State aid: The Commission has adopted a Temporary Crisis Framework in response to the conflict in Ukraine

On 23 March 2022, in response to the conflict in Ukraine, the European Commission (the Commission) adopted a Temporary Crisis Framework (TCF) for State aid measures granted by Member States to support the EU economy (see press release).

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

The TCF is a soft-law document and sets out how the Commission will 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 are 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 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 allows Member States to grant the following, under certain conditions.

• Limited aid schemes for companies affected by the crisis, allowing Member States to set up schemes to grant up to €35,000 per company for companies active in the primary production of agricultural products or in the fishery and aquaculture sectors and up to €400,000 per company in all other sectors.
• Temporary liquidity support to businesses affected by the consequences of the conflict in Ukraine. This support can 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 can 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 can 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 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 can benefit from aid under the TCF?

The Commission considers that the combined effects of the conflict – including disruptions of supply chains or outstanding payments from Russia or Ukraine, increased risks of cyber-attacks or rising prices for specific materials affected by the crisis – as well as 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. The TCF includes an annex listing particularly affected sectors and sub-sectors, ranging from aluminium and copper production to hydrogen and casting of iron, which may benefit from increased aid.
• 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 TCF acknowledges the impact of the current crisis on financial markets, in particular as regards liquidity concerns.

In that context, the 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 will be in place until 31 December 2022, and the Commission will assess any extension requirements before the end of this year on the basis of important competition or economic considerations, as well as international developments.

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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