JUDGMENT OF THE COURT OF FIRST INSTANCE (Second Chamber,Extended Composition)

15 September 1998 (1)

(State aid - Action for annulment - Time-limits - Persons individually concerned- Private market economy investor principle - Opening of the procedureprovided for in Article 93(2) of the Treaty)

In Case T-11/95,

BP Chemicals Limited, a company governed by English law, established in London,represented by James Flynn, Barrister, of the Bar of England and Wales, and AlecBurnside, Solicitor, with an address for service in Luxembourg at the Chambers ofLoesch & Wolter, 11 Rue Goethe,

applicant,

supported by

United Kingdom of Great Britain and Northern Ireland, represented by LindseyNicoll, of the Treasury Solicitor's Department, acting as Agent, and by KennethParker QC and Rhodri Thompson, Barrister, of the Bar of England and Wales,with an address for service in Luxembourg at the Embassy of the United Kingdom,14 Boulevard Roosevelt,

intervener,

v

Commission of the European Communities, represented initially by Jean-PaulKeppenne and Paul Nemitz, of its Legal Service, subsequently by Paul Nemitz andNicholas Khan, of its Legal Service, acting as Agents, with an address for servicein Luxembourg at the office of Carlos Gómez de la Cruz, of its Legal Service,Wagner Centre, Kirchberg,

defendant,

supported by

Italian Republic, represented by Professor Umberto Leanza, Head of the LegalDepartment of the Ministry of Foreign Affairs, acting as Agent, and MaurizioFiorilli, Avvocato dello Stato, with an address for service in Luxembourg at theItalian Embassy, 5 Rue Marie-Adélaïde,

and by

ENI SpA, a company governed by Italian law, established in Rome,

EniChem SpA, a company governed by Italian law, established in Milan (Italy),

represented by Mario Siragusa, of the Rome Bar, and Giuseppe Scassellati-Sforzolini, of the Bologna Bar, with an address for service in Luxembourg at theChambers of Elvinger & Hoss, 15 Côte d'Eich,

interveners,

APPLICATION for annulment of the Commission decision of 27 July 1994regarding aid which Italy has decided to grant to EniChem SpA (OJ 1994 C 330,p. 7),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (Second Chamber, ExtendedComposition),

composed of: C.W. Bellamy, President, C.P. Briët, R. García-Valdecasas,A. Kalogeropoulos and A. Potocki, Judges,

Registrar: J. Palacio González, Administrator,

having regard to the written procedure and further to the oral procedure of 23September 1997 and 17 March 1998,

gives the following

Judgment

Facts

1.

    ENI SpA ('ENI‘) is a holding company created in July 1992 when the EnteNazionale Idrocarburi, an Italian public entity, was re-formed as a limited company. Until November 1995, the Italian State Treasury was ENI's sole shareholder. EniChem SpA ('EniChem‘) is a near 100% ENI subsidiary, producing andmarketing a wide range of chemical products. EniChem originated from EnimontSpA ('Enimont‘), a joint venture set up in May 1989 by the Ente NazionaleIdrocarburi and Montedison SpA.

2.

    On 1 October 1992 ENI made a capital contribution of LIT 1 000 billion toEniChem, followed by LIT 794 billion in December 1993 (hereinafter 'the first twocapital injections‘). In neither case was the Commission given prior notificationunder Article 93(3) of the EC Treaty.

3.

    On 16 February 1994 the Commission decided to open the procedure provided forin Article 93(2) of the Treaty in respect of the first two capital injections. By letterof 16 March 1994, it informed the Italian Government of this and called on it tosubmit comments.

4.

    In the course of a meeting on 15 April 1994 between Commission DirectorateGeneral IV (Competition), ENI and EniChem, the Chairman of EniChempresented a restructuring plan to be implemented during the period from 1994 to1997. Part of the plan was that ENI should invest a further LIT 3 000 billion inEniChem (hereinafter 'the third capital injection‘).

5.

    By letter of 18 May 1994, the Italian Government officially replied to theCommission's letter of 16 March 1994. Annexed to its reply were extracts from the1994-97 restructuring plan, referring to the third capital injection.

6.

    On 2 June 1994 the Commission published its letter of 16 March 1994 to the ItalianGovernment in the Official Journal of the European Communities, in the form of anotice 'to other Member States and other parties concerned regarding aid whichItaly has decided to grant to EniChem SpA‘ (OJ 1994 C 151, p. 3), calling on themto submit their comments within 30 days. No mention was made of the thirdcapital injection.

7.

    By letter of 6 June 1994 the Italian Government drew the Commission's attentionto the fact that both EniChem's restructuring plan and its own comments of 18May 1994 referred not only to the capital injections covered by the investigationopened by the Commission's letter of 16 March 1994, but also to the third injection. The Italian Government expressed the hope that the investigation in respect of thethird injection would be concluded swiftly.

8.

    On 1 July 1994, following discussions held by a working party made up ofrepresentatives of industry and of the Department of Trade and Industry(hereinafter 'the DTI‘), the United Kingdom Government submitted commentsto the Commission in response to the notice of 2 June 1994. In those comments,the United Kingdom questioned the justification for the first two capital injectionsand, drawing the Commission's attention to press reports concerning the thirdinjection, asked that it be subjected to a separate and thorough examination.

9.

    On 27 July 1994 the Commission published Press Release IP/94/728 (hereinafter'the Commission's press release‘) indicating that it had decided that day to closethe proceeding opened pursuant to Article 93(2) of the Treaty with regard to thefirst two capital injections, approving the aid thereby granted, and to declare thatthe third injection did not constitute State aid.

10.

    The third capital injection was carried out in instalments between August andOctober 1994.

11.

    On 1 August 1994 the American company, Union Carbide Corporation ('UCC‘),published a press release announcing that it planned to form a joint venture withEniChem to produce and market polyethylene in Europe.

12.

    On reading UCC's press release, the applicant learned that the Commission hadapproved EniChem's recapitalisation. It thereupon contacted the DTI, whichobtained a copy of the English-language version of the Commission's press releasethrough the UK Permanent Representation to the European Communities. Thiswas sent to the applicant on 3 August 1994.

13.

    The decision adopted by the Commission on 27 July 1994 (hereinafter 'thecontested decision‘) was notified to the Italian Government by letter of 9 August1994.

14.

    In section 4 of the contested decision, the Commission states that the third capitalinjection (LIT 3 000 billion) does not constitute State aid within the meaning ofArticle 92(1) of the Treaty because it would have been undertaken by a privateinvestor operating in a market economy.

15.

    In section 5 of the contested decision, the Commission states that the first twocapital injections - totalling LIT 1 794 billion - 'will receive no return whatsoever‘and that 'no comparable private investor would have undertaken to invest such anamount of money without a comprehensive restructuring plan having been drawn[up] beforehand‘. The Commission goes on to state that 'therefore, theseinjections are to be considered aid [to cover EniChem's] losses which stem mainlyfrom closures of installations‘, and sets out an overview of those closures. InSection 6 of the contested decision, however, the Commission states that, given thesignificance of those closures and the consequent reduction of production capacity,the first two capital injections are compatible with the common market, pursuantto Article 92(3)(c) of the Treaty.

16.

    In the course of a meeting on 11 November 1994, the Commission provided boththe British authorities and the applicant with a document which it describes in itswritten pleadings as the full text of the contested decision.

17.

    The contested decision was published in the Official Journal of the EuropeanCommunities of 26 November 1994 (Commission notice pursuant to Article 93(2)of the EC Treaty to other Member States and other parties concerned regardingaid which Italy has decided to grant to EniChem SpA (OJ 1994 C 330, p. 7)).

Procedure

18.

    By application lodged at the Registry of the Court of First Instance on 20 January1995, the applicant brought the present proceedings.

19.

    By orders of 13 October 1995, the Court of First Instance (Second Chamber,Extended Composition) granted the United Kingdom and the Italian Republicleave to intervene in these proceedings in support of the forms of order sought,respectively, by the applicant and by the Commission. By order of 19 October1995, ENI and EniChem were granted leave to intervene in support of theCommission.

20.

    By order of 26 June 1996 (T-11/95 BP Chemicals v Commission [1996] ECR II-599),the Court of First Instance (Second Chamber, Extended Composition) dismisseda request submitted by ENI and EniChem for a derogation under Article 35(2) ofthe Rules of Procedure as regards translation into the language of the case of theannexes to their statement in intervention.

21.

    Acting on the report of the Judge Rapporteur, the Court of First Instance (SecondChamber, Extended Composition) decided to open the oral procedure. By way ofmeasures of organisation of procedure, the Commission, the Italian Republic, ENIand EniChem were asked to reply in writing to certain questions and to producecertain documents before the hearing. In particular, the Court asked theCommission to produce the calculations in its file concerning the question whetherthe third capital injection would have been acceptable for a private marketeconomy investor.

22.

    On 30 June 1997 the Commission, ENI and EniChem replied to those questionsand produced certain documents. The Commission submitted, in particular, acalculation dated 1 July 1994 of the return on the third injection (hereinafter'Table QI/1‘). The Italian Republic submitted its observations on 30 July 1997.

23.

    At the hearing on 23 September 1997, the parties presented oral argument andreplied to questions from the Court. However, at the end of the hearing, the Courtdecided not to close the oral procedure.

24.

    By letter of 26 September 1997, the applicant sought permission to lodge writtenobservations concerning the calculations given in Table QI/1.

25.

    By letter of 26 September 1997 the Agents of the Commission advised the Courtof First Instance that Table QI/1, dated 1 July 1994, had not been drawn up beforeadoption of the contested decision on 27 July 1994, but was rather a reconstructionof work done during the preparation of that decision.

26.

    By letter of 13 October 1997, the Court of First Instance asked the Commission toindicate whether it continued to rely on the calculations set out in Table QI/1 insupport of the assertion in the contested decision that the third capital injectionwould have been undertaken by a private investor in a market economy. If not, theCommission was asked to specify, on the basis of the reasoning in the contesteddecision and in its written pleadings, what calculations or other elements wererelied on in support of that conclusion.

27.

    By letter of 16 October 1997 the Commission informed the Court of First Instancethat the documents produced in Annexes QI/2 and Q1/4 to its observations of 30June 1997 (hereinafter 'Tables QI/2 and QI/4‘) were copies of the originaldocuments which were in its file at the time of the adoption of the contesteddecision, but that the document in Annex QI/3 (hereinafter 'Table QI/3‘) had beenrecreated - to facilitate understanding - after the adoption of the contesteddecision, on the basis of a table which had existed at the material time.

28.

    By its observations of 11 November 1997 the Commission replied to the questionfrom the Court of First Instance of 13 October 1997 and submitted calculations(hereinafter 'Table A‘ and 'Table B‘) containing certain new elements withrespect to Table QI/1.

29.

    By letter of 24 November 1994 the Court of First Instance invited the applicant andthe interveners to comment in writing on the Commission's letters and observationsof 30 June 1997, 26 September 1997, 16 October 1997 and 11 November 1997.

30.

    On 19 January 1998 the applicant, the United Kingdom, ENI and EniChem lodgedobservations in response to that invitation.

31.

    The parties presented oral argument and replied to questions from the Court ofFirst Instance at the hearing on 17 March 1998 at the end of which the oralprocedure was closed.

Forms of order sought

32.

    The applicant claims that the Court should:

-    annul the contested decision;

-    order the Commission to pay the costs;

-    order the Italian Republic, ENI and EniChem to pay the costs occasionedby their respective interventions.

33.

    The United Kingdom claims that the Court should annul the contested decision.

34.

