EUROPEAN COMMISSION. State aid/czech Republic SA (2017/N) Framework program for risk and crisis management in agriculture

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1 EUROPEAN COMMISSION Brussels, C(2018) 1291 final Subject: State aid/czech Republic SA (2017/N) Framework program for risk and crisis management in agriculture Sir, The European Commission ("the Commission") wishes to inform the Czech Republic that, having examined the information supplied by your authorities on the State aid scheme referred to above, it has decided not to raise any objections to the relevant scheme as it is compatible with the internal market pursuant to Article 107(2)(b) and Article 107(3)(c) of the Treaty on the Functioning of the European Union ("TFEU"). The Commission has based its decision on the following considerations: 1. PROCEDURE (1) By letter of 14 July 2017, registered by the Commission on the same day, the Czech Republic notified, according to Article 108(3) TFEU, the above mentioned aid scheme. The Commission sent a request for additional information to the Czech authorities on 12 September 2017 which the Czech authorities answered, further to the granted extension, by letters of 8 November 2017, 24 November 2017, 11 December 2017 and 9 January 2018, registered by the Commission on the same day. 2. DESCRIPTION 2.1. Title (2) Framework program for risk and crisis management in agriculture. H.E. Martin Stropnicky Ministerstvo zahraničních věcí České republiky Loretánské náměstí Praha 1 Česká republika (*) Ce timbre porte sur l'ensemble des documents qui composent le dossier. Commission européenne, B-1049 Bruxelles Belgique; Europese Commissie, B-1049 Brussel België; Telephone: 32 (0)

2 2.2. Objective (3) With the present notification the Czech authorities wish to establish an ex-ante framework scheme to compensate for damages caused by natural disasters and by adverse climatic events which can be assimilated to a natural disaster. The scheme will also serve as a framework for compensating the damages caused by exceptional occurrences, which however will be individually notified to the Commission Legal basis (4) The aid scheme is based on the following legal basis: Principles for granting compensations for the mitigation of losses caused by natural disasters, exceptional circumstances or adverse weather conditions in agriculture, the processing of agricultural products or forestry; Government decree on the mitigation of losses caused by specific natural events and on the restoration of parts of the Czech Republic; Act No 252/1997 Coll., on agriculture; Act No 256/2000 Coll., on the State Agricultural Intervention Fund; Act No 218/2000 Coll., on budgetary rules; Act No 129/2009 Coll., on regions; Act No 128/2008 Coll., on municipalities; Act No 250/2000 Coll., on regional budgetary rules; Act No 289/1995 Coll., on forestry; Act No 449/2001 Coll., on hunting; Act No 254/2001 Coll., on waters Decree No 55/1999 Coll., on methods of the calculation of losses in forestry Duration (5) The aid scheme will be implemented from the date of its approval by the Commission until 31 December Budget (6) The estimated overall budget amounts to CZK million (approximately EUR 273,6 million), annual budget being estimated at CZK million (approximately EUR 60,4 million). 2

3 (7) The Czech authorities remind that the exact extent of any damage is difficult to assess in advance. The budget provided for this framework aid scheme is therefore estimated Form of aid and granting authority (8) Aid will be provided in the form of direct grant. (9) Aid can be granted by the Ministry of Agriculture or by the State agricultural intervention fund or by the Support and guarantee agricultural and forestry fund or by another competent public authority Beneficiaries (10) Aid to compensate for the damages caused by natural disasters and exceptional occurrences can be granted to the following beneficiaries active in the sector of agriculture: all agricultural undertakings; foodstuffs producers within the meaning of Act No 110/1997, on foodstuffs and tobacco products; producers of feeds; producers organisations composed of agricultural producers or foodstuffs producers; subjects engaged in forest nurseries activities; Livestock and game breeders; Hunters within the meaning of Act No 449/2001; Public high schools, universities and research institutes carrying out research activities in the field of agricultural primary production and processing and marketing of agricultural products. (11) Aid to compensate for adverse weather conditions can be granted to the following beneficiaries active in the primary agricultural production: all agricultural undertakings active in the primary production; producers organisations composed of agricultural producers active in the primary production; subjects engaged in forest nurseries activities; hunters carrying out breeding of game species which are endangered or present in low numbers in forests, in view of their future discharge into hunting forests, within the meaning of Act No 449/2001; Public high schools, universities and research institutes carrying out research activities in the field of agricultural primary production. (12) The estimated number of beneficiaries is over

