Jego Ekscelencja Pan Radosław SIKORSKI Minister Spraw Zagranicznych Al. J. Ch. Szucha 23 00-580 Warszawa POLSKA Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefon: 00-32-(0)2-299.11.11.

EUROPEAN COMMISSION

Brussels, 15.10.2014

C(2014) 7283 final

PUBLIC VERSION

This document is made available for information purposes only.

Subject: State aid SA. 37609 (2013/N) – Poland

Aid for the water drainage works in the shafts of closed mines in the Bytom Basin

Sir, 1. PROCEDURE

1. By letter dated 30 October 2013, the Polish authorities notified to the Commission the measure described below for legal certainty. Following requests for information on 16 December 2013, 20 March 2013 and 8 July 2014 by the Commission, the Polish authorities provided further information on 22 January 2014, 7 March 2013, 8 May 2014 and on 11 August 2014. The Polish authorities granted a deadline extension of one month to the Commission on 18 September 2014.

2. DESCRIPTION OF THE MEASURE

Description

2. The measure consists in financing the dewatering of excavation voids of former non-ferrous metal mines in the Bytom Basin (area of Bytom and Piekary Śląskie towns) (the “measure”). The dewatering has the purpose of protecting the two towns against groundwater level increases, swamping of the soil, flooding and the increased risk of water infiltration. Third-

2

party active coal mines located beneath the former non-ferrous metal mines are also protected against the risk of uncontrolled water inflow and flooding from the voids of the closed non-ferrous metal mines. The drainage operations prevent public danger as well as mining damage.

3. The Central Pumping Station Bolko was created in the late 1980s as a central drainage station of the ore mine workings in the region of the Bytom Basin with the aim to protect the local area (the cities of Bytom and Piekary Śląskie) against flooding or swamping and to protect third party coal mine workings from overflows or creation of underground water reservoirs. Lower level areas would be flooded as the regional rainwater drainage station would be insufficient to drain inflowing waters in their entirety. The risk of flooding would increase in the event of heavy rains.

4. The Polish authorities consider that the drainage works performed at the Bytom Basin are required due to public safety reasons for the prevention of flooding. The activity of drainage of mining waters constitutes the fulfillment of the State's obligation to protect public safety against post-mining damages (especially floods) that would take place if the activity is not performed.

5. The Polish authorities argue that the measure does not constitute State aid as, allegedly, CP Bolko does not have a selective advantage.

Background

6. The area of Bytom, i.e. the Bytom Basin, is one of the oldest mining basins in Poland (mining activities there date back to the twelfth century). It has deposits of non-ferrous metal ores (zinc and lead), but also coal (located below the deposits of non-ferrous metals).

7. After the First World War, the zinc and lead ore mines (set up before the First World War by, inter alia, German and American companies) were taken over by the State which, in accordance with the Decree of 6 May 1953 – Mining Law (Journal of Laws 1978, No 4, item 12, as amended), in force until 1994, had an exclusive right to exploit minerals1. Mining enterprises operated primarily in the form of state-owned enterprises. At the end of the 1970s, as the ore reserves were becoming depleted, the mines in the Bytom Basin entered into the liquidation procedure. The liquidation of last mine commenced in 1987. At the same time, non-essential dewatering stations were shut down, in particular, the local pumping plants.

8. By 31 December 1991, all zinc and lead ore mines were completely closed down. The mining enterprises owning the mines were wound up at the same time as the mines. At present, the sites of the closed mines are the property of the State Treasury. No business activities are conducted on these sites. The only infrastructure left in place after the closure of the zinc and lead ore mines is the central pumping station at the Bolko shaft. No other equipment or infrastructure used for conducting business activities was left after the zinc and lead ore mines were closed.

9. The pumping station, however, was built and commissioned after the cessation of mining activities and while the last operational zinc and lead ore mines were undergoing liquidation, as an independent common central drainage station unrelated to the functioning of one single mine. It began functioning in 1989. Owing to the fact that the pumping station was built at the Bolko shaft, which was owned by Zakłady Górniczo-Hutnicze ‘Orzeł Biały’ (‘Orzeł Biały’ Mining and Metallurgical Enterprise) in Piekary Śląskie, the pumping station remained the property of this

1 The possibility of carrying on activities under a concession to carry on mining activities was only introduced on 1 January 1989.

3

undertaking. It subsequently underwent several ownership changes. On 28 February 1992, under the Act of 13 July 1990 on Privatisation of State-Owned Enterprises, Zakłady Górniczo-Hutnicze ‘Orzeł Biały’ was transformed into a sole-shareholder company belonging to the State Treasury. In 1995, the State Treasury contributed shares in the company to the National Investment Funds. In 2003, Polskie Przedsiębiorstwo Ekologiczne acquired the majority of shareholder rights in the company, and, in 2008, Desislava Investments s.a.r.l. (currently NEF Battery Holdings s.a.r.l.), with its registered office in Luxembourg, took over the majority of shares. In the meantime, Zakłady Górniczo-Hutnicze ‘Orzeł Biały’ S.A. established the subsidiary ‘Pumech-Orzeł’ Sp. z o.o. The central pumping station Bolko was an asset of this subsidiary. In 2003, ‘Pumech-Orzeł’ Sp. z o.o. established, for reasons of financial transparency, Centralna Pompownia ‘Bolko’ Sp. z o.o. (CP Bolko) as a sole shareholder and transferred to it the central pumping station together with all equipment and areas used for drainage as a contribution in-kind. The Polish authorities allege that the incorporation of the new company ensured the full separation of the drainage operations (considered a non-economic activity) from the commercial activities carried out by the owner of the Central Pumping Station Bolko, that is Zakłady Górniczo-Hutnicze ‘Orzeł Biały’ S.A. (later Orzeł Biały S.A.) that specializes in the recycling used batteries. Reportedly, this separation guarantees a transparency of the book records and accounts of CP Bolko, which are only related to dewatering operations and thus secure open and transparent financing of the operations.