    The Commission claims that the Court should:

-    dismiss the action;

-    order the applicant to pay the costs;

-    order the United Kingdom to pay the costs.

35.

    ENI and EniChem claim that the Court should:

-    dismiss the action as inadmissible;

-    in the alternative, reject the action as unfounded;

-    order the applicant to pay the costs incurred by ENI and EniChem.

36.

    The Italian Republic supports the form of order sought by the Commission.

Admissibility

37.

    The Commission, the Italian Republic, ENI and EniChem contend that the actionis inadmissible, first, because the applicant was time-barred and, second, becauseit was not individually concerned by the contested decision within the meaning ofthe fourth paragraph of Article 173 of the Treaty.

Time-limit for bringing proceedings

Arguments of the parties

38.

    The Commission contends that the application lodged on 20 January 1995 felloutside the time-limit set by the fifth paragraph of Article 173 of the Treaty, sincetime for the purposes of bringing proceedings started to run on 3 August 1994,when the contested measure came to the knowledge of the applicant, through itsreading of the Commission's press release.

39.

    According to the Commission it is evident, both from the wording of the fifthparagraph of Article 173 of the Treaty and from the the case-law of the Court ofJustice that, of the three events envisaged by the aforementioned provision -publication of the contested measure, its notification to the applicant or its comingto the latter's knowledge - the first to occur causes time to run for the purposesof bringing proceedings (see, in particular, Case 59/84 Tezi Textiel v Commission[1986] ECR 887, paragraphs 9 to 12, and Case 378/87 Top Hit Holzvertrieb vCommission [1989] ECR 1359, paragraphs 12 to 15).

40.

    In the present case, the Commission's press release gave the applicant preciseknowledge of the content and grounds of the measure in question, on the basis ofwhich it would have been able to exercise its right of action. Even supposing thaton 3 August 1994 the applicant did not have sufficient knowledge of the contentand grounds of the contested decision for the purposes of the fifth paragraph ofArticle 173 of the Treaty, time for the purposes of bringing proceedings would nothave started to run on the decision's notification - 11 November 1994 - unless theapplicant had asked the Commission for the full text within a reasonable period. In the present case, however, that condition was not satisfied.

41.

    Lastly, the Commission disputes the applicant's statement that it was given the textof the contested Decison at the meeting on 11 November 1994 on the strictunderstanding that no use would be made of it until its publication in the OfficialJournal, but acknowledges that the meeting was confidential and that theCommission officials placed the document under embargo until the date ofpublication, mistakenly believing that they were under a duty to avoid its beingcirculated beforehand.

42.

    The Italian Republic, ENI and EniChem concur with the Commission's arguments.

43.

    ENI and EniChem emphasise that, pursuant to Article 191(3) of the Treaty,publication of the contested decision was not a condition of its taking effect. AsAdvocates General Reischl and Mancini affirmed, respectively, in Case 76/79Könecke v Commission [1980] ECR 665 and Joined Cases 358/85 and 51/86 Francev Parliament [1988] ECR 4821, in such circumstances the applicant was not entitled,therefore, to await publication before instituting proceedings. That is a fortiori theposition with respect to the third capital injection, since Commission decisionspursuant to Article 93(3) of the Treaty, finding that there is no State aid, are neverpublished.

44.

    The applicant, supported by the United Kingdom, argues that, in accordance withthe fifth paragraph of Article 173 of the Treaty, time for the purposes of bringingproceedings started to run on 26 November 1994, the date of the contesteddecision's publication in the Official Journal. Knowledge of the contested measureis a residual criterion which is only applicable in the absence of publication ornotification (see Könecke, cited above, and Case 236/86 Dillinger Hüttenwerke vCommission [1988] ECR 3761, paragraph 14).

45.

    Neither the Commission's press release, nor the handing over of a confidential copyof the contested decision in the course of the meeting on 11 November 1994,constitutes notification. Furthermore, the contested decision was given to theapplicant at that meeting on the strict understanding that no use would be madeof it before publication, and consequently time should not be taken to run from thedate of the meeting. In any event, the Commission's press release did not give theapplicant sufficient knowledge of the contested decision. Moreover, the applicantendeavoured with all appropriate diligence to obtain a copy of that measure.

Findings of the Court

46.

    Pursuant to the fifth paragraph of Article 173 of the Treaty, the proceedingsprovided for in Article 173 must be instituted within two months of the publicationof the measure, or of its notification to the applicant, or, in the absence thereof,of the day on which it came to the knowledge of the latter, as the case may be.

47.

    It is clear simply from the wording of that provision that the criterion of the dayon which a measure came to the knowledge of an applicant, as the starting pointof the period prescribed for instituting proceedings, is subsidiary to the criteria ofpublication or notification of the measure (Case C-122/95 Germany v Council [1998]ECR I-973, paragraph 35; see also, as regards State aid, the Opinion of AdvocateGeneral Capotorti in Case 730/79 Philip Morris Holland v Commission [1980] ECR2671, p. 2695).

48.

    In the present case, the contested decision was published on 26 November 1994. Taking the hypothesis that it was not previously notified to the applicant, it wouldfollow that the present proceedings, initiated on 20 January 1995, were broughtwithin the period prescribed in the fifth paragraph of Article 173 of the Treaty.

49.

    That conclusion is all the more inevitable in the present case given that it isconsistent practice for Commission decisions closing a State aid investigationprocedure under Article 93(2) of the Treaty to be published in the Official Journal(see, inter alia, the letter of 27 June 1989 from the Commission to the MemberStates, published by the Commission in Competition Law in the EuropeanCommunities, Volume IIA, 'Rules applicable to State aid‘, 1995, p. 107, and theXXth Report on Competition Policy, 1990, paragraph 170).

50.

    In the present case, the contested decision closed not only the investigationprocedure opened, pursuant to Article 93(2) of the Treaty, with respect to the firsttwo injections, but also the preliminary examination of the third injection underArticle 93(3) of the Treaty. However, the Commission has not denied that italways meant to publish the contested decision on the three injections in itsentirety. Nor does it deny informing the United Kingdom that the contesteddecision would be published, which is evident in any case from its fax of 29September 1994 to the UK Permanent Representation, confirming that thecontested decision would be published in the course of the next few weeks.

51.

    In those circumstances the applicant could reasonably expect the contested decisionto be published in the Official Journal.

52.

    Alternatively, taking the hypothesis that the handing-over to the applicant, at themeeting on 11 November 1994, of the document described by the Commission asthe full text of the contested decision may be regarded as 'notification‘ within themeaning of the fifth paragraph of Article 173 of the Treaty, it would still follow thatthe proceedings had been initiated in due time. In that case, time for the purposesof bringing proceedings would not have expired until Monday 23 January 1995,having regard to the two-month period prescribed by the fifth paragraph of Article173 of the Treaty, extended on account of distance by a period of 10 days in thecase of the United Kingdom, pursuant to Article 102(2) of the Rules of Procedure,and with regard also to the first subparagraph of Article 101(2) of those Rules,which applies where the period ends on a Saturday, Sunday or official holiday.

53.

    The pleas that the proceedings were initiated out of time must therefore berejected.

The question whether the contested decision is of direct and individual concern to theapplicant

Arguments of the parties

54.

    The Commission, supported by the Italian Republic, ENI and EniChem, contendsthat the application is inadmissible so far as concerns the first two capital injections,since in that respect the decision was not of individual concern to the applicantwithin the meaning of the fourth paragraph of Article 173 of the Treaty.

55.

    The applicant does not satisfy any of the three cumulative conditions laid down inthis connection by the case-law: it did not participate in the administrativeprocedure, either as the complainant or as a third party submitting commentspursuant to a notice on the opening of a procedure pursuant to Article 93(2) of theTreaty; nor was the conduct of that procedure largely determined by itsobservations; lastly, its position on the market was not significantly affected by theaid in question (Case 264/82 Timex v Council and Commission [1985] ECR 849;Case 169/84 Cofaz v Commission [1986] ECR 391, paragraph 25, and the Opinionin that case of Advocate General VerLoren Van Themaat, p. 405).

56.

    On the other hand, the Commission does not contest the action's admissibility sofar as concerns the third capital injection, in accordance with the judgments in CaseC-198/91 Cook v Commission [1993] ECR I-2487 and Case C-225/91 Matra vCommission [1993] ECR I-3203.

57.

    Diverging from the Commission in this respect, ENI and EniChem contend that theaction is inadmissible with respect to the third capital injection. They maintain thatCook is not applicable to a decision pursuant to Article 93(3) of the Treaty findingthat no aid is involved. The annulment of such a decision, in contrast to theannulment of a decision finding that aid is compatible with the common market,does not automatically entail the opening of a formal investigation procedure underArticle 93(2) of the Treaty. Rather, the Commission would undertake a secondexamination under Article 93(3) of the Treaty, in order to determine whether thethird capital injection, now presumed to involve aid, was nevertheless compatiblewith the common market. No provision is made for the participation of thirdparties such as the applicant at that stage in the procedure. Only if theCommission were subsequently to open the investigation procedure under Article93(2) of the Treaty would the applicant be able to submit comments regarding thethird capital injection. Accordingly, the decision was not of direct concern to theapplicant.

58.

    ENI and EniChem also contend that the action is inadmissible so far as concernsthe third capital injection because it does not contest a decision adopted pursuantto Articles 92(1) and 93(3) of the Treaty. Since the contested decision was adoptedsolely on the basis of Articles 92(3)(c) and 93(2) of the Treaty and the Commissionnever extended its investigation under those provisions to cover the third injection,the action is inadmissible because the applicant does not claim, in its conclusionssetting out the form of order sought, that the 'separate‘ decision concerning thethird injection should be annulled.

59.

    The Italian Republic contends that the action is inadmissible with respect to thethird injection because the applicant has failed to show that ENI, a publicundertaking, acted in the exercise of public authority, in furtherance of the publicinterest or social priorities, rather than self-serving or commercial objectives.

60.

    The applicant, supported by the United Kingdom, submits that it is directly andindividually concerned by the contested decision in its entirety.

61.

    The applicant considers itself entitled to challenge the finding concerning the thirdinjection, since it is a competitor of EniChem which, in the absence of a notice onthe opening of a procedure under Article 93(2) of the Treaty in respect of the thirdinjection, had no opportunity to submit its observations (Case 323/82 Intermills vCommission [1984] ECR 3809; Cook, cited above, paragraphs 23 to 25; and CaseC-313/90 CIRFS and Others v Commission [1993] ECR I-1125). Contrary to thecontention raised by ENI and EniChem, Cook is applicable where a decision hasbeen adopted not to open the Article 93(2) procedure on the ground that themeasure in question does not constitute State aid.

62.

    According to the applicant, the application is also admissible, in the light of Cook,with respect to the first two capital injections, since they are inextricably linked tothe third. By failing to extend the procedure by means of a further Article 93(2)notice, the Commission denied parties concerned the opportunity to comment onEniChem's overall restructuring and the related financing. The rationale underlyingCook applies to such circumstances since, if interested parties are not allowed tocontest the Commission's decision before the Court, the procedural guaranteescontained in Article 93(2) of the Treaty cannot be secured.

63.

    In the alternative, should the Court hold that, in respect of the first two injections,the question of admissibility is to be determined separately, the applicant maintainsthat an undertaking may be individually concerned solely by virtue of the aid'seffect on its market position (see Case T-435/93 ASPEC and Others v Commission[1995] ECR II-1281, paragraph 64, and Case T-442/93 AAC and Others vCommission [1995] ECR II-1329, paragraph 49).

64.

