environmentally friendly technology.
(iv) contribution to security of supplies.
Insufficient supply of diesel
(80) According to UGT, the investment project is very
Energy efficiency
important to improve Portugal’s insufficient diesel fuel
refining and production capacity. The existing refining
(75) CIP
considers
that
the
investment
project
will
signifi
capacity is clearly too small to cover domestic demand,
cantly increase the energy efficiency of both refineries,
which makes Portugal more dependent on diesel fuel
in line with the commitments made by Portugal to the
imports from other countries (thus increasing strategic
EU as regards increasing European energy efficiency by
risks). A decrease of diesel fuel imports would also
10 %.
reduce the current trade deficit, which derives to a
large extent from the energy accounts.
Creation of new jobs
General contribution to the EU’s main objectives
(76) CIP
considers
that
the
envisaged
job
creation
of
about
150 highly skilled posts and 450 indirect permanent jobs
(81) Finally, UGT notes that the investment project is
will significantly contribute to Portugal’s economic devel
important not only in national terms, but also for the
opment. It will boost the local economy in the regions
EU, as it is designed to help develop a greener and more
concerned where the GDP per capita is lower than the
sustainable economy.

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/9
4.5. Comments by the Municipality of Matosinhos
region with the highest level of unemployment, and
(CMM)
particularly high unemployment of long duration (half
of the unemployed population has been job-searching
(82) The CMM considers that the creation of jobs has a great
for a year or more). In the current social crisis context,
impact on the area. Thanks to the creation of qualified
the creation of 500 direct jobs and 200 permanent
jobs with salaries above the regional average, the Mato
indirect jobs and also of, around, 2 000 temporary jobs
sinhos refinery will contribute to the increase of the
during the construction phase represents a huge
purchasing power of the area and of the region. It will
contribution for the region.
continue the significant impact on the regional Gross
Added-Value, resulting from the refinery’s activity and
from the activity of hundreds of commercial and
industrial small and medium-sized enterprises, especially
(87) The Alentejo region is currently one of the Portuguese
because the region has an unemployment rate of around
regions with the highest unemployment rate — 10,2 %
13 % (above the national average). The CMM considers
as compared with the national average of 9,8 % (data
that the investment project is crucial for the region, both
from the third quarter of 2009) — and particularly
in economic and social terms.
high unemployment of long duration (half of the
unemployed population has been job-searching for a
year or more). In this context, the creation of 100
4.6. Comments by the Municipality of Sines (CMS)
direct jobs and of 250 permanent indirect jobs plus
around 3 000 jobs during the construction phase will
(83) The CMS is convinced of the importance of the Sines
represent an important contribution for the region.
refinery’s new units of production for the development of
the local and regional economy. This will impact posi
tively on the region’s social development, due to the
creation of qualified jobs and the creation of more and
better small and medium-sized enterprises.
4.9. Comments from Competitor No 1
4.9.1. Comments on the opening decision
4.7. Comments by the Confederao Geral dos Trab
The initial investment and SIP character of the investment
alhadores Portugueses (‘CGTP’)
project
(84) The
CGTP
considers
that
the
investment
project
produces
(88) According
to
Competitor
No
1,
the
investment
project
very positive environmental effects and is important for
can be considered a mere ‘extension of an existing estab
Portugal’s regional development as:
lishment’ within the meaning of paragraph 34 of the
RAG. The investment project cannot be considered to
be a SIP because the fixed assets of the investment
(i) it will make it possible to offer a larger diversifi
would be ‘economically divisible’ within the meaning of
cation of products of better quality to the national
paragraph 60 of the RAG. Indeed, the Sines and Mato
organic chemical industry, as well as for exports.
sinhos refineries are geographically distant from each
Therefore the investment project will positively
other. The investment project clearly defines a separate
contribute to the valorisation of the specialisation
investment for each refinery. The refineries can choose to
profile of the manufacturing industry;
have vacuum and visbreaking units but no hydrocracker
unit, or vice versa. The investments for the refineries are
not therefore necessarily directly connected. In any event,
(ii) it will generate hundreds of permanent jobs and
the refineries could operate on their own without
some thousands temporary jobs in the construction
requiring any integration. Moreover, the Matosinhos
phase, mainly in regions that have some of the
refinery could sell its production of vacuum gas oil on
largest unemployment rates in Portugal;
international markets and the hydrocracker unit located
in Sines could be fed with imported vacuum gas oil.
(iii) it will develop the local economy at the level of
housing, commerce and hotels, among other
economic activities.
Contribution of the aid to regional development
(89) Portugal
only
mentioned
direct
and
indirect
job
creation
as a contribution of the investment project to regional
4.8. Comments by the Associao Industrial
development. It is therefore impossible to demonstrate
Portuguesa (‘AIP’)
that the investment project contributes towards a
coherent regional development strategy and that it
(85) The
AIP
indicates
that
the
investment
project
will
deci
addresses the economic cohesion objective (
sively contribute to the increased wealth of the Northern

26 ). It is
difficult to accept that spending more than one million
and Alentejo regions.
euro per direct job created can be considered as an
(
(86) The
Norte
region,
with
an
unemployment
rate
of
11,6
%

26 ) Within the meaning of point 11 of the Communication of the
Commission of 24 June 2009 on the ‘Criteria for an in-depth
compared with the national average of 9,8 % (data from
assessment of regional aid to large investment projects’ (OJ C
the third quarter of 2009), is currently the Portuguese
223, 16.9.2009, p. 3).

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L 220/10
EN
Official Journal of the European Union
17.8.2012
exceptional contribution to regional development. In this
address the ex-refinery level, but should also assess the
respect, the ratio of aid amount to direct jobs for the
competitive situation at the level of retail and non-retail
investment project is compared to previous Commis
market of diesel fuel.
sion’s decisions (presented in a table reviewing this
ratio in previous Commission’s decisions). Furthermore,
Competitor No 1 considers that the investment project is
— Naphtha
not connected with any alleged market failure.
(94) With
regard
to
naphtha,
Competitor
No
1
also
considers
Incentive effect of the aid
that the relevant product market to be assessed should
not be limited to ex-refinery sales but should take into
(90) As
to
the
formal
incentive
effect
requirement,
Petrogal
account downstream activities.
never received a letter of intent from Portugal before the
works started. Therefore, Competitor No 1 concludes
that the aid is not in conformity with paragraph 38 of
the RAG.
(95) As regards the relevant geographic market, the ratio of
total diesel fuel imports and exports in relation to the
total diesel fuel sales in Portugal is too low to justify
(91) From
an
economic
assessment
point
of
view,
Competitor
choosing the regional market as the relevant market.
No 1 considers that the aid does not satisfy the criteria of
Competitor No 1 considers that the Portuguese market
necessity and does not produce any incentive effect. The
is the relevant geographic market.
investment project is a productive investment econ
omically driven by the imbalance between supply and
demand, and the opportunity to have access to heavier
and cheaper crude oil. It is an investment in response to
Market shares
the natural evolution of demand for diesel fuel. All other
operators across Europe are carrying out similar
(96) Competitor
No
1
considers
that
ENI’s
activities
in
the
investments in refineries without State aid. Therefore,
affected product markets should be taken into account
facts indicate that the investment project would have
as, where a company can exercise decisive influence over
been carried out anyway which is not in line with
the sales policy of another company, it is necessary to
paragraph 22 of the Communication of the Commission
look at the combined market share of both in the
of 24 June 2009
(
relevant markets.

27 ) (the ‘In-Depth Assessment
Communication’).
Products concerned
(97) Competitor No 1 concludes that for diesel fuel the 25 %
market threshold established in paragraph 68 of the RAG
(92) Competitor
No
1
considers
that
the
products
concerned
is significantly exceeded. Therefore, the aid granted by
are:
the investment project is designed to subsidise the
dominant market operator, enabling it to maintain and
— diesel fuel (which is an end product),
to increase its market power. Competition will be
seriously affected and the aid will distort significantly
— naphtha (which is an intermediate product within the
the relevant markets.
meaning of paragraph 69 of the RAG), therefore
petrochemical products derived from naphtha must
also have to be considered as products (deemed)
(98) In
conclusion,
Competitor
No
1
considers
that
the
aid
concerned,
constitutes operating aid that strengthens the market
position of a dominant operator in the relevant
— hydrocracking residues (where the hydrocracker unit
markets. The aid does not contribute to produce any
is not equipped with a recycler).
incentive effect. In any event, the negative effects of the
aid outweigh any positive effects it may have.
Products and geographic markets
— Diesel
4.9.2. Comments submitted by letters dated 15 September
and 10 November 2010 (in reply to Commission
(93) According
to
Competitor
No
1,
Petrogal
is
the
sole
questions of 5 August and 13 October 2010)
market operator with a refining capacity for crude oil
in Portugal. Petrogal supplies its competitors on this
Similar investment projects conducted and rate of return
market. Petrogal controls the largest import and storage
facilities for gasoline and diesel fuel. Petrogal has the
(99) Similar investment projects were conducted in four
largest service station network in Portugal. Petrogal has
refineries (La Rabida, Castellón, Cartagena and Bilbao),
a dominant position or, at the very least, has significant
with the same objective, to increase assets profitability
market power in a large number of petroleum products
through the installation of new conversion units which
markets in Portugal. Competitor No 1 considers that the
maximise the yield of medium distillates, reduce the
assessment of the relevant market should not only
production of fuel oil and process heavier crude oil.
Competitor No 1 refers also to similar investment
projects in Italy (refineries of Sannazzaro and Taranto,
( 27 ) Communication of the Commission of 24 June 2009 on the
‘Criteria for an in-depth assessment of regional aid to large
by ENI), in Germany (Bayernoil), in Lithuania (Mazeikiu
investment projects’ (OJ C 223, 16.9.2009, p. 3).
Nafta) and in Belorussia (Slavneft).

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/11
(100) As regards a potential benchmark rate of return for such
(107) Petrogal is vertically integrated and the largest company
investments in the sector, Competitor No 1 states that it
marketing petroleum products in Portugal and the third
is unaware of a benchmark: investment project profit
largest competitor in the Iberian Peninsula.
ability depends normally in the cost of capital of each
company and other aspects. Competitor No 1 considers
that, for the period during which the investment project
(108) Competitor No 2 considers that the State aid does not
was decided, the proxy return rate in the refining sector
meet the formal requirements of the incentive effect of
should be at least 10 %.
aid as set out in paragraph 38 of the RAG. The
investment project is a profitable transaction in itself
that satisfies the medium long-term strategic goals of
Barriers to imports of diesel (ex-refinery level)
Petrogal, which will thus be carried through in any event.
(101) Competitor No 1 refers in general terms to the existence
of import barriers in relation to the relevant geographic
(109) According to Competitor No 2, the investment project
market. It considers the main problem in Portugal to be
will contribute to satisfying the increasing internal
Petrogal’s dominant position on the market, controlling
demand for diesel, will allow Petrogal to become a net
100 % of the refining capacity in Portugal and hence the
exporter to other markets (France and Spain for
most important import and export terminals. It further
example), and will increase Petrogal’s refining margin.
claims that Petrogal has a dominant position in terms of
product storage capacity, which some independent
sources ( 28 ) put at 90 % of the market. This allows
(110) Competitor No 2 considers that the necessity of the aid
Petrogal to have a retail sales share of about 45 % and
has to be assessed on the basis of the provisions of
a non-retail sales share of 80 % of the Portuguese market.
Section 2.3 of the In-Depth Assessment Communication.
(102) As regards the Commission’s question as to the existence
(111) Competitor No 2 refers to the PFC Energy report
of a refusal to grant access to Petrogal’s capacity storage,
mentioned in footnote 31, in which it is mentioned
Competitor No 1 was unable to describe such a situation.
that Petrogal’s investment project was already a reality
in 2006. The investment project could only be carried
out in Matosinhos and Sines regions (not because these
(103) Competitor No 1 considers that there are storage
are assisted areas, but because the refineries are located
capacity limitations in Portugal and that storage costs
there).
are higher in Portugal than in other countries, such as
Spain and Italy, for similar facilities or operations
(approximately 25 % higher).
(112) Finally, Competitor No 2 considers that there could not
be, by definition, another location to invest into the
reconfiguration of the existing refineries.
(104) Competitor No 1 considers that there are no significant
differences between the prices for imported diesel and
price for diesel acquired from Petrogal, as prices are
Products concerned and relevant market
indexed to international prices plus logistics cost.
(113) Competitor No 2 only submitted comments regarding
diesel fuel.
4.10. Comments from Competitor No 2
4.10.1. Comments to the opening decision
— Ex-refinery level
(105) Competitor No 2 considers that the investment project
(114) Competitor No 2 explains that, although there are no
will increase Petrogal’s diesel production capacity by
legal barriers to imports, these are highly conditioned
some 2,5 million tonnes, transforming Portugal from a
(if not limited) by a range of physical factors (lack of
small importer into a major exporter of diesel.
import storage locations, their location and ownership,
the limitations of the secondary logistical network) and
market structure factors (ability to set the ex-refinery
Contribution of the aid to regional development and incentive
prices).
effect of the aid
(106) Competitor No 2 expresses doubts as to the necessity of
— Non-retail level
the aid, as Petrogal belongs to a major company, held
and controlled by ENI. Petrogal is a profitable company,
(115) The other Portuguese market players import 90 % of the
which has conducted substantial investments both
total diesel imported, on which they face substantial
upstream to refining in Brazil and Angola and down
difficulties, as mentioned in the Portuguese Competition
stream to enlarge its distribution network in Spain. It
Authority report entitled ‘Relatório final sobre os sectores dos
enjoys a privileged position in Portugal, being the
combustíveis líquidos e do gás engarrafado em Portugal’ ( 29 )
owner of the only two refineries.
(the ‘Authority report’). Competitor No 2 considers that
all these factors make the Portuguese market more closed
than comparable markets in other countries.
( 28 ) PCF Energy: Downstream Monitoring Service — Europe
PORTUGAL: Galp Energia controls some 90 % of Portugal's total
crude and product storage capacity.
( 29 ) Date of publication: 31 March 2009.