10. The decision to build the central pumping station at the Bolko shaft took into consideration the hydrological and geological analysis. The location was chosen as land subsidence was not expected to exceed several meters, ensuring a longer life to the pumping station. Since its construction, CP Bolko was an organizationally separated system (a complex of devices and infrastructure separated from other assets), but not a separate legal entity. During the ownership changes of the company, the continuous operations of the pumping station by way of the organization of drainage works, repairs and maintenance, water treatment and discharge were ensured. The performance of the draining operations, including the servicing of the pumping station, water treatment and discharge, has always been financed from public resources.

11. The construction of the infrastructure was entrusted to Zakłady Górniczo-Hutnicze ‘Orzeł Biały’, as it had knowledge of the zinc and lead ore mining operations and of the hydrogeological conditions of the area. It also employed specialised technical staff.

12. The Polish authorities consider that in order for the central pumping station to be maintained in good working order, it should be maintained and supervised by a single entity. Reportedly, disconnecting the pumps for longer than 8 to 12 hours will lead to irreversible consequences, such as flooding of low built-up areas of the Bytom and Piekary Śląskie towns and their environs, self-flooding of ore workings and irreversible damage to the drainage station, as well as water hazard for operational coal mines in the region2.

13. The Polish authorities claim that it would have been very difficult to conduct a tender procedure instead of setting up a special purpose vehicle, as continuous operation of the pumping plant must be ensured at all times and any tender winner would have had to apply each time for all environmental and mining permits for drainage.

2 Mine water is pumped 24 hours a day, 365 days a year (approximately 20 m3 to 25 m3 of water per minute and as much as 60 m3 of water per minute during periods of torrential rains is pumped to the surface, treated and discharged into the River Brynica, amounting to an annual average of approximately 13 000 000 m3 of water).

4

Water accumulation

14. The degree of water accumulation of the mine excavation voids is determined, inter alia, by: the geological structure of the area, the hydro-geological conditions and the mining operations. Water circulates naturally and freely in rock mass and flows into mines if they are also located in rock mass. This water is also fed by precipitation.

15. The geological structure of the Bytom Basin consists, inter alia, of:

• strata of Triassic rock, including a layer of limestone, which contains deposits of zinc and lead ores (this stratum creates good conditions for conducting water),

• Gogolin beds with insulating properties (they hold back water before it can penetrate into the lower layers of rock),

• Carboniferous strata in which there are coal deposits (these are found below the Triassic rock strata and insulating Gogolin beds).

16. Reportedly, water accumulation in mines is unavoidable. In the Bytom Basin, deposits of zinc and lead ore with a thickness of 2 m to 5 m were extracted for several centuries, using caving, dry filling and hydraulic filling techniques. These mining activities resulted in the formation of voids, cracks and channels in rock mass. Gravity causes water to flow downward, filling them up and causing moisture in rocks and old workings. The mining activities affected hydrological conditions of the area causing an increase in the capacity of the existing bodies of water (up to a capacity of several hundred million cubic metres) and the emergence of uncontrolled bodies of water underground. They threat to flood the mine excavation voids and pose a water threat to the surrounding towns of Bytom and Piekary Śląskie in the form of rising groundwater, swamping of surface soil and the formation of large non-tidal marshes and, most importantly, increased risk of flooding3. It therefore became necessary to create a comprehensive station of dewatering the metalliferous mine excavation voids in the Bytom Basin which would secure the area and protect the cities located in the Bytom Basin.

17. The Polish authorities show that, in general, all mines take measures to prevent the accumulation of mine water and continuously pump it to the surface. This applies both to closed and operational mines.

18. The central dewatering station of the Bytom Basin consists of:

• a pump chamber equipped with 13 pumps type OW-250, each with a capacity of 8.2 m³/min, • 2 discharge pipes 600 mm in diameter, • drain-ways - these are horizontal mine voids, 550m in length eastwards and 1 025 m in length westwards, with a total capacity of around 153 000-175 000m3, • excavation corridors of approximately 5 000 m in length, • 2 underground settling tanks - these are bodies of water each of a length of 100m and a total volume of approximately 12 000m3, • 2 surface settling tanks.

19. Drain-ways flow gravitationally to two settling tanks underground and are then directed through a 15m-long channel at the bottom of the mine to the sump4 located approximately 28m below the ore works. Mine water is pumped through the chamber located at the bottom of the

3 The dewatering of mine excavation voids maintains the capacity to hold the soil at an appropriate level. 4 A sump is a type of tank in the excavation void approximately 10m deep and circular in shape in which suction bins are installed, that is, the parts of the pump that drain the water.

5

mine to the surface by two pipelines to settling tanks on the surface and then flows through a drainage ditch to the River Brynica.

20. In case of intensified risks, related inter alia to the significant increase of the water inflow to the mine workings in case of intensive rainfalls or during the flood periods joint actions and consultations are undertaken between the representatives of regional and voivodship mining authorities (including the department of the protection of environment and the management of the deposit), the City Hall of Bytom (Urząd Miasta Bytom), the Mining Office for Inspection Testing of Power and Mechanical Devices (Urząd Górniczy do Badań Kontrolnych Urządzeń Energomenchanicznych) and the local companies threatened by flooding, as well as voivodship anti-crisis headquarters (wojewódzki sztab antykryzysowy).

Environmental issues

21. Reportedly, as mine water forms naturally and there are no technical means of stopping this process, accumulation of mine water is not linked to breaches of environmental legislation by mine owners.

22. The Polish authorities argue that due to the fact that zinc and lead ores are no longer extracted, mining activities cannot affect the level of mine water contamination. Moreover, coal mining activities in the Bytom Basin, do not affect the quality of this water, as coal is extracted from beneath ore workings.

23. Mine water accumulates in closed ore excavation voids as a result of natural inflow and is not involved in any technological process. It is, however, characterised by increased sulphate concentrations and relatively high zinc, lead and cadmium concentrations. The Polish authorities show that the concentration of sulphates, lead and zinc in the water is, mainly, an effect of natural chemical processes that occur when the water contacts with the rock mass (and dissolves the chemical elements occurring in the rocks) during the inflow into the workings. Therefore, water accumulating in closed excavation voids is treated in the Mine Water Treatment Station, part of the central dewatering station, before being discharged into the River Brynica in compliance with the water law permit held by CP Bolko. Analysis of the chemical composition of the water pumped shows, however, that total mineralisation of water and sulphate ion content has been steadily decreasing since the central pumping station at the Bolko shaft began to operate.