4 (13) The Czech authorities confirmed that undertakings in difficulty within the meaning of the definition stipulated in point 35 (15) of the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to (hereinafter "the Guidelines") will be excluded from receiving aid to compensate for the damage caused by adverse climatic events which can be assimilated to natural disasters, except where these difficulties were caused by events which are subject to this notification. (14) Likewise, the Czech authorities committed to suspend the payment of the aid if the beneficiary of aid compensating for the damage caused by adverse weather conditions still has at its disposal an earlier unlawful aid that was declared incompatible by a Commission Decision (either concerning an individual aid or an aid scheme), until the beneficiary has reimbursed or paid into a blocked account the total amount of the unlawful and incompatible aid including the corresponding recovery interest Description of the aid scheme (15) The notified aid scheme modifies, in compliance with the current Guidelines, the aid scheme SA (2013/N) approved by the Commission decision C(2013) 9112 final of 18 December (16) The notified framework scheme concerns compensation for losses caused to the production, processing and marketing of agricultural products listed in Annex I of the TFEU. (17) The objective of the scheme is to establish the ex-ante framework allowing to compensate for the damages caused by the following events: natural disasters and exceptional occurrences: earthquakes, landslides, floods, storms, avalanches and fires of natural origin, adverse weather conditions: heavy rain, flooding, drought, frost and spring frost, ice and hailstorm. (18) The scheme will also serve as a framework for compensation of the damage caused by major industrial accidents. The Czech authorities committed to individually notify to the Commission each such case which will lead to compensation under the present scheme. (19) Eligible for aid will be income foregone and material damages caused by natural disasters and exceptional occurrences on agricultural land, forest nurseries, crops, animals, artificially reared game, feed, straw, stocks, buildings and facilities, machinery and equipment, as well as damages to beekeeping. (20) As regards losses caused by adverse weather conditions, compensation may be granted for income foregone and material damage suffered on agricultural land, crops, animals, artificially reared game and beekeeping. 1 OJ C 204 of , p. 1., as amended by the Notice of the Commission of 23 November 2015, OJ C 390, , p.4. 4

5 (21) The VAT will not be eligible for aid, except where it is not recoverable under national VAT legislation. (22) The existence of a natural disaster, exceptional occurrence or adverse weather conditions must be demonstrated through relevant data and documentation and formally recognized by the Czech Hydro-meteorological Institute or, in the case of fires by the Fire brigade and by Police in the case of industrial accidents. The activation of the Framework programme must be decided by the Czech Government. (23) Eligible for compensation will be only damages which incurred as a direct consequence of a natural disaster, exceptional occurrence or adverse climatic events and where a direct causal link between the damage suffered and the natural disaster or the adverse weather conditions is established. Such link will be established on the basis of an on-spot inspections carried out by the Damage committees of the State agricultural fund. The findings will be documented in the Protocol of the damage. (24) As regards the material damage, the calculation of the aid amount will based on the principle that only the costs necessary to restore or replace the damaged assets to its former condition are eligible. In order to avoid over-compensation, the amount of aid must not exceed the amount of damages established during an on-spot investigation. In case of the material damage suffered due to adverse climatic events, aid will not exceed the repair cost or the decrease in fair market value caused by such events. (25) The income foregone will be calculated as follows: the result of the multiplication of an average annual quantity of agricultural products produced in a year of the natural disaster, extraordinary event or adverse weather conditions, or in subsequent years affected by the total or partial destruction of the means of production, by an average selling price achieved during that year will be deduced from the result of the multiplication of an average annual quantity of agricultural products produced in the three-year period prior to the event, or a three-year average determined on the basis of a five-year period prior to the event, by an average selling price. The highest and lowest values will be excluded. (26) Where the reduction of the beneficiary's income is calculated on the basis of crop or livestock level, only the material damage related to that crop or livestock will be taken into account. (27) The aid amount will be ultimately determined by deducting insurance payments or any other compensation for the same damage from other sources. Costs which have not occurred due to the natural disaster or adverse weather conditions will also be deducted. (28) Compensations to forest nurseries may be increased by additional costs incurred due to natural disaster such as costs of additional fertilization or irrigation or costs of molding, due to, for example, freezing of the terminal shoots. 5