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L 220/12
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Official Journal of the European Union
17.8.2012
(116) Competitor No 2 considers that the assessment of the
4.10.2. Comments submitted by letter dated 10 September
relevant market should not be limited to the ex-refinery
2010, in reply to the Commission’s request for
level, but should also cover distribution and sales
information dated 4 August 2010.
channels (retail and non-retail). The investment project
will increase the production by 2,5 million tonnes per
Similar investment projects carried out and rate of return
annum, transforming Portugal into a country with an
annul surplus of 1,6 million tonnes of diesel, plus
(124) Competitor No 2 indicates that there is no rate of return
annual 0,5 million tonnes of bio-diesel from the Sines
benchmark established at sectoral level, since companies
refinery.
have their own target rate and target rates could differ
depending on the characteristics of each investment
project. Competitor No 2 gives a list of five refineries
— Non-retail and retail sales
which undertook similar investment projects, amounting
to more than EUR 6 billion in total, without State aid.
(117) According to the Authority report, this level of sales is
considered as a second level in the diesel distribution
structure. The diesel price will depend on the purchase
price at the refinery or on import, to which transport
Barriers to diesel imports (at ex-refinery level)
and storage costs are added, and the sales margin.
(125) Competitor No 2 points out that storage capacities and
port facilities are limited. Therefore, shipments to
(118) Competitor No 2 considers that Petrogal competes also
at distribution level, with a clear competitive advantage:
Portugal take place in smaller quantities, which leads to
any aid granted to reduce Petrogal’s cost in the
higher distribution costs that affect the final retail and
production of diesel would strengthen its current
non-retail sales margins.
dominant position in the Portuguese market (51 % in
the non-retail market and 37 % in the retail market).
(126) As regards storage facilities, Competitor No 2 indicates
Relevant geographic market
that the installations are normally used by the owner
(such as Petrogal), for its own purposes. In cases of
(119) Competitor No 2 considers that the relevant geographic
storage facilities belonging to third parties, little storage
market should be, at most, the Iberian market. The
is available due to existing long term contracts already
relevant geographic market could only be at EEA level
signed with other operators.
if diesel imports effectively compete with diesel refined in
Portugal (namely assuming there are no legal or
economic barriers to entry).
(127) Competitor No 2 considers Petrogal has an advantage in
(120) Aid to the investment will affect Petrogal’s competitors
its diesel sale price towards its competitors estimated
on the Iberian market, as refineries located in Spain made
around 3 to 5 USD/tonne due to its dominant position
similar investments (with very similar strategic goals)
in the storage facilities.
without aid.
(121) Should non-retail and retail sales be deemed part of the
5. COMMENTS FROM PORTUGAL
relevant product market, Petrogal’s market share in the
national and local markets is well above the 25 %
5.1. Comments on the opening decision
threshold set out in paragraph 68 of the RAG, and aid
should not be granted.
(128) Portugal rectifies that the meeting between the
Portuguese authorities and the Commission services
took place on 11 March 2009. Portugal specifies that
Market shares
the investment project is not a replacement or an
(122) Competitor No 2 considers that, on the supply side, the
upgrading project; it is a conversion project implying
non-retail gasoline and diesel markets are highly concen
effective change of the refining process with a view to
trated (the top four market players enjoy over 95 %
better serve the increasing demand for diesel. Portugal
market share), as indicated by the Portuguese
adds that the EIB will provide funding and that the aid,
Competition Authority in its report.
in the form of a tax credit, will be granted as from 2011.
Portugal also considers that assessing the investment
project as an ad hoc aid should not lead to a tightening
(123) Petrogal has an estimated share of the non-retail diesel
of the assessment rules. Indeed, the investment project
market in Portugal in volume terms between 35 % and
contract and the aid contract concluded between Portugal
45 %. Competitor No 2 considers that the investment
and the beneficiary are conditional on the Commission’s
project will result in an additional production capacity
positive decision. Since the investment project and aid
2,5 Mtonnes and taking this project in conjunction with
contracts were already submitted to the Commission
this others that Petrogal has undertaken, Petrogal will be
during the notification phase, Portugal suggests
in position to meet the internal demand in the
submitting an administrative letter — with the
Portuguese diesel market but also to export close to 2
investment project and aid contracts referred to in page
Mtonnes of diesel to neighbouring countries (Spain and
8 of the opening decision in annex to this administrative
France).
letter — indicating the entry into force of these contracts.

---

EN
17.8.2012 Official
Journal
of
the
European
Union L
220/13
5.1.1. Comments regarding the investment project
(by [200-250] Ktonnes yearly)
( 31 ). The increased
production of heavy naphtha in Sines will replace the
The investment project as an initial investment
quantities currently imported in Matosinhos and will
not be sold to third parties.
(129) Portugal considers that the investment project constitutes
an initial investment falling into the following categories:
extension of an existing establishment or fundamental
change of the production process.
(135) Portugal clarified that no investment in the Matosinhos
refinery relates to the specific units processing heavy
naphtha into reformer, an intermediate product for the
Fundamental change in the overall production process
aromatics (namely naphtha derivatives) production, and
subsequently processing reformer in Petrogal’s Mato
(130) According to Portugal, the new vacuum distillation unit
sinhos based aromatics plant into naphtha derivatives
and the new hydrocracker unit will allow the production
(which are sold on the market at market prices to the
of higher quantities of diesel and thus to adjust the diesel
second generation petrochemical industry). The price of
production to market needs. Such adjustment is not
reformer charged to the aromatic plant will remain
possible with the existing configuration of the refining
unchanged as it is indexed to [10-20] % of the import
system that offers very little flexibility to shift production
parity of naphtha and [80-90] % of the gasoline export
from gasoline to diesel.
parity.
Extension of the existing establishment
Relevant geographic market
(131) The new vacuum distillation unit and visbreaker in Mato
In relation to diesel
sinhos, the new hydrocracker unit in Sines and the
original pre-existing refining units will function simulta
(136) Portugal considers its relevant national market to be
neously. Therefore, Portugal considers the investment
open and competitive without barriers to trade. Diesel
project to be an extension of the production system
prices are based on the price for crude oil and refining
with a fundamental change of the production process.
costs. Refiners have to compete with imports. Portugal
considers the relevant geographic market to be
Northwest Europe.
The project as a SIP
(132) The Portuguese authorities explain that the new process
configuration will reinforce the operational and func
In relation to naphtha
tional complementary links between the two refineries:
(137) Previous Commission decisions state that naphtha is an
vacuum gas oil [ ] will be transported from Matosinhos
internationally traded product and the relevant product
to Sines and, heavy naphtha [ ] will be transported from
market is at least Western Europe.
Sines to Matosinhos. The investment project is taking
place in an integrated refining system: Sines and Mato
sinhos refineries are inseparable, in particular to optimise
diesel production. Only the geographic criterion (‘im
Beneficiary’s market share
mediate geographic proximity’) is not respected.
(138) At group level (not including ENI figures since it does
However, splitting the investment project into two
not have refining or retailing activities in the Iberian
parts would be artificial since it is technically, func
market and the Herfindahl-Hirschman Index (HHI)
tionally and strategically indivisible ( 30 ).
shows low concentration level at European level), the
market share is below 25 % at regional level.
5.1.2. Comments regarding the characterisation of the market
and the relevant products
5.1.3. Comments regarding the project within a European,
Relevant products
national and regional strategy
(133) Portugal considers that the relevant products are diesel
(139) Portugal underlines that the investment project is in line
and heavy naphtha, with diesel being the economic
with strategic objectives taken at national or European
driver for the investment and heavy naphtha being a
level. The maximisation of diesel production — estimated
technically inevitable by-product of the production in
at [1-3] Mtonnes/year from 2011 — will allow a better
Sines.
use of the processing capacity of the national refining
system. It will allow to better match supply and
demand and to counteract the serious deficit of diesel
(134) As regards the heavy naphtha produced by the recon
and to reduce surplus gasoline production.
figured refineries, it will be used domestically, in
Petrogal’s aromatics production in Matosinhos, and it
( 31 ) This capacity increase occurs totally at the Sines refinery. The
will substitute imports (92 % of which are originated
volume of naphtha to be transferred from Sines to Matosinhos
from outside the EU). The investment project will
would be 143 Ktonne/year, as import replacement, to supply the
increase only the production of heavy naphtha in Sines
needs of the Matosinhos refinery. The balance of 69 Ktonne/year
will be used within the Sines refinery in its internal process, namely
as feed to the platforming units to increase production of hydrogen
( 30 ) Criteria mentioned at footnote 55 of paragraph 60 of the RAG.
for the operation of the hydrocracker.

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L 220/14
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Official Journal of the European Union
17.8.2012
Energy dependency of the EU
5.1.4. Comments regarding the contribution to regional
development
(140) According to Portugal, the investment project will reduce
the dependency on Russian diesel imports — which is an
Framework
objective adopted by the Commission (in its 2008
Second Strategic Energy Review: an EU energy security
(148) Portugal underlines the investment project’s important
and solidarity action plan ( 32 )) and the Member States.
contribution to regional development, given its location
in two disadvantaged regions, both suffering from high
unemployment. Both regions are areas eligible under
Article 107(3)(a) of the Treaty, with standard regional
(141) The demand for diesel has increased and will increase
aid ceilings for large enterprises of 40 % (for Sines, in
between 2000 and 2025 but refineries in their existing
the Alentejo region) and 30 % (for Matosinhos, in the
configurations can only adapt marginally to the evolution
Norte region), according to the Portuguese regional aid
of demand without major investment into reconfigu
map. Both regions are Convergence Objective (as defined
rations. Petrogal’s investment foresees to the increased
in the EU regional policy) regions, with a GDP per capita
demand and reduces dependency on imports and
below 75 % of the European average.
associated supply risks.
(142) The investment project will promote the reduction of the
(149) Portugal considers that the Sines and Matosinhos
atmospheric emissions and the energy efficiency of the
refineries constitute fundamental pillars of the regional
installations will be optimised. The energy rationalisation
economies. Portugal expects the investment project to
measures foreseen allow reducing the current energy
produce extremely positive effects on employment and,
consumption in the refineries by [ ] %.
more generally, on the economic fabric of the Norte and
Alentejo regions.
(143) When production begins at the reconfigured refineries,
the same cargo will be processed, but with a considerably
higher conversion capacity, with lower energy consump
(i) Sines
tions, and with emissions reduction.
(150) The refinery in Sines is located in Alentejo, a region with
a GDP 6 % below the national average. The region is
characterised by a reduced business density and a
Summary of environmental benefits and their importance
shortage of advanced services for development support
and innovation. In the third quarter of 2009, the
(144) According to Portugal, the impact on air pollution has a
unemployment rate was 10,2 %, namely 0,4 % above
significant importance, as the investment project will
the national average, and has increased since then to
reduce the refineries’ fixed-source emissions and thus
11,6 % in the third quarter of 2010 (0,7 % above the
contribute towards the achievement of the regional and
national average).
national air quality objectives.
(145) At regional level, the importance of the investment
(ii) Matosinhos
project is recognised in so far as it also includes the
introduction of natural gas in the refineries’ fuel
(151) The refinery in Matosinhos is located in the Oporto area
portfolio and in the replacement of the current steam
in the Norte region. The Norte region is currently the
production plant by a cogeneration unit.
poorest NUTS II (Nomenclature of Territorial Units for
Statistics) region of Portugal, with a GDP per capita
about 20 % below the national average in 2008. The
region has an economic growth rate below the EU and
(146) At national level, the environmental benefits can be
Portuguese average and suffers from low levels of
assessed with regard to the contribution to the
qualified human resources. The unemployment rate
achievement of goals established in the National
grew from 11,6 % in the third quarter of 2009 to
Program for the Reducing of sulphur dioxide and
13,2 % in the same quarter of 2010, which is signifi
nitrogen oxides Pollutants Emissions ( 33 ).
cantly above the national average (respectively 9,8 % in
2009 and 10,9 % in 2010).
(147) The investment project will improve diesel quality, and
consequently, reduce polluting emissions from vehicles.
The investment project will also have a positive impact
5.1.5. Jobs and Training
on biological factors (flora and fauna) and on the land
scape.
Creation of Direct Jobs
(152) According to Portugal, in the operation stage, the
( 32 ) COM(2008) 781 final
investment project will create an estimated 150 new
( 33 ) Within the framework of the Directive 2001/81/EC of the
European Parliament and of the Council of 23 October 2001 on
jobs directly related to running the processing units at
national emission ceilings for certain atmospheric pollutants
the two refineries.

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/15
(153) The ratio between the investment expenditure and the
services ensures the creation of indirect jobs and justifies
number of created direct jobs shows that the refining
the expectation of a higher ratio of indirect jobs to direct
sector is very capital intensive. Moreover, the sector
jobs than in the case of Artensa. Therefore, when
requires specific and qualified training.
compared with the Commission Decisions described in
this recital, Portugal concludes that this strategy is taken
to the extreme in the Repsol Polimeros Project
(minimum utilisation of internal resources and
maximum utilisation of external resources). The
Creation of Indirect and Temporary Jobs
Artensa’s case demonstrates the opposite, namely a
(154) The investment project has a significant potential to
balance in the utilisation of internal and external
create indirect jobs, as the new units will increase the
resources. Portugal considers the proposed ratio 3:1 to
technological complexity of the refineries, and require
be in line with the refining industry’s ratio and correctly
more maintenance interventions. As a result of the
reflects the degree of externalisation of Petrogal’s
refineries’ subcontracting policy, there will be an
activities (as in the area of maintenance).
increasing demand for the provision of services by
specialised workers. Portugal considers that the ‘recon
figuration of the refining units will have a marked
effect on the national industrial fabric, particularly in
(156) In a later submission, Portugal strengthens this statement
the mechanical engineering, electricity and building
by quoting a more recent document ( 35 ) released by the
industries. It is estimated that during the busiest period
Commission that, in Portugal’s opinion, would indicate a
of construction, around 3 000 workers will be involved
ratio between 4:1 and 6:1: ‘thus while the industry
in the construction of both refineries’ and ‘around 450
employs directly only 100 000 people in the EU, it can
indirect permanent jobs are expected to be created’.
be considered that as much as 400 000 to 600 000 jobs
These jobs require qualified personnel, normally paid
are directly dependent on the EU refining industry’. The
above the market average, with an expected significant
same document, at footnote 41, mentions ‘further
social and economic impact on the surrounding
600 000 jobs in logistics and marketing’, which would
community, particularly in the Sines area.
even allow a 12:1 ratio.
(155) As to whether the ratio of three indirect jobs for each
Safeguarded jobs
direct job presented for the investment project — and
the methodology applied — is justified, Portugal replied
(157) During the formal investigation phase, in a further
that this ratio should be compared to those for other
document (a cost-benefit analysis) provided to the
investment projects in the same sector. Referring to
Commission Portugal quantifies the number of jobs safe
two other State aid measures approved by the
guarded by the investment project, as it was clear that in
Commission (Commission Decisions N 898/06 and
a counterfactual no-investment scenario Petrogal would
N 899/06, respectively for the Repsol Polimeros and
have introduced some restructuring measures, including
the Artensa petrochemical projects)
( 34 ), Portugal
downsizing of labour force. If the investment project
considers that the direct/indirect jobs ratio proposed for
were not carried out, there would have been a ‘total
the investment project is more conservative and realistic
loss of 1 240 jobs – 150 direct jobs + 450 indirect
than the Repsol Polimeros ratio (15 indirect jobs for each
jobs (direct result of the project) in addition to the
direct job), even though both projects are brownfield.
estimated loss of 160 direct jobs + 480 indirect jobs
Portugal also noted that the amounts for the investment
due to the cost reduction measures that would be imple
project are close to those of the Artensa project, which is
mented to face the reduced refining margins of the
a root project (greenfield). Portugal also takes into
refineries in their current configuration’.
account the benchmark established by HSB Solomon
Associates LLC concerning the petroleum industry: the
PEI (Personnel Efficiency Index). This indicator shows
the number of hours worked per EDC (Equivalent Distil
Impact in terms of social and economic wellbeing of the regions
lation Capacity), that is, in general terms, the number of
jobs generated per processed barrel of crude. In the latest
(158) Portugal underlines that the investment project will
available report (2008 figures), the beneficiary presented
mainly use qualified workers, paid [ ] the average
a global index of [50-70], which compares with a value
salary in the relevant local market. The resulting socio-
of 113,7 for the study average and, 206,8 for the
economic impact on the surrounding communities will
Southern and Central European average. This reflects
contribute to the development of other businesses and
the number of workers involved internally in the
activities. The investment project will therefore be of
refinery, [ ]; and the existence of a group of support
benefit to the establishment and renewal of the infra
activities based on external services which are continually
structures and facilities in the regions of Oporto and
provided. Portugal considers that this recourse to external
( 35 ) Section 3.2.7 Impacts of restructuring of the sector, in the
( 34 ) Commission Decision of 10 July 2007 for State aid case N 898/06
Commission Staff Working Paper on ‘Refining and the Supply of
— Repsol Polimeros (OJ C 220, 20.9.2007, p. 3), and Commission
Petroleum Products in the EU’, dated 17 November 2010, annex to
Decision of 10 July 2007 for State aid case N 899/06 Artensa —
the Communication of the Commission on energy infrastructure priorities
(Artenius) — Produo e Comercializao de cido Tereftálico
for 2020 and beyond, SEC(2010)1398 fin., available on the Commis
Purificado e Produtos Conexos, SA (OJ C 227, 27.9.2007, p. 2).
sion's internet website.