24. The Polish authorities argue that as the mine water accumulates as a result of natural inflow and is not involved in any technological process, it does not constitute extractive waste within the meaning of Directive 2006/21/EC on the management of waste from extractive industries and amending Directive 2004/35/EC5. Furthermore, as mining activities in ore mines ceased to be carried out in 1989, waste referred to in the Directive as "waste arising from the prospecting, extraction, treatment and storage of mineral resources and from the working of quarries" is not generated at all by CP Bolko.

25. The issue of the impact of mine water pumped by CP Bolko on the aquatic environment was assessed in a survey on the basis of which the water law permit is issued. The document contains information on the impact of drainage of excavation voids on environmental objectives set for the Vistula basin laid down in the ‘Water management plan for the Vistula basin’, in accordance with the Directive 2000/60/EC of the European Parliament and of the Council of 23

5 OJ L 102, 11.04.2006, p. 15–34

6

October 2000 establishing a framework for Community action in the field of water policy6.

26. Reportedly, the survey serves as confirmation that the discharge of mine water will not pose a threat to surface waters or prevent the achievement of the environmental objectives laid down in the management plan due to provisions regarding: the amount and quality of discharged wastewater; the discharge of wastewater after the removal of heavy metals; and the control over the total chloride and sulphate content in discharged water.

Liability for the dewatering works

27. The central pumping station dewaters all former non-ferrous metal mines of the Bytom Basin, and is, therefore, not related to the closure of a particular mine.

28. With the closing of the zinc and lead ore mines, the mining enterprises were also subject to liquidation, and, since 1987 (when the last zinc and lead ore mine commenced the liquidation procedure) there has been no mining of zinc and lead ore in the Bytom Basin.

29. Owing to the fact that the pumping plant was built at the Bolko mine, which was owned by Górniczo-Hutniczych 'Orzeł Biały', ultimately State owned, at the time of construction of the central dewatering station, the central pumping station became part of its assets. Zakłady Górniczo-Hutnicze 'Orzeł Biały' was entrusted with the dewatering tasks because of its knowledge of zinc and lead ore mining operations, the hydro-geological conditions of the area and its specialised technical staff.

30. In the following years, Zakłady Górniczo-Hutnicze 'Orzeł Biały' ceased operations as a mining enterprise, but it continued to carry out the dewatering tasks. Since 1989 the company deals with the recycling of batteries. As mentioned in recital 9, the central pumping station was separated in the form of a company.

31. Neither CP Bolko, nor Zakłady Górniczo-Hutnicze Orzeł Biały S.A. are responsible for the dewatering of the area of the Bytom Basin (that is to say, they are not under a legal obligation to carry out such work) as they do not hold, and have never held a licence, to extract minerals, have not operated a mine and have never been entitled to carry out mining activities regulated by the relevant mining laws. Therefore, they are neither enterprises within the meaning of the applicable provisions of the geological and mining laws, nor successors of mining operators.

32. Mention should be made that the central pumping station owned and operated by CP Bolko does not de-water any closed or active coal mines.

33. There are 11 (eleven) closed coal mines in the Bytom Basin. The closed coal mines formed part of currently closed mining enterprises (sole-shareholder companies of the State Treasury), i.e. Bytomska Spółka Węglowa S.A. (Bytom Coal Company) and Rudzka Spółka Węglowa S.A. (Ruda Śląska Coal Company). They are now owned by Spółka Restrukturyzacji Kopalń S.A. (Mine Restructuring Company), a sole-shareholder company of the State Treasury established in 2000, which took over coal mines under liquidation to carry out their closure and post-closure activities, protect adjacent mines against water, gas and fire hazards during and after the closure of mines, and repair damage caused by closed mines, including damage caused by reopening old workings.

6 OJ L 327, 22.12.2000, p. 1–73

7

34. There are 2 (two) operational coal mines in the Bytom Basin. They form part of the mining enterprise Kompania Węglowa S.A. (Coal Mining Company) (a sole-shareholder company of the State Treasury).

35. Excavation voids in all coal mines in the Bytom Basin are affected by water accumulation, including excavation voids in mines that have already been closed and those in mines where coal is still extracted. Both operational mines pump mine water that accumulates during mine operation with their own equipment and infrastructure. Mine water accumulated as a result of the operation of closed coal mines in the Bytom Basin is pumped by ‘Centralny Zakład Odwadniania Kopalń’ (Central Department of Mine Drainage), which forms part of Spółka Restrukturyzacji Kopalń S.A.

36. The aim of the operations carried out by CP Bolko is not to drain specific operational coal mines that extract coal from beneath zinc and lead ore excavation voids, but to prevent water hazards. Flooding poses a threat not only to the Bytom and Piekary Śląskie towns, but also to the operational coal mines. Flooding of metalliferous excavation voids could cause uncontrolled water inflow into excavation voids of the operational coal mines and, consequently, threaten the lives of the crew and the mine’s operations.

37. While the above-mentioned threats are caused by the extraction of zinc and lead ores as well as coal, Kompania Węglowa S.A., which extracts coal from beneath former zinc and lead ore mines, is not legally responsible for the drainage of excavation voids that formed part of closed zinc and lead ore mines. This company is responsible for pumping groundwater flowing into excavation voids that form part of the coal mines it owns. Moreover, due to the positioning of the mines, no equipment of the active coal mines could drain the water in the former metaliferous mines as these are above the coal deposits. The Bytom Basin contains Triassic rocks, in which deposits of non-ferrous metals (zinc and lead ores) are located, as well as Carboniferous formations situated much deeper, in which the coal deposits are located. These layers are separated by layers of the so-called Gogolin beds (confining layers), which originally constituted an insulation shelf protecting from the water inflow from the zinc and lead ore mines to the coal mine workings situated below (see cross-section representation below).