6 (29) The compensation will be calculated at the level of an individual beneficiary. Aid will be paid directly to an undertaking concerned or to a producer group or organisation of which this undertaking is a member. In the latter case, the amount of aid paid cannot exceed the amount of aid to which that undertaking is eligible. (30) The compensation for damages caused by adverse weather conditions will only be granted where such weather conditions destroyed more than 30% of the average of a given annual production in the preceding three-years or a threeyear average based on the preceding five-year period, excluding the highest and lowest entries. (31) Aid can be granted up to 100% of the eligible costs where the damage was caused by natural disasters and exceptional occurrences and up to 80% of the eligible costs where the damage was caused by adverse weather conditions. (32) Aid to compensate for the damage caused by adverse weather conditions will be reduced by at least 50% where beneficiaries have not concluded insurance of the most significant risks in the Czech Republic or in a region, covering at least 50% of their average annual production or income related to that production. An exception to this condition is only possible if the aid beneficiary can convincingly prove that in the Czech Republic or in the region concerned, despite reasonable efforts, at the time when the damage was caused, no acceptable insurance covering the most frequent climatic risks was available. (33) In relation to drought, the Czech Republic has fully implemented Article 9 of Directive 2000/60/EC of the European Parliament and the Council 2 and ensured that the costs of water services provided to agriculture are recovered through an adequate contribution from that sector. This is done through fees charged for the collection of groundwater and surface water in compliance with 88 and 101 respectively of the Act No. 254/2001 Coll. on waters. Fees for the collection of surface water represent resources covering water management and river basin management. 50% of the fees for the actual amount of groundwater consumed represent the income of the budget of the region in which the collection takes place and 50% of the income of the State Environmental Fund of the Czech Republic. Regional revenues derived from these fees can only be used for designated purposes: for the construction and restoration of water management infrastructure and for the creation of a reserve to cover the costs of disaster relief on surface and groundwater where the cause of the accident is unknown. Fees for the collection of surface and groundwater, together with the fee for pollution of discharged waste water and the volume of discharged waste water, constitute the environmental revenues, quantified in the economic analysis of the national river basin plans. (34) Aid granted under this aid scheme cannot be cumulated with aid received from other local, regional, national or Community schemes, with ad hoc or with de minimis aid to cover the same eligible costs. The cumulation of the compensations received under the present aid scheme and the sums due under insurance policies will not be allowed if the total amount goes beyond the evaluated existing damages and beyond the maximum allowed aid intensity. 2 OJ L 327, , p. 1. 6

7 (35) The compensation scheme will always be activated within 3 years following the occurrence of the event causing damages. The aid will be paid within four years following the occurrence of damages. (36) The scheme being designed as an ex-ante framework for natural disasters and adverse weather conditions, the Czech authorities committed to the ex-post reporting obligation. Information on aid granted will be submitted within 30 working days. Also, the already implemented or planned measures and the estimated volumes of damage and aid will be indicated. The Czech authorities will transmit the final report on the event, measures undertaken, the number of beneficiaries and the total granted aid amount within three months after the last aid grant. (37) According to the Czech authorities, the same measures are not included in the Rural Development program of the Czech Republic The objectives of the scheme are, however, coherent with the rural development objectives of fostering the competitiveness of agriculture and achieving a balanced territorial development of rural economies and are directly related to CAP objectives. (38) The notified aid scheme, being compensatory in character, is not expected to have adverse environmental impact. The aid has for the objective merely to compensate for the damage suffered. (39) Aid will be calculated by the granting authority when granting the aid. The eligible costs will be supported by clear, contemporary documentary evidence. For the purposes of calculating the aid amount and the eligible costs, all figures used will be taken before any deduction of tax or other charge. (40) The Czech Republic has informed the Commission that in order to comply with the transparency requirement the publication of the aid scheme and the individual aid grants above EUR/ EUR will be done through the following web page: 3. ASSESSMENT 3.1. Existence of aid - Application of Article 107(1) TFEU (41) According to Article 107(1) of the TFEU, "[s]ave as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market". (42) The qualification of a measure as aid within the meaning of this provision therefore requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and affect trade between Member States. 7

