State aid: Commission approves €181.5 million Latvian schemes to support companies in context of Russia's invasion of Ukraine

The European Commission has approved two Latvian schemes with a total budget of €181.5 million to support small and medium-sized enterprises (‘SMEs') and large companies across sectors in the context of Russia's invasion of Ukraine. The scheme was approved under the State aid Temporary Crisis Framework, adopted by the Commission on 23 March 2022, based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (‘TFEU'), recognising that the EU economy is experiencing a serious disturbance.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Russia's unjustified war of aggression against Ukraine continues to negatively affect the EU economy and companies across sectors. These two schemes will enable Latvia to mitigate the liquidity shortages that SMEs as well as large companies are facing due to the current geopolitical crisis and the related sanctions. We continue to stand with Ukraine and its people. At the same time, we continue working closely with Member States to ensure that national support measures can be put in place in a timely, coordinated and effective way, while protecting the level playing field in the Single Market.”

The Latvian measures

Latvia notified to the Commission under the Temporary Crisis Framework two schemes with a total budget of €181.5 million to support SMEs and large companies across sectors in the context of Russia's invasion of Ukraine.

Under these measures, which will be administered by the State-owned Joint Stock Company and Latvian public development bank Altum, the aid will take the form of (i) guarantees on new loans and leases; and (ii) subsidised loans.

In light of the high degree of economic uncertainty caused by the current geopolitical situation, the schemes are aimed at ensuring that sufficient liquidity remains available to the companies in need.

The measures will be open to companies across sectors with the exception of credit and financial institutions.

As regards the guarantees, they will cover up to 90% of the loan or lease principal. Losses will be sustained proportionally by the credit institutions and the State. The estimated budget for this measure is €22.5 million.

When it comes to subsidised loans, they will be granted directly by Altum. The budget for this measure is €159 million.

Both the maximum loan or lease amount covered by a public guarantee and the maximum subsidised loan per beneficiary will be equal to either (i) 15% of its average total annual turnover over the last three closed accounting periods; or (ii) 50% of the energy costs incurred over a 12-month period preceding the application for aid. Exceptionally, when the beneficiaries are start-ups or companies with low or no turnover in 2019 and 2020 heavily affected by the current crisis, the amount of the loan or lease may be increased to cover their liquidity needs (i) for a 12-month period for SMEs; and (ii) for a 6-month period for large enterprises.

The Commission found that the Latvian schemes are in line with the conditions set out in the Temporary Crisis Framework. In particular, (i) the maturity of the guarantees and loans will not exceed six years; (ii) the guarantee premiums and the reduced interest rates respect the minimum levels set out in the Temporary Crisis Framework; and (iii) the support will be granted no later than 31 December 2022.

Furthermore, the aid in the form of guarantees is subject to safeguards to ensure that the advantages of the measure are passed on to the largest extent possible to the final beneficiaries via the financial intermediaries.

The Commission concluded that the Latvian schemes are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Crisis Framework.

On this basis, the Commission approved the aid measures under EU State aid rules.

Background

The State aid Temporary Crisis Framework, adopted on 23 March 2022, enables Member States to use the flexibility foreseen under State aid rules to support the economy in the context of Russia's invasion of Ukraine.

The Temporary Crisis Framework has been amended on 20 July 2022, to complement the Winter Preparedness Package and in line with the REPowerEU Plan objectives.

The Temporary Crisis Framework provides for the following types of aid, which can be granted by Member States:

• Limited amounts of aid, in any form, for companies affected by the current crisis or by the subsequent sanctions and countersanctions up to the increased amount of 62,000€ and 75,000€ in the agriculture, and fisheries and aquaculture sectors respectively, and up to 500,000€ in all other sectors;
• Liquidity support in form of State guarantees and subsidised loans;
• Aid to compensate for high energy prices. The aid, which can be granted in any form, will partially compensate companies, in particular intensive energy users, for additional costs due to exceptional gas and electricity price increases. The overall aid per beneficiary cannot exceed 30% of the eligible costs and – in order to incentivise energy saving – should relate to no more than 70% of its gas and electricity consumption during the same period of the previous year, up to a maximum of €2 million at any given point in time. When the company incurs operating losses, further aid may be necessary to ensure the continuation of an economic activity. Therefore, for energy-intensive users, the aid intensities are higher and Member States may grant aid exceeding these ceilings, up to €25 million, and for companies active in particularly affected sectors and sub-sectors up to €50 million;
• Measures accelerating the rollout of renewable energy. Member States can set up schemes for investments in renewable energy, including renewable hydrogen, biogas and biomethane, storage and renewable heat, including through heat pumps, with simplified tender procedures that can be quickly implemented, while including sufficient safeguards to protect the level playing field. In particular, Member States can devise schemes for a specific technology, requiring support in view of the particular national energy mix; and
• Measures facilitating the decarbonisation of industrial processes. To further accelerate the diversification of energy supplies, Member States can support investments to phase out from fossil fuels, in particular through electrification, energy efficiency and the switch to the use of renewable and electricity-based hydrogen which complies with certain conditions. Member States can either (i) set up new tender based schemes, or (ii) directly support projects, without tenders, with certain limits on the share of public support per investment. Specific top-up bonuses would be foreseen for small and medium-sized enterprises as well as for particularly energy efficient solutions.

The following types of aid are also possible on a case-by-case basis, subject to conditions: (i) support for companies affected by mandatory or voluntary gas curtailment, (ii) support for the filling of gas storages, (iii) transitory and time-limited support for fuel switching to more polluting fossil fuels subject to energy efficiency efforts and to avoiding lock-in effects, and (iv) support the provision of insurance or reinsurance to companies transporting goods to and from Ukraine.

Sanctioned Russian-controlled entities will be excluded from the scope of these measures.

The Temporary Crisis Framework includes a number of safeguards:

• Proportional methodology, requiring a link between the amount of aid that can be granted to businesses and the scale of their economic activity and exposure to the economic effects of the crisis; and
• Eligibility conditions, for example defining energy intensive users as businesses for which the purchase of energy products amount to at least 3% of their production value.

The Temporary Crisis Framework will be in place until 31 December 2022 for the liquidity support measures and measures covering increased energy costs. Aid supporting the roll-out of renewables and the decarbonisation of the industry may be granted until end June 2023. With a view to ensuring legal certainty, the Commission will assess at a later stage the need for an extension.

The Temporary Crisis Framework complements the ample possibilities for Member States to design measures in line with existing EU State aid rules. For example, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Furthermore, Article 107(2)(b) of the Treaty on the Functioning of the European Union enables Member States to compensate companies for the damage directly caused by an exceptional occurrence, such as those caused by the current crisis.

Furthermore, on 19 March 2020, the Commission adopted a Temporary Framework in the context of the coronavirus outbreak. The COVID Temporary Framework was amended on 3 April, 8 May, 29 June, 13 October 2020, 28 January and 18 November 2021. As announced in May 2022, the COVID Temporary Framework has not been extended beyond the set expiry date of 30 June 2022, with some exceptions. In particular, investment and solvency support measures may still be put in place until 31 December 2022 and 31 December 2023 respectively. In addition, the COVID Temporary Framework already provides for a flexible transition, under clear safeguards, in particular for the conversion and restructuring options of debt instruments, such as loans and guarantees, into other forms of aid, such as direct grants, until 30 June 2023.

The non-confidential version of the decision will be made available under the case numbers SA.103400 and SA.103359 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

More information on the Temporary Crisis Framework and other actions taken by the Commission to address the economic impact of Russia's invasion of Ukraine can be found here.