8

38. Reportedly, CP Bolko can only drain water accumulated in the closed zinc and lead mine workings, but not in the closed coal mines located below (in the Carboniferous rocks marked with letter C). The coal mines are not hydrologically interconnected with ore mine workings in the way that would allow a general flow by gravity of the water accumulated in the coal mines towards the drainage station of CP Bolko.

39. The Polish authorities argue that there are no parties responsible for the liabilities of any state-owned mining enterprises which owned closed zinc and lead ore mines regarding the closure of these mines. The zinc and lead ore mines were closed in accordance with the Decree of 6 May 1953 — Mining Law (Journal of Laws of 3 March 1978). All required closure activities provided by the Decree were completed for all zinc and lead ore mines by the end of 1991.

40. The Mining Law Decree did not include provisions that regulated the issue of preventing damage. This created a loophole in the law whereby, if mining enterprises had been closed down no entity was legally responsible for mining damage. In such circumstances, in view of the fact that public security was threatened and that the State Treasury was the owner of closed state-owned mining enterprises and the beneficiary of mining activities carried out by those state-owned enterprises, it was presumed to be responsible for remedying the mining damage.

The dewatering company

41. The sole task of CP Bolko is to carry on dewatering operations in the Bytom Basin for the purpose of ensuring safety in the region. CP Bolko does not carry on any other activity, including commercial activities, and therefore it generates no revenue. Its only source of funding is a grant

9

that it receives for the dewatering works. In addition, CP Bolko owns the central pumping station and all assets and equipment afferent to it and employs only essential staff.

42. CP Bolko ensures continuous operation of pumping plant infrastructure and equipment. The Act on Grants Awarded to Certain Entities (Article 3(4) of this Act) from 30 August 2013 designates CP Bolko for the dewatering works in the Bytom Basin and lists a series of activities that CP Bolko needs to ensure in order for the financing to be obtained.

43. CP Bolko's main activities are the following:

• inspections and ongoing assessment of the technical condition of the central pumping station,

• identification of investments necessary to ensure proper operation of the pumping station, for example determining whether specific technical components, equipment, etc. need to be purchased,

• ensuring an appropriate response in the event of a failure (in such an event, CP Bolko is obliged to organise and run an emergency operation),

• supervising the drainage station (in compliance with the provisions of the geological and mining law).

44. At the same time, CP Bolko undertakes a series of activities in order to ensure compliance with the water law permit including maintaining all water equipment and structures in good working condition.

45. In accordance with its needs CP Bolko tenders out a series of services. The scope of the necessary works (repairs, modernisation, removal of failures, and purchases) is specified in material and financial plans submitted to the Ministry for the Economy. CP Bolko selects, in accordance with the provisions of EU and Polish public procurement law, entities that are to carry out the specific works and activities.

46. As part of general management activities, CP Bolko carries out the following organisational and administrative activities by itself:

• carrying out public procurement procedures, concluding contracts and following the performance thereof in relation to external services provides,

• controlling external entities, • carrying out administrative services, including accounting for obtained budget grants, • preparing action plans for a given year, material and financial reports.

47. Due to the importance of the proper functioning of the central drainage station for ensuring the public safety, the activity of CP Bolko is subject to monitoring and consultations from the side of the public state authorities, local authorities and the mining supervision bodies.

48. The Polish authorities argue that CP Bolko, although it is a private company that does not achieve a profit, has a regulatory obligation to perform the dewatering works. There is no possibility that CP Bolko - as long as the infrastructure of the central pumping station belongs to it and it is entrusted with the drainage of mine workings - could decide to withdraw from performing these works.

49. Reportedly, the pumping station is a complex of infrastructure which has been built with the sole aim to dewater the Bytom Basin (post mining activities after the liquidation of the mining enterprises) in execution of the State's duty and financed by the State. Regardless of the changes

10

and developments in its corporate status, CP Bolko has always been entrusted with the drainage of the Bytom Basin in order to guarantee public safety in the region. Operating the central pumping station is not just a matter of an authorization, but the sole function of CP Bolko.

50. The Act of August 30, 2013 (as well as the previous Act of February 16, 2006) together with the agreements concluded with CP Bolko set forth a regulatory mechanism which determines CP Bolko's obligations and their content, duration, financing and the procedure for determining and obtaining the financing. Moreover, the agreements concluded by CP Bolko with the Ministry of Economy cannot be unilaterally terminated.

51. The legislative acts also mention CP Bolko's name as the entity entrusted with the performance of the drainage works and the only one entitled to the afferent financing. The exact amount of funds designated per year for the performance of the drainage works, under the Act of August 30, 2013, is determined in the Budgetary Act that is yearly adopted. The name of CP Bolko is also mentioned in the Budgetary Act due to the fact that the funds for the drainage works are earmarked for it. The amounts of funds actually granted to CP Bolko for the performance of the dewatering activities, on the basis of the works actually performed and the verified expenses incurred in the settlement period, is published in an yearly report prepared by the Council of Ministers which is released on the website of the Minister of Finance.

52. The Polish authorities stress that even a short break in the operations of the central pumping station (approximately 8-12 hours) would have severe consequences leading to public danger, including damages, as well as a potential threat to the population of the region (flooding of the surface area, uncontrolled creation of water reservoirs, flooding the neighboring mines, etc.). Although a privately owned company, CP Bolko's management cannot, on its own discretion, decide to cease the drainage operations as this could lead to serious consequences leading to possible criminal charges.

Tenders

53. Services in respect of the dewatering of excavation voids (pumping services), renovation and modernisation of existing facilities, as well as other ancillary services, are provided by entities selected under public procurement procedures organized in compliance with EU and Polish public procurement rules. CP Bolko organizes tenders open to all potentially interested parties.