8 (43) The scheme in question confers an advantage on its recipients. This advantage is granted through State resources (see recital 9), therefore, it is imputable to the State. It is selective as it favours certain undertakings active in the agricultural production (see recital 10) and no other undertakings in a comparable situation active in other types of production. According to the case law of the Court of Justice, the mere fact that the competitive position of an undertaking is strengthened compared to other competing undertakings, by giving it an economic benefit which it would not otherwise have received in the normal course of its business, points to a possible distortion of competition. 3 (44) Pursuant to the case law of the Court of Justice, aid to an undertaking appears to affect trade between Member States where that undertaking operates in a market open to intra-eu trade. 4 The beneficiaries of aid operate on a market of agricultural products where intra- trade takes place 5. The sector concerned is open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member States. Therefore, the present scheme is liable to distort competition and to affect trade between Member States. (45) In light of the above, the conditions of Article 107(1) of the TFEU are fulfilled. It can therefore be concluded that the proposed scheme constitutes State aid within the meaning of that Article. The aid may only be considered compatible with the internal market if it can benefit from one of the derogations provided for in the TFEU Lawfulness of the aid Application of Article 108(3) TFEU (46) The modification of the aid scheme SA (2013/N) was notified to the Commission on 14 July It has not yet been used for paying the compensations for damages to beneficiaries. Therefore, the Czech Republic has complied with its obligation under Article 108(3) TFEU Compatibility of the aid Application of Article 107(2)(b) and Article 107(3)(c) TFEU (47) Under Article 107(2)(b), an aid shall be considered compatible with the internal market if it is found to make good the damage caused by natural disasters or exceptional occurrences. (48) Under Article 107(3)(c), an aid may be considered compatible with the internal market, if it is found to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. 3 Judgment of the Court of 17 September 1980 in Case 730/79 Philip Morris Holland BV v Commission of the European Communities, ECLI:EU:C:1980: See in particular the judgment of the Court of 13 July 1988 in Case 102/87 French Republic v Commission of the European Communities, ECLI:EU:C:1988: In 2016, the gross value added of agricultural industry of EU 28 reached EUR 159,56 (in million). Source: Eurostat 8

9 (49) For these derogations to be applicable, the aid must comply with the relevant Union State aid rules Application of the Guidelines (50) As regards the notified aid scheme, Part II, Sections and of the Guidelines are applicable. Section of the Guidelines Specific assessment according to the category of aid (51) Chapter applies to compensation of damages caused by natural disasters and exceptional occurrences. According to point 327 of the Guidelines the Commission will consider aid to make good the damage caused by natural disasters or exceptional occurrences compatible with the internal market under Article 107(2) (b) of the Treaty if it complies with the conditions of that Chapter. (52) In compliance with point 328 of the Guidelines, compensatory aid under this aid scheme will be granted to agricultural sector (see recitals 10 and 16). (53) The natural disasters or exceptional circumstances listed in recital 17, 1 st indent of the present decision fall within the scope of point 330 of the Guidelines. Therefore, that point of the Guidelines is respected. (54) Pursuant to point 331 of the Guidelines, aid must respect the following conditions: the competent authority of the Member State has formally recognized the character of the event as a natural disaster or as exceptional occurrence, there is a direct causal link between the natural disaster or the exceptional occurrence and the damage suffered by the undertaking. (55) Both above conditions are met. The existence of a natural disaster or exceptional occurrence will be demonstrated through relevant data and documentation and formally recognized by the Czech Hydro-meteorological Institute or, in the case of fires by the Fire brigade and by Police in the case of industrial accidents (see recital 22). Eligible for compensation will only be damages where a direct causal link between the damage suffered and the natural will be established on the basis of on-spot inspections, as detailed in recital 22 above. Therefore, both conditions of point 331 of the Guidelines are complied with. (56) According to point 333 of the Guidelines, aid must be paid directly to the undertaking concerned or to a producer group or organization of which that undertaking is a member. Where the aid is paid to a producer group and organization, the amount of aid must not exceed the amount of aid to which that undertaking is eligible. The Czech authorities confirmed that these conditions will be respected (see recital 29). (57) According to point 334 of the Guidelines, the aid scheme must be established within three years from the date of the occurrence of the event, and the aid 9