    In Europe competition between the applicant and EniChem is considerable,especially on the ethylene and polyethylene markets, but also with regard to otherproducts. EniChem is the largest ethylene producer in Europe, accounting for 11%of total capacity, compared with the applicant's 7%. Furthermore, the Commissionindicated in the communication of 2 June 1994 that EniChem is a market leaderon the Western European market in olefins, the category of products to whichpolyethylene belongs.

65.

    In 1993 the applicant suffered a total operating loss, in respect of all of its productssold in Europe, of UKL 95 million, primarily in connection with sales of ethyleneand polyethylene. In the same year, its parent company made an exceptionalcharge of UKL 200 million in its accounts to cover the fundamental restructuringof its European petrochemicals operations and, in particular, the permanent closureof its ethylene cracker at Baglan Bay. That closure of 360 Kt/a capacity coincidedwith the introduction, announced in 1988, of 330 Kt/a capacity at a more efficientplant at Grangemouth.

66.

    The applicant therefore maintains that its market position was seriously affectedby the grant of the first two capital injections to EniChem.

67.

    Furthermore, the applicant actively participated in the administrative procedure,playing a role analogous to that of a complainant, within the meaning used inCofaz, cited above. On 24 May 1994 it tabled a paper on aid to EniChem for theworking party made up of representatives of industry and the DTI. At a meetingof the working party on 13 June 1994, it supplemented that paper with additionalfigures and arguments, and later wrote giving the DTI further information. Theapplicant contributed to the working party's discussions on the outline of theUnited Kingdom's observations, for which it provided most of the factualinformation; also, it submitted comments on the draft observations circulated by theDTI.

68.

    The applicant was reluctant to submit comments in its own name for fear ofdamaging its commercial relations with EniChem within joint ventures, or ofprejudicing ongoing negotiations for technology licenses and cooperation in thecontext of trade associations to which both companies belonged. Although aMember State does not act 'on behalf of‘ an undertaking in the same way as atrade association, the United Kingdom authorities wished to make sure that theCommission took the applicant's interests fully into account. It would beexcessively formalistic to require that the applicant submit the same observationsin its own name.

Findings of the Court

- Admissibility of the action with regard to the first two capital injections

69.

    Under the fourth paragraph of Article 173 of the Treaty, a natural or legal personmay institute proceedings against a decision addressed to another person only ifthat decision is of direct and individual concern to it. Since the contested decisionwas addressed to the Italian Republic, it must be determined whether the applicantsatisfies those requirements in the case of the first two capital injections.

70.

    It is common ground that the applicant is directly concerned by the contesteddecision inasmuch as that measure declares compatible with the common marketaid that has already been granted (see, most recently, Case T-149/95 Ducros vCommission [1997] ECR II-2031, paragraph 32).

71.

    Furthermore, it is settled law that persons other than the addressees of a decisioncannot claim to be individually concerned unless they are affected by that decisionby reason of certain attributes which are peculiar to them or by reason ofcircumstances in which they are differentiated from all other persons and, by virtueof these factors, distinguished individually just as in the case of the personaddressed (Case 25/62 Plaumann v Commission [1963] ECR 95, 107, and Ducros,cited above, paragraph 33).

72.

    It is also clear from the case-law that, in the field of State aid control, a decisionclosing a proceeding pursuant to Article 93(2) of the Treaty is of individual concernto any undertaking which was at the origin of the complaint which led to theopening of the investigation procedure, and whose views were heard during thatprocedure and largely determined the conduct of that procedure, provided,however, that its position on the market was significantly affected by the aid whichis the subject of the decision (Cofaz, cited above, paragraphs 24 and 25). However,that does not preclude the possibility that an undertaking may be in a position todemonstrate by other means - by reference to specific circumstances distinguishingit individually as in the case of the person addressed - that it is individuallyconcerned (ASPEC and Others, cited above, paragraph 64, and Ducros, cited above,paragraph 34).

73.

    In the present case, the applicant did not complain to the Commission. Nor,following publication of the notice of 2 June 1994, did it approach the Commissionunder its own name with a view to submitting comments as a party concernedwithin the meaning of Article 93(2) of the Treaty. Furthermore, the fact that theapplicant is a party concerned within the meaning of that provision is not sufficientin itself to distinguish it as in the case of the addressee of the decision.

74.

    Nor, in the view of the Court, does the applicant satisfy that test by virtue of itsparticipation, as a member of a working party made up of representatives ofindustry and the DTI, in the preparation of the observations submitted to theCommission by the United Kingdom on 1 July 1994. Those observations weresubmitted in the name of the United Kingdom and in its capacity as a MemberState. Furthermore, they convey solely the views of the United KingdomGovernment with regard to proposed aid, considered in the general context of theEuropean petrochemical industry at that time, and do not in any way address theparticular situation of the applicant.

75.

    Moreover, the mere participation by the applicant in a working party set up by theUnited Kingdom authorities cannot be equated with the exercise, by a partyconcerned within the meaning of Article 93(2) of the Treaty, of the right to submitcomments in the course of the procedure foreseen by that provision. In the lattercase, the interests of legal certainty and sound administration require theCommission to be aware, so far as is possible, of the particular circumstances ofevery trader who considers himself injured by the grant of aid proposed. In thepresent case, the Commission had no knowledge, at the time of the administrativeprocedure, of either the applicant's specific objections or of any role which it hadplayed in the preparation of the United Kingdom's comments.

76.

    As regards the question whether the applicant has been able to demonstrate byother means the existence of specific circumstances distinguishing it individually asin the case of the addressee, it should be recalled that the mere fact that a measureis capable of influencing competitive relationships within the relevant market doesnot in itself suffice to deem any trader in any competitive relationship with themeasure's beneficiary to be directly and individually concerned by it (Joined Cases10/68 and 18/68 Eridania v Commission [1969] ECR 459, paragraph 7, and CaseT-266/94 Skibsværftsforeningen and Others v Commission [1996] ECR II-1399,paragraph 47).

77.

    The Court takes the view that where, as in this case, the applicant has not exercisedits right to submit comments in the course of the procedure foreseen by Article93(2) of the Treaty, it must prove that it is in a distinct competitive position whichdifferentiates it, as regards the State aid in question, from any other trader (ASPECand Others, cited above, paragraph 70, and Skibsværftsforeningen and Others, citedabove, paragraph 47).

78.

    The applicant relies on the fact that it is a competitor of EniChem on the ethyleneand polyethylene markets, and that EniChem accounts for 11% of Europe's entireethylene production capacity, compared with the applicant's 7%. It also refers tothe Commission's statement in the notice of 2 June 1994 that EniChem is a marketleader on the Western European market in olefins. Lastly, it refers to theoperating loss which it suffered in 1993, primarily in connection with its sales ofethylene and polyethylene, and to the restructuring on which it embarked, involvingthe closure of its ethylene cracker at Baglan Bay.

79.

    It is the Court's view that those factors do not constitute special circumstanceswhich are sufficient to distinguish the applicant as in the case of the personaddressed by the contested decision.

80.

    The documents before the Court show that, at the material time, some 20operators, including EniChem and the applicant, were active in the ethylene sector,with a total of approximately 50 plants (see, for example, the table on page 14 of'Petrochemical Market Outlook‘, May 1994, lodged at the Registry of the Courtof First Instance by the applicant, and the '1994 Olefins Report Product Review‘produced by EniChem in Annex 4 to its statement in intervention). Although,admittedly, EniChem had the largest production capacity in Europe at that time,it is clear from the table on page 16 of the application that five other producershad a larger capacity than the applicant, which only occupied seventh position. Asfor its operating loss in 1993, the documents before the Court reveal that, at thattime, the petrochemical industry was in recession and, as a result, most of theoperators concerned either made a loss or very low profits. Nor does theapplicant's closure of its ethylene cracker at Baglan Bay appear to be related to thefirst two capital injections, but rather to its own decision, announced in 1988, tobuild a more efficient plant at Grangemouth.

81.

    The applicant's situation is thus quite different from that of the three applicants inthe case which gave rise to the judgment in ASPEC and Others, cited above, whosemarket shares accounted for nearly all the relevant markets (see paragraphs 65 to71). Similarly, whereas in that case the aid in question was specifically designed toincrease the beneficiary's production capacity in markets already characterised byexcess capacity, in the present case, the first two capital injections were granted inthe context of the plant closures referred to in section 5 of the contested decision.

82.

    Lastly, it is not possible to accept the applicant's argument that by analogy withCook, cited above, its application is admissible because the absence of anyreference to the third capital injection in the notice of 2 June 1994 denied it anopportunity to make its views known regarding EniChem's restructuring as a whole. In Cook, the Court held that the failure to open the procedure provided for inArticle 93(2) of the Treaty deprived the parties concerned, within the meaning ofthat provision, of the procedural guarantees to which they were entitled. It mustbe pointed out that, in the present case, the Commission opened the procedureprovided for in Article 93(2) in respect of the first two capital injections. Consequently, even supposing that, in the context of EniChem's restructuring, thethree injections were related and that the notice of 2 June 1994 was incomplete,the mere fact that it did not mention the third capital injection did not preclude theapplicant from submitting comments on the first two injections in the course of theprocedure opened by the Commission for their investigation.

83.

    The action must therefore be dismissed as inadmissible with regard to the first twocapital injections.

- Admissibility of the action with regard to the third capital injection

84.

    The Commission, relying on Cook and Matra, cited above, has raised no objectionas to the admissibility of the action with regard to the third capital injection.

85.

    Pursuant to the fourth paragraph of Article 37 of the EC Statute of the Court ofJustice which, pursuant to the first paragraph of Article 46 thereof, applies to theprocedure before the Court of First Instance, an application to intervene is limitedto supporting the form of order sought by one of the parties. Also, pursuant toArticle 116(3) of the Rules of Procedure of the Court of First Instance, theintervener must accept the case as he finds it at the time of his intervention.

86.

    It follows that the intervener has no standing to challenge the admissibility of theaction with regard to the third capital injection and that, accordingly, the Court ofFirst Instance is not required to consider the pleas of inadmissibility on which itrelies (Case T-290/94 Kaysersberg v Commission [1997] ECR II-2137, paragraph 76).

87.

    It is none the less appropriate, pursuant to Article 113 of its Rules of Procedure,for the Court of First Instance to examine the admissibility of the action withregard to the third capital injection of its own motion (see CIRFS and Others, citedabove, paragraph 23, and Case T-19/92 Leclerc v Commission [1996] ECR II-1851,paragraph 51).

88.

    The Commission found in the contested decision that the third capital injectionwould have been made by a private investor operating in a market economy andthat it did not therefore involve State aid. In making that finding, at the end of itspreliminary examination of the third injection pursuant to Article 93(3) of theTreaty, the Commission impliedly refused to open the procedure provided for inArticle 93(2) of the Treaty (see Case C-367/95 P Commission v Sytraval and Brink'sFrance [1998] ECR I-1719, paragraph 47).

89.

    In such circumstances, those entitled to the procedural guarantees provided for inArticle 93(2) of the Treaty may secure compliance therewith only if they are ableto challenge that decision before the Community judicature (Cook, cited above,paragraph 23, and Matra, cited above, paragraph 17). This principle is of equalapplication, whether the ground on which the decision is taken is that theCommission regards the aid as compatible with the common market or that, in itsview, the very existence of aid must be discounted (Commission v Sytraval andBrink's France, cited above, paragraph 47). It follows that the applicant, being aparty concerned within the meaning of Article 93(2) of the Treaty, is individuallyconcerned by the contested decision in so far as that measure concerns the thirdcapital injection.

90.

    To that extent, the applicant is also directly concerned by the contested decision,since the third capital injection was carried out before the present proceedings wereinitiated (Ducros, cited above, paragraph 32).

91.