54. Entities that win tenders for services covering the drainage of excavation voids (pumping services), renovation and modernisation of existing facilities as well as other ancillary services are subject to ongoing control as regards the material scope of works performed and the correct use of budget grants obtained for this purpose. Furthermore, due to the fact that drainage works are carried out using an underground pumping station located at the 129 m below ground level, they are subject to the provisions of the Geological and Mining Law and the rules implementing this Act. Thus, companies selected by way of a public tender are required to carry out drainage, renovation and modernisation works in compliance with the above-mentioned provisions. These works are directly supervised by CP Bolko. Their performance is also controlled by Polish mining supervision authorities, i.e. the Regional Mining Office (Okręgowy Urząd Górniczy) in Gliwice and the Specialist Mining Office (Specjalistyczny Urząd Górniczy).

11

The annual plan

55. Each year CP Bolko draws up a plan of operations for the next year that it submits to the Ministry of Economy. This represents the ex-ante control of CP Bolko's activities. The plan ensures the control of the following:

• comparing the costs of works indicated in the annual plan to the costs incurred in the previous years for the performance of similar works and the analysis of the reasonableness of a potential increase,

• for the electricity costs, the amount of water pumped out in the period of the last three years, the costs of drainage of 1 m3 of water in the past year, as well as the predicted increase of the price of electricity in the given year are taken into account,

• verification if the planned checks of the machines and other devices stem from legal provisions,

• verification if the planned purchase of new machines and other devices to replace machines (devices) still being operated is more appropriate than repairing the devices that are still in use,

• verification if the planned repair of the machines or of other devices is appropriate, of the repair costs estimations, and if CP Bolko researched market prices and compared the costs of repairs to the total costs of purchasing new equipment,

• verification of the planned costs of the fee for the water discharge: the amount of the water being drained and the amount of the fee in the past year, the forecast of expected amount of the water inflow in the given year, as well as the amount of the environmental fees announced by the Ministry of Environment for a given year.

• verification of the cost estimations of works based on the initial research of the market conditions made by CP Bolko (price enquiries need to be sent to minimum three contractors).

• verification of the remunerations to the employees: the basic salary, social security contribution, planned rise of remunerations in a given period, bonuses etc.

Financing

56. As the drainage of the Bytom Basin cannot be suspended these tasks have been and must be continuously financed.

57. Since the beginning of the operation of the central pumping station, drainage operations have been financed with budget grants awarded by the Ministry of Treasury and the Ministry of the Economy.

58. Since 2006 the measure is financed by way of annual grants. As per the Act of 30 August 2013 on Grants Awarded to Certain Entities, CP Bolko is designated as the entity carrying out drainage of metalliferous excavation voids in the Bytom Basin and is to receive budget grants for this purpose. In accordance with Article 5(3) of the Law, the grants for the dewatering of the inactive excavation voids are paid at the request of the entity performing the

12

dewatering tasks. Prior approval by the Ministry of Economy of the annual plan of the dewatering activities including their material and financial scope is required for financing to be obtained.

59. The budget for the period 2014 to 2020 is 112 million PLN with a yearly budget of 16 million PLN (approx. 3.8 million EURO). In 2013, drainage operations were financed under the contract of 1 February 2013 for financing activities concluded between the Ministry of Economy and CP Bolko. For 2013, CP Bolko was awarded a grant of PLN 15 224 400 in total, amount which includes the price for the services provided by external entities.

60. CP Bolko needs to enter each year into a contract with the Ministry for the Economy as regards its obligations and the use of the grants. It is also subject to the control of the use of budget allocations carried out by the Ministry.

61. The procedure establishing the level of the subsidy granted to CP Bolko to cover the costs of drainage operations is set forth in: (i) the act of August 30, 2013 on the subsidy for certain entities7, and (ii) the yearly agreements concluded between CP Bolko and the Ministry of Economy, under which CP Bolko is entrusted with the drainage operations (the agreements constitute a basis for granting a subsidy).

62. The grant is to be paid in monthly instalments, into a separate bank account set up for this purpose. Each month, CP Bolko requests the Ministry of Economy for an advance payment for performing the tasks set out in the approved annual plan. The receipt of the subsequent advance is subject to the grant instalment received in the previous month being accounted for. In addition, on or before 20 February of the following year, CP Bolko is to submit to the Ministry of Economy the annual material and financial accounts and a report on the implementation of the annual plan.

Control over the use of the financing

63. The use of the funds is subject to strict control. This control is exercised by the Ministry of Economy and ensures: the proper use of the funds, conformity of the expenditure with the intended use and the implementation of the material scope of the tasks.

64. Grants for drainage works awarded to CP Bolko can be used only for this purpose. In accordance with the contract entered into with the Ministry for the Economy, the Ministry is entitled to terminate the contract with immediate effect if CP Bolko uses the grants obtained for other purposes. If CP Bolko breaches the contract it is obliged to reimburse the grant together with interest at a rate equal to that determined for tax arrears. CP Bolko does not make any profit as the grants only cover the costs of drainage works and any surplus of expenditure is returned to the bank account of the Ministry of the Economy. Appendix I provides for a detailing of the costs of the drainage works incurred by CP Bolko and the grants received.

65. CP Bolko is obligated to submit monthly reports containing the material and financial accounts for the performed tasks or activities to the Ministry for the Economy. Annual material and financial accounts together with an annual report on performed activities must be submitted by 20 February of the following year. If activities are not performed or reports are not submitted, the Ministry suspends payment of subsequent grant instalments until the situation is remedied.

66. The aim of the ex-post effective control mechanism is to ensure that the subsidy granted for the drainage operations does not exceed the necessary scope of works and reasonable costs of

7 An analogous procedure was provided by the previous act of February 17, 2006 on the subsidy for certain entities.

13

such works. In general, the mechanism is based on a combination of expected and incurred costs of drainage operations in a given year. The Ministry predefines the maximum amount of the grant that cannot be exceeded, based on the scope of works presented in the annual plan and the amount of the expected costs (as verified and accepted by the Ministry). Subsequently, CP Bolko is obliged to verify the estimated costs during the year and modify the annual plan in accordance with the updated predictions as to the scope of works and necessary costs. The level of grants to cover the necessary works and costs involved is controlled and adjusted on an ongoing basis (the final settlement of the use of the subsidy in conducted at the end of a given year). Finally, the scope of actually performed works and incurred costs is controlled by the Ministry and constitute a basis for the final settlement of the annual subsidy granted to CP Bolko.