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L 220/16
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Official Journal of the European Union
17.8.2012
Sines, providing the conditions necessary for these
training a skilled workforce. Similarly high aid per
regions to progress to a new stage in terms of quality
created jobs ratios were approved by the Commission
of life and competitiveness.
in the Repsol Polimeros and Artensa petrochemical
projects ( 39 ).
(159) In its reply, Portugal stresses also that ‘during the
construction phase, the project will have a significant
impact on the national industrial fabric, in promoting
Cost-benefit analysis
the creation and development of local businesses.
When fully operational, the project will encourage the
(165) Following a Commission request to produce a cost-
development of new maintenance-related businesses,
benefit analysis and project appraisal comparable to
and thus it will continue to consolidate the regional
that requested for major projects co-financed by
dynamic’. Therefore, ‘with this initiative, Petrogal will
Structural Funds ( 40 ), Portugal submitted a document
help to balance the competitiveness of less developed
mainly aimed at quantifying the social and economic
regions vis-à-vis the national average. Finally, the
benefits deriving from the investment project. The
project will have a positive impact on business in
document points to an economic impact due to
Alentejo region and on its exposure to foreign markets’.
positive contributions resulting from the investment,
such as: project’s tax payable; direct employment
(taxes); indirect employment (taxes); avoided
(160) Furthermore, by increasing the flow of raw and manu
unemployment aid; consumption tax (VAT); CO2
factured products between the two refineries, the
emission savings in transportation and industry sectors;
investment project is expected to produce a very
avoided interests in Portuguese Government External
positive effect on the port infrastructures of Sines and
Debt Interests; freight and demurrage (taxes); Additional
Leixes (
revenue for Leixes Port; and support for local

36 ), by significantly increasing their activity and
utilisation and therefore also their operating results.
community development.
(161) Finally, Portugal considers that Petrogal foresees that the
investment project will have an exploitation period of
(166) The local benefits of the investment project consist in:
consumption tax (VAT); additional revenue for Leixes
not less than 30 years, which shows the long term
Port; and support for local community development
commitment to regional, national and European objec
(accounting all together for EUR 49 million in net
tives.
present value), while the remaining benefits are to be
considered a national amenity (accounting all together
for EUR 454 million in net present value), benefiting
Training and Protocols
the whole national economy and can be therefore only
(162) The investment project will also contribute to enhance
partially allocated to the concerned regions. Under the
the regional human capital potential. To train the staff
assumption that this national amenity is proportionally
involved in the investment project, whether newly
spread over the Portuguese regions according to their
recruited or current staff, professional qualification and
respective economic weight, as Norte and Alentejo
training structures will be created, in cooperation with
regions represent 34,8 % of Portuguese national GDP in
the Alentejo Litoral Technical College (
2007, the total regional benefit (accounting for EUR

37 ) in the business
centre of the Industrial and Logistics Zone of Sines (
195 million in net present value) largely exceeds the

38 )
(ZILS).
cost of the aid granted to the investment project
(accounting for EUR 121 million in net present value).
(163) In term of links with R&D projects and cooperation with
universities, Portugal mentions that the two refineries
represent regional development centres in terms of
5.1.6. Comments regarding the necessity of the aid
research and training. According to Portugal, the
Incentive Effect of the Aid
investment project is expected to have a positive effect
and the potential to attract new agreements between
(167) Portugal underlined that the aid effectively and decisively
Petrogal and education centres in the scientific and
contributed to Petrogal’s decision to invest, as it was
engineering area.
necessary to ensure its profitability. On 5 March 2008,
Galp’s Board of Directors approved the investment
project, after having received the letter of eligibility
Amount of aid per job created by the investment project
from the national authorities, issued on 23 January
2007. The first commitment to order equipment dates
(164) Portugal comments on the investment/number of created
back to 14 March 2008, namely after the signature of
jobs ratio, which would show the complete reason
the aid contracts with the Portuguese Government on
ableness of the proportion, specifically considering that
10 March 2008.
the refining sector is very capital intensive and requires
highly qualified labour and high levels of investment in
( 39 ) See footnote 34.
( 40 ) Cost-benefit analysis of investment projects under Structural Funds,
( 36 ) The Leixes port is the sea port of Matosinhos.
see point E of Annex II of Commission Regulation (EC) No
( 37 ) Escola Tecnológica do Litoral Alentejano.
1828/2006 (OJ L 371, 27.12.2006, p. 1), amended by Regulation
( 38 ) Zona Industrial e Logística de Sines.
(EU) No 832/2010 (OJ L 248, 22.9.2010, p. 1).

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/17
Necessity of Aid
demands in all of its projects. To assess the profitability,
besides the concept of WACC, the hurdle rate is used as
(168) Without the aid, the investment project would not have
additional criteria. Forecasts of future cash flows are not,
been implemented as its profitability would not have
generally, infallible. There is always uncertainty (risk)
been justified.
associated with the forecast of cash flows; the more
distant in time they are, the greater the chance that the
estimation is rough and contains errors. The most
(169) In 2001, Galp’s Board of Directors decided against an
earlier plan into upgrading the refinery of Matosinhos,
common way to deal with the uncertainty is to add a
as the project’s return on capital employed (ROCE) was
risk premium to the cost of capital (WACC) and using its
below Galp Energia’s weighted average cost of capital
rate as a minimum profitability rate required for the
(WACC) for its refining sector.
investment (hurdle rate). The difference between the

value of the hurdle rate and the value of the WACC is,
therefore, the extra profit expected when deciding
(170) In 2005, Galp’s Board of Directors reconsidered the
whether to invest because it accepts additional risk
strategic opportunity to undertake a conversion project
found in the forecasted future cash flows. Portugal
of the two refineries. After internally studying alternative
submitted that the insertion of the hurdle rate in the
investment projects, the Sines and Matosinhos
analysis and decision of Galp Energia’s investment
Conversion Project was submitted to the Board of
projects — exists since 2002. It was established, in that
Directors for approval in March 2008. The internal rate
year, that the hurdle rate applying to the projects would
of return associated with the reviewed investment of EUR
be the WACC increased by a [1-5] percentage points (pp)
[ ] million was calculated at [8-10] % without any
spread. In 2006, Galp Energia decided to calculate the
incentive, namely [ ] percentage points above Galp
hurdle rate in a slightly different way, namely, instead of
Energia’s WACC for refining activities (set at [7-9] %).
adding [1-5] pp to the WACC, it opted to increase the
WACC by [10-50] % (WACC 2006 + hurdle rate 2006 =
[1,1-1,5] × WACC 2006 ). This new criteria was a result
(171) The decision of Galp’s Board of Directors in March 2008
of the internal weighting that, given the different levels of
was based on the following analysis of the sensibility of
WACC of each business sector, the use of a percentage
the Internal Return Rate (IRR) of the investment project
on the base seemed to be more suitable and coherent
than using an absolute value. As a further explanation,
Portugal provided the Commission with the different
Table 3
WACC and hurdle rates applied by Galp Energia
between 2002 and 2006 for each business sector:
With the aid Net
Present
Value EUR
[100-150]
M
supply and refining, marketing of petroleum products,
exploration and production, gas and power.
Return Rate/IRR [9-11]
%
Without the id Net
Present
Value EUR
[1-50]
M
Return Rate/IRR [8-10]
%
(175) Portugal argued that according to the internationally

recognised standards for projects of this type, because
Source: GALP
the level of variation in the investment is still significant
in that phase of engineering development (Front End
Engineering Design), Galp’s Board of Directors did not
consider a project of this importance with a rate of
(172) According to Galp Energia’s Executive Committee’s delib
return so close to the WACC to be viable, as it could
erations of 10 January 2008, the company’s WACC and
easily end up in a return less than that reference value.
internal ‘hurdle rate’ (a risk premium added to the cost of
capital ( 41 )) for the Supply, Refining and Logistic Area
were at [7-9] % and [10-12] %, respectively.
(176) However, taking into consideration the granting of the
(173) Portugal indicated that both WACC and internal hurdle
tax incentive in the investment project, the investment
rate set by Galp Energia were in line with the standard
project’s return would be [9-11] %, which, in light of the
practice in the refining sector and that the use of these
investment project’s strategic nature, was considered an
economic criteria is commonly accepted by all large
acceptable minimum for the start and approval of the
companies in the sector. To support these statements,
execution of commitments with equipment suppliers.
Portugal provided the Commission with a table elab
orated by Citigroup, Bloomberg and Broker Research in
2010 comparing the WACC of significant companies
operating in the sector.
(177) Portugal has submitted a list of alternative investment
projects that Petrogal could have undertaken at the
(174) Portugal maintains that the investment decision was and
time the investment project was decided. Due to the
is consistent with the practice and the normal
limitation of available financial resources for new
requirements of profitability that the beneficiary
investment, several Galp Energia business areas compete
with each other for those limited resources and there is a
( 41 ) More explanation in recital 232.
strict selection policy.

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L 220/18
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Official Journal of the European Union
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(178) However, had the aid contract with the Portuguese State
5.2.1. Observations on comments by Competitors No 1 and
not been signed and the investment project not taken
No 2
place, the competitiveness of both refineries would
have inevitably deteriorated. According to Portugal, had
(183) Completing its submission of 21 January 2010, Portugal
the investment project not been undertaken, the
explains that the vacuum feedstock market is highly
refineries’ capacity utilisation would have been cut
volatile and does not offer the required stable supply
down to [80-90] % to respond to a downward market
of vacuum gas oil needed to feed a hydrocracker of the
trend demand for gasoline and fuel oil (as studies foresee
size of the one in Sines. Regarding the production of
a significant decrease in demand, from 2008 to 2020,
hydrocracker residues, Portugal confirms that it is
with reductions of the demand between [20-30] % and
almost insignificant since the hydrocracker will use iso-
[40-50] %). The refineries would have maintained only a
cracking technology.
very limited refining margin. To offset this situation, a
drastic restructuring program involving job cuts would
have been implemented.
Projects’ contribution to Regional Development
(184) Portugal repeat that the investment project will stimulate
(179) As the Commission doubted that in their decision Galp’s
regional development in disadvantaged regions (creation
Board of Directors had not taken into account changes in
and maintenance of jobs, training of workers, economies
the business environment, Portugal were requested to
of scale, technology transfers, spill-over effects, etc.) even
provide a detailed analysis of the counterfactual
if located in pre-existing refineries and this point is
scenario without the investment project. For this
confirmed by all the positive comments received. They
purpose, Portugal was asked to submit the investment
also underline the strategic importance and the environ
project’s IRR considering the refineries’ potential profit
mental value of the investment project to counter the
ability had the investment project not taken place and
comments according to which employment is the only
taking into account the reduction in refining margins.
regional benefit.
(180) Portugal’s counterfactual scenario is summarised in
Table 4:
(185) Concerning the Table prepared by the third party
Competitor No 1 comparing the ratio ‘aid per created
jobs’ in other regional ad hoc aid projects (see recital 89),
Portugal pointed out that it does not include other
Table 4
projects in refining or any other capital intensive
industry. For this reason, the investment project must
Business case
New Final
not be compared to those presented in the Table, but
Investment Value
ought to be compared to the aid to large investment
projects in the same economic sector (see the
With the NPV EUR
[200-250]
M EUR
[150-200]
M
Commission Decisions of 10 July 2007 on State aid
Aid
case N 898/06 — Repsol Polimeros and of 10 July
Return
[10-12] % [10-12]
%
2007 on State aid case N 899/06 — Artensa (Artenius)
Rate/IRR
— Produo e Comercializao de cido Tereftálico
Purificado e Produtos Conexos, SA, where the ratio
Without
NPV EUR
[100-150]
M EUR
[100-150]
M
‘aid/jobs created’ would be in a comparable range as
the Aid
for Petrogal’s project).
Return
[9-11] % [9-11]
%
Rate/IRR
(186) Similarly, if the ratio ‘indirect jobs/direct jobs’ is
compared with comparable projects (such as the
(181) According to Portugal, ‘the fact that a project may be
projects mentioned in recital 185), equivalent figures
very relevant to a company, even strategic, does not
are obtained.
mean that it is the only project or unquestionable
project, if the IRR does not rise up to meet the
minimum admissible requirements’ (as it was the case
in 2001).
Necessity of aid
(187) Portugal reiterate that Galp’s Board of Directors validated
5.2. Observations submitted by Portugal on
the investment project — in March 2008 — after having
comments by third parties
received — in January 2007 — a written confirmation
from the Portuguese authorities that the investment
(182) Portugal underlines the high level of participation from
project was eligible for aid. Therefore, the aid was
various entities (municipalities, unions and sectoral and
conditionally (in particular the Commission’s approval
industrial associations) and lists all the comments
was needed) granted before the start of the work. The
supporting the value of the investment project in terms
first firm order took place in March 2008, after aid
of regional development and energy efficiency.
contracts were signed by Petrogal.

