Bankrupt Portuguese Shipyard Operator to Pay Back USD 324 Million of EU Aid

The European Commission has found that around EUR 290 million (USD 324 million) of public support granted by Portugal to Estaleiros Navais de Viana do Castelo, S.A. (ENVC), the former operator of shipyards located in Viana do Castelo in Portugal, was not compatible with EU state aid rules, and is to be paid back by the ENVC.

The Commission decision has taken into account that ENVC is currently in the process of being wound up and that part of its assets (including a sub-concession of the land on which ENVC operated) has been acquired by the private operator WestSea, owned by Martifer and Navalria. Since WestSea only acquired part of the assets and has acquired them at market conditions following an open and competitive tender, the Commission has concluded that WestSea is not the economic successor of ENVC. The obligation to repay the incompatible aid therefore remains with ENVC and is not passed on to WestSea.

ENVC made heavy losses since 2000. Since then, Portugal has directly and indirectly granted continuous subsidies to ENVC via numerous measures, including a capital increase in 2006, several loans granted between 2006 and 2011 to cover operating costs, comfort letters and guarantees to underwrite financing agreements between ENVC and commercial banks.

The Commission found that no private investor would have accepted to subsidise a loss-making company over 13 years. The measures were therefore not granted on market terms and constitute state aid within the meaning of the EU rules. They gave ENVC a significant economic advantage over its competitors, who had to operate without such subsidies, the Commission said.

The Commission further concluded that the measures are not compatible with common rules, in particular the applicable 2004 Guidelines on rescue and restructuring aid, on the basis of which aid to companies in difficulty may be allowed subject to certain conditions:

• ENVC, at the time, had no realistic restructuring program to ensure the company’s long-term viability without further state support;
• ENVC received repeated aid, at least over the last ten years, in breach of the “one time last time” principle, which allows the grant of rescue or restructuring aid only once in a ten-year period.

Thus, the measures have distorted competition in the Single Market, in breach of EU state aid rules, and ENVC is liable to pay back the value of the advantage it has received, the Commission said.

ENVC was founded in 1944 and nationalised by Portugal in 1975. It used to operate the largest Portuguese shipyard. It is fully owned by the State through EMPORDEF, a 100% State-owned holding. ENVC has been heavily loss-making since at least 2000, and has had negative equity since at least 2009. In December 2013, the Portuguese state decided to liquidate ENVC and to start selling its assets.

Image: WestSea