10 must be paid out within four years from that date. This condition will be respected, as described in recital 35. (58) In compliance with point 335 of the Guidelines, where the ex-ante framework scheme is approved, a Member State must comply with the reporting obligation set out in point 728 of the Guidelines. In compliance with point 728 (b) of the Guidelines, which is applicable to the aid concerned under this aid scheme, the annual report must contain also information concerning meteorological information on the type, timing, relative magnitude and location of the climatic event which can be assimilated to a natural disaster or natural disasters under Sections and respectively. The Czech authorities committed to this reporting obligation (see recital 36). (59) Point 336 of the Guidelines requires that aid to compensate for the damage caused by exceptional occurrence must be individually notified to the Commission. The Czech Republic committed to respect this obligation (see recital 18). (60) According to point 337 of the Guidelines, the eligible costs are the costs of the damage incurred as a direct consequence of the natural disaster or exceptional occurrence, as assessed either by a public authority, by an independent expert recognized by the granting authority or by an insurance undertaking. The Czech authorities confirmed that only damage for which the direct link with the natural disaster or exceptional occurrence will have been confirmed will be eligible for compensation (see recital 23). (61) Further, according to point 338 of the Guidelines, material damage may include assets such as buildings, equipment, machinery, stocks and means of production and loss of income resulting from the full or partial destruction of the agricultural production and the means of the agricultural production. (62) The eligible costs are detailed in recitals 19 of the present decision. They all fall within the scope of point 338 of the Guidelines. (63) According to point 339 of the Guidelines, the damage must be calculated at the level of the individual beneficiary. This condition is complied with (see recital 29). (64) Pursuant to point 340 of the Guidelines, the calculation of the material damage must be based on the repair cost or economic value of the affected asset before the natural disaster or the exceptional occurrence. It must not exceed the repair cost or the decrease in fair market value caused by the natural disaster or by the exceptional occurrence, that is to say the difference between the property's value immediately before and immediately after the natural disaster or the exceptional occurrence. The calculation method which will be applied by the Czech authorities for the purpose of this aid scheme (see recital 24) complies with the conditions of point 340 of the Guidelines. (65) Point 341 of the Guidelines, lays down the method to calculate the loss of income. The method which will be used to calculate the income foregone under this aid scheme (see recital 25) corresponds fully to that. Therefore, point 341 of the Guidelines, is also respected. 10

11 (66) In accordance with point 342 of the Guidelines, the aid amount calculated in compliance with that method may be increased by other costs incurred by the beneficiary due to the natural disaster or the exceptional occurrence and it must be reduced by any costs not incurred because of the natural disaster or the exceptional occurrence which would otherwise have been incurred by the beneficiary. The Czech authorities submitted that in compliance with point 342 of the Guidelines the aid amount may be increased by other additional costs incurred to forest nurseries (see recital 28). They have also confirmed that any costs not incurred because of the natural disaster or the exceptional occurrence which would otherwise have been incurred by the beneficiary will be deducted from the amount of aid (see recital 27). Therefore, point 342 of the Guidelines is respected. (67) In compliance with point 345 of the Guidelines, the maximum aid intensity will be limited to 100% of eligible costs (see recital 31). Section of the Guidelines (68) In compliance with point 346 of the Guidelines, the Commission will consider aid to compensate for the damage caused by an adverse climatic event which can be assimilated to a natural disaster compatible with the internal market under Article 107(3)(c) of the Treaty if it complies with the common assessment principles and with the conditions of this Section. (69) According to point 347 of the Guidelines, Section applies to aid granted to compensate for damage caused by an adverse climatic event which can be assimilated to a natural disaster as defined in point (35)34 of the Guidelines. It applies only to undertakings active in the primary agricultural production. The compensation under the present aid scheme for damages caused by adverse climatic events is indeed limited to primary production, as confirmed in recital 11 above. (70) Moreover, the adverse events listed in recital 17, 2 nd indent, which can give rise to the compensatory aid under this scheme, fall within the scope of the definition stipulated in point (35)34 of the Guidelines. Therefore, this condition is complied with. Point 347 of the Guidelines is therefore complied with. (71) Pursuant to point 348 of the Guidelines, aid must respect the following conditions: the competent authority of the Member State has formally recognized the character of the event as an adverse climatic event which can be assimilated to a natural disaster, there is a direct causal link between the natural disaster or the exceptional occurrence and the damage suffered by the undertaking. (72) Both above conditions are met. The existence of an adverse climatic event will be demonstrated through relevant data and documentation and formally recognized by the Czech Hydro-meteorological Institute (see recital 22). For the damage to be eligible for aid a direct causal link with the adverse climatic 11

