European Court of Justice (ECJ) asks Italy to take back $398 million state aid given to Alcoa

Italy was Thursday directed by Europe's highest court to take back about 295 million euros ($398 million) of state aid given to U.S. aluminium producer Alcoa Inc in the form of preferential power tariff as it had given the company unfair advantage over rivals.

Upholding a decision by the European Commission four years ago, the European Court of Justice ruled that "Italy has failed to fulfill its obligation to recover the state aid granted to Alcoa in the form of a preferential electricity tariff." the Luxembourg-based European Court of Justice (ECJ) said in a ruling published Thursday.

The ECJ's decision in the case filed by the anti-trust regulator, EU competition authority, is final and cannot be appealed.

Italy must now comply with the court's judgment "without delay," the Luxemburg based court stated in a written statement.

In case Italy fails to abide by the court orders, the European Commission--the EU's executive arm--could seek financial penalties.

Alcoa Trasformazioni srl is an undertaking governed by Italian law forming part of the Alcoa group. It produces primary aluminium in Italy.

From 1996 it enjoyed a preferential tariff for electricity used at two production sites, one in Sardinia(Portovesme) and the other in the Veneto region (Fusina), as a result of a contract with the electricity supplier (ENEL).

That tariff, initially set for a period of ten years, was authorised by the Commission, which found that the measure did not constitute aid since, at that time, it was an ordinary commercial transaction concluded on market terms.

The tariff was extended twice initially until June 2007 and, subsequently, until 2010 without being adjusted to take account of market trends. In 2009, the tariff was subsidised by a levy charged to electricity consumers and no longer reflected market conditions. The amount was equal to the difference between the contract price concluded with the electricity supplier (ENEL) and the preferential price.

In 2009, the Commission took the view that the purpose of those extensions was to reduce Alcoa's operating costs, thus conferring on it an advantage vis--vis its competitors. They thus constituted State aid incompatible with the common market, which Italy was obliged to recover, together with interest.

The Commission ordered Italy to recover the aid from Pittsburgh-based Alcoa and cancel future payments.

Italy was also required to cancel all future payments and communicate the total amount of aid to be recovered, the measure already taken to comply with the decision and documentation to show that the beneficiary had been ordered to reimburse the aid.

According to Italy, the amount to be recovered is approximately euro 295 million, including euro 38 million in interest.

Taking the view that Italy had failed to comply with the duty to provide information and the duty to recover the aid, the Commission brought the present action for failure to fulfill obligations before the Court of Justice.

In its ruling Thursday, the court said that the only defence available to a member state in such circumstances is that it was "absolutely impossible" to properly implement the decision in question.

"Neither in its relations with the Commission before the present action was brought nor in the proceedings before the court has Italy claimed that it was absolutely impossible for it to implement the decision," the court said.

Instead, Italy "alluded...to legal or practical difficulties and to its intention of achieving a negotiated solution with Alcoa," the court said.

Recovery must be effected without delay, and recovery after the prescribed time limits have expired will not satisfy the requirements of the Treaty.

As Italy was notified of Decision 2010/460 on 20 November 2009, the time limit expired on 20 March 2010. By that date, the aid had not been recovered in its entirety.

On the contrary, the procedure for recovery of the aid was still ongoing after the present action was instigated, that is to say, more than two and a half years after notification of the decision.

Neither in its relations with the Commission before the present action was brought nor in the proceedings before the Court has Italy claimed that it was absolutely impossible for it to implement the decision.

It has simply alluded in its communications with the Commission to legal or practical difficulties and to its intention of achieving a negotiated solution with Alcoa.

For those reasons, the Court declares that Italy has failed to fulfill its obligation to recover the State aid granted to Alcoa in the form of a preferential electricity tariff.

If the Court of Justice finds that there has been a failure to comply with its orders, it may bring a further action seeking financial penalties.