State aid: Commission approves €226m Hungarian scheme to support SMEs amid Russia’s invasion of Ukraine – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology

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The European Commission has approved a €226 million (HUF 90 billion) Hungarian program to support small and medium-sized enterprises (‘SMEs’) across all sectors amid Russia’s invasion of Ukraine . The scheme was approved as state aid Temporary Crisis Frameworkadopted by the Commission on 23 March 2022, on the basis of Article 107(3)(b) of the Treaty on the Functioning of the European Union (“TFEU”), recognizing that the economy of the EU is experiencing serious disruption.

Executive Vice President Margrethe Vestagerin charge of competition policy, said: “This €226 million program will enable Hungary to mitigate the economic impact of the war in Ukraine and the cash shortages that SMEs in all sectors are facing due to the current geopolitical crisis and the sanctions that We continue to stand with Ukraine and its people. At the same time, we continue to work closely with Member States to ensure that national support measures can be put in place. place in a timely, coordinated and efficient manner, while protecting a level playing field in the single market.”

The Hungarian measure

Hungary notified to the Commission under the Temporary Crisis Framework a €226 million (HUF 90 billion) scheme to support SMEs in all sectors in the context of the invasion of Ukraine by Russia.

Under this measure, which will be administered by the AVHGA Rural Credit Guarantee Foundation, the aid will take the form of guarantees on new loans.

Given the high degree of economic uncertainty caused by the current geopolitical situation, the scheme aims to ensure that sufficient liquidity remains available for companies in need.

The measure will be open to companies from all sectors, with a focus on agriculture, the food industry and all along the bioeconomy value chain. Credit and financial institutions will be excluded from the measure.

Eligible beneficiaries will be entitled to receive new loans which will be covered by a state guarantee not exceeding 90% of the loan. Losses will be borne proportionally by credit institutions and the State.

The maximum amount of the loan or leasing per beneficiary, which can benefit from a public guarantee, will be equal to (i) 15% of its average total annual turnover over the last three closed accounting years; or (ii) 50% of energy expenses incurred during a 12-month period preceding the request for assistance. Exceptionally, when SMEs are active in sectors strongly affected by the direct or indirect effects of the Russian invasion of Ukraine, the amount of the loan can be increased to cover their liquidity needs during the 12 months following the moment of the lending. ‘granting.

The Commission found that the Hungarian scheme complied with the conditions set out in the temporary crisis framework. In particular, (i) the maturity of the guarantees will not exceed six years; (ii) the guarantee premiums respect the minimum levels set in the Temporary Crisis Framework; and (iii) the guarantees will be granted no later than December 31, 2022.

In addition, the aid is subject to safeguards to ensure that the benefits of the measure are passed on to the final beneficiaries to the greatest extent possible via the financial intermediaries.

The Commission concluded that the Hungarian scheme was necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in accordance with Article 107(3)(b) TFEU and the conditions set out in the temporary crisis.

On this basis, the Commission approved the aid measure under EU state aid rules.

Background

On March 23, 2022the Commission has adopted state aid Temporary Crisis Framework allow member states to use the flexibility provided by state aid rules to support the economy in the context of Russia’s invasion of Ukraine.

The Temporary Crisis Framework provides for the following types of aid, which can be granted by Member States:

  • Limited aidin any form, up to €35,000 for companies affected by the crisis active in the agriculture, fisheries and aquaculture sectors and up to €400,000 per company affected by the crisis active in all other sectors;
  • Liquidity support in the form of state guarantees and subsidized loans; and
  • Aid to offset high energy prices. The aid, which can be granted in any form, will partially compensate companies, in particular large energy consumers, for the additional costs caused by exceptional increases in gas and electricity prices. The overall aid per beneficiary may not exceed 30% of the eligible costs, within the limit of €2 million at any given time. When the company suffers operating losses, additional aid may be necessary to ensure the continuation of economic activity. Thus, for large energy consumers, the aid intensities are higher and the Member States may grant aid exceeding these ceilings, up to EUR 25 million, and for undertakings active in the sectors and sub- sectors particularly affected up to 50 million euros.

Sanctioned Russian-controlled entities will be excluded from the scope of these measures.

The temporary crisis framework includes a number of safeguards:

  • Proportional methodologyrequiring a link between the amount of aid that can be granted to companies and the extent of their economic activity and their exposure to the economic effects of the crisis;
  • Conditions of eligibility, for example by defining large energy consumers as companies for which the purchase of energy products represents at least 3% of the value of their production; and

The temporary crisis framework will be in place until 31 December 2022. In order to ensure legal certainty, the Commission will assess before this date whether it should be extended. In addition, during its period of application, the Commission will review the content and scope of the framework in the light of developments in energy markets, other input markets and the general economic situation.

The Temporary Crisis Framework complements the extensive possibilities for Member States to design measures in line with existing EU state aid rules. For example, EU state aid rules allow member states to help companies deal with cash shortages and an urgent need for rescue aid. In addition, Article 107(2)(b) of the Treaty on the Functioning of the European Union allows Member States to compensate companies for damage directly caused by an exceptional event, such as that caused by the current crisis.

Furthermore, on March 19, 2020, the Commission has adopted a Temporary Framework in the context of the coronavirus outbreak. The temporary COVID framework was amended on April 3, May 8, June 29, October 13 2020, January 28 and November 18 2021.

The non-confidential version of the decision will be available under case number SA.102986 in the State aid register on the board competition website once the privacy issues have been resolved. New publications of State aid decisions on the Internet and in the Official Journal are listed in the Weekly Contest News.

Further information on the Temporary Crisis Framework and other measures taken by the Commission to address the economic impact of Russia’s invasion of Ukraine is available. here.

Laura T. Thrasher