67. The Ministry of Economy also monitors, by way of a specialized company, the correct use of the subsidy, i.e. the accuracy of the subsidy usage for the draining operations. The findings of the control are included in the detailed reports filed to the Ministry of Economy. In case any irregularities are discovered, the Ministry of Economy issues recommendations to CP Bolko. CP Bolko is obliged under the agreement to implement the recommendations and to inform the Ministry about the actions taken in that respect. The implementations of and compliance with the recommendations is subsequently also monitored.

68. The verification of CP Bolko's planned and incurred costs is conducted in two stages with the use of different methods. The key methods, depending on the type of works, used in order to estimate and verify the costs are: price inquiries, market surveys and the comparative method (estimation of the future costs based on a comparison of necessary works performed in the previous period and their costs, to the scope of necessary works planned for the given period). The first stage of the costs verification takes place during the ex-ante control, i.e. the analysis of the annual plan filled by CP Bolko as described in recital 55. The second stage of the costs verification takes place during a given year at CP Bolko premises operations, the ex-post control, and consists of inter alia:

– a detailed analysis of the documents in the possession of CP Bolko, which confirms that a particular costs covered by the budgetary resources, as well as a work performed on the basis of the annual plan was made in a purposeful and cost-effective manner,

– verification if before the assignment of the repair / overhauls of a machine or other device CP Bolko analyzed the economic viability of such repair,

– verification if the prices of materials used for the purpose of repairs and modernizations do not depart from the market prices,

– verification if the estimation of costs of repairs or a purchase of new machines and/or devices indicated in the annual plan has been preceded with a research of market conditions / prices,

– verification if the replacement of a machine and/or a device is justified by occurring breakdowns,

– verification if the contractors for the services performed for CP Bolko have been selected in compliance with the rules specified in the Public Procurement Law,

– verification if the certificates and approvals were enclosed to the materials installed in the repaired machines and devices and if the producer have granted a guarantee for these materials.

69. Until the present, there was no situation in which CP Bolko breached its obligations related to the financing. CP Bolko was never obliged to refund any part of the grant on this basis.

14

70. However, there have been situations in which the budgetary funds (granted duly based on the verified and accepted plan of operations) were not fully used for the drainage operations as the incurred costs were lower than the costs predefined at the beginning of the year. CP Bolko, therefore, refunded the unused part of the grant. Between 2006 and 2013, CP Bolko was granted a grant for the planned expenditures in a total amount of 111 793 151.65 PLN, which covered costs equal to 110 599 899.60 PLN in total. The surplus of the funds granted to CP Bolko amounted to 1 193 252.05 PLN and was returned by CP Bolko to an account of the Ministry of the Economy. CP Bolko is not obligated to pay interest for the unused amounts.

Year Subsidy granted

(PLN) Costs incurred (PLN)

The surplus (PLN) (subsidy returned by

CP Bolko)

2006 12 000 000,00 11 997 980,23 2 019,77

2007 12 000 000,00 11 918 913,74 81 086,26

2008 12 000 000,00 11 963 210,73 36 789,27

2009 11 948 472,00 11 905 299, 76 43 172,24

2010 14 381 500,00 14 338 361,39 43 138,61

2011 18 389 642,00 18 330 200,53 59 441,47

2012 15 849 120,10 15 484 271, 58 364 848,52

2013 15 224 417,55 14 661 661,64 562 755,91

Total: 2006 – 2013

111 793 151,65 110 599 899,60 1 193 252,05

The Transparency Directive

71. The Polish authorities confirmed that in case, in the future, CP Bolko commences an activity other than the dewatering in the Bytom Basin or the infrastructure of the pumping station is transferred to another entity, which would pursue activities other than dewatering operations (including commercial activities) the Polish authorities will ensure that:

(i) A separate accounting will be kept with respect to dewatering operations in the Bytom Basin so that the cross-subsidising of other (including commercial) activities carried out by that entity will be avoided. Moreover, the relevant entities will be obliged to comply with the Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings, as well as the relevant act implementing the above-mentioned Directive into the Polish law.

(ii) The accounts will show the distinction between activities, including a separation of costs and revenues associated with the drainage activities and those related to other activities.

15

(iii) The costs of dewatering will cover all direct costs, which are necessary to carry out drainage operations, as well as an appropriate proportion of indirect costs related to both: the drainage operations and other types of activities. Where possible, market prices will be used as a basis for a calculation of the proportion of indirect costs in the total costs of dewatering.

Efficiency incentives

72. The Polish authorities argue that the Act of 30 August 2013 on Grants Awarded to Certain Entities, as well as the agreement concluded by CP Bolko as regards the performance of the drainage operations concluded with the Ministry of Economy include two mechanisms aimed at ensuring that the drainage operations are performed efficiently and at high standards.

73. The first mechanism is the upfront calculation of the maximum subsidy to cover the drainage operations in a given year. The amount of the expected costs as verified and accepted by the Ministry is often lower that the predicted costs initially described in the material – financial plan of works submitted by CP Bolko. This forces CP Bolko to perform works in the most economically viable manner (particularly CP Bolko is required to select the most economically advantageous tenders for a performance of particular works, to negotiate prices given by the services providers at the stage when the price inquiries were made, as well as to verify on an ongoing basis the scope of necessary repairs, modernizations and purchased assessed and described in the annual plan of works).

74. CP Bolko is also subject to the mechanism of detailed ex-post control, which ensures that the drainage operations are carried on in an effective manner and at high standard (according to the time schedule of works).

Possible changes in the dewatering set-up 75. Carrying out the drainage operations of the water accumulating in the closed zinc and lead mine workings in the Bytom Basin requires full access to the complex infrastructure of the central pumping station designed and set up for dewatering (including the underground infrastructure connected with the closed mine workings together with the access to the water galleries and pipelines).