12 event will have to be established by an on-spot inspection, as detailed in recital 23 above. (73) In compliance with point 350 of the Guidelines, where the ex-ante framework scheme is established, a Member State must comply with the reporting obligation set out in point 728 of the Guidelines. As confirmed in recital 36 above, the Czech authorities committed to abide by this obligation. (74) According to point 351 of the Guidelines, aid must be paid directly to the undertaking concerned or to a producer group or organization of which that undertaking is a member. Where the aid is paid to a producer group and organization, the amount of aid must not exceed the amount of aid to which that undertaking is eligible. These conditions will be complied with, as detailed in recital 29 above. (75) According to point 352 of the Guidelines, the aid scheme must be established within three years from the date of the occurrence of the event, and the aid must be paid out within four years from that date. This condition will be met (recital 35). (76) According to point 353 of the Guidelines, the eligible costs are the costs of the damage incurred as a direct consequence of the adverse climatic event which can be assimilated to a natural disaster, as assessed either by a public authority, by an independent expert recognized by the granting authority or by an insurance undertaking. This condition will be complied with (see recital 23). (77) Further, according to point 354 of the Guidelines, material damage may include the damage to assets such as buildings, equipment, machinery, stocks and means of production and loss of income resulting from the full or partial destruction of the agricultural production and the means of the agricultural production. (78) The eligible costs are detailed in recital 20 of the present decision. They all fall within the scope of point 354 of the Guidelines. (79) Pursuant to point 355 of the Guidelines, the calculation of the damage incurred due to the adverse climatic event which can be assimilated to a natural disaster must be made at the level of the individual beneficiary. As confirmed in recital 29 above, this condition will be met. (80) Pursuant to point 356 of the Guidelines, the material damage to assets caused by the adverse climatic event which can be assimilated to a natural disaster must be calculated on the basis of the repair cost or economic value of the affected asset before the adverse climatic event that can be assimilated to a natural disaster. It must not exceed the repair cost or the decrease in fair market value caused by the adverse climatic event which can be assimilated to a natural disaster, that is to say the difference between the asset's value immediately before and immediately after the adverse climatic event which can be assimilated to a natural disaster. The Czech authorities confirmed that the amount of the material damage will be established according to point 356 of the Guidelines (see recital 24). 12

13 (81) Furthermore, according to point 357 of the Guidelines, where the reduction of the beneficiary's income is calculated on the basis of crop or livestock level, only the material damage related to that crop or livestock should be taken into account. The Czech authorities confirmed this (see recital 26). (82) Point 358 of the Guidelines lays down the method for calculating the loss of income. The method proposed by the Czech authorities for the purpose of this notification (see recital 25) fully corresponds to the one in point 358 of the Guidelines. (83) Pursuant to point 359 of the Guidelines, the amount calculated according to that method may be increased by other costs incurred by the beneficiary due to the adverse climatic event which can be assimilated to a natural disaster. That amount must be reduced by any costs not incurred because of the adverse climatic event which can be assimilated to a natural disaster which would otherwise have been incurred by the beneficiary. The present notification provides for such an increase of the aid for the forest nurseries (see recital 28). Furthermore, the aid amount will be reduced by costs not incurred because of the event at question (see recital 27). Thus, point 359 of the Guidelines is respected. (84) For the purpose of calculation no indexes will be used in the implementation of this aid scheme. Therefore, point 360 of the Guidelines is not applicable. (85) In compliance with point 362 of the Guidelines, the maximum aid intensity will be 80% of eligible costs (see recital 31). Furthermore, in compliance with point 363 of the Guidelines, this aid intensity will be reduced by 50 % if the beneficiary has not taken out insurance covering at least 50 % of their average annual production or production-related income and the statistically most frequent climatic risks on the territory of the Czech Republic or region(s) concerned for which insurance coverage is provided. This condition will not apply only in case that the Czech authorities will be able to convincingly show that, despite all reasonable efforts, affordable insurance covering the statistically most frequent climatic risks was not available at the time the damage occurred (see recital 32) Common Assessment Principles (86) Pursuant to point 38 of the Guidelines, the common assessment principles apply to aid granted in accordance with Article 107(3)(c) TFEU. (87) This aid scheme respects the common assessment principles, in that: it contributes to a common objective in line with point (43) of the Guidelines. As described above, the objective of the present scheme is to compensate for damages caused by natural disasters or exceptional occurrences and adverse climatic conditions which can be assimilated to natural disasters in order to ensure viable food production. This objective relates closely to the CAP pursued objectives and is consistent with the objectives of the rural development. Support is targeted on clearly defined objectives reflecting needs of the agricultural sector. 13

