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Freshfields Risk & Compliance

| 4 minutes read

The European Commission is consulting Member States on a Temporary Crisis Framework for State aid measures in response to the conflict in Ukraine

You can read an updated version of this blog here, which reflects updates made to the TCF after this blog was published.

On 10 March 2022, in response to the conflict in Ukraine, the European Commission (the Commission) sent a draft Temporary Crisis Framework (TCF) for State aid measures to support the EU economy to Member States for consultation (see press release). A final version of the TCF, which may yet include a number of changes, is expected to be published and become applicable before the end of this month.

What is covered by the TCF and how will it apply?

The draft TCF is a soft-law document and sets out how the Commission proposes to assess measures taken by Member States to remedy the economic effects resulting from the Ukraine crisis and the economic sanctions adopted in this context. Sanctioned and Russian-controlled entities would be excluded from the benefit (directly or indirectly) of any measures adopted under the TCF.

Generally, non-selective support measures available to businesses in a Member State (eg general reductions in taxes or levies) and measures benefitting consumers rather than undertakings (eg social payments made to non-commercial energy consumers) are not covered by the TCF as they do not constitute State aid.

What measures taken by Member States will be seen as compatible with EU State aid rules?

The draft TCF covers various types of measures taken by Member States, all of which will need to be notified by Member States to the Commission for approval. It sets out the conditions under which the Commission will assess and approve measures that fall under Article 107(3)(b) TFEU (aid ‘to remedy a serious disturbance in the economy of a Member State') in this context. In particular, it would allow Member States to grant the following, under certain conditions.

  • Temporary liquidity support to businesses affected by the consequences of the conflict in Ukraine. This support could take the form of guarantees or subsidised loans, which are dealt with separately in the TCF.
  • Aid for additional costs due to the exceptionally severe increase in gas and electricity prices. This support could be granted in any form, including limited grants, to partially compensate businesses, in particular intensive energy users, for energy price increases.

The specific TCF measures could be used cumulatively to support individual sectors or companies affected by the consequences of the crisis. They can also be combined with measures under the COVID-Temporary Framework (as long as they do not lead to over-compensation of individual beneficiaries).

The specific measures under the TCF would complement the existing possibility to grant ‘disaster aid’ (Article 107(2)(b) TFEU) to compensate for the damage directly caused by the conflict – including certain direct effects of the economic sanctions or other restrictive measures negatively affecting the beneficiary in its economic activity (or a specific part of its economic activity). In addition, rescue and restructuring aid measures (article 107(3)(c) TFEU) remain possible as usual.

Which businesses are likely to benefit from aid under the TCF?

The Commission considers that the combined effects of the conflict and the resulting economic sanctions have caused a serious disturbance in all economic sectors and all Members States, with an emphasis on the following.

  • The energy sector and energy-intensive industries: the energy sector is grappling with the sharp and sudden increase in energy prices. The same applies to energy-intensive industries where production is being curbed already (with the steel and chemical industries likely being particularly affected). For instance, VNG, a gas trader and supplier, has reportedly applied for State aid already and Leag, an operator of coal-fired power plants, has reportedly secured a credit facility from the German state-owned KfW bank. France is also reportedly considering the privatisation of EDF against the backdrop of the current crisis.
  • Supply chains and trade flow disruptions: these have already led to exceptionally large and unexpected price increases for numerous raw materials and primary goods. Disruptions have been most prominent in relation to EU imports from the Ukraine for certain products, especially cereals and vegetable oils, as well as for EU exports to Ukraine.

What are the repercussions on banks and the financial sector?

The draft TCF acknowledges the impact of the current crisis on financial markets, in particular as regards liquidity concerns.

In that context, the draft TCF sets out that if ‘disaster aid’ is granted to banks, then such aid does not have the objective of preserving or restoring the viability, liquidity or solvency of an institution or entity. As a result, such aid would not qualify as 'extraordinary public financial support' either under the bank recovery and resolution directive (BRRD) or the single resolution mechanism regulation (SRM). However, such aid must be limited to ‘direct damage suffered as a result of the current crisis’, so there must be a causal link between the current crisis and the damage suffered.

However, if banks were to require direct support in the form of liquidity, recapitalisation or impaired asset measures, the Commission will assess whether the measure meets the conditions of Article 32(4)(d)(i), (ii) or (iii) of the BRRD and Article 18(4)(d)(i), (ii) or (iii) of the SRM regulation. If that is the case, the bank receiving such direct support would not be deemed to be failing – or likely to fail.

What's next?

The TCF is expected to become applicable before the end of March 2022. The draft under consultation anticipates that the Commission will review these rules before 31 December 2022 on the basis of important competition or economic considerations, as well as international developments. The Commission may also provide further clarifications on its approach to particular issues as the situation in Ukraine develops.

Judging by the COVID-19 Temporary Framework, which has now been in force for over two years, this new TCF will likely also be here to stay as the current crisis evolves.

If your business is affected by the current crisis and liquidity support is required, feel free to reach out to us to discuss which measures may be applicable and suitable to your situation.

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state aid, europe, antitrust and competition, sanctions