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/19
(188) Portugal refutes third party comments according to
Table 5
which Petrogal had already decided to launch the
investment project in 2006.
Diesel imports & exports
Year 2006 2007 2008 2009
IMPORTS Total 638 776 1
011 1
478
(189) Portugal admits that feasibility studies were conducted
(Ktonne)
before taking the definitive decision. While such
information is absolutely necessary for Galp’s Board of
Petrogal [
] [
] [
] [
]
Directors to take a decision, it does not imply that Galp’s
Board of Directors had already decided.
Others [
] [
] [
] [
]
EXPORTS Total 314 192 164 95
(Ktonne)
(190) Portugal maintains that the investment project would not
Petrogal [
] [
] [
] [
]
have been implemented without aid.
Others [
] [
] [
] [
]
Source: DGEG (italic) and Petrogal’s data
(191) Portugal explains that the investment project had an
insufficient IRR compared to the level of risk taken
and the attractiveness of other projects ([ ]) which are
crucial for Galp Energia’s development. It results that the
(196) Furthermore, Portugal has enough storage capacity:
investment project would not have gone ahead without
Portugal provided data showing that the different
aid.
operators have taken different strategic options (invest
in storage capacity or lease facilities) and that both alter
natives are possible and viable. The main operators have
not increased their storage capacity, despite the oppor
tunities that appeared in the market, indication that their
Relevant product and geographic market
storage resources are enough to support their marketing
activities. Portugal indicates that there has been a
(192) Portugal concludes from the comments received from
continuous growth of the total diesel imports as well
third parties that the relevant geographic market is not
as a slight decrease of exports. This results from the
the Portuguese market but, at the very least, the Iberian
continuous growth of the market and the increasing
market.
deficit the local production capacity. However, 2009
figures reflect the impact of an accident at the Sines
refinery that limited for a period of several weeks the
running of the refinery and the production. Operators
(193) Portugal specifies that Petrogal’s market shares for diesel
had to increase their imports during that year, thus
(at ex-refinery, non-retail and retail levels) will never
demonstrating the existence of alternative supply options.
exceed 25 % if the relevant geographic market is the
Iberian Peninsula or wider.
(197) Import of diesel in Portugal in 2009 represented 27,2 %
(194) Portugal reasserts that, in any event, the investment
of the total consumption of diesel in that year. In the
project will not impact on the diesel non-retail and
previous years, the average diesel imports in relation to
retail markets since the price at ex-refinery level is set
annual diesel consumption in Portugal (around 5,4
under market conditions: Petrogal behaves as a price
Mtonnes) were about 14 %.
taker. If that were not the case, Petrogal’s clients would
easily switch to imports, as according to Portugal, there
are no obstacles (technical, tariff, logistics ( 42 ), etc.) to
diesel imports from other Member States. Portuguese
import requirements are in line with EU requirements.
(198) Therefore, Portugal considers the Portuguese diesel
market as an open and competitive market where trade
is facilitated and where prices are based on the price of
crude oil, on the refining costs and defined by the alter
native of importing at Platts prices.
(195) Portugal provided figures of the aggregate data on diesel
imports (maritime and land) in Portugal.
( 42 ) Third parties storage capacity is 428 000 m 3 which represents a
delivery capacity of 2,9 Mton e/year (on the basis of 8 rotations
(199) As regards heavy naphtha, Portugal considers that the
a year); which is more than half of the national market. Moreover,
diesel is also imported by land through the Spanish capillary
market is, at least, the EEA, as naphtha is an inter
network.
nationally traded product.

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6. ASSESSMENT OF THE AID MEASURE
the result that the thresholds laid down in paragraph
68(a) (‘market share test’) and paragraph 68(b) (‘capacity
6.1. Existence of State aid
increase and market performance tests’) of the RAG are
not exceeded.
(200) According to Article 107(1) of the Treaty, save as
otherwise provided in the Treaty, any aid granted by a
Member State or through State resources in any form
whatsoever, which distorts or threatens to distort
(208) The Commission needs to conduct its assessment in
competition by favouring certain undertakings or the
three steps:
production of certain goods shall be incompatible with
the internal market, in so far as it affects trade between
Member States.
— first, it has to assess the compatibility with the
general provisions of the RAG;
(201) Portugal’s aid to Petrogal will take the form of a tax
credit. The support can thus be considered as given by
the Member State and through State resources within the
— second, it has to verify whether the market share test
meaning of Article 107(1) of the Treaty.
and capacity increase and market performance tests
under paragraph 68(a) and (b) (the ‘paragraph 68(a)
and (b) tests’) are definitively not met;
(202) The aid is granted to a single company, Petrogal, and is
therefore selective.
— third, depending on the outcome of the assessment in
the second step, it may proceed to an in-depth
(203) The aid is granted for an investment resulting in the
assessment.
increased production of diesel and heavy naphtha.
Since these products are the subject of trade between
Member States, the measure is therefore likely to affect
trade between Member States. The aid granted to Petrogal
6.4. Compatibility with the general provisions of the
will relieve the company from costs which it normally
RAG — verification of the doubts expressed in the
would have had to bear itself. Consequently, Petrogal will
opening decision
benefit from an economic advantage over its
competitors. By favouring Petrogal and its production
(209) The Commission verified whether the granted aid was in
in this way, the aid therefore distorts or threatens to
conformity with the general provisions of the RAG. This
distort competition.
assessment led to the following observations:
(204) Consequently, the Commission considers that the aid
Initial investment project
constitutes State aid within the meaning of Article 107(1)
of the Treaty.
(210) In the opening decision, the Commission expressed
doubts as to whether the investment project constitutes
an initial investment or could be considered as
(205) Having established that the aid constitutes State aid
replacement investment.
within the meaning of Article 107(1) of the Treaty, it
is necessary to consider whether the measure can be
found to be compatible with the internal market.
(211) The Commission took account of the comments of
Portugal presented in recitals 130 and 131 that the
investments lead to an extension of an existing estab
6.2. Legality of the aid measure
lishment and a fundamental change in the overall
production process of an existing establishment and
(206) By notifying the aid before putting it into effect, Portugal
that therefore, the investment can be considered as an
respected the notification obligation resulting from
initial investment as defined in paragraph 34 of the RAG.
Article 108(3) of the Treaty.
6.3. Legal basis for the assessment
(212) Indeed, the new vacuum distillation unit and the
visbreaker in Matosinhos, and the new hydrocracker
(207) As the objective of the aid is to promote regional devel
unit in Sines will be functioning simultaneously with
opment, the basis for assessing the compatibility of the
the original pre-existing refining units; therefore, the
aid with the internal market are the RAG and, in
investment project does not constitute a replacement
particular, the provisions of Section 4.3 of the RAG
but an extension of the production system. Besides, the
relating to large investment projects, and the criteria
investment project will transform the refineries providing
for the in-depth assessment of regional aid to large
them with new technologic infrastructures for the
investment projects laid out in the In-Depth Assessment
conversion of heavier fractions of crude into gasoline
Communication), unless the formal investigation leads to
and diesel.

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(213) Competitor No 1 does not object to the initial
— The aid was approved by the Portuguese Council of
investment character of the investment; but it considers
Ministers on 6 March 2008 but the granting of the
that the investment constitutes the mere extension of an
aid is subject to Commission approval and Petrogal
existing establishment.
will not benefit from the aid before 2011 (once the
investment is completed).
(214) Consequently, the Commission finds that, the investment
project constitutes as an initial investment within the
meaning of paragraph 34 of the RAG, and therefore,
— Petrogal’s Board of Directors authorised to proceed to
the doubts as regards the initial investment character of
orders of equipment on 8 March 2008.
the investment project are removed.
— The first binding order was placed on 14 March
Formal Incentive effect
2008. Construction works on the investment were
(215) In the opening decision, the Commission doubted that
effectively started in November 2008 in Sines and
the formal incentive effect requirements applicable to ad
in January 2009 in Matosinhos.
hoc aid, as laid down in paragraph 38 of the RAG were
fulfilled. In particular, the Commission expressed doubts
as to whether Portugal’s written confirmation that,
subject to detailed verification, the investment project
(219) The Commission considers that the aid contracts signed
met the conditions of eligibility laid down in the
on 10 March 2008 between Portugal and Petrogal, and
scheme (
the publication of the Resolutions of the Council of

43 ) could replace the required letter of intent.
Minister, adopted on 6 March 2008, in the Portuguese
Official Journal ( 44 ) are at least equivalent to a letter of
intent, and have to be considered as a stricter proof of
(216) Paragraph 38 of the RAG reads as follows: ‘It is
the formal incentive effect than the letter of intent
important to ensure that regional aid produces a real
required by paragraph 38 of the RAG. These aid
incentive effect to undertake investments which would
contracts were signed before the start of works on the
not otherwise be made in the assisted areas. Therefore
investment project.
aid may only be granted under aid schemes if the bene
ficiary has submitted an application for aid and the
authority responsible for administering the scheme has
subsequently confirmed in writing that, subject to
detailed verification, the project in principle meets the
(220) Therefore, the Commission finds that the doubts as
regards the formal incentive effect are removed.
conditions of eligibility laid down by the scheme
before the start of work on the project. (…). In the
case of ad hoc aid, the competent authority must have
issued a letter of intent, conditional on Commission
approval of the measure, to award aid before work
Contribution to regional development and necessity of
starts on the project. If work begins before the conditions
aid
laid down in this paragraph are fulfilled, the whole
(221) In the opening decision, the Commission expressed
project will not be eligible for aid.’
doubts as to the contribution of the investment to
regional development. In this context, the Commission
also raised doubts as to the necessity of the aid and
(217) The ‘start of works’ is defined by footnote 40 of the RAG
emphasised that an ‘unnecessary aid is unlikely to
either as start of construction works, or first binding
contribute to regional development and might result in
order of equipment.
unacceptable distortions of competition’ ( 45 ).
(218) The Commission took into account the following factual
information submitted by Portugal:
Necessity of aid
(222) Competitors No 1 and No 2 indicated that Petrogal
would have gone ahead with the investment project
— Petrogal applied for the aid on 22 January 2007;
even without aid. In their view, it is a productive
investment economically driven by the imbalance
between diesel supply and demand and the opportunity
— Portugal confirmed the eligibility in principle of the
to have access to heavier and cheaper crude. All
aid project on 23 January 2007.
operators across Europe are carrying out similar
investments in their refineries without State aid.
( 43 ) In this case, the beneficiary submitted an application for the aid
under an expired scheme, on 22 January 2007 (cf. recital 46
( 44 ) Resoluo do Conselho de Ministros n. 55/2008, published in Diario da
above). The aid was initially notified as an individually notifiable
Repùblica 1. serie n.- 60, 26.3.2008, p. 1734.
case of application of this expired scheme; the notification was later
( 45 ) See Section 3.3 of Commission Decision of 19 November 2009 on
amended, and the aid was notified as ad hoc aid outside the expired
State aid case C 34/09 (ex N 588/08) — PT- LIP — PETROGAL,
scheme.
S.A.

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(223) Therefore, it has to be assessed whether the aid is
Petrogal would have implemented an alternative restruc
necessary to produce a real incentive effect to
turing plan to adjust its refining activities to changed
undertake an investment which otherwise would not
market and crude oil supply conditions. Furthermore,
take place in these two assisted regions or whether the
the available financial resources would have been used
investment project would, in any event, have been under
to invest into alternative projects outside the refining
taken. In this respect, the Commission needs to establish
activity.
whether the aid changed Petrogal’s behaviour, so that it
would have undertaken additional investment in the
regions concerned.
(227) Portugal submitted documents belonging to Petrogal
which contain an analysis of the investment project’s
expected IRR, the cost of capital (WACC), as well as a
(224) It appears that the strategic decision to invest was taken
list of possible alternative investments that Galp Energia
in 2006. This is reflected in a document published by
could have undertaken with the available capital.
Galp Energia in October 2006 ( 46 ). As stated in Galp
Energia’s annual report for 2006, the Board of
Directors took the executive decision concerning the
investment project on 23 January 2007 ( 47 ) and on
(228) The Commission considers that the documents submitted
5 March 2008 (that is after receiving the letter of eligi
to Galp’s Board of Directors on 23 January 2007 and
bility from the national authorities dated 23 January
5 March 2008 were decisive for the assessment of the
2007). The Board of Directors took the operational
necessity of the aid, as the Board’s decision was based on
decision to order the first equipment related to the
those documents.
investment project on 14 March 2008.
(229) According to Portugal, the calculations submitted to the
(225) Portugal stated that Petrogal had not undertaken the
Galp’s Board of Directors in 2008 showed an IRR of the
investment until 2008 due to its insufficient financial
investment project, in the absence of the aid, of [8-10] %.
viability and that Galp’s Board of Directors finally
This IRR is well above Petrogal’s WACC of [7-9] %.
decided to proceed with orders of equipment and
constructions only after the Portuguese government
adopted the relevant Resolution of the Council of
Ministers.
(230) Portugal explained however that the decisions of Galp’s
Board of Directors were based on a hurdle rate approach
introduced already in 2002. The hurdle rate, or
minimum acceptable rate of return (MARR), is the
(226) Portugal claims that the availability of State aid was
decisive for Petrogal’s decision to invest. Without the
minimum rate of return on a project a decision-maker
aid, the investment project would have been abandoned.
is willing to accept before starting a project, given its risk
and the opportunity cost of forgoing other projects.
Other expressions used for ‘hurdle rate’ are ‘cut-off rate’
( 46 ) GALP ENERGIA SGPS S.A., Prospecto de ofertaà pública de venda e de
or ‘benchmark rate’.
admisso à negociao October 2006, as available in the internet:
http://web3.cmvm.pt/sdi2004/emitentes/docs/fsd11332.pdf. This
document reads: ‘Optimizar as Capacidades de Refinao. A Galp
Energia pretende adaptar os activos de refinao às exigências do
mercado, expandindo e modernizando a refinaria de Sines, onde
(231) As from 2006, for the refinery activities, the internal
planeia investir num novo projecto de converso que deverá estar
hurdle rate was set at [110-150] % of the WACC,
concluído no final de 2010. A Galp Energia tem como objectivo
namely at [10-12] %. Normally, no investment decision
no só aumentar a rentabilidade dos investimentos através da
would be taken if the calculated IRR did not exceed this
optimizao das matérias-primas e da gama de produtos refinados,
mas também melhorar a integrao das duas refinarias existentes,
threshold. In this case, the aid increases the IRR by [1-3]
de modo a retirar vantagens das suas diferentes características de
percentage points, from [8-10] % to [9-11] %, as
refinao e alcanar um processo integrado e complementar de
presented in Table 3 in recital 171 for the calculations
refinao. Está em curso a avaliao de duas alternativas para a
submitted to the Board of Directors in 2008. Though the
configurao do novo projecto de converso na refinaria de
aid adjusted IRR remains significantly below the internal
Sines, o montante de investimento está estimado em aproximad
amente 1.000 milhes de Euros e o aumento esperado na margem
hurdle rate, the additional safety margin created by the
de refinao é de cerca de US$3,0 por barril após a concluso do
aid was considered sufficient by Galp’s Board of Director
projecto’.
to finally approve the investment project.
( 47 ) GALP ENERGIA, Annual Report 2006, available on the website
www.galpenergia.com. At page 19, the document reads as
follows: ‘CONVERSION PROJECT AND REFINERIES OPTI
MIZATION On 23 January 2007, the Board of Directors
approved the conversion project and processes optimization of
(232) The hurdle rate is an instrument used by companies in
Sines and Oporto refineries for the purpose of raising diesel
decisional situations involving major levels of risk and it
production by 2,5 million tonnes and reducing the production of
may therefore vary depending on the risk associated with
fuel oil. The increase in diesel production is meant to respond to
projects. The hurdle rate may also be influenced by the
rising demand in the Iberian market and to take advantage of the
currency in which it is calculated: in currency areas with
spread between diesel and fuel oil prices in international markets.
These investments will also make it possible to process heavier
high levels of inflation, the hurdle rate is higher than in
crude.’
areas with price stability.