14 The same measure is not co-financed under the RDP of the Czech Republic , therefore, there is no risk of overlap or double funding. As the Czech authorities explained, the notified aid scheme fits into and is consistent with the objectives of the Czech RDP (see recital 37). The Commission thus considers that the conditions of point 47 of the Guidelines are met. As regards environmental objectives, the aid scheme is primarily designed to compensate for the damage caused by natural disasters, exceptional occurrences and adverse climatic conditions. The Czech authorities confirmed that in compensating for the damage caused by drought Directive 2000/60/EC will be respected (see recital 33). This aid scheme is not expected to have any adverse environmental impact within the meaning of point 52 of the Guidelines (see recital 38). There is a need for State intervention: pursuant to point 55 of the Guidelines, the Commission considers that the market does not deliver the expected objectives without State intervention regarding aid measures fulfilling the specific conditions set out in Part II of the Guidelines. This aid scheme meets the conditions of Section and of Part II of the Guidelines (see recitals 52-85). Therefore, the State aid is considered necessary to achieve the objectives of common interest. The aid is appropriate: pursuant to point 57 of the Guidelines, the Commission considers that aid granted in the agricultural and forestry sectors and in rural areas that meet the specific conditions laid down in the relevant Sections of Part II is an appropriate policy instrument. The proposed scheme satisfies the applicable criteria laid down in Part II of the Guidelines (see recitals 52-85), therefore it is considered to be an appropriate policy instrument. In compliance with point 59 of the Guidelines direct subvention aid appears to be the most suitable form of aid for reaching the set goals to compensate for the damages caused by adverse climatic events. Incentive effect and need for aid is present: in compliance with point 75 (d) and (e) aid granted under this aid scheme is not required to or is deemed to have an incentive effect. The aid is proportional: the maximum aid intensities laid down in Sections and of the Guidelines are respected (see recital 31). The aid amount will be calculated by the granting authority when granting the aid. The eligible costs will be supported by clear, contemporary documentary evidence. For the purposes of calculating the aid amount and the eligible costs, all figures used will be taken before any deduction of tax or other charge (see recital 39). Value added tax will not be eligible for aid, except where it is not recoverable under the national VAT rules (see recital 21). The aid under this aid scheme can therefore be considered limited to the minimum needed to achieve common objectives. Hence, the criterion of proportionality is fulfilled. Furthermore, the Czech authorities undertook to ensure that the aid under this scheme will not be cumulated with aid received from other local, 14

15 regional, national or EU sources, ad hoc aid or de minimis aid to cover the same eligible costs (recital 34). The principle of transparency is respected: the Czech Republic made a commitment to publish the information required under point 128 of the Guidelines by the deadline set out in point 131 of the Guidelines. Therefore, in the course of the implementation of this aid scheme the transparency will be ensured (recital 40). (88) The Commission takes note of the commitment by the Czech authorities that aid to compensate for the damage caused by adverse climatic events which can be assimilated to a natural disaster will not be granted to undertakings in difficulty as defined in point 35 (15) of the Guidelines (recital 13), except where these difficulties were caused by adverse climatic events which are subject to this notification. (89) The Commission takes note that in compliance with point 27 of the Guidelines the Czech authorities commit to suspend the payment of the notified aid if the beneficiary of aid compensating for the damage caused by adverse climatic events still has at its disposal an earlier unlawful aid that was declared incompatible by a Commission Decision (either concerning an individual aid or an aid scheme), until that beneficiary has reimbursed or paid into a blocked account the total amount of unlawful and incompatible aid including the corresponding recovery interest (recital 14). (90) In view of the above considerations the Commission concludes that all the applicable requirements set out in the Guidelines are complied with. 4. CONCLUSION The Commission has accordingly decided not to raise objections to the notified aid on the grounds that it is compatible with the internal market pursuant to Article 107(2)(b) and Article 107(3)(c) TFEU. If any parts of this letter are covered by the obligation of professional secrecy according to the Commission communication on professional secrecy and should not be published, please inform the Commission within fifteen working days of notification of this letter. If the Commission does not receive a reasoned request by that deadline the Czech Republic will be deemed to agree to the publication of the full text of this letter. If the Czech Republic wishes certain information to be covered by the obligation of professional secrecy please indicate the parts and provide a justification in respect of each part for which non-disclosure is requested. 15

16 Your request should be sent electronically via the secured system Public Key Infrastructure (PKI) in accordance with Article 3(3) of Commission Regulation (EC) No 794/2004 6, to the following address: For the Commission Phil HOGAN Member of the Commission 6 Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ L 140, , p. 1). 16