76. The decision to build the central station designed to dewater all closed mine workings in the Bytom Basin was preceded by a detailed mining-hydrogeological analysis and based on the experiences of drainage services in ore mines. Based on the analysis it was concluded that it would be technically and economically justified to arrange one centralized station of draining for all ore workings. Additionally, the construction of the pumping station was chosen at the Bolko shaft, which is located in an area of dense and consistent infrastructure in the northern part of the Bytom city. This was due to the lower risks for surface subsidence in this location ensuring a longer life of the central pumping station.

77. The tendering out or the assignment of drainage works to another entity would require the construction of an alternative central pumping station, which - because of the size of the ore workings dewatered by CP Bolko pumping station and the complex construction of the pumping infrastructure which is interconnected through the underground water galleries and cut-throughs

16

with the workings – would require extensive underground works (including digging a shaft and water galleries that would connect the workings with the alternative pumping station).

78. Such works would not be justified from an economical perspective (as there is already an existing infrastructure built for the purpose of draining the ore workings in the Bytom Basin), ecological perspective, and might not ensure the safety of the central pumping station at a level similar to the safety of CP Bolko infrastructure as it occupies the most appropriate location.

79. Moreover, as the central pumping station cannot be stopped due to flooding risk, any new infrastructure would have to be built while the current pumping station is operating, thus entailing unnecessary costs.

80. The Polish authorities contend that it would have been difficult, or even impossible, to conduct a tender procedure instead of setting up a special purpose vehicle for the drainage works. This is due to the fact that the continuous operation of the pumping station must be ensured at all times and the winner of the tender would have had, each time, to apply for all environmental and mining permits for the drainage. 81. The Polish authorities argue that the objective mechanism used to calculate and verify the costs predicted (on the basis of the upfront calculation) and incurred by CP Bolko each year, as well as the detailed monitoring and ex-post control mechanism, ensure that the drainage operations are performed effectively and at high standards. As it is provided by the law, the same control mechanism would apply to the same extent to any entity operating the central pumping station at the Bolko shaft. Therefore, CP Bolko cannot be considered less efficient than any other potential company to which the drainage operations could be assigned if it had the use of the necessary infrastructure.

17

3. ASSESSMENT OF THE EXISTENCE OF STATE AID WITHIN THE MEANING OF ARTICLE 107(1) TFEU

82. Under Article 107(1) TFEU, 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, in so far as it affects trade between Member States, is incompatible with the internal market.

83. The different cumulative elements included in the definition under Article 107(1) TFEU as comprising the notion of State aid are: the existence of an undertaking, the imputability of the measure to the State, its financing through State resources, the grant of an advantage, the selectivity of the measure and its potential effect on competition and trade within the Union.

84. The Polish authorities argue that the measure does not entail any selective advantage to CP Bolko. The Commission has therefore assessed the existence of an advantage.

85. The Court of Justice has set out the 'Altmark' criteria to clarify under what circumstances a compensation provided by a public authority for the performance of a Service of General Economic Interest ('SGEI') qualifies as State aid under Art 107(1) TFEU.8

86. In particular, the Court stated that four criteria must all be met for compensation provided for a SGEI not to constitute State aid. Those conditions are cumulative, and are as follows.

i. The recipient undertaking must actually have public service obligations to discharge and the obligations must be clearly defined;

ii. The parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner, to avoid it conferring an economic advantage which may favour the recipient undertaking over competing undertakings;

iii. The compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations; and

iv. Where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with the necessary means, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations.

87. The Commission has further clarified the conditions under which public service compensation is to be regarded as State aid in its Communication on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (‘the SGEI Compensation Communication’).9

8 Case C-280/00, Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, paragraphs 87 to 93. 9 Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest, 2012/C 8/02, OJ C 8/4 of 11 January 2012.

18

The First Altmark Criterion

88. The first Altmark criterion is fulfilled when it is established that there is a defined service of general economic interest (SGEI) task for the purposes of Article 106 of the Treaty which is entrusted to one or more undertakings.

89. In the absence of specific Union rules defining the scope for the existence of an SGEI, Member States have a wide margin of discretion in defining a given service as an SGEI and in granting compensation to the service provider. The Commission’s competence in this respect is limited to checking whether the Member State has made a manifest error when defining the service as an SGEI and to assessing any State aid involved in the compensation10.

90. The Commission considers that it would not be appropriate to attach specific public service obligations to an activity which is already provided or can be provided satisfactorily and under conditions, such as price, objective quality characteristics, continuity and access to the service, consistent with the public interest, as defined by the State, by undertakings operating under normal market conditions. As for the question of whether a service can be provided by the market, the Commission's assessment is limited to checking whether the Member State has made a manifest error11. The Commission also considers that the services to be classified as SGEIs must be addressed to citizens or be in the interest of society as a whole12.

91. The dewatering works in the Bytom Basin have as purpose safeguarding public safety. They ensure that the local area (the cities of Bytom and Piekary Śląskie) are protected against flooding or swamping and avoid that third party coal mine workings overflow, underground water reservoirs are created and the water pumping station is irreversibly damaged. The works need to be continuous and cannot be stopped for longer than 8 to 12 hours. The works are addressed to the public, i.e. the inhabitants of the area and the workers in the active coal mines and are performed in the interest of society so that serious damages are avoided.

92. The pumping station was built and commissioned after the cessation of mining activities as an independent common central drainage station, unrelated to the functioning of one single mine. The decision to build the central pumping station at the Bolko shaft took into consideration the hydrological and geological analysis. The location was chosen as land subsidence was not expected to exceed several meters, ensuring a longer life to the pumping station.

93. Due to its location at the Bolko shaft, the pumping station was originally owned by the undertaking having the property of the shaft, but later underwent several ownership changes. All mine activities in the area concerned have been stopped due to full exploitation and the former mining companies have been liquidated. Therefore, no entity can be held legally responsible for the mining damage and the State needed to step in swiftly and ensure the dewatering activities in order to prevent public danger. The Polish State clearly undertook the responsibility for the dewatering works as a last resort solution as there were no entities liable for the dewatering works and as the non-performance of the works would lead to immediate significant damages. Moreover, the mines as well as the companies operating them were formerly State owned. Thus, the Polish State does not undertake any liabilities for private operators.