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(233) So far, State aid decisions in the area of regional aid did
notes that this benchmark rate of 10 % is very similar to
not use the ‘hurdle rate’ concept to decide on issues of
the post-aid IRR submitted in 2008 to Galp’s Board of
necessity and incentive effect of aid. Neither is the
Directors of [9-11]
%. The Commission therefore
concept of ‘hurdle rate’ mentioned in the In-Depth
considers that the aid does not exceed the amount that
Assessment Communication. However, the ‘hurdle rate’
would be considered as necessary by a competitor to
concept was already used in a limited number of State
reach an acceptable IRR.
aid decisions (such in the Commission Decision of
23 February 2011 on State aid case N 204/10 —
Sweden — R&D aid to Volvo Aero for Trent XWB
ICC, yet to be published in the OJ), mainly adopted
under the Community framework for State aid for
research and development and innovation
(
(238) Thus, it appears that the aid measure brings the

48 ), for
calculated IRR closer to the Petrogal’s hurdle rate and
projects involving high levels of risk.
to the Competitor No 1 indicated benchmark rate.
Post-aid, the IRR neither exceeds Petrogal’s hurdle, nor
the competitor’s benchmark rate, which suggests that the
aid was not excessive. The fact that the investment
(234) Portugal underlines that the investment project is char
decision was taken in 2008 in a situation where the
acterised by multiple risks that justify the use of the
aid-adjusted IRR was still considerably below the
hurdle rate approach. The investment project is the
declared hurdle rate alone is not sufficient doubt the
largest productive investment ever carried out in
importance of the hurdle rate. It is obvious from
Portugal. The implementation of the investment project
earlier statements of Galp’s Board of Directors that it
will take several years. Cost estimates for the investment
was aware of the investment project’s strategic
project are extremely difficult: in fact, Portugal submitted
importance to stop declining refining margins. Even
figures showing that the initial cost estimates were very
though the hurdle rate was not fully reached, this
seriously overrun in reality. As the investment project has
strategic element appears to have been sufficient to
a long-term orientation, long-term forecasts of refinery
justify a limited deviation from the hurdle rate.
margins are extremely difficult, in particular in situations
where, in the long-term, traditional combustion cars may
be replaced by electric and other cars.
(239) As a result, the Commission considers that the aid was
necessary as an investment incentive and did not exceed
the amount necessary for that purpose. In this respect, it
(235) An empirical study ( 49 ) of 2006, analysing more than
100 self-reported hurdle rates (mainly for North
is not entirely correct to affirm that all operators across
American companies), report an average hurdle rate of
Europe have carried out similar investments in their
14,1 %, and an absolute difference between WACC and
refineries without State aid. For instance, the Commission
hurdle rate of 5 % points, namely about 155 % of
has analysed other aid measures for similar investments.
WACC. Taking account of this information, the hurdle
This was notably the case in Commission Decision
rate applied by Petrogal and Galp Energia for the refinery
N 283/04 ( 50 ) concerning a distillate hydrocracking unit.
sector does not appear prima facie excessive.
Regional contribution
(236) In view of these elements, and in particular taking into
account the specific characteristics of the sector and of
(240) In the opening decision, referring to paragraph 10 of the
the case (namely the importance of the risks involved
RAG, the Commission expressed doubts regarding the
given the magnitude of the investment project and its
contribution of the aid and the investment project to
long-term exploitation period), the Commission
regional development, emphasising the limited number
considers that the hurdle rate can be taken into
(150) of jobs created when compared with the amount
account to decide whether the aid was necessary as an
of aid (EUR 160 million), and whether the expected
incentive to carry out the investment project or not.
contribution to regional development really outbalanced
the sectoral effects resulting from the aid.
(237) Competitors No 1 and No 2 confirmed that for refinery
activities, there are no sectoral benchmark. However,
Competitor No 1 indicated that it would consider a
(241) The Commission notes that, as was also emphasised by
benchmark (namely rate of return) of 10 % as sufficient
Competitor No 1, the amount of aid per job created
to carry out the investment project. The Commission
indeed significantly exceeds the level of aid per job in
previous recent ad hoc aid cases (see recital 89). Several
( 48 ) OJ C 323, 30.12.2006, p. 1.
( 49 ) Meier I. and Tarhan V., Corporate investment decision practices and the
( 50 ) Commission Decision of 20 October 2004 on State aid case
hurdle rate premium puzzle, February 2006, Southern Finance
N 283/04 — France — Aid to Total (Gonfreville) (OJ C 136,
Association Meetings, Destin, France.
3.6.2005, p. 44).

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negative decisions
( 51 ) concluded on an insufficient
chemical sector ( 55 ) which states that while the industry
regional contribution based on the number of jobs
employs directly only 100 000 people in the EU, it can
created.
be considered that as much as 400 000 to 600 000 jobs
are directly dependent on the EU refining industry. The
same document, at footnote 41, mentions further
600 000 jobs in logistics and marketing. On the basis
(242) Portugal accepts that the amount of aid per direct job
of these statements, a higher ratio than 3:1, namely 4:1
created is very high; however, this is explained by the
to 6:1, and taking into account job creation in logistics
capital intensive character of the investment project
and marketing, even of 12:1, could be justified.
which is characteristic for investments in the sector: indi
vidually notifiable applications of aid schemes for this
sector with an even higher aid amount per job created
were approved by the Commission in the past (
(246) Portugal indicated also that, in a ‘no-aid and no-project’

52 ).
Portugal considers that other factors than the aid per
counterfactual scenario, Petrogal would have restructured
direct job should be taken into account, such as the
its refineries and downsized its workforce, with a loss of
importance of indirect job creation, of temporary job
160 direct jobs. Therefore, the Commission should take
creation, and other related aspects.
account, in its assessment of the contribution of the aid

to regional development, of 310 direct jobs created or
maintained ( 56 ), and of approximately 930 ( 57 ) to 3 720
indirect jobs eventually resulting from the investment
project, which would mitigate the excessive amount of
(243) In previous decisions, the Commission has always taken
aid per direct job.
account of direct job creation. In addition, indirect job
creation was taken in consideration in a number of deci
sions ( 53 ).
(247) In addition, Portugal emphasised that the investment
project constitutes the largest single investment ever
undertaken in Portugal and will create 3 000 temporary
(244) Portugal initially claimed that each direct job created (or
jobs in the regions concerned during the construction
lost) would result also in three indirect jobs. The 3:1
phase.
ratio was justified by referring to other Portuguese
cases in the same industry ( 54 ) for which the Commission
accepted similar or higher ratios in the past. The
potential to create indirect jobs results from maintenance
(248) Furthermore, in previous decisions ( 58 ) approving ad hoc
activity, which is probably the market niche that will
regional aid, the Commission referred to the importance
benefit the most from the project. This would be the
of the following factors:
effect of the increased technological complexity of the
refineries that will result in subcontracting services
requiring increasingly specialised employees and tech
nicians.
— increasing employees’ income (creation of better paid

direct and indirect jobs),
(245) Portugal reinforced its argument by referring to a recent
— the social wellbeing in the region (through improved
Commission working document concerning the petro
environmental and living conditions, sponsorship of
local events),
( 51 ) See Commission Decisions of 15 September 2010 on State aid case
C 8/09 (ex N 357/08) Friel Acerra (OJ L 46, 19.2.2011, p. 28), of
11 December 2007 on State aid case C 12/07 (ex N 799/06) Glunz
& Jensen (OJ L 178, 5.7.2008, p. 38), and of 4 June 2008 on State
— the enhancement of human capital potential (through
aid case C 57/07 (ex N 843/06) Alas Slovakia (OJ L 248, 17.9.2008,
training, education, PhD programmes),
p. 19).
( 52 ) See Commission Decisions of 10 July 2007 on State aid case
N 898/06 — Repsol Polimeros and of 10 July 2007 on State aid
( 55 ) Section 3.2.7 Impacts of restructuring of the sector, in the
case N 899/06 — Artensa (Artenius) — Produo e Comercial
Commission Staff Working Paper on ‘Refining and the Supply of
izao de cido Tereftálico Purificado e Produtos Conexos, SA,
Petroleum Products in the EU’, dated 17 November 2010, annex to
where the ratio ‘aid/jobs created’ would be in a comparable range
the Communication of the Commission on energy infrastructure priorities
as for Petrogal's project.
for 2020 and beyond, SEC(2010)1398 fin., available on the
( 53 ) As Commission Decisions: of 17 November 2009 on State aid case
Commission internet website.
N 447/09 TietoEnator Sp. z o.o. (OJ C 25, 2.2.2010, p. 8); of
( 56 ) Maintained jobs were recently taken into account also in
25 June 2007 on State aid case N 828/06 Bridgestone Stargard
Commission Decision of 29 May 2009 on State aid case
(OJ C 278, 21.11.2007, p. 2); of 13 February 2006 on State aid
N 381/08 Pirelli Industrie Pneumatici S.r.l (OJ C 284, 25.11.2009,
case N 630/05 MAN Trucks (OJ C 126, 30.5.2006, p. 5); of
p. 11).
6 August 2007 on State aid case N 251/06 LG Innotek Poland
( 57 ) Using the more conservative 3:1 ratio.
(OJ C 270, 13.11.2007, p. 7).
( 58 ) As in Commission Decisions of 24 June 2008 on State aid case
( 54 ) See Commission Decisions of 10 July 2007 on State aid case
N 730/07 SIA Ekobriketes (OJ C 210, 19.8.2008, p. 1); of 15 January
N 898/06 — Repsol Polimeros and of 10 July 2007 on State aid
2009 on State aid case N 729/07 SIA Eko Osta (OJ C 80, 3.4.2009,
case N 899/06 — Artensa (Artenius) — Produo e Comercial
p. 2); and of 24 March 2009 on State aid case N 500/08 Baa áry
izao de cido Tereftálico Purificado e Produtos Conexos, SA.
a.s. (OJ C 147, 27.6.2009, p. 6).

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— the contribution to R&D, technology and know-how
(254) Portugal also emphasised that the aid and the resulting
transfer (as a result of the upgrading investment),
investment had beneficial effects in other policy areas
than regional development. Portugal insisted on the
strategic importance of the investment project at
— the increased activity for subcontractors in the areas
national level and in terms of importance for European
concerned,
energy supply security. These beneficial effects include
the reduced dependence on imports, a response to the
— the better use of the existing port facilities.
increasing demand of diesel, the improvement of the
energy efficiency in both refineries, and the positive envi
ronmental impact. These arguments cannot be taken into
These factors are certainly positive elements that could be
account for the assessment of the contribution of the aid
taken into account in the assessment of the contribution
to regional development.
of the aid and the investment project to regional devel
opment in Portugal.
(255) Despite the apparent prima facie disproportional amount
(249) Thus, comments from Portugal and several interested
of aid per direct job created, the positive indirect effects
parties refer to other important contributions to
(indirect jobs, spill-over effects, creation of high income
regional development in terms of social and environ
jobs, enhancement of human capital, improvement of
mental impact, increased training, and protocols with
social wellbeing) point to a regional contribution to
higher education institutions.
Alentejo and Norte that cannot be considered negligible.
The Commission therefore considers its initial doubt as
to the contribution of the aid to regional development
(250) Portugal also referred to the development of the supply
removed.
chain and the impact of the construction of the new
units on the national industrial fabric, with an impact
on civil engineering works, building works and mech
(256) Furthermore, subsequent sections on the application of
anical engineering assembly. This is certainly a positive
the paragraph 68(a) and (b) show that the negative
impact, but it is either only temporary or of general
sectoral effects of the aid are limited as the markets
nature (see recital 154).
concerned by the investment project are not underper
forming, that is they are not in absolute or relative
(251) The Commission takes into account the non-temporary
decline. In addition, Petrogal does not have a high
positive spill-over effects of the investment project in the
market share in the relevant ex-refinery market that
regions concerned as presented by Portugal. In particular,
could be abused by anti-competitive behaviour. The
the expected long life of the refineries (expected to be
substitution of heavy naphtha imports for the
operational at least for 30 years), the positive impact on
aromatics industry has limited effects on EEA suppliers.
the subcontracting industry, the significant amount of
The Commission therefore considers its initial doubt that
training and the number of protocols with schools and
the negative sectoral effects of the aid are not
universities point to the importance of the refineries in
outbalanced by its expected contribution to regional
the concerned regions. Even if a large part of these
development as removed.
positive spill-over effects are already present as a
consequence of the long time existence of the refineries,
it can be agreed that the investments certainly enhance
Other general provisions
the role of Petrogal’s presence both in Sines and in the
Oporto area.
(257) In accordance with paragraph 9 of the RAG, Petrogal is
not a company in difficulty within the meaning of the
Communication from the Commission on Community
(252) Portugal also submitted a cost-benefit analysis of the aid
guidelines on State aid for rescuing and restructuring
project. A cost-benefit analysis aims to go beyond an
firms in difficulty ( 59 ).
analysis of the viability of the project by the investor,
and to take into account all the (discounted) social costs
and benefits deriving from the project. In this context, a
(258) In accordance with paragraph 39 of the RAG, Petrogal’s
cost-benefit analysis quantifies the expected benefits,
own contribution to eligible expenditure is above 25 %
including the amount of taxes from direct and indirect
(see recital 36 above).
employment, the avoided unemployment contribution
(by safeguarding jobs), the amount of consumption
taxes, the additional revenues for the port of Leixes,
(259) In accordance with paragraph 50 of the RAG, the eligible
direct support for local communities, etc.
expenditure of the investment project is calculated on the
basis of the eligible investment costs (see recital 35
(253) The cost-benefit analysis concludes that the aid is highly
above).
beneficial for Portugal. Of course, the geographic scope
of the cost-benefit analysis goes beyond regions of Norte
and Alentejo directly concerned by the investment
(260) In accordance with paragraphs 71-75 of the RAG, the
project. However, if the national benefit is proportionally
rules on cumulation of aid are respected (see recital 43
transferred to the regions concerned according to their
above).
respective economic weight, the Norte and Alentejo
regions will capture 34,8 % of this national benefit.
( 59 ) OJ C 244, 1.10.2004, p. 2.