    As regards the argument of ENI and EniChem that the action is inadmissiblebecause the applicant did not seek, in its conclusions setting out the form of ordersought, annulment of a 'separate‘ decision concerning the third capital injectiontaken on the basis of Articles 92(1) and 93(3) of the Treaty - the contesteddecision having been adopted solely on the basis of Articles 92(3)(c) and 93(2) ofthe Treaty - suffice it to note that the form of order sought by the applicantconcerns annulment of the contested decision as a whole, including theCommission's statements to the effect that the third injection did not constituteState aid.

92.

    Nor can the Court accept the argument put forward by the Italian Republic thatthe applicant must show that ENI acted in the exercise of public authority ratherthan on the basis of commercial interest, if its action is to be admissible with regardto the third capital injection. A consideration of that kind has no bearing on theaction's admissibility.

93.

    The action must therefore be declared admissible with regard to the third capitalinjection.

Substance

I - Summary of the parties' arguments

94.

    So far as regards the third capital injection, the applicant submits that (a) theCommission infringed Article 92(1) of the Treaty by disregarding the links betweenthe three injections, in view of which the third injection could not be assessed inisolation; (b) in any event, the Commission infringed Article 92(1) of the Treatyinasmuch as a private investor operating in a market economy would not haveundertaken the third injection; and (c) accordingly, the Commission infringed theapplicant's rights as a party concerned by failing to open the procedure providedfor in Article 93(2) of the Treaty with regard to the third capital injection.

The arguments adduced in the written procedure

95.

    As regards, first, the links between the first two capital injections and the third, theapplicant submits that the third capital injection must be regarded as forming partof a single process for the restructuring of EniChem, in which it is inextricablylinked to the first two capital injections. In those circumstances, it is artificial forthe Commission to argue that the first two capital injections constitute State aid,but that the third does not. In reality, there is a single State aid ofLIT 4 794 billion.

96.

    The applicant primarily relies on the fact that the Commission was unable toapprove the first two capital injections pursuant to Article 92(3)(c) of the Treatywithout a restructuring plan enabling the undertaking to recover long-term viabilitywithin a reasonable period having been drawn up (see Paragraph 3.2.2.(i) of theCommunity guidelines on State aid for rescuing and restructuring firms in difficulty,adopted on 27 July 1994 (OJ 1994 C 368, p. 12, hereinafter 'the Guidelines‘; andJoined Cases C-278/92, C-279/92 and C-280/92 Spain v Commission ('Hytasa‘)[1994] ECR I-4103). In the present case, there was only one restructuring plan -that submitted to the Commission in response to the letter of formal notice of 16March 1994 - the key element of which was the third capital injection. The factthat the first two capital injections are related to the third is also evident from theItalian Government's letter of 6 June 1994 to the Commission.

97.

    Secondly, even assuming that the third injection could be evaluated in isolation, theapplicant argues that, in its assessment of that injection, the Commission misappliedthe very strict criterion of the private investor operating in a market economy (CaseC-303/88 Italy v Commission ('ENI-Lanerossi‘) [1991] ECR I-1433, Case C-305/89Italy v Commission ('Alfa Romeo‘) [1991] ECR I-1603 and Hytasa, cited above).

98.

    According to the applicant, no such investor would have contributedLIT 3 000 billion to the restructuring of EniChem. In particular, no privateinvestor would have financed EniChem's restructuring plan without first insistingon precise objectives being met within strict deadlines. He would not haveproceeded with the third injection without first considering the possibility of puttingEniChem into liquidation; he would never have contemplated an investment wherethe present value of future cash flows just equalled the amount invested, as statedin the contested decision; and, in any case, he would not have taken his decisionon the basis of the less pessimistic of the two sets of financial forecasts, which,according to the Commission's defence, was the approach adopted in the presentcase.

99.

    Thirdly, the applicant argues that, by not opening the procedure provided for inArticle 93(2) of the Treaty, in respect of the third capital injection, the Commissionis in default of its procedural obligations in that it deprived the applicant of itsrights under that provision (Cook, cited above, paragraph 23). The Commissionshould either have extended the procedure already initiated to cover the thirdcapital injection, or it should have opened a new procedure, so as to be whollyconversant with all the facts of the case before taking its decision (see Case 84/82Germany v Commission [1984] ECR 1451, paragraph 13, and Cook, cited above,paragraph 29).

100.

    The United Kingdom adds to this that the Commission should have followed theviews of the Italian authorities, according to whom there was a necessary andindissoluble link between the three injections. Furthermore, the Italian authoritieswere constrained to present the three injections as a whole because the necessarycondition in law for approval of restructuring aid is that it must restore viability tothe recipient, as the Commission itself emphasised in Paragraph 3.2.2.(i) of theGuidelines.

101.

    The Commission emphasises, first of all, the limits applying to review by theCommunity judicature of decisions adopted by the Commission in the exercise ofits preventive review of State aid, and the necessarily broad discretion enjoyed bythe Commission when making economic and social appraisals in a Communitycontext (see, inter alia, Philip Morris Holland, cited above, paragraph 24, Matra,cited above, paragraph 24, and Hytasa, cited above, paragraph 51).

102.

    In the Commission's view, there is no link between the first two injections and thethird such that all three should have been considered together. The first twoinjections were evaluated quite separately from the third, since their purpose wasto cover losses incurred from past closures and their effect was in no waydependent on that injection.

103.

    In particular, the Commission points out that in applying the private marketeconomy investor test to the first two injections, account had to be taken of thecircumstances at the time when they were carried out (1992 and 1993), whereas thethird injection had to be appraised in terms of the situation at the time of thecontested decision (1994). The Commission contends that no return was to bereceived on the first two injections, since they were intended to compensate pastlosses, including those arising from certain restructuring measures which were notundertaken within the framework of a detailed restructuring plan. On the otherhand, the proposal for an injection of LIT 3 000 billion was based on a detailedand realistic restructuring plan for 1994 to 1997, with a view to restoring theundertaking to a viable profit level as from 1997. It does not follow from the factthat the restructuring plan advocated measures similar to those previously adoptedthat the first two injections are so closely associated with the third that they couldnot be evaluated without extending the procedure to that injection.

104.

    The Commission took the view that the first two capital injections and theconcomitant restructuring measures had restored the viability of EniChem up to alevel where private capital could be attracted on the capital market without,however, raising the company to such a level of profitability that long-term returnswould be provided on those injections. For a restructuring aid to be compatiblewith the common market, it is sufficient that it restores the viability of the recipientto a level where the latter can obtain from the capital market the private capitalnecessary for a return to profitability, if need be on the basis of a more detailedrestructuring plan. This was precisely what the first two capital injections achieved,given that on the third injection of LIT 3 000 billion a normal market rate of returnwas to be expected.

105.

    According to the Commission, although no detailed plan for the restructuring ofEniChem existed at the time of the first two capital injections, it was aware that anoverall plan for restructuring the group was being formulated in the context of alarge-scale operation to restructure Italian public undertakings, discussed with theCommission in the context of the EFIM case (OJ 1993 C 349, p. 2), which led tothe Andreatta-Van Miert Agreement. A general explanation of EniChem'srestructuring and privatisation plan was given in two official documents publishedby the Italian Treasury in November 1992 and April 1993. It became clear in thecourse of the Article 93(2) procedure that the injections were used to financerestructuring measures aimed at restoring profitability along the general linesdescribed by the Italian Government in those documents. Given that thosemeasures were following a coherent direction, which was finally expressed in detailin the restructuring plan submitted to the Commission in 1994, and that formulationof a restructuring plan is not a static exercise, the Commission reached theconclusion that the measures were 'bound to a restructuring programme designedto reduce or redirect EniChem's activities‘, within the meaning of the Hytasajudgment, cited above.

106.

    In the Commission's view, the return to 'viability‘ following a restructuring aidmust be understood in the sense explained in paragraph 3.2.2.(i) of its Guidelines,that is to say, the undertaking must be capable 'of covering all its costs, includingdepreciation and financial charges, and generating a minimum return on capital‘. That was EniChem's position after the first two injections: it could survive on themarket with no need for any further aid.

107.

    Secondly, regarding the private investor test, the Commission makes thepreliminary point that, at paragraph 21 of the ENI-Lanerossi judgment, cited above,the Court of Justice acknowledged that in applying that test, account may be takenof the special situation of a holding company. However, the Commission states inits pleadings (for example, in its rejoinder, paragraph D.8) that it did not need torely on ENI-Lanerossi, because it was entirely satisfied as to the profitability of thethird capital injection.

108.

    The restructuring plan submitted under cover of the Italian Government's letter of18 May 1994 contained exhaustive information on all points, including financialforecasts presented in the form of income statements, balance sheets and cash-flowstatements for the years 1993-98. A second, less pessimistic set of financialforecasts was also projected, based on a higher level of plastic materials prices anda slightly increased level of polyethylene production.

109.

    The Commission maintains that it checked the coherence, reasonableness andfeasibility of the restructuring plan. It concluded that the two financial forecastsput forward in the plan were realistic and prudent. The Commission thenevaluated the figures given in the financial forecasts in order to ascertain whetherthe return on the capital injection of LIT 3 000 billion was sufficient to make suchan investment attractive to a private investor operating in market economyconditions.

110.

    At the time of the third capital injection, ENI was faced with the choice of eitherrecapitalising and restructuring, or taking no action and thereby automaticallyallowing EniChem to go bankrupt. Although there was no immediate risk thenthat, without an injection of LIT 3 000 billion and the consequent restructuring,EniChem would be declared bankrupt, the losses normally recorded by EniChemat that time would have absorbed its equity capital in the space of one or twoyears, giving rise to the need for further capital, failing which the company wouldhave had to be put into liquidation.

111.

    The evaluation of the additional cash flows due to the choice of restructuringtherefore had to start from the comparison between EniChem's financial evolutionunder the liquidation alternative and the financial forecasts under the restructuringalternative. The Commission undertook just such a comparison.

112.

    At the time when ENI decided to invest more capital in its subsidiary, rather thanput it into liquidation, EniChem's equity capital stood at LIT 1 950 billion. Thatfigure was arrived at by deducting from LIT 2 952 billion - the estimated equity atthe end of 1993 - LIT 1 001 billion, the January-July proportion (i.e. 7/12) of thetotal losses forecast for 1994. The resulting figure of LIT 1 950 billion thereforerepresented ENI's existing investment in EniChem. Although it is difficult to arriveat a reliable estimate, it is not unreasonable to assume that the final cost ofliquidating EniChem would have been higher than this amount.

113.

    In evaluating the financial effects of the restructuring option, it therefore seemedprudent to assume that ENI's existing investment in EniChem (LIT 1 950 billion)was already nil, because liquidation would certainly have caused the total loss of theexisting level of equity as well as additional losses arising from the cost ofliquidation.

114.

    The Commission therefore decided that the liquidation option would havecompletely erased ENI's existing investment in its subsidiary, EniChem. Thus theanalysis of the return on the investment of LIT 3 000 billion was made on thetotality of the figures of the financial plan provided by EniChem. In this way, theevaluation took into account all positive and negative flows arising from theimplementation of the restructuring plan, because they were additional to thealternative solution of liquidation.

115.

    For the purposes of the private investor test, the capital injection ofLIT 3 000 billion therefore represented the initial investment. Since the investorwas EniChem's 100% shareholder, the return on the third capital injection wasexpressed by the flow of net profits which EniChem would provide to ENI.

116.