10 SGEI Compensation Communication, point 46. 11 SGEI Compensation Communication, point 48. 12 SGEI Compensation Communication, point 50.

19

94. It therefore follows that the dewatering works of the non-ferrous metals mines in the Bytom Basin would not have been provided at all under normal market conditions as there are no entities liable for such works.

95. The sole task of CP Bolko is to carry on dewatering operations in the Bytom Basin for the purpose of ensuring safety in the region. As described in recitals 41 to 52, CP Bolko performs the dewatering works on the basis of the Act of 30 August 2013 on Grants Awarded to Certain Entities and the annual agreements concluded with the Ministry of Economy. The Act imposes a regulatory obligation and designates CP Bolko as the entity entrusted with carrying out drainage of metalliferous excavation voids in the Bytom Basin being entitled to receive budget grants for this purpose. The Act also lists a series of activities that CP Bolko needs to ensure in order for the financing to be obtained.

96. CP Bolko is the owner of the central pumping station and has as only income the financing of the drainage works. Although a privately owned company, CP Bolko's management cannot, on its own discretion, decide to cease the drainage operations as this could lead to serious consequences leading to possible criminal charges.

97. The Act of August 30, 2013 (as well as the previous Act of February 16, 2006) together with the agreements concluded with CP Bolko set forth a regulatory mechanism which determines CP Bolko's obligations and their content, duration, financing and the procedure for determining and obtaining the financing. The yearly agreements concluded by CP Bolko with the Ministry of Economy bound CP Bolko with the dewatering obligations in a specific year as soon as they are concluded and cannot be unilaterally terminated.

98. CP Bolko is also mentioned in the Budgetary Act that is yearly adopted as the funds designated for the drainage works are earmarked only for it.

99. The Commission therefore considers that the Act of August 30, 2013, the yearly contracts with the Ministry of Economy and the Budgetary Act constitute the instruments where the public service task of CP Bolko is laid down. They contain: (i) the content and duration of the public service obligation, and in particular the annual agreements provide the specific annual obligations of CP Bolko; (ii) the name of CP Bolko and a reference to the Bytom Basin, (iii) a detailed description of CP Bolko's obligations, (iv) the parameters for calculating the compensation for the services and (v) the arrangements for avoiding and recovering overcompensation.

100. In the case at hand it could be argued that CP Bolko is involved each year in the entrustment of its obligations as it has to execute the annual agreement with the Ministry of Economy and draw up the annual plan for the works in order to be finally entrusted with the specific obligations for the respective year. The Commission has, however, acknowledged that the involvement of the service provider in the process by which it is entrusted with a public service task does not mean that that task does not derive from an act of public authority, even if the entrustment is issued at the request of the service provider13.

101. The Commission concludes, on the basis of the above, that the first Altmark criterion is met in the case at hand as CP Bolko is entrusted with a properly defined SGEI and has public service obligations to discharge.

The Second Altmark Criterion

13 SGEI Compensation Communication, point 53.

20

102. The second Altmark criterion requires that the parameters for calculating the compensation must be established in advance in an objective and transparent manner in order to ensure that they do not confer an economic advantage that could favour the recipient undertaking over competing undertakings14. This means that it should be clear from the outset how the compensation is determined.

103. The compensation for the dewatering services aims at covering all cost items of CP Bolko. The mechanism and parameters of the scope of the costs for the dewatering services are provided by the Act of August 30. The maximum of the budgetary subsidy for the drainage operations is determined at the beginning of each year by the State budget. A more detailed assessment of the amount of the subsidy and the scope of costs appears in the annual plan of operations presented by CP Bolko which must be verified and accepted by the Minister of Economy at the beginning of each year after the budget is adopted. After this procedure, the yearly agreement with the Minister of Economy is concluded. Once the agreement is signed the only costs that can be covered are those that have been included in the annual plan and there is no room for later discretionary adjustments.

104. Therefore, the parameters of the compensation are established in an objective manner because they are based solely on the costs that need to be covered in order to discharge the water from the ore workings and they are known in advance, i.e. before the yearly agreement is signed. Moreover, as the financing the drainage works by the State constitutes a disposal of public funds, it must be compliant with general principles provided by the Act on Public Finance of August 27, 2009, inter alia, with the principle of transparency and openness. The Act of August 30 and the yearly budget are pieces of legislation that are published in the Official Journal. The rest of the documents may be accessed by the public by way of a request under the Act of September 6, 2001 - the Law on Access to Public Information.

105. CP Bolko is not offered any profit as part of its compensation. Moreover, the financing for the dewatering works represents the only revenue that CP Bolko obtains and, thus, there is no requirement for revenues deduction.

106. The compensation received by CP Bolko is reviewed each year by the Ministry of Economy and the correct use of the financing is monitored by a specialized company acting on behalf of the Ministry of Economy. The review mechanism is provided by the Act of August 30, 2013 and the yearly contracts concluded by CP Bolko with the Ministry of Economy and the recovery mechanism is subject to Article 169 (1) of the Act on Public Finance as regards subsidies granted from the State budget and the Act of December 17, 2004 on the liability for breach of public finance discipline.

107. Since its construction, CP Bolko was an organizationally separated system (a complex of devices and infrastructure separated from other assets), but not a separate legal entity. During the ownership changes of the company, the continuous operations of the pumping station by way of the organization of drainage works, repairs and maintenance, water treatment and discharge were ensured. The Polish authorities allege that the incorporation of CP Bolko as a separate company eased the financial control of the activities due to the full separation of the drainage operations (considered a non-economic activity) from the commercial activities carried out by the owner of the Central Pumping Station Bolko, that is Orzeł Biały S.A. specializing in the recycling of used batteries. This separation guarantees the transparency of the book records and accounts of CP

14 SGEI Compensation Communication, point 54.

21

Bolko, which are only related to dