EU opens investigation into proposed public support for Samsung plant in Hungary

The European Commission has opened an in-depth investigation to assess whether Hungary's plans to grant €108 million ($119.88 million) of public support to Samsung SDI for investing in the expansion of its battery cell production facility in Göd (Hungary) is in line with EU rules on regional State aid.

Commissioner Margrethe Vestager, in charge of competition policy, said: “Public investment is important to foster economic growth in disadvantaged regions in Europe. But public support should only be given if it's necessary to trigger private investment in the disadvantaged region concerned. Otherwise, it only gives the beneficiary an unfair advantage over its competitors, at the expense of taxpayers. The Commission will carefully investigate whether Hungary's planned support is really necessary for Samsung SDI to invest in Göd, is kept to the minimum necessary and does not distort competition or harm cohesion in the EU.”

Samsung SDI is one of the main players in the fast growing market of lithium-ion battery market. Samsung SDI is investing around €1.2 billion ($1.33 billion) to expand the production capacity of lithium-ion cells and battery packs for electric vehicles in its existing plant located in Göd (Hungary). The work on the capacity expansion started in December 2017, and the implementation of the project is now well advanced. In 2018, Hungary notified the Commission of its plans to grant €108 million ($119.88 million) of public support for the project.

EU State aid rules, in particular the Commission's 2014 Regional State Aid Guidelines, enable Member States to support economic development and employment in the EU's disadvantaged regions and to foster regional cohesion in the Single Market. In order to be approved, the measures need to fulfil certain conditions to make sure that they have the intended positive effect. This includes that the support must incentivise private investment, be kept to the minimum necessary, must not lure away investment from a region in another Member State which is as or more disadvantaged (“anti-cohesion effect”) and must not be directly causing the relocation of activities (such as jobs) to the Member State granting the support from elsewhere in the EU.

The Commission has doubts at this stage that the planned aid support of €108 million to Samsung SDI in Göd complies with all relevant criteria of the Regional Aid Guidelines:

1. the Commission has doubts whether the measure has an “incentive effect”. In this respect, the Commission will investigate whether the decision by Samsung SDI to invest in Hungary was directly triggered by the Hungarian public support, in line with the conditions set out in the Guidelines or whether the investment would have been carried out in Göd, even absent the public support;
2. the Commission also has doubts in relation to the public support's contribution to regional development and on its appropriateness and proportionality; and
3. the Commission cannot exclude at this stage that the public support may lead to the relocation of jobs from other EU Member States to Hungary.

The Commission will now investigate further to determine whether or not the initial concerns are confirmed. The opening of an in-depth investigation provides Hungary and interested third parties with an opportunity to comment on the measure. It does not prejudge in any way the outcome of the investigation.

Evidence shows that large companies take decisions to invest in a given region not just based on State aid but numerous factors, including the cost and availability of labour and land, tax legislation, their existing operations in the given region and the business environment. Granting aid in a context where a large company would have invested in any event would merely reduce the company's ordinary operating costs, which its (local) competitors have to meet without aid. This leads to competition distortions at the expense of taxpayers.

The Commission's 2014 Regional Aid Guidelines allow Member States to support regional investment to support economic development and employment in the EU's less developed regions and to foster cohesion in the Single Market, if the measure respect a number of conditions:

The aid must have a real “incentive effect”, in other words, it must effectively encourage the beneficiary to invest in a specific region:

1.the aid must be kept to the minimum necessary to attract the investment to the disadvantaged region;
2.the aid must not have undue negative effects, such as the creation of excess capacity in a declining market;
3.the aid must not exceed the regional aid ceiling applicable to the region in question;
4.the aid must not directly cause the relocation of existing or closed down activities from elsewhere in the EU to the aided establishment; and
5.the aid must not divert investment away from another region in the EU, which is as or more economically disadvantaged than the region where the aided investment takes place.

Furthermore, under the Guidelines, investments by large companies in existing production facilities are generally not eligible to receive regional investment aid, except if the investments enable fundamental, innovative changes in the production process that are applied for the first time in the sector concerned in the European Economic Area.