    Taking the less pessimistic financial forecast of EniChem's financial situation, theflow of net profits that EniChem would provide to ENI over a period of 10 yearswas discounted at an annual rate of 12%. On that basis, the present value offuture cash flows just equalled the investment of LIT 3 000 billion, as stated in thedecision. The investment would therefore have been acceptable to a prudentinvestor operating in normal market conditions and accordingly did not constituteState aid.

117.

    Lastly, as regards the question whether the Commission should have opened theprocedure provided for in Article 93(2) of the Treaty, the Commissionacknowledges that if, after a preliminary examination of the third injection, it hadentertained any doubts as to whether State aid was involved, it would have beenunder a duty to open a formal investigation or to ask the Italian Government forfurther information (see Case 84/82 Germany v Commission, cited above, and CaseC-301/87 France v Commission ('Boussac‘) [1990] ECR I-307, and Joined CasesC-324/90 and C-342/90 Germany and Pleuger Worthington v Commission [1994] ECRI-1173). Since the Commission had no such doubts, it was neither obliged norentitled to open that procedure.

118.

    The Italian Republic, ENI and EniChem support the Commission's arguments. Moreover, the Italian Republic emphasises that the re-formation of the EnteNazionale Idrocarburi as a limited company took place in 1992 as part of a large-scale privatisation programme, under which the use of public undertakings as aninstrument of general policy was permanently abandoned. Accordingly, since 11July 1992, ENI had been subject to the provisions of the Italian Civil Codeapplicable to limited companies, and all State powers to issue directives to ENI hadbeen abolished. The company's operations were to be governed by the criteria ofeconomic efficiency and profitability. No capital injection was made by the Stateto the Ente Nazionale Idrocarburi before it was re-formed as a limited companyor, thereafter, to ENI. The management decisions taken by ENI were attributableto the company alone and not to the State, which bears the risks of a shareholderand does not act in the exercise of public authority.

119.

    According to the Italian Government, the third capital injection was part of a wide-ranging restructuring plan approved by ENI's Board of Directors on 27 January1994, providing in particular for a reduction of overcapacity, to complete the policyof rationalising production and reducing fixed costs, for the re-focusing of activitieson the sectors most closely linked to the shareholder's core business, for aconsiderable reduction of indebtedness and financial recovery, and for arrival atbreak-even point in 1997, and then profits permitting a proper return to theshareholders. That plan was partially financed by EniChem's own funds accruingfrom its reduction of non-strategic activities and was capable of restoring EniChemto a high level of competitiveness in a relatively short space of time with positiveeffects both direct (profits) and indirect (synergies) for shareholders.

120.

    ENI and EniChem contend that the Commission could have concluded that noneof the capital injections were granted 'through State resources‘, since ENI used itsown funds without causing a loss of return on, or loss of value of, the Treasury'sinvestment in it. But for those three injections, ENI risked losing its substantialinvestment in EniChem, as well as synergies between EniChem and ENI's activitiesin the energy sector, and the Italian Government's privatisation scheme for ENIwould have been jeopardised. Besides, by that time ENI was no longer a publicentity, nor was it subject to the directives of the Italian Government. Furthermore,the first two capital injections were no more than the implementation of a jointdecision taken by the Ente Nazionale Idrocarburi and Montedison SpA in May1989 to increase Enimont's capital by LIT 2 000 billion to the extent that thecompany's profits did not reach that level during the period from 1989 to 1991.

121.

    So far as concerns the evaluation of the third injection from the point of view ofa market economy investor, ENI and EniChem emphasise that the Commission'spolicy - in accordance with the judgments in ENI-Lanerossi and Alfa Romeo, citedabove, and with Article 222 of the Treaty - is to take account of the wide marginof appreciation enjoyed by investors and the long-term policy considerations ofundertakings controlling a large group (see points 27 to 31 of the Commission'sCommunication to the Member States of 28 July 1993 on the application ofArticles 92 and 93 of the EEC Treaty; see also Article 5 of Commission Directive80/723/EEC to public undertakings in the manufacturing sector, OJ 1993 C 307, p.3, hereinafter 'the Communication on public undertakings‘). In the present case,the Commission was able to establish that, independently of those considerations,an adequate return was to be expected. Considering the normal life of theinvestment to be 10 years, the Commission discounted the expected future resultsat a rate of 12%. However, that rate is considerably higher than both ENI's costof capital (the weighted average interest rate payable on its long-term debt was8.5% in 1994) and the chemical industry's average return on investment (9.3% in1992). If a lower discount rate had been used - which, according to theinterveners, would have been justifiable - the present value of future cash flowswould have exceeded the initial investment.

122.

    ENI and EniChem state that it was reasonable to estimate the value of ENI'sinvestment in EniChem before the third injection at LIT 1 950 billion. However,under the liquidation alternative, ENI would have had to reimburse EniChem'sdebt (LIT 8 676 billion), because of the repercussions that default by EniChemwould have had on the ENI Group as a whole. ENI also took into account - inaccordance with point 36 of the Communication on public undertakings, citedabove - the impact that EniChem's liquidation would have on the ENI Group,including the loss of synergies, damage to the Group's reputation and credit rating,and the derailing of ENI's privatisation. The interveners add that the activitiesactually disposed of by EniChem were sold at more favourable prices than if thesale had taken place under threat of liquidation (see point 20 of theCommunication on public undertakings, cited above). Lastly, ENI and EniChemcontend that the 1994-97 restructuring plan was manifestly successful, and set outEniChem's financial statistics in detail so as to demonstrate that the resultsexpected for 1997 had already been achieved in 1995.

The arguments adduced after the end of the written procedure

123.

    By way of measures of organisation of procedure, the Court of First Instance askedthe Commission, by letter of 21 May 1997, to produce the calculations in its fileconcerning the question whether the third capital injection of LIT 3 000 billionwould have been acceptable for a private market economy investor and, inparticular, those relating to the 'net present value of future cash flows‘ fromEniChem, according to the two sets of forecasts (one less pessimistic than theother) referred to in its defence and rejoinder. The arguments put forward by theparties after the end of the written procedure concern solely the calculationsproduced by the Commission.

- The Commission's observations of 30 June 1997

124.

    Annexed to its observations of 30 June 1997, the Commission produced TablesQI/1, QI/2, QI/3 and QI/4, stating that these were the documents requested by theCourt.

125.

    According to those observations, Table QI/1 - dated 1 July 1994 - is the calculationmade by the Commission of the return on the capital injection of LIT 3 000 billion. 'The net present value of future cash flows‘ from EniChem is given in line 5 ofthat table (entitled 'Cumulated equity value‘) according to which, in the year 2005,EniChem's cumulated equity value was to be LIT 2 966 billion.

126.

    Again according to those observations, Table QI/2 sets out the calculation madeby the Commission of ENI's cost of capital. Table QI/3 contains its calculation ofthe average return on equity of the major chemical companies, used as a basis forcomparison. Table QI/4 contains the forecasts of developments in the business andfinancial situation, which served as a basis for the calculation of the return on thecapital injection. This is a document entitled 'Analisi di Sensitivitá (IpotesiMigliorative di Scenario)‘, prepared on 13 April 1994 and provided by the ItalianGovernment during the administrative procedure.

- The hearing on 23 September 1997

127.

    At the hearing on 23 September 1997 the applicant and the United Kingdom madea number of criticisms of the calculations set out in Table QI/1. In particular, theymaintained that the Commission should have based its calculations on future cashflows in the strict sense, not on the flow of net profits. The initial investment ofLIT 3 000 billion should have been entered in line 4 ('Cumulated discountedflow‘) as a negative value: the net present value of future cash flows would thenhave been, not minus LIT 34 billion, but minus LIT 3 034 billion. Line 5, in whichthe cumulated discounted profits are added to the initial investment ofLIT 3 000 billion, is vitiated by a fundamental error in that, as all the parties agree,the sum of LIT 3 000 billion was in fact paid to EniChem's creditors for thepurpose of reducing its debts and improving its net results; consequently, that sumwould not have been available at the end of the investment's lifetime, in 2005. Furthermore, line 5 is no more than a self-fulfilling prophecy: if the Commission'smethodology is adopted, EniChem's residual value will always equal the initialinjection, whether the amount contributed is LIT 2 000 billion orLIT 10 000 billion.

128.

    The Commission replies, in particular, that line 4 of Table QI/1 shows how greatthe flow of results would have to be for the investor to recover his initial outlay atthe end of the investment's normal lifetime, when a discount rate of 12% is appliedto the flow. Line 5 then shows that the level of results is such that the investorrecovers his initial investment at the end of that period (LIT 2 966 billion), havingmeanwhile enjoyed a 12% return.

129.

    In reply to questions put by the Court of First Instance at the hearing, Mr Spagnolli- the DG IV official in charge of the file - confirmed that he had made asubstantial contribution to the preparation of Table QI/1. He explained that,because EniChem's equity stood at LIT 1 950 billion at the time of the thirdinjection, the results given in Table QI/1 derived from the LIT 4 950 billion ofequity available after that injection was made. However, before deciding whetheror not to contribute LIT 3 000 billion to EniChem, a shareholder would haveneeded to know how much he would obtain by way of a return on that particularinjection. It was therefore necessary to determine what the third injection wouldadd to the situation of the undertaking. The answer is that the third injection madeit possible for EniChem to avoid bankruptcy, which would have wiped out itsexisting equity of LIT 1 950 billion. That is why the calculations set out in TableQI/1 were made without taking the pre-existing equity into account.

130.

    Mr Spagnolli added that if the applicant's approach is adopted - that is to say, ifthe third injection is entered in line 4 of Table QI/1 as minus LIT 3 000 billion inJuly 1994 - that minus figure would have to be counterbalanced by adding theundertaking's residual value as a positive figure in 2005. In fact, line 5 of TableQI/1 shows that, during the period between July 1994 and 2005, EniChem's equityrose and fell according to its results. Nevertheless, initially the equity stood atLIT 3 000 billion and in 2005 it was still LIT 3 000 billion, a discount rate of 12%having been applied to the flow of results.

131.

    ENI and Enichem contend, in particular, that the rigorous nature of theCommission's approach is evident from the fact that, in Table QI/1, it takes intoaccount Enichem's estimated losses for the years 1994 to 1996, after quoting thesame losses as a reason for leaving EniChem's equity in July 1994 out of thecalculation. According to ENI and EniChem, this is a case of double counting, inthat EniChem's losses have been counted twice.

132.

    ENI and EniChem add that, in order to show that there are several methods ofmaking these calculations, they have themselves computed the cash flows to beexpected from the third capital injection. According to their calculations, thepresent value of the future cash flows is LIT 7 195 billion.

- The Commission's letters of 26 September and 16 October 1997

133.

    By letter of 26 September 1997 the Commission informed the Court of FirstInstance that Table QI/1, albeit presented as being part of its file, had not actuallyexisted at the time when the contested decision was adopted. In that letter theCommission states that, although Table QI/1 bears the date of 1 July 1994, it is areconstruction prepared by Mr Spagnolli, the official responsible for the file, ofcalculations which he had made at the material time. The Commission admits thatit cannot be certain that the calculations set out in Table QI/1 are precisely thosecarried out prior to the adoption of the contested decision, but maintains thatcalculations of the same type were used as a basis for the measure at issue. Theoriginal calculations had been carried out on a computer which had meanwhilebeen replaced, owing to the State Aid Directorate changing its computer system,and no paper copy had been found. Those facts can be attested to by Mr Spagnolliand Mr Feltkamp, his head of division at the time, both of whom were present atthe hearing on 23 September 1997.

134.