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(261) In accordance with paragraph 40 of the RAG, the aid is
therefore, lower than the maximum aid intensity of
granted under the condition that Petrogal maintains the
which the two projects, separately, could have benefited.
investment project in the regions concerned for a
Therefore, the maximum aid intensity, even in the case of
minimum period of five years after its completion.
a SIP, has been respected, and the Commission concludes
that it is not necessary to decide whether the two
projects in Sines and Matosinhos constitute a SIP or
not despite their geographic distance, since the issue
(262) The Commission therefore considers that the aid
complies with the general provisions of the RAG.
does not prejudice the compatibility assessment of the
aid under the RAG.
6.5. Compatibility with the criteria for large
investment projects — verification of the doubts
Aid intensity
expressed in the opening decision
(268) The calculation of the aid intensity under paragraph 67
Single Investment Project
of the RAG depends on whether the investment project
is considered a SIP or rather two separate investment
(263) In the opening decision, the Commission expressed
projects. In the latter case, if the investments in the
doubts as to whether the investment project can be
two locations are taken separately, then the calculation
considered to be a SIP within the meaning of
of the aid intensity would take into account the two
paragraph 60 of the RAG, despite the fact that the
different standard regional aid ceilings applicable for
refineries are not in immediate geographic proximity to
Sines (40 %) and for Matosinhos (30 %).
each other.
(269) As notified by Portugal, the total planned eligible costs
(264) Although there is no geographic proximity between the
for the investment project amount to EUR
two refineries, Portugal considers that there are strong
1 058 934 146 (EUR [ ] for the investment in Sines
economic, functional and strategic links between them.
and EUR [ ] for Matosinhos) in nominal value.
Without the investment into the vacuum distillation unit
in Matosinhos, the related investment into the hydro
cracker in Sines would not be possible, due to the risk
of frequent shortfalls on the market of vacuum gas oil
(270) The net present value of the investment in Sines amounts
(feedstock for the hydrocracker). Portugal therefore
to EUR [ ] for a planned aid amount of EUR [ ] in net
considers that the strong functional links make the
present value, corresponding to an aid intensity for this
refineries economically indivisible.
refinery of 13,12 % gross grant equivalent (GGE), which
is below the adjusted maximum aid intensity of 15,94 %.
(265) Competitor No 1 contests this approach as it considers
that the fixed assets of the investment project are econ
(271) The net present value of the investment in Matosinhos
omically divisible.
amounts to EUR [ ] for a planned aid amount of EUR [ ]
in net present value, corresponding to an aid intensity for
this refinery of 10,66 %, gross grant equivalent (GGE),
(266) One of the comments from third parties received in reply
which is below the adjusted maximum aid intensity of
to the opening decision indicated that the increase in the
14,68 %.
production of heavy naphtha is crucial for the realisation
of an investment by the group La Seda in Sines. The
Commission has verified whether the investment by La
Seda could constitute a SIP together with the investment
(272) In the opening decision, the Commission checked the aid
in Matosinhos. Portugal has confirmed that the increase
intensity in the two regions, which is different, being
of the production of heavy naphtha will be exclusively
40 % in Sines and 30 % in Matosinhos, and recalculated
used by Petrogal internally and that heavy naphtha will
the maximum aid intensity by weighing the aid inten
not be sold to third parties. Therefore, the Commission
sities taking proportionally into account the investment
concludes that the investment project does not constitute
(in net present value) in the corresponding region over
a SIP with La Seda’s investment project.
the total investment. The result would be an aid intensity
of 37,18 %, corresponding to an adjusted maximum aid
intensity of 14,21 %.
(267) Paragraph 60 of the RAG targets investment projects that
are artificially divided into subprojects to avoid the
scaling down mechanism that reduces the maximum
(273) Even if the investment project had been considered a SIP,
aid intensity that can be applied to investment projects
the net present value of the total investment costs would
above EUR 50 million. In this particular case, the
amount to EUR 974 064 894. The total planned aid
Commission has verified that the aid intensity applied
would amount to EUR 121 091 314 in net present
(12,43 % NPV) is below the maximum aid intensity
value, corresponding to an aid intensity of 12,43 %
that should have been applied in case the investment
GGE, which is below the previously calculated adjusted
project is considered as a SIP (14,28 % NPV) and
maximum aid intensity of 14,21 %.

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(274) Therefore, as the aid intensity in GGE would result below
tests are exceeded in order to decide whether an in-depth
the adjusted maximum aid intensity considering the
assessment of the investment project is necessary. First,
scaling down rules, the Commission considers that the
the products concerned and deemed concerned by the
proposed aid intensity for the investment project
investment project are examined. Second, the resulting
complies with paragraph 67 of the RAG.
relevant product markets are identified. Third, whether
the assessment should take place ex-refinery, retail or
non-retail market level is analysed. In recitals 312 to
344, the product market and the relevant geographic
(275) Portugal has given assurances that the maximum aid
market are established, following which the product
amount and the maximum aid intensity as laid down
market concerned is assessed with regard to Petrogal’s
in this Decision will not be exceeded, even in the case
relevant market share. Finally, the analysis focuses on
of lower or increased eligible expenditure.
whether the product-capacity increase exceeds 5 % of
the relevant EEA apparent consumption on a market
where the growth of the EEA apparent consumption
for the products concerned is underperforming.
Assessment under the rules laid down in paragraph
68(a) and (b) of the RAG
(276) In the opening decision, the Commission raised doubts
regarding certain issues relating to the aid assessment in
accordance with the rules laid down in paragraph 68(a)
Products concerned/deemed concerned by the investment
and (b) of the RAG. These issues were as follows:
project
(278) Paragraph 69 of the RAG reads as follows: ‘The product
concerned is normally the product covered by the
— whether the products concerned by the investment
investment project. When the project concerns an inter
project were exclusively diesel and heavy naphtha,
mediate product and a significant part of the output is
as claimed by Portugal, or also include other
not sold on the market, the product concerned may be
refinery-related products, given the potential substitu
the downstream product ….’ Footnote 64 of that
tability of refinery products from the supply side and
paragraph specifies that ‘Where an investment project
the fact that heavy naphtha may be considered an
involves the production of several different products,
intermediate product within the meaning of
each of the products needs to be considered.’
paragraph 69 of the RAG;
— whether the relevant product market is at ex-refinery
level for both diesel and heavy naphtha, as claimed
(279) In the opening decision, the Commission identified diesel
by Portugal;
and heavy naphtha as products directly concerned by the
investment project. Since apparently the whole heavy
naphtha production was used by Petrogal’s naphtha’s
derivatives production, naphtha derivatives were also
— whether the relevant geographic market for the
deemed a product concerned. The Commission also
products concerned must be defined at national,
accepted Portugal’s assertion that the other horizontally
regional (Iberian Peninsula) or EEA level;
related products produced by the refineries (gasoline,
LPG, fuel oil, jet fuel, and bitumen) were not affected
by the investment project.
— whether the beneficiary, Petrogal, and the Galp
Energia and ENI groups to which Petrogal belongs,
have a market share above 25 % of any of the
relevant markets (paragraph 68(a) of the RAG);
(280) The Commission notes Portugal’s explanation that
refineries operate on the basis of a multi-product-
production function where the input, crude oil, is trans
— for all the products concerned, whether the
formed into a multitude of intermediate (for instance,
production capacity created by the investment
heavy naphtha, vacuum gas oil) and final (for instance,
project is more than 5 % of any relevant market
gasoline, diesel) products. Many of the intermediate
measured using apparent consumption data and, if
products are immediately reused within the different
so, whether the average annual growth rate of the
steps of the refining process as inputs (‘feedstocks’),
product concerned apparent consumption over the
whereas others are sold on the market or used as input
last five years is below the average annual growth
for the first generation petrochemical industry, for
rate of the EEA’s GDP.
instance, heavy naphtha for the aromatics production.
The technical production function depends in particular
on the type of crude oil used (not all types of crude oil
can be processed in given installations), and the exact
(277) In recitals 278 to 311, the Commission reassesses
technical configuration of the refinery. A profit maxi
whether the thresholds of the paragraph 68(a) and (b)
mising refinery tries to optimise its profits over the

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whole range of products, the so-called ‘refining margin’,
be assessed separately. Portugal also stated that the
by adjusting the production of the different outputs,
necessary stable and secure supply of feedstock for a
taking into account the technical restrictions resulting
hydrocracker of the size of the one in Sines could not
from the production function (and the type of crude
be ensured by purchasing the necessary quantities on the
oil used) and the input and output prices. However, the
market. This is due to the very limited size and the high
possibilities to adjust the configuration of an existing
volatility in the open vacuum feedstock market, a spot
refinery without additional investments are extremely
market. As a consequence, no potential third party
limited.
supply is excluded by the supplies of vacuum gas oil
from Matosinhos to Sines.
(281) The refinery sector has faced structural changes over the
last decade. The lighter types of crude oil have become
(286) The Commission accepts that vacuum gas oil is
more and more rare and are increasingly substituted by
considered an intermediate product and that a significant
heavier types of crude oil. At the same time, market
part of the output of vacuum gas oil is not sold on the
demand for diesel (an increasingly common substitute
market (whilst no potential third party supplies are
for gasoline as a propellant) has grown quickly. On the
excluded). In this case, as laid down in paragraph 69
contrary the demand for fuel oil, used in electricity
of the RAG, it can be concluded that with regard to
generation and maritime transport, is decreasing and
the new vacuum distillation unit and the new visbreaker
expected to decrease further (due to its substitution in
in Matosinhos, the product concerned is the downstream
these uses through more environmentally-friendly tech
product, namely diesel.
nologies). The EU is a net importer of diesel and an
exporter of gasoline (mainly to the US market which is
expected to shrink).
(287) The Commission also notes that Competitor No 1
considers that hydrocracking residues could be deemed
(282) As explained by Portugal, and confirmed by the
a product concerned by the investment project (see
Competitors No 1 and No 2, the economic driver for
recital 92). As Portugal explained that, due to the use
the investment project is, on the one hand, to allow the
of iso-cracking technology, the production of these
refineries to process heavier types of crude oil and, on
residues is almost insignificant (see recital 183), the
the other, to change its configuration in a way that
Commission does not take hydrocracking residues into
allows the refineries to produce more diesel and less
account as a product concerned.
fuel oil.
(288) In the opening decision, the Commission expressed
(283) As described in Section 2.2, diesel and heavy naphtha are
doubts as to whether diesel and naphtha were the only
the products directly concerned by the investment
products concerned, pointing to the fact that naphtha
project. Indeed, the investment project will increase the
may be considered an intermediate product within the
production of diesel (to the detriment of fuel oil) as well
meaning of paragraph 69 of the RAG, and that naphtha
as the production of heavy naphtha, which according to
derivatives could be products deemed concerned for
Portugal is an inevitable technically caused side-effect.
which the tests under paragraph 68(a) and (b) might
The Commission notes Portugal’s assertion that the
have to be carried out.
other horizontally-related products produced by the
refineries (gasoline, LPG, fuel oil, jet fuel, and bitumen)
are not affected by the investment project.
(289) Portugal submitted the following explanations:
(284) However, the Commission ascertained in the formal
investigation that the investment in Matosinhos into
the new vacuum distillation unit and the new visbreaker
— The term naphtha covers both heavy and light
will also lead to the production of vacuum gas oil. The
naphtha; heavy and light naphtha are not substitu
increased production of diesel will take place in Sines,
table, neither in their production, nor in their uses.
where the new hydrocracker unit will use as feedstock
the vacuum gas oil produced in the refineries of Mato
sinhos and Sines. As a consequence, vacuum gas oil also
has to be deemed a product directly concerned by the
— Heavy naphtha is a product which is used as
investment, since the investment project will lead to a
feedstock in refining processes and in the production
significant increase of its production in Matosinhos
of a very wide range of chemical products, not only
refinery.
in the production of aromatics.
(285) Portugal submitted that vacuum gas oil will be used
— The investment project leads to the additional
exclusively as feedstock for the hydrocracker in Sines.
production of heavy naphtha in Sines: the Sines
Therefore, it should be considered as an intermediate
refinery heavy naphtha production is increased by
product for the increased production of diesel and not
[200-250] Ktonnes per year.

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— The largest part of the heavy naphtha produced in
aromatics plant is, and will be after the investment,
the Sines refinery is transported to Petrogal’s refinery
calculated as [10-20] % of import parity of naphtha
in Matosinhos where it is processed, together with
(CIF NEW) and [80-90] % of gasoline export parity
heavy naphtha imported from other countries and
(RBOB USA), and transport costs of Sines to Porto.
heavy naphtha produced in Matosinhos itself ([650-
700] Ktonne on average in 2007-09), to
reformer (
— The raw material costs (heavy naphtha) represented

60 ). The total heavy naphtha volume used
in the Matosinhos refinery to produce reformer is
some [90-100] % of the total production costs of the
[1 000-1 050] tonnes (on average in 2007-09).
aromatics production. The additional production of
heavy naphtha in Sines represents some 14 % of
the total heavy naphtha processed to reformer.
— Of the total additional production of [200-250]
Ktonne of heavy naphtha in Sines, [100-150]
— The primary aromatics are sold on the market to the
Ktonne on are transported to Matosinhos (the
petrochemical industry, at market prices; Petrogal,
remainder is reused as feedstock in the Sines hydro
with a market share below [0-5] %, is a price taker
cracking process) to replace [100-150] Ktonne of
on the EEA aromatics market. The total turnover of
imported heavy naphtha; the import volume of
Petrogal’s aromatics plant amounted to some EUR [ ]
[250-300] Ktonne before the investment is reduced
million in 2009. After the completion of the
to [100-150] Ktonne, namely by [50-60] %.
investment, [ ] % of the turnover (some EUR [ ]
million on the basis of the 2009 turnover) would
result from heavy naphtha additionally produced in
— 92 % of imports of heavy naphtha in 2009 originated
Sines.
from outside the EEA, 8 % from the EEA ( 61 ).
(290) The Commission notes that Competitor No 1 considers
that heavy naphtha is an intermediate product and that
— The own production capacity of the Matosinhos
the assessment should include naphtha derivatives as
refinery of heavy naphtha (average production
products concerned.
2007-09: [650-700] Ktonne) is not changed by the
investment project.
(291) To decide whether the paragraph 68(a) and (b) test have
to be carried out for the naphtha derivatives, it is
— Reformer is an intermediate product for the
necessary to give an interpretation to the wording of
production of aromatics.
paragraph 69 of the RAG. Paragraph 69 stipulates that
the product concerned may be the downstream product
when the product of the investment is an intermediate
product, and a significant part of its output is not sold
— The production capacity of reformer is not changed
on the market. This wording aims at situations where the
by the investment.
distortive effect of the aid on competitors is not felt, or
only partially felt, on the market of the intermediate
product, and is transferred to the final product market.
— The reformer produced in Matosinhos is used as
On the basis of the information given by Portugal on the
feedstock to Petrogal’s Matosinhos aromatics plant.
definition of the products concerned, the Commission
considers that the aid neither affects the production
volumes, nor the production costs, nor the price
— The aromatics plant produces a wide range of
setting behaviour of Petrogal’s aromatics plant. In
primary aromatics or naphtha derivatives, in
addition, the quantity of additional heavy naphtha
particular benzene, toluene, orthoxylene, paraxylene
produced in Sines is only of minor importance,
and solvents.
compared to the overall quantity of heavy naphtha
used to produce reformer. The Commission therefore
considers that the aromatics markets are not, or only
— The production capacity of the aromatics plant (sales
indirectly very insignificantly (via an indirect reduction
average in 2007-09: [400-450] Ktonne) is not
of the naphtha import price, see subsequent section)
changed by the investment project and no
affected by the aid for the investment project.
extension is planned.
(292) The Commission, therefore, considers that it is not
appropriate to carry out the paragraph 68(a) and (b)
— The aromatics plant is an independent business unit;
tests for the aromatics markets.
the internal price for heavy naphtha is, and will be
after the investment, the import price of heavy
naphtha. The sales price of the reformer to the
(293) At the same time, the Commission considers that the aid
may affect the naphtha market, in so far as the
investment project allows substituting imports and
( 60 ) See recital 135 for information on reformer as an intermediate
forces suppliers to find other outlets on the heavy
product.
naphtha market. The Commission therefore carried out
( 61 ) 92 % of Petrogal naphtha imports are from non-EEA countries
(Angola, Egypt, Ukraine, Libya and Russia), 8 % originates from
the paragraph 68(a) and (b) tests with regard to heavy
France and Netherlands.
naphtha as a product concerned.

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Relevant product markets
growing demand and value ( 64 ). The consumption of
gasoline in Europe is projected to fall significantly over
(294) Paragraph 69 of the RAG specifies that the relevant
the period 2010 to 2030, as a result of the switch from
product market includes the product concerned and its
gasoline cars to diesels cars and the introduction of alter
substitutes considered to be such either by the consumer
native sources of energy. Available studies indicate also
(by reason of the product’s characteristics, prices and
that the demand for gasoline will decrease due to the use
intended use) or by the producer (through flexibility of
of more energy efficient cars in the USA (main export
the production installations).
market for the European surplus) and the expected future
role of electric cars.
(295) In the opening decision, the Commission could not
(299) Therefore, the Commission considers that in this specific
conclude on the relevant market for the product(s)
case, for the type of investment and in light of the
concerned, due to difficulties to identify definitely the
medium-term trend of the product market, the product
list of products concerned.
concerned, also from the supply side, should be
considered to be diesel.
Diesel
Naphtha and naphtha derivatives

(300) In line with the discussion of the products concerned, the
(296) In the opening decision, the Commission concluded that
there were no substitutes for diesel from the consumer
second relevant product market to be discussed is the
side. However, there were doubts on the supply side as to
market for heavy naphtha. In the Sines refinery, heavy
substitutability in the production of diesel, as flexibility of
naphtha production is a by-product of the diesel
the production installations could lead to produce other
production, the driver of the investment. Heavy
types of products (mainly gasoline) by changing the
naphtha is used in the production of a very wide range
refineries’ configurations.
of chemical products, not only in the production of

aromatics. In its general uses, it cannot be replaced by
any substitutes. The Commission therefore considers the
market of heavy naphtha to be the relevant product
market with regard to paragraph 68(a) and (b) tests.
(297) In order to dispel these doubts, Portugal argued that the
Commission merger decision
( 62 ) quoted by the
Commission, referred to a different context when the
(301) Therefore, the Commission considers that the relevant
unbalance between the supply and the demand in the
product markets with regard to paragraph 68(a) and (b)
gasoline and the diesel markets was much less
tests, are the product markets for diesel and heavy
important than it is nowadays and because of that the
naphtha. For information purposes, data will also be
level of flexibility at the switch level between the
given for naphtha derivatives.
production of these two products was still available.
However, according to Portugal from 2000, with the
important increase of diesel demand those choice levels
ended and nowadays there is no additional capacity to
Level at which the market assessment has to be carried
meet the demand.
out
(302) In the opening decision, the Commission could not
conclude on the question of whether these markets
should be assessed at the level of ex-refinery, non-retail
(298) Whilst this explanation does not entirely exclude the
or retail.
possibility that diesel production facilities could be used
for the production of gasoline, it seems unrealistic to
assume that an undertaking could spend more than
(303) Competitors No 1 and No 2 consider that the relevant
EUR 1 billion to increase its capacity to produce
product market should be extended to retail and non-
gasoline whilst an oversupply exists in Europe for the
retail diesel sales (see recitals 93 and 116). Portugal
production of this commodity. Various studies
( 63 )
considers that, for State aid cases, the correct level of
point to the decline in the demand for gasoline and
assessment is the ex-refinery level. The provisions of
residual fuel oil and an increase in the demand for
the RAG do not specify at which level the paragraph
diesel in the European motor fuel market. This shift in
68(a) and (b) tests, and in particular the test under
demand patterns has left refineries producing excess
paragraph 68(a) of the RAG, should be carried out.
volumes of products which are declining in demand,
and value, and insufficient volumes of product with
( 64 ) As outlined in pages 46-47 of the report prepared by Pyry for the
European Commission, Survey of the competitive aspects of oil and oil
( 62 ) Commission Decision of 7 August 1996 on Merger Case
product markets in the EU, December 2009. This study is made
COMP/M.727, BP/Mobil (OJ C 381, 17.12.1996, p. 8).
public as from the website of the European Commission, Direc
( 63 ) Portugal mainly refers to various reports by Purvin and Gertz, as
torate General for Energy: http://ec.europa.eu/energy/oil/studies/oil_
the Global Petroleum Market Outlook of March 2011.
en.htm

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(304) Depending on the issue to be analysed, and the
beyond the level of distortion that is considered
underlying theory of harm, competition policy assesses
compatible with the internal market within the
the competitive situation of markets at different levels,
meaning of Article 107(3) of the Treaty) distortive
manufacturing, distribution (non-retail) and retail. Market
effects of the aid on competition and trade. This
players are, for example for the car sector, consumers
competition between manufacturers takes place at manu
and individual car traders for the retail level, car traders
facturing level, and in this case, the competition between
and distributors for the non-retail level, and distributors
refineries takes place at the level of ex-refinery sales.
and manufacturers for the manufacturing level. For the
products concerned by this Decision, market players are,
for example, car owners and petrol stations for the retail
market, petrol stations and distributors for the non-retail
market, and refineries and distributors for the ex-refinery
market.
(308) Whilst the standard regional aid ceilings laid down in the
regional aid maps and the scaling down of aid intensities
for large investment projects pursuant to paragraph 60
of the RAG are meant to impose a standard (and for
large projects) progressive level of protection against
such distortion of competition and effect on trade, the
(305) The manufacturing level corresponds in this Decision to
paragraph 68(a) and (b) tests are designed to filter out,
the ex-refinery level. Portugal confirmed that the ex-
for subsequent in-depth assessment, situations where
refinery market is equivalent to the total diesel market.
competition between manufacturers may be particularly
According to Portugal, the notion of ‘ex-refinery sales’
affected. The paragraph 68(b) test examines to what
includes all sales made in large lots on a spot basis
extent the investment aid involves a major capacity
(directly at the refinery gate) to oil companies (including
increase allowing the aid beneficiary to bring quantities
Galp Energia’s own companies), traders, resellers or large
on a market in absolute or relative decline under more
industrial consumers, including imports of diesel ( 65 ). Ex-
favourable conditions than those faced by non-aided
refinery sales in Portugal correspond to all ex-refinery
competitors. The paragraph 68(a) test examines to what
sales of Petrogal minus exports plus imports into
extent the investment aid will maintain, reinforce, or
Portugal. The supply side of the ex-refinery market in
create a strong market position for the aid beneficiary
Portugal therefore includes Petrogal and non-Portuguese
that could be abused by a dominant market player, by
refineries exporting their products to Portugal and, for
foreclosing the market for instance. In both situations,
instance, for the demand side of the diesel market,
competitors may lose market shares on the market at
different chains of petrol distributors, as Petrogal,
manufacturing level, see their profitability reduced, or
Repsol, CEPSA, and BP that either buy or are supplied
may be excluded of the market, whereas potential
from Petrogal, or import diesel from outside Portugal.
competitors may be prevented from market access.
(306) The main purpose of the control of investment aid is not
(309) The Commission therefore considers that the tests have
to protect consumers (or traders) against undesirable
to be carried out at manufacturing level. Indeed, the
consequences of anti-competitive behaviour, such as the
market situation at manufacturing level is decisive as
reduction of consumer rents through monopolistic
State aid decisions on aid to production facilities assess
pricing by cartels or market players abusing their
the effects of aid on competition distortions between
dominant market position. In fact, the investment aid
manufacturers and on trade between Member States.
allows increasing output on the market, and thus leads
Moreover, it can be presumed that when the beneficiary’s
to a price reduction that is prima facie, at least in the
market share upstream (ex-refinery) is high, this creates
short and medium term, beneficial to consumers.
in itself a sufficiently high likelihood of finding a
significant distortion of competition, irrespective of the
market share downstream. Therefore, sales of diesel at
retail and non-retail level, even if they were included in
the relevant product markets definitions in previous
Commission merger cases ( 66 ), do not need to be taken
(307) The objective pursued by the control of investment aid is
into account for the purpose of the paragraph 68(a) and
rather to protect other producers and the economies of
(b) tests.
other Member States against excessive (namely going
( 65 ) E.g. the Commission Decision of on Merger case COMP/M.4348,
PKN/MAZEIKIU, defines the ex-refinery market as follows:
‘Ex-refinery/cargo sales constitute a primary level of distribution
and … should be distinguished from smaller non-retail sales of
(310) The paragraph 68(a) and (b) tests are simple filters that
the fuels (secondary level of distribution). The ex-refinery/cargo
are meant to identify mechanically situations of risk to
sales consist of large volume sales by refiners directly at the
competition and trade. However, the detailed assessment
refinery gate, or delivered by primary transport (i.e. generally by
rail, pipeline, ship or barge) to clients’ terminals (storage facilities)
inland or abroad. The customers are wholesalers, traders or internal
( 66 ) See Commission Decision of 31 October 2008 on Merger Case
wholesale arm of the refiners which usually own or rent large
COMP/M.5005 — Galp Energia/ ExxonMobil Iberia (OJ C 307,
storage facilities.’
2.12.2008, p. 4).

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L 220/32
EN
Official Journal of the European Union
17.8.2012
of these risks is the purpose of the subsequent in-depth
faced by the aid recipient’. Nonetheless, the Notice states
assessment. Whilst this in-depth assessment will normally
that elements of the approach developed therein ‘might
address the situation of the market at manufacturing
serve as basis for the assessment of State aid cases’.
level, it may be necessary, for instance in case of
market foreclosure, to analyse the impact of the aid in
the downstream markets.
(316) So far, the Commission has not yet published a notice on
the principles and approach for the definition of the
relevant product and geographic market for State aid
(311) Therefore, taking into account the Commission’s deci
cases. The RAG themselves do not give guidance on
sional practice on State aid cases in other economic
how the relevant geographic market should be defined.
sectors, in particular the car sector (
However, paragraph 70 of the RAG includes wording

67 ), and the fact
that the investment project exclusively concerns expen
that seems to give some preference to the assessment
diture in Petrogal’s refining activity, for the purpose of
at EEA level: ‘For the purpose of applying points (a)
applying the paragraph 68(a) and (b) tests, the ex-refinery
(…), sales (…) will be defined (…), normally in the
level is the only relevant level for this Decision.
EEA, or if such information is not available or relevant,
on the basis of any other generally accepted market
segmentation for which statistical data are readily avail
able’.
Relevant geographic market
Relevant geographic market for diesel
(317) The appropriate definition of a geographic market has to
(312) In the opening decision, the Commission expressed
be seen in the light of the underlying theory of harm.
doubts as to whether the relevant geographic market
However, it seems safe to assume that the test found in
for diesel should be considered as being EEA-wide,
paragraph 68(a) of the RAG, regarding market shares
regional (Iberian Peninsula) or national.
exceeding 25 %, is meant to protect EEA competitors
from being excluded from the market on which they
operate or prevented access to that market (crowded
out) by the anti-competitive behaviour of an aid bene
(313) Portugal considers that the relevant market for diesel
ficiary with market power.
should be wider than the national market, preferably
the Western European market or EEA market.
Competitors No 1 and No 2 do not differentiate
between the level of the market to be assessed. They
(318) For the purpose of this Decision, it is not relevant to
argue that the relevant geographic market should be
define the exact geographic delimitation of the market
the Portuguese market or, at the utmost, the Iberian
at manufacturing level; as Petrogal’s market share exceeds
market.
the 25 % threshold on the national market only. It is

sufficient to verify whether the national market
constitutes the relevant geographic market. The
arguments presented by the competitors, on which
(314) The Commission adopted in 1997 its Notice on the
Portugal has commented, in particular regarding import
definition of the relevant market for the purposes of
barriers and limited storage capacity, were considered. It
Community competition law (the ‘Notice’)
(
was concluded that a geographic market definition

68 ). The
Notice stipulates that the relevant geographic market
deviating from the default approach which defines
comprises the area in which the undertakings
markets for the purpose of the paragraph 68(a) and (b)
concerned are involved in the supply and demand of
tests as EEA market, and lays down the national market
products or services, in which the conditions of
as relevant geographic market, can only be justified if
competition are sufficiently homogeneous and which
there are clear indications that the market is largely
can be distinguished from neighbouring areas because
closed. It is therefore necessary to assess whether there
the conditions of competition are appreciably different
are barriers to trade that would impede undertakings
in those areas.
competing with Petrogal on the non-retail market from
importing diesel from non-Portuguese refineries if prices
that are applied on the Portuguese ex-refinery market
exceed those observed on the larger market.
(315) The Notice is conceived as an assessment instrument for
antitrust and merger control policies. It relies on the
investigative powers available under such policies and is
(319) In this context, the following was noted:
not directly applicable to State aid. The Notice explicitly
recognises that ‘the focus of assessment in State aid cases
is the aid recipient and the industry/sector concerned
rather than the identification of competitive constraints
— The diesel sold on the Portuguese market has the
same technical characteristics as the diesel sold in
( 67 ) See Commission Decisions of 29 April 2009 on State aid case
neighbouring markets.
N 635/08 — Italy — LIP — Fiat Sicily, and of 29 June 2011 on
State aid case N 671/08 — Hungary — LIP — Aid to Mercedes-
Benz Manufacturing Hungary Korlátolt Felelsség Társaság.
( 68 ) OJ C 372, 9.12.1997, p. 5.
— There are no import duties for intra-EEA trade.

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/33
— There are no regulatory or administrative restrictions
tuguese) one. Third party competitors did not put
limiting imports to Portugal.
forward arguments regarding the ex-refinery prices
applied by Petrogal, but limited their comments to
Petrogal’s market power and position. Competitor No 1
remarked that the ratio of total diesel imports and
— Statistical data provided by Portugal (see recital 195)
exports was too low to justify a regional market, but
show the existence of trade flows, both imports into
did not indicate any shortage of diesel, or situation in
Portugal, and exports from Portugal to neighbouring
which the control of storage capacity would have led
countries. Exports have decreased due to the
competitors into difficulties.
increased need for diesel in Portugal.
(322) Competitor No 2 rather remarked (see recital 109) that
— Imports take place both via maritime and road
the investment project would transform Petrogal into a
transport; import volumes over the last years were
net exporter to other markets and would strengthen its
highly reactive to external events, and increased
market position on the Iberian Peninsula.
significantly over the last years. The increase in
imports shows that other operators have alternative
supply options, and have a capability to replace direct
supplies from Petrogal refineries with imports. From
the information submitted by Portugal (see recital
(323) Therefore, it cannot be concluded that the relevant
geographic market for diesel is national, as there
195), it shows this is particularly evident for the
appear to be no limitations to imports of diesel into
year 2009, when production was stopped during
Portugal, nor to exports to neighbouring countries.
several weeks following an accident at the Sines
Thus, the relevant geographic market is at least the
refinery.
regional market, namely the Iberian Peninsula.
— Portugal rejects allegations that Petrogal controls
more than 90 % of the existing storage capacity
Relevant geographic market for naphtha and naphtha
and clarifies that third parties’ storage capacity
derivatives
represents a delivery capacity of 2,9 Mtonnes per
year, representing more than 50 % of the national
(324) In the opening decision, the Commission expressed
market. No third party competitor was interested in
doubts as to whether the relevant geographic market
buying additional storage capacity when it was
for heavy naphtha should be considered as being EEA-
offered for sale.
wide, regional (Iberian Peninsula) or national.
— The competitors were invited by the Commission to
(325) Portugal considered that the relevant geographic market
give concrete examples confirming the existence of
for heavy naphtha and naphtha derivatives was at least
these barriers to trade or descriptions of situations
EEA, if not worldwide. The competitors did not object to
in which they have suffered difficulties in importing
this relevant geographic market definition.
diesel, but they did not submit such information.
(326) Portugal’s comments were not rejected by interested
(320) In the absence of concrete examples and on the basis of
parties and, given that heavy naphtha is a commodity
the information provided by Portugal on storage capa
which is easily transportable over long distances at low
cities and imports, it is concluded that there is no
transport cost, the relevant geographic market is at least
evidence that restrictions on the availability of storage
the EEA ( 69 ).
capacities and other barriers to import diesel de facto
exist.
Market share test pursuant to paragraph 68(a) of the
RAG:
(321) As for the prices of diesel acquired by third parties from
Petrogal at ex-refinery level, they appear to be similar to
(327) Paragraph 68(a) of the RAG stipulates that the
the cost of importing diesel to Portugal. As suggested by
Commission proceeds to an in-depth assessment if ‘the
Portugal during the notification and stated in Part 3.4.3
aid beneficiary accounts for more than 25 % of the sales
of the opening decision, prices at ex-refinery level are set
of the product(s) concerned on the market(s) concerned
to international product price quotations and, in the case
before the investment or will account for more than
of refinery products in Portugal, at Platts (Rotterdam)
25 % after the investment’.
prices for the North-Western European region plus
spreads (transport, freight, insurance, losses, and other).
( 69 ) In line with Commission Decision of 10 July 2007 on State aid
This points to a wider market than the national (Por
case N 898/06 — Repsol Polimeros.

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L 220/34
EN
Official Journal of the European Union
17.8.2012
(328) In the opening decision, the Commission was unable to confirm whether the threshold laid down in
paragraph 68(a) of the RAG were exceeded due to doubts as to the appropriate definition of the
relevant product and geographic market and the relevant level of assessment (ex-refinery, retail, non-
retail). In addition, no data were available at group level (including ENI market shares). Data for
naphtha derivatives was also unavailable.
Market share test for diesel
(329) Data provided by Portugal show that Petrogal’s ex-refinery diesel market share would be below 25 %
in the regional market (Iberian Peninsula), as already stated in the opening decision and confirmed by
Portugal during the formal investigation phase. This information refers only to Petrogal’s production
capacity, given that Portugal declared that the ENI is not present at ex-refinery level in the Iberian
Peninsula. Also for Western Europe and the EEA, Petrogal’s ex-refinery diesel market share at group
level (including ENI’s market shares) is below 25 %, as is apparent from data provided by Portugal
(see Tables 6 and 7 below).
Table 6
Combined market shares of Petrogal and ENI on the Western European market (in Mtonnes/year)
2007 2012
Product
concerned
Petrogal and ENI Western Europe Petrogal and ENI Petrogal and ENI Western Europe Petrogal and ENI
sales
market
market shares
sales
market
market shares
Diesel [
] 243,6 [5-10]
% [
] 252 [5-10]
%
Table 7
Combined market shares of Petrogal and ENI on the EEA market (in Mtonnes/year)
2007 2012
Product
concerned
Petrogal and ENI
Petrogal and ENI
sales
EEA market
Petrogal and ENI
market shares
sales
EEA market
Petrogal and ENI
market shares
Diesel [
] 323,5 [5-10]
% [
] 334,6 [5-10]
%
(330) On the basis of the figures in Tables 6 and 7 above, it is concluded that Petrogal does not account
for more than 25 % of the sales of the product concerned on the relevant market at regional (Iberian
Peninsula) level, as well as at Western European and EEA level, including the ex-refinery market
shares at ENI’s group level. Therefore, for diesel, the threshold laid down in paragraph 68(a) of the
RAG is not exceeded.
(331) As the combined ENI-Petrogal market share does not exceed 25 %, it is not necessary to consider
whether Petrogal’s market share is controlled by ENI to an extent which requires their combined
market share to be taken into account.
Market share test for naphtha, information on naphtha derivatives
(332) According to information provided by Portugal, most refineries producing heavy naphtha, process it
in-house in captive production. The data on market shares provided by Portugal for the purpose of
the paragraph 68(a) test refer, as required by the test, to sales on the EEA, namely to the merchant
market.
(333) To examine whether the investment project is compatible with paragraph 68(a) of the RAG,
Petrogal’s market share before and after the investment project has to be analysed and verified
whether it exceeds 25 %.

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EN
17.8.2012 Official
Journal
of
the
European
Union L
220/35
Table 8
Market shares of Petrogal on the EEA market (in Ktonne)
2007 2012
Products concerned
Petrogal sales EEA
market
Petrogal market
shares
Petrogal sales EEA
market
Petrogal market
shares
Heavy Naphtha [
] 49
172 [0-5]
% [
] 49
769 [0-5]
%
Naphtha derivatives: [
] 16
045 [0-5]
% [
] 15
640 [0-5]
%
— Benzene [
] 10
093 [0-5]
% [
] 10
093 [0-5]
%
— Orthoxylene [
] 681 [5-10]
% [
] 606 [5-10]
%
— Paraxylene [
] 2
169 [5-10]
% [
] 2
169 [5-10]
%
— Toluene [
] 2
503 [5-10]
% [
] 2
173 [5-10]
%
— Solvents [
] 599 [5-10
]
% [
] 599 [5-10]
%
Table 9
Market shares of ENI on the EEA market (in Ktonne)
2007 2012
Products concerned
ENI sales EEA
market
ENI market
shares
ENI sales EEA
market
ENI market
shares
Heavy Naphtha [
] 49
172 [0-5]
% [
] 49
769 [0-5]
%
Naphtha derivatives: n.a. 16
045 n.a. 15
640
— Benzene [
] 10
093 [5-10]
% [
] 10
093 [0-5]
%
— Orthoxylene [
] 681 [5-10]
% [
] 606 [10-20]
%
— Paraxylene [
] 2
169 [0-5]
% [
] 2
169 [0-5]
%
— Toluene [
] 2
503 [5-10]
% [
] 2
173 [5-10
]
%
— Solvents n.a. 599 n.a. 599
Table 10
Combined market shares of Petrogal and ENI on EEA market (in Ktonne)
2007 2012
Products concerned
Petrogal and
Petrogal and
Petrogal and
Petrogal and
ENI sales
EEA market
ENI market
ENI market
shares
ENI sales
EEA market
shares
Heavy Naphtha [
] 49
172 [0-5]
% [
] 49
769 [0-5]
%
Naphtha derivatives: n.a. 16
045 n.a. 15
640
— Benzene [
] 10
093 [5-10]
% [
] 10
093 [5-10]
%
— Orthoxylene [
] 681 [10-20]
% [
] 606 [10-20]
%
— Paraxylene [
] 2
169 [5-10]
% [
] 2
169 [5-10]
%
— Toluene [
] 2
503 [10-20]% [
] 2
173 [10-20]
%
— Solvents [
] 599 [5-10]
% [
] 599 [0-5
]
%

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L 220/36
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Official Journal of the European Union
17.8.2012
(334) On the basis of the figures in Tables 8 to 10, it is
of the works) was below the average annual growth
concluded that Petrogal, alone, and in combination
rate of the EEA’s GDP.
with ENI, has market shares below 25 % for the
product concerned on the relevant product market for
heavy naphtha at EEA level. Petrogal’s market share does
Capacity increase in an underperforming market
not exceed 25 % on the derivatives markets either.
(pursuant to paragraph 68(b) of the RAG) for diesel
(340) The Compound Annual Growth Rate (‘CAGR’) of the
(335) In addition, the total in-house production of heavy
apparent consumption of diesel in the EEA for the
naphtha used by Petrogal in captive production, which
years 2001 to 2006 is around 2,12 % in volume terms
is not reflected in the above market share data in Table
or 15,38 % in value terms. The corresponding CAGR of
8, amounts to less than [<5] % of the size of the EEA
the EEA’s GDP for the years 2001 to 2006 reached
retail market. The additional production in the Sines
2,06 % in real terms (to be equated to volume terms)
refinery amounts to some [<5] %.
and 4,12 % in nominal terms (to be equated to value
terms).
(336) On the basis of these considerations, it is concluded that,
for heavy naphtha, the threshold laid down in the
(341) It results that the market for diesel cannot be considered
paragraph 68(a) test is not exceeded.
underperforming if takes into account the CAGR, both in
volume and in value terms, is compared respectively to
the GDP growth rate in nominal and real terms.
Capacity increase in an underperforming market
Therefore, it is not necessary to check whether the
(pursuant to paragraph 68(b) of the RAG)
capacity generated by the investment project is more
than 5 % of the market concerned.
(337) Paragraph 68(b) of the RAG provides that the
Commission proceeds to the in-depth assessment if ‘the
capacity created by the project is less than 5 % of the size
Capacity increase in an underperforming market
of the market measured using apparent consumption
(pursuant to paragraph 68(b) of the RAG) for naphtha
data of the product concerned, unless the average
and information on naphtha derivatives
annual growth rate of its apparent consumption over
the last five years is above the average annual growth
(342) To examine whether the investment project complies
rate of the EEA’s GDP.’
with paragraph 68(b) of the RAG, the Commission
needs to verify whether the capacity created by the
investment project is less than 5 % of the size of the
(338) Paragraph 70 of the RAG clarifies that ‘… For the
market measured using apparent consumption data of
purpose of applying points 68 (a) and (b), sales and
the product concerned, unless the average annual
apparent consumption will be defined at the appropriate
growth rate of its apparent consumption over the last
level of the Prodcom classification, normally in the EEA,
five years is above the average annual growth rate of the
or, if such information is not available or relevant, on the
EEA’s GDP.
basis of any other generally accepted market segmen
tation for which statistical data are readily available’.
(343) Portugal provided the following data presented in Tables
11 to 13 below. The figures in the column for the EEA
(339) In the opening decision, the Commission raised doubts,
market are identical to those in the market share tables
for all the products concerned, as to whether the
indicated as EEA market (sales). Since the size of the
production capacity created by the investment project
retail market (sales) is smaller than the size of the
was more than 5 % of each market measured using
apparent consumption including captive production, the
apparent consumption data and, if so, whether the
data on production capacity increase over-estimate the
average annual growth rate of the product’s apparent
importance of the increase. It can thus be said to
consumption over the last five years (before the start
constitute a worst-case scenario.
Table 11
The ratio of production capacity increase in the Sines refinery over the products concerned markets in the EEA
(in Ktonne)
Production
Production
Increase in
Share of
CAGR of the
Products concerned
capacity in
capacity in
production
EEA market in
capacity
apparent
2007
2012
capacity
2007
increase to EEA
market
consumption
Heavy naphtha [
] [
] [
] 49
172 [0-5]
%
—
Naphtha derivatives: [
] [
] [
] 16
045 [0-5]
%
—

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EN
17.8.2012 Official
Journal
of
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European
Union L
220/37
Production
Production
Increase in
Share of
CAGR of the
Products concerned
capacity in
capacity in
production
EEA market in
capacity
apparent
2007
2012
capacity
2007
increase to EEA
market
consumption
— Benzene [
] [
] [
] 10
093 [0-5]
%
—
— Orthoxylene [
] [
] [
] 681 [0-5]
%
—
— Paraxylene [
] [
] [
] 2
169 [0-5]
%
—
— Toluene [
] [
] [
] 2
503 [0-5]
%
—
— Solvents [
] [
] [
] 599 [0-5]
%
—
Table 12
The ratio of production capacity increase in Matosinhos over the products concerned markets in the EEA (in
Ktonne)
Production
Production
Increase in
Share of
CAGR of the
Products concerned
capacity in
capacity in
production
EEA market in
capacity
apparent
2007
2012
capacity
2007
increase to EEA
market
consumption
Heavy naphtha [
] [
] [
] 49
172 [0-5]
%
—
Naphtha derivatives: [
] [
] [
] 16
045 [0-5]
%
—
— Benzene [
] [
] [
] 10
093 [0-5]
%
—
— Orthoxylene [
] [
] [
] 681 [0-5]
%
—
— Paraxylene [
] [
] [
] 2
169 [0-5]
%
—
— Toluene [
] [
] [
] 2
503 [0-5]
%
—
— Solvents [
] [
] [
] 599 [0-5]
%
—
Table 13
The ratio of the combined production capacity increase (in the Sines and Matosinhos refineries) over the
products concerned markets in the EEA (in Ktonne)
Production
Production
Increase in
Share of
CAGR of the
Products concerned
capacity in
capacity in
production
EEA market in
capacity
apparent
2007
2012
capacity
2007
increase to EEA
market
consumption
Heavy naphtha [
] [
] [
] 49
172 [0-5]
%
—
Naphtha derivatives: [
] [
] [
] 16
045 [0-5]
%
—
— Benzene [
] [
] [
] 10
093 [0-5]
%
—
— Orthoxylene [
] [
] [
] 681 [0-5]
%
—
— Paraxylene [
] [
] [
] 2
169 [0-5]
%
—
— Toluene [
] [
] [
] 2
503 [0-5]
%
—
— Solvents [
] [
] [
] 599 [0-5]
%
—

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L 220/38
EN
Official Journal of the European Union
17.8.2012
(344) In all cases, the production capacity increase for the
2. Implementation
of
the
State
aid
referred
to
in
Article
1(1)
products listed in Tables 11 to 13 is below 5 % on the
is accordingly authorised. In case of deviations from the
relevant product markets at EEA level. Thus, it is
planned eligible expenditure and from the notified granting
considered that the investment project does not exceed
schedule of the State aid, Portugal shall not exceed the
the threshold laid down in the first part of paragraph
maximum aid amount in discounted prices of EUR
68(b) of the RAG.
121 091 314 nor the maximum aid intensity in discounted
prices of 12,43 %.
7. CONCLUSION
(345) On the basis of the data presented in recitals 278 to 344,
Article 2
the investment project does not exceed the thresholds
laid down in paragraph 68(a) and (b) of the RAG for
1. Portugal
shall
submit
interim
reports
to
the
Commission
the products concerned. Therefore, it is not necessary to
every five years as from the date of this Decision. The interim
conduct an in-depth assessment of the aid following the
reports shall provide updated information on the State aid
opening of the procedure provided for in Article 108(2)
amounts granted, on the execution of the aid contracts and
of the Treaty.
on any other investment projects started at the Sines or Mato

sinhos refineries.
(346) To conclude, the proposed regional investment aid in
favour of Petrogal fulfils all the conditions set out in
2. In
addition,
Portugal
shall
submit,
within
six
months
of
the RAG to be considered compatible with the internal
the grant of the last tranche of the State aid, based on the
market on the basis of Article 107(3)(a) of the Treaty. It
notified granting schedule, a detailed final report including
is therefore not necessary to assess whether the aid could
information on the State aid amounts paid, on the execution
be approved on the basis of other Treaty derogations.
of the aid contracts and on any other investment projects
started at the Sines or Matosinhos refineries.
(347) Portugal has exceptionally agreed that this Decision be
adopted in English as its only authentic language,
Article 3
HAS ADOPTED THIS DECISION:
This Decision is addressed to the Portuguese Republic.
Article 1
Done at Brussels, 3 August 2011.
1. The State aid which Portugal plans to grant to Petrogal,
amounting to EUR 160 484 007 in nominal value (EUR
121 091 314 in discounted prices) and representing a
For the Commission
maximum aid intensity of 12,43 % in discounted prices, is
compatible with the internal market in accordance with
Joaquín ALMUNIA
Article 107(3)(a) of the Treaty.
Vice-President

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