    By letter of 16 October 1997 the Commission confirmed to the Court of FirstInstance that Tables QI/2 and QI/4 were copies of the original documents in its fileat the time when the contested decision was adopted. According to theCommission, Table QI/3 is not the original version which was in the case file at thematerial time. However, the Commission provided the Court of First Instance witha document which, it maintains, was the original version of Table QI/3, althoughTable QI/3 (provided to the Court on 30 June 1997) had been recreated oncomputer - for better comprehension - after the adoption of the contesteddecision.

135.

    In the same letter, the Commission adds that those facts can be attested byMr Spagnolli. Mr Feltkamp, his head of division, could confirm that tables of thesame type as Tables QI/2, QI/3 and QI/4 were used during the preparation of thecontested decision, although he does not recall the exact content of the tables used. Another official in DG IV, Mr Owen, could attest to being in Mr Spagnolli's officein July 1994 when he had prepared a spreadsheet to ascertain the present value ofthe cash flows relating to the third capital injection. The results indicated thatState aid was not involved, but Mr Owen does not remember the figures in detail.

- The written question from the Court of First Instance of 13 October 1997 and theCommission's observations of 11 November 1997

136.

    By letter of 13 October 1997 the Court of First Instance asked the Commission tostate whether it continued to rely on the calculations set out in Table QI/1 insupport of the assertion in the contested decision that the third injection ofLIT 3 000 billion would have been undertaken by a private market economyinvestor, notably because 'the net present value of future cash flows just equals thisinvestment of LIT 3 000 billion‘. If not, the Commission was asked to specify, onthe basis of the reasoning in the contested decision and in its written pleadings,what calculations or other elements were relied on in support of that conclusion.

137.

    Annexed to its observations of 11 November 1997 the Commission produced twotables (Table A and Table B), explaining that it continued to rely on thecalculations set out in Table QI/1, but as amended in Table A. Mr Spagnolli, MrFeltkamp and Mr Owen could testify to the fact that Mr Spagnolli had created ona computer a spreadsheet of the type of Table QI/1, which had been used toascertain the present value of the results of the third capital injection, and whichshowed that no State aid was involved.

138.

    Table A is an attempt, based on the recollections of those involved, to recreatemore fully the calculations made at the time of the contested decision. Essentially,the new Table A introduces two factors which, according to the Commission,featured in the calculations made at the material time and reconstructed on thebasis of the recollections of the persons involved.

139.

    First, Enichem's equity, which stood at LIT 1 950 billion on 31 July 1994, was usedto offset EniChem's losses during the first three years of the plan. The sum ofLIT 1 950 billion remained in EniChem's accounts and, once the option of makingthe third capital injection had been chosen, had to be taken into account in thecalculation.

140.

    Secondly, EniChem's residual value in 2005 was included in the calculation at adiscounted value of LIT 1 531 billion. That value is based on the fact thatEniChem would continue to operate beyond the forecast period. According to theCommission, while it is certain that, in accordance with the Commission's consistentpractice in matters concerning State aid, a residual value was calculated at the time,Mr Feltkamp and Mr Spagnolli can no longer recall the precise calculation madeat the time of the contested decision. However, there is a simple but well-established method which it would have been usual to employ, which involvesmultiplying the gross operating margin (operating revenues minus operating costs)by a factor which varies according to the specific situation of the undertakingconcerned and the industrial sector. In the chemical sector, the normal range isbetween four and six, and in Table A a factor of three is used.

141.

    The elements added in Table A were not expressly set out in Table QI/1 but couldeasily be inferred from the figures contained in that table and in the restructuringplan (Table QI/4). The double counting of the losses and the disappearance of theequity may be ascribed to the negligence of the official responsible for preparingTable QI/1 and were not discovered until after the hearing. The three witnessesconfirm that this mistake was not made at the time of drafting the contesteddecision. Nor is there any double counting in the defence.

142.

    More generally, the Commission points out that its calculation was based onEniChem's net results (after tax). Table B provides the Court of First Instancewith a calculation made in accordance with the DCF (discounted cash flow) methodsuggested by the applicant, which shows future cash flows to be LIT 2 000 billionin excess of the initial outlay of LIT 3 000 billion.

143.

    However, the finding that the injection of LIT 3 000 billion would have been madeby a private market economy investor was not based solely on the Commission'scalculation of the expected return but also, as stated in its written pleadings, on thevalue and importance to ENI of EniChem continuing to operate in the context ofthe ENI holding, and on the other factors indicated in section 4 of the contesteddecision.

- The parties' written observations following the Commission's letter of 11November 1997

144.

    In its written observations of 19 January 1998, the applicant points out that theCommission has not explained why Table QI/1 was dated, incorrectly, 1 July 1994. However, since Table QI/1, albeit erroneous, is more consistent than Table A withthe reasoning in section 4 of the contested decision, it is likely that Table QI/1represents the work done at the time, and that Table A was drawn up ex post factoin an attempt to make good the mistakes made at that time. Furthermore, TableQI/3 differs in several respects from the document submitted by the Commissionwith its observations of 16 October 1997.

145.

    Accordingly, the applicant asked the Court of First Instance to adopt measures ofinquiry to establish how and when Tables QI/1, QI/3 and A were created, and toexamine Mr Feltkamp, Mr Spagnolli and Mr Owen as witnesses.

146.

    As regards the substance, the applicant submits that the Commission no longerrelies on Table QI/1. Table A reflects a fundamentally different approach which,moreover, cannot be discerned either in the contested decision or in theCommission's written pleadings. Given the Commission's inability to producecalculations from its file to sustain the finding in the contested decision that thepresent value of future cash flows just equalled LIT 3 000 billion, that measuremust be annulled.

147.

    The Commission has implicitly accepted the force of the criticisms made by theapplicant at the hearing on 23 September 1997 to the effect, first, that EniChem'sfuture cash flows (as given in Table QI/1, line 4) would not be minus LIT 34 billionbut minus LIT 3 034 billion and, second, that Enichem's cumulated equity value (asgiven in Table QI/1, line 5) had no bearing on the calculation of the present valueof EniChem's future cash flows. In Table A, line 4 shows the correct figure -minus LIT 3 034 billion - and even though the old line 5 is still included, it playsabsolutely no part in the calculation of the return to the investor.

148.

    In those circumstances, in order to find, by other means, over LIT 3 034 billion inpresent value terms, the Commission has introduced two new elements in Table A. First, it has used 'the existing level of equity‘ in its calculations and, secondly, ithas assigned a residual value to EniChem at the end of the lifetime of theinvestment. However, that approach is inconsistent with both the contesteddecision and the Commission's written pleadings.

149.

    In any event, Table A's use of EniChem's existing equity to offset its losses until1996 is a financial nonsense which confuses investment appraisal and corporateaccounting, two entirely separate disciplines. No independent expert would beprepared to certify that this method is a generally accepted component of a presentvalue calculation. As for the method used in Table A to calculate EniChem'sresidual value, it is neither normal nor well-established.

150.

    The applicant also submits that the details of the calculation of net results in TableA are vitiated by a number of errors. It also criticises Table B, while pointing outthat the Commission has conceded that no analysis along those lines was carriedout at the time of the contested decision.

151.

    In its observations of 19 January 1998 the United Kingdom primarily submits thatthe contested decision should be annulled on the ground that it is wholly uncertainwhat calculations the Commission actually made to justify its conclusion that theinvestment would have been made by a market investor.

152.

    In their observations of 19 January 1998, ENI and EniChem contend that thelegality of an act of an institution must be assessed on the basis of the factual andlegal situation existing at the time of its adoption, and the information thenavailable (Case T-115/94 Opel Austria v Council [1997] ECR II-39, paragraph 87). Consequently, a measure cannot be annulled on the ground that a Communityinstitution has fallen short of its duty to keep a full copy of the file on record afterthe measure was adopted or is unable to submit original supporting documents tothe Court upon request. In any event, the Commission has remedied the situationin its observations of 11 November 1997 by offering a clear, first-hand andconvincing reconstruction of the analysis made and the reasoning followed at thetime of the contested decision. Consequently, its inability to submit to the Courtcertain original documents relied upon in preparing the contested decision cannothave any effect on the legality of that measure.

153.

    In particular, the new Table A avoids the risk of double counting identified by ENIat the hearing on 23 September 1997. Because the losses over the first three yearsare offset by the existing equity of LIT 1 950 billion, they are no longer deductedagain from the injection of LIT 3 000 billion. Moreover, Table A completes TableQI/1 by adding an extremely conservative residual value. Given the complexity ofthe issues raised, the Commission must enjoy a broad discretion as to the choiceof method and assumptions made in the calculation.

154.

    Even if it were assumed that the method used in Table A was inappropriate, thatwould not vitiate the contested decision because the second method, used in TableB, shows that the capital injection cannot be equated with State aid. Othermethods confirm that the Commission adopted the contested decision on soundgrounds, since they also establish that the injection did not amount to aid. ENI andEniChem submit calculations to the Court of First Instance, in which the samediscounted cash flow method has been used as in Table B, but which are based onslightly different assumptions. These calculations show that the third capitalinjection would produce a significant return.

- The hearing on 17 March 1998

155.

    At the hearing on 17 March 1998 the Commission informed the Court of FirstInstance that there was a possibility that the document submitted in annex to itsletter of 16 October 1997 was not, as then indicated, the original version of TableQI/3 which existed at the time when the contested decision was adopted. Nevertheless, that did not affect the fact that 12% was a reasonable rate for theCommission to apply in its calculations.

156.

    As to the merits, the Commission emphasised in particular that the reference tofuture cash flows made in section 4 of the contested decision must be read in thelight of paragraph 35 of the Communication on public undertakings, cited above,where it is stated that cash flows may comprise 'expected future cash flows fromthe intended project (accruing to the investor by way of dividend payments and/orcapital gains ...)‘. Given that, under the liquidation alternative, EniChem's existingassets would have been lost on account of the liquidation costs, theLIT 1 950 billion at issue represented 'capital gains‘ within the meaning of thatCommunication. The private market economy investor principle also requires theLIT 1 950 billion value to be taken into account, since the capital injection enablesthat value to be conserved for the future, whereas under the liquidation option, itwould be lost. Even though that particular component of the calculation was notexpressly reproduced in the contested decision, it is settled law that there is noneed to set out all the details of the reasoning adopted.

157.

    Also, even though no express reference was made in the contested decision to theresidual value, it is normally calculated in such an analysis, as the various workscited by the parties make clear. Given that there are at least four methods ofcalculating residual value, the fact that the Commission has opted for one method,whereas the applicant favours another, does not mean that the Commission hascommitted a manifest error of assessment.

158.

    The Commission added that section 4 of the contested decision states that, as from1998, the annual profits predicted in the restructuring plan should level out at anamount somewhat higher than the minimum return acceptable to a private investor. Following ENI-Lanerossi, cited above, the contested decision is justified on the basisof that statement alone. Other factors to be taken into account are ENI's long-term strategy, its future privatisation and group synergies. Furthermore,developments subsequent to the contested decision may be taken into account, atleast in order to show that the Commission did not commit a manifest error ofassessment (Case 234/84 Belgium v Commission ('Meura‘) [1986] ECR 2263,paragraph 12, and Joined Cases C-329/93, C-62/95 and C-63/95 Germany andOthers v Commission ('Bremer Vulkan‘) [1996] ECR I-5151, paragraph 34).

159.

    Lastly, the Commission asks the Court to base its deliberations on Table A, not onTable QI/1. It states that the calculation made at the time of the contesteddecision is that given in Table A - where both the existing equity and the residualvalue are taken into account - not the calculation given in line 5 of Table QI/1.

II - Findings of the Court

160.

    In section 4 of the contested decision, the Commission stated that the third capitalinjection of LIT 3 000 billion did not constitute State aid within the meaning ofArticle 92(1) of the Treaty on the ground that it would have been undertaken bya private investor operating in a market economy.

161.

    The principle that a capital contribution cannot be regarded as State aid for thepurposes of Article 92(1) of the Treaty if, in similar circumstances, it would havebeen undertaken by a private investor in a market economy constitutes, accordingto the case-law, an appropriate test which ensures, inter alia, that a capitalcontribution is not regarded as aid solely because it was made by the publicauthorities (Meura, cited above, paragraphs 9 to 18; Boussac, cited above,paragraphs 38 and 39; Case C-142/87 Belgium v Commission ('Tubemeuse‘) [1990]ECR I-959, paragraphs 23 to 29; Alfa Romeo, cited above, paragraphs 17 to 24;ENI-Lanerossi, cited above, paragraphs 16 to 24; Hytasa, cited above, paragraphs20 to 26; and Bremer Vulkan, cited above, paragraphs 23 to 26).

162.

    It follows from the Commission's conclusion concerning the third capital injectionthat the State aid control regime provided for in Articles 92 to 94 of the Treatydoes not apply to that injection. Consequently, its compatibility with the commonmarket was not appraised in accordance with Article 92(2) and (3) of the Treaty. In fact, such an appraisal was carried out solely in the case of the first two capitalinjections, which account for only LIT 1 794 billion of the total sum ofLIT 4 794 billion invested.

163.

    In the circumstances of the present case, the Court considers it appropriate first toconsider the applicant's third plea in law, which alleges that Article 93(2) of theTreaty was infringed in that the procedure provided for therein was not openedwith regard to the third capital injection.

The plea in law alleging infringement of Article 93(2) of the Treaty in that theprocedure provided for therein was not opened with regard to the third capital injection

164.

    According to established case-law, the procedure under Article 93(2) is essentialwhenever the Commission has serious difficulties in determining whether an aid iscompatible with the common market. It follows that the Commission, when takinga decision in favour of an aid, may restrict itself to the preliminary examinationunder Article 93(3) only if it is able to satisfy itself after an initial examination thatthe aid is compatible with the Treaty. If, on the other hand, the initial review leadsthe Commission to the opposite conclusion or if it does not enable the Commissionto overcome all the difficulties involved in determining whether the aid iscompatible with the common market, the Commission is under a duty to carry outall the requisite consultations and for that purpose to initiate the procedure underArticle 93(2) (see, in particular, Case 84/82 Germany v Commission, cited above,paragraph 13; Cook, cited above, paragraph 29; Matra, cited above, paragraph 33;and Sytraval and Brink's France, cited above, paragraph 39).

165.

    The principle that the persons intended to benefit from the procedural guaranteesafforded by Article 93(2) of the Treaty may secure compliance therewith only ifthey are able to challenge, in proceedings before the Community judicature, adecision not to open the procedure also applies where the Commission takes theview that the very existence of aid must be discounted (Sytraval and Brink's France,cited above, paragraph 47).

166.

    In the view of the Court, it follows from that case-law and particularly from Sytravaland Brink's France, cited above, that the Commission may be required to open theprocedure provided for in Article 93(2) of the Treaty if an initial examination doesnot enable it to overcome all the difficulties raised by the question whether themeasure at issue constitutes aid for the purposes of Article 92(1) of the Treaty,unless, in the course of that initial examination, the Commission is able to satisfyitself that the measure at issue would in any event be compatible with the commonmarket, even if it were aid.

167.

    The situation before the Court in the present case concerns a series of three capitalinjections - worth, respectively, LIT 1 000 billion, LIT 794 billion andLIT 3 000 billion - made over a period of two years by the same publicundertaking (ENI) to one of its subsidiaries (EniChem). According to thecontested decision, the first two capital injections constitute State aid, whereas thethird is classed as an investment which would have been made by a private investor.

168.

    It is common ground that the Commission's conclusion that a private investorwould have undertaken the third capital injection is based essentially on the findingmade in section 4 of the contested decision that:

'Taken from the payment of the last injection of LIT 3 000 billion over a periodlong enough to take the normal lifetime of this investment into account, the netpresent value of future cash flows just equals this investment of LIT 3 000 billion‘.

169.

    It must be ascertained whether, in the present case, the assessments made by theCommission involved serious difficulties justifying the opening of the procedureprovided for in Article 93(2) of the Treaty (Matra, cited above, paragraph 34). Theapplicant submits that the Commission encountered two such serious difficulties:(i) whether the return expected on the third capital injection should be analysed inisolation from the return on the first two, and (ii) whether the present value offuture cash flows was such that a private investor would have made that injection.

170.

    As regards the first point, the mere fact that a public undertaking has already madecapital injections into a subsidiary which are classed as 'aid‘ does not automaticallymean that a further capital injection cannot be classed as an investment whichsatisfies the private market economy investor test. Nevertheless, it is the Court'sview that in a case such as this, which concerns three capital injections made by thesame investor over a period of two years, the first two of which brought no return,the Commission must determine whether the third injection could reasonably besevered from the first two and classed, for the purposes of the private investor test,as an independent investment.

171.

    The Court considers the following considerations to be relevant in making such adetermination: the chronology of the capital injections in question, their purpose,and the subsidiary's situation at the time when each decision to make an injectionwas made.

172.

    As regards the chronology of the three injections, the documents before the Courtdisclose that:

(a)    the first injection of LIT 1 000 billion was made on 1 October 1992;

(b)    the second injection of LIT 794 billion was approved by ENI at a meetingon 2 December 1993 (see ENI's letter to the Italian Government of 23December 1993 in Annex 21 to the statement in intervention lodged by ENIand EniChem) and made in December 1993;

(c)    at the same meeting on 2 December 1993, ENI's Board of Directors studieda draft plan for the restructuring of EniChem, the main points of which hadalready been settled on 20 October 1993. That plan provided inter alia for'the rebalancing of the financial structure‘ through 'interventions by theshareholder‘ (see ENI's letter to the Italian Government of 23 December1993 in Annex 21 to the statement in intervention lodged by ENI andEniChem). It was noted that 'the details of the Plan are currently beingfinalised and will be available for presentation to the Commission at thebeginning of 1994‘;

(d)    the 1994-1997 restructuring plan was approved by ENI's Board of Directorson 27 January 1994. Paragraph 2.2 of that plan contains the followingstatement:

    'the shareholders' intervention in capital account can be quantified asLIT 3 000 billion, which is an amount adequate to restore almost completelythe capital of EniChem to the amount set when the company was created(LIT 4 250 billion) but which has been reduced due to losses not covered. The implementation of the capital increase should take place in June 1994‘;

(e)    according to the Italian Government, the Commission was informed of itsintention to make the third injection in February 1994 under the terms ofthe Andreatta-Van Miert Agreement on the restructuring of certain Italianundertakings;

(f)    the restructuring plan was submitted to DG IV of the Commission at ameeting on 15 April 1994 and formally notified by letter from the ItalianGovernment of 18 May 1994;

(g)    by letter of 6 June 1994 the Italian Government confirmed to theCommission that EniChem's restructuring plan referred not only to theinjections covered by the investigation opened by letter of the Commissionof 16 March 1994 but also to the third capital injection. The ItalianGovernment also stated that its observations of 18 May 1994 referred to allthe transactions concerning EniChem's capital, including the third injection;

(h)    according to ENI the third injection was formally approved at a generalmeeting of EniChem's shareholders on 29 June 1994 and paid during thethree months following the contested decision of 27 July 1994.

173.

    As regards the purpose of the three capital injections in question, the contesteddecision states that the first two injections were intended to compensate lossesincurred as a result of the restructuring measures described in the decision, inparticular the closure of plants and entire sites. According to ENI and EniChem,they were also designed to bring EniChem's capital up to the level initially plannedin the agreement between the Ente Nazionale Idrocarburi and Montedison SpA in1989 (paragraph 120 above). As for the third injection, it is clear from therestructuring plan that it was also designed to increase EniChem's capital, erodedby losses, to the level existing at the time of its creation and to finance restructuringmeasures (paragraph 172(d) above).

174.

    According to the written pleadings of the Commission and the Italian Government,each of the three capital injections was made as part of a wide-ranging programmefor the restructuring of Italian public undertakings, discussed with the Commissionduring the EFIM case, cited above, which culminated in the Andreatta-Van MiertAgreement. The Italian Government's general approach to EniChem'srestructuring and privatisation was set out in two documents published by theItalian authorities in November 1992 and April 1993. In that context, theCommission explained to the Court that the restructuring measures financed by thefirst two capital injections followed a coherent direction, finally expressed in detailin the restructuring plan submitted to the Commission in 1994 which set out therestructuring measures still necessary to reduce or redirect EniChem's activities. The third injection was foreseen precisely as part of that restructuring plan.

175.

    The Commission's appraisal is endorsed by the Italian Government's letter of 6June 1994, according to which EniChem's restructuring plan and the ItalianGovernment's observations of 18 May 1994 referred not only to the first two capitalinjections but also to the third.

176.

    Lastly, as regards EniChem's situation at the time of the three capital injections,it is clear from its annual reports that its total losses amounted to LIT 1 542 billionfor the year ending 31 December 1992 and to LIT 2 677 billion for the year ending31 December 1993. Also, according to ENI's most optimistic forecasts, thecumulated losses predicted for the four years between 1994 and 1997 amounted toLIT 2 452 billion, even after the third injection of LIT 3 000 billion and theaccompanying restructuring measures (see the 'Analisi di Sensitivitá (IpotesiMigliorative di Scenario)‘, prepared on 13 April 1994). It follows that EniChem'sactual losses, and those predicted at the time, for the six years between 1992 and1997 amounted to LIT 6 671 billion, even after the three injections totallingLIT 4 794 billion.

177.

    According to the Commission's written pleadings, the only other option open toEniChem after the first two injections was bankruptcy. The Commission states that'at the time of the injection of LIT 3 000 billion, EniChem's shareholder, ENI, hadjust two choices: either to recapitalise and restructure or to leave the situationunchanged and thereby automatically let EniChem go bankrupt‘ (Defence,paragraph A.I.14) and that '... without the third injection and the consequentrestructuring, the level of losses normally produced by the company at that timewould have erased its equity capital within one or two years, and would thereforehave required new injections to be made or, in the alternative, the company to gointo liquidation‘ (Rejoinder, paragraph D.15).

178.

     It follows that:

-    ENI's Board of Directors decided to make each of the three capitalinjections during a relatively short period between October 1992 and July1994. In particular, it should be noted that its decision in December 1993to make the second injection and its decision on 27 January 1994 toauthorise the third injection in the course of approving the restructuringplan were closely related in time;

-    each of the three capital injections was part of an ongoing programme forEniChem's restructuring and primarily for the closure or redirection ofcertain of its activities and for restoring its capital base after erosion bylosses. As the Commission contended before the Court, the third injectionwas no more than the next logical step after the measures already financedby the first two injections and the restructuring plan approved on 27January 1994 merely finalised the outstanding requirements in relation toa restructuring programme begun in 1992. Similarly, according to the letterof 6 June 1994 from the Italian Government, ENI's shareholder, therestructuring plan and its observations of 18 May 1994 concerned not onlythe first two injections but also the third;

-    after the first two capital injections, EniChem was still making significantlosses. According to the Commission, it was not even capable of survivingon the market on the basis of the first two injections alone and, without thethird injection, its liquidation was inevitable (paragraph 177 above).

179.

    The Court concludes from this that at the time there were serious grounds forbelieving that the three injections in question, albeit made on different dates in thecourse of a relatively short space of time (between October 1992 and October1994), had to be considered as, in reality, a series of related capital contributions,granted as part of a continuing restructuring process begun in 1992, the commonpurpose of which was to finance the restructuring measures necessary and torestore EniChem's capital base which had been eroded by losses. Similarly, thecircumstances referred to above should have raised doubts as to whether it wasonly by means of that series of injections, viewed as a whole, that the restructuringplan had a chance of restoring EniChem's viability.

180.

    In the particular circumstances of this case, the Court holds that the Commissionshould have had doubts as to the question whether the third injection wassufficiently distinct from the first two injections that it could be analysed in isolationfrom them. Accordingly, the Commission was not in a position to assess whetherENI's decision to make the third injection could be regarded as a decision whichwould have been taken by a private investor operating in a market economy.

181.

    Next, as regards the question whether, even supposing that the third injection couldbe separately assessed, the present value of future cash flows was such that aprivate investor would have made that injection, the Court points out first of allthat the Commission annexed to its observations of 30 June 1997 a calculation ofthe present value of EniChem's future cash flows. That calculation is presented inTable QI/1, dated 1 July 1994. EniChem's cumulated profits (or losses) for theperiod between August 1994 and 2005, discounted at a rate of 12%, are shown inline 4 of Table QI/1 as minus LIT 34 billion. According to the Commission'sobservations, the net present value of EniChem's cash flows is shown in line 5 ofTable QI/1 ('Cumulated equity value‘) as LIT 2 966 billion. This interpretationof Table QI/1 was confirmed at the hearing on 23 September 1997 by Mr Spagnolli,the official responsible for its preparation.

182.

    In the Commission's letter of 26 September 1997 informing the Court that, despitethe fact that Table QI/1 was dated 1 July 1994, it had not been prepared before thecontested decision, but was Mr Spagnolli's reconstruction of the calculations whichhe had made at the time, the Commission stated that Table QI/1 reproduced thetype of calculations which had in fact served as a basis for the contested decision. In its letter to the Court of 16 October 1997, the Commission stated inter alia thatit 'maintain[ed] in full its submission that the methods as described to the Courtin order to calculate the return on investment and the net present value of futurecash flow were applied in order to arrive at the Commission decision, and that[those] methods produced the results stated in the decision and explained to theCourt, including the results contained in Table QI/1 the original of which [could]no longer be found on the file. Both Mr Spagnolli and Mr Feltkamp, who werepresent at the oral hearing on 23 September 1997, [could] testify to [those] facts‘.

183.

    Subsequently, in response to a fresh question from the Court of 13 October 1997,the Commission produced, in a letter of 11 November 1997, new calculations of thenet present value of EniChem's future cash flows. Those calculations were inparticular set out in Table A, which differs from Table QI/1 in four relevantrespects.

184.

    First, EniChem's cumulated discounted profits (or losses) for the period between1994 and 2005 are given in line 4 of Table A as minus LIT 3 034 billion, insteadof minus LIT 34 billion as stated in line 4 of Table QI/1.

185.

    Secondly, in Table A that loss of LIT 3 034 billion is partially offset by calculatinga residual value of LIT 1 531 billion attributable to EniChem in 2005 (see the newcolumn 'residual value‘). That calculation does not appear in Table QI/1.

186.

    Thirdly, EniChem's cumulated loss of minus LIT 3 034 billion during the perioduntil 2005 is also partially offset by taking into account the value of EniChem'sequity as at July 1994. The new line 6 in Table A ('Existing equity at 31/7/94‘)shows that that equity (LIT 1 950 billion) was taken into account in order to cancelout EniChem's losses for the years 1994 to 1996, set out in line 3 of Table QI/1 andTable A, which amount to LIT 1 514 billion. That calculation does not appear inTable QI/1, which did not assign any value to that equity (see note 5 to TableQI/1).

187.

    Fourthly, the calculation of the cumulated equity in line 5 of Table QI/1 which,according to the Commission's observations of 30 June 1997, represents the netpresent value of EniChem's future cash flows, to which section 4 of the contesteddecision refers, plays no role in the calculations set out in Table A.

188.

    Also, it is clear from the Commission's letter of 11 November 1997 and from itsstatements at the hearing on 17 March 1998 that it viewed the calculations set outin Table QI/1 as incorrect and that it therefore abandoned them. However,according to the explanations given in its observations of 30 June 1997, at thehearing on 23 September 1997 and in its letters of 26 September and 16 October1997, it was those calculations that it had made at the time in order to support theconclusion reached in the contested decision regarding the attitude of a privateinvestor.

189.

    As for the Commission's statement in its observations of 11 November 1997 thatthe contested decision was not based on the calculations set out in Table QI/1, buton those set out in Table A, the Court cannot discern in the Commission's writtenpleadings any trace of the approach adopted in Table A. The Court notes, inparticular, that, according to Table A, the profitability of the investment dependsinter alia on taking into account - in order to offset EniChem's losses during theperiod from 1994 to 1996 - the sum of LIT 1 950 billion which, according to TableA, represents the value, at the time, of EniChem's equity. However, contrary tothe approach adopted in Table A, the Commission stated in paragraphs 17 to 19of its defence that it seemed prudent to assume for the purposes of its calculations'that ENI's existing investment in Enichem at July 1994 was already nil‘. TableQI/1 is also based on that assumption, as note 5 thereto demonstrates. Furthermore, the approach in Table A was not relied on either in theCommission's observations of 30 June 1997 or, at the hearing on 23 September1997, by the official who had been responsible at the material time for thecalculations in question.

190.

    It should also be noted that, according to the Commission, Table A is based solelyon the 'recollections‘ of the officials concerned, Mr Spagnolli, Mr Feltkamp andMr Owen. However, Table A is not consistent with Mr Spagnolli's explanations tothe Court at the hearing on 23 September 1997. Moreover, the Commission hadstated, in its letter of 16 October 1997, that neither Mr Feltkamp nor Mr Owencould recall the precise content of the tables used at the time of preparing thecontested decision. Furthermore, at paragraph 8 of its observations of 11November 1997, the Commission confirmed that nobody could remember the exactcalculation of EniChem's residual value.

191.

    It follows that the Commission has not succeeded in establishing that thecalculations reproduced in Table A were in fact made prior to the adoption of thecontested decision, in order to support the finding that the net present value offuture cash flows was such that the third capital injection would have been madeby a private investor operating in a market economy. Furthermore, it is commonground that the Commission no longer relies on the figures given in Table QI/1,and that neither the calculations reproduced in Table B, nor those relied on by ENIand EniChem in the course of the proceedings, were used at the time of theadoption of the contested decision.

192.

    The Court is therefore unable to ascertain what calculations the Commission madeat the material time in order to support its finding that a private investor wouldhave made the third capital injection.

193.

    In these circumstances, the Court holds that the Commission's production, in thecourse of the present proceedings, of contradictory calculations, and its inability toproduce the calculations which it made at the material time with a view toconcluding during the preliminary examination of the third capital injection that'the net present value of future cash flows just equals the investment ofLIT 3 000 billion‘ and that, accordingly, the injection was one 'which would havebeen undertaken by a private investor in a market economy‘ shows that, in thepresent case, there were serious difficulties as to whether, like the first two capitalinjections, that injection constituted State aid within the meaning of Article 92(1)of the Treaty.

194.

    That conclusion is not invalidated by the argument put forward by ENI andEniChem that, in accordance with the case-law (ENI-Lanerossi, cited above,paragraph 21), the finding in the contested decision that the last injection ofLIT 3 000 billion would have been undertaken by a private investor operating ina market economy may be justified, independently of its financial profitability, byspecial considerations peculiar to parent companies of a group investing in one oftheir subsidiaries. On that point suffice it to note that, as the Commission hasconceded (see paragraph 107 above), it did not use those considerations as a basisfor concluding in its decision that the third injection did not involve aid, bearing inmind that it had no doubts as to the profitability of that injection.

195.

    The same holds true of the Commission's argument at the hearing on 17 March1998 that a private investor would have made the third injection solely on the basisof the second sentence of the third paragraph of section 4 according to which'from 1998 profits would reach at their full level, somewhat higher than theminimum return acceptable to a private shareholder‘. It should again be notedthat that statement plays only a secondary role in the contested decision bycomparison with the calculation to which the third sentence of the third paragraphof section 4 refers. Furthermore, that argument disregards EniChem's losses forthe years 1994 to 1997, which exceed LIT 2 400 billion (see paragraph 176 above).

196.

    As regards the argument put forward by the Italian Republic, ENI and EniChemthat, in any case, the three injections were not made by the State or through Stateresources within the meaning of Article 92(1) of the Treaty, suffice it to note thatthe Commission did not use that argument in the contested decision. It cannottherefore be relied on in the context of a review of legality undertaken by theCourt.

197.

    It follows from all the above observations that the Commission was not in aposition at the end of an initial examination pursuant to Article 93(3) of the Treatyto overcome all the difficulties raised by the question whether the third injectionconstituted aid within the meaning of Article 92(1) of the Treaty.

198.

    The Court emphasises also that the procedure provided for in Article 93(2) of theTreaty was already under way in respect of the first two capital injections whichhad been classed as State aid. The serious doubts which the Commission shouldhave had regarding the third injection bear specifically on the question whether thatinjection should have been assessed together with the first two for the purposes ofascertaining whether it constituted State aid or an investment which satisfies theprivate market economy investor test. Furthermore, the third injection(LIT 3 000 billion) involved a considerably higher amount that the first two takentogether (LIT 1 794 billion), which were already under investigation.

199.

    It is common ground that, in the present case, the Commission never examinedwhether the third capital injection was compatible with the common market.

200.

    In view of those particular circumstances, it follows that the Commission, in closingits initial examination of the third capital injection pursuant to Article 93(3) of theTreaty, despite its inability to surmount the difficulties regarding the questionwhether that injection constituted State aid, and without examining whether theinjection was compatible with the common market, infringed the rights of theapplicant as a party concerned within the meaning of Article 93(2) of the Treaty.

201.

    The contested Decsion must therefore be annulled on that ground, there being noneed to reach a decision on the other pleas in law and arguments adduced by theapplicant.

Costs

202.

    Under Article 87(2) of the Rules of Procedure the unsuccessful party shall beordered to pay the costs if they have been applied for in the successful party'spleadings. Under Article 87(3) of those Rules, where each party succeeds on someand fails on other heads, the Court may order that the costs be shared. In thepresent case, the Commission has been unsuccessful so far as concerns the thirdcapital injection, whereas the applicant has been unsuccessful so far as concerns thefirst two injections. In those circumstances, it is appropriate to order theCommission to bear, in addition to its own costs, two-thirds of the applicant's costs.

203.

    Pursuant to Article 87(4) of the Rules of Procedure, the United Kingdom, theItalian Republic, ENI and EniChem must bear their own costs.

On those grounds,

THE COURT OF FIRST INSTANCE (Second Chamber, ExtendedComposition)

hereby:

1.    Annuls the Commission's decision of 27 July 1994 regarding aid which Italyhas decided to grant to EniChem SpA in so far as it closes the examinationunder Article 93(3) of the Treaty of the capital injection ofLIT 3 000 billion to which it refers;

2.    Dismisses the remainder of the application as inadmissible;

3.    Orders the Commission to bear its own costs and to pay two-thirds of theapplicant's costs, and orders the applicant to bear one-third of its owncosts;

4.    Orders the United Kingdom, the Italian Republic, ENI SpA and EniChemSpA to bear their own costs.

Kalogeropoulos Briët García-Valdecasas Bellamy Potocki

Delivered in open court in Luxembourg on 15 September 1998.

H. Jung

A. Kalogeropoulos

Registrar

President

1: Language of the case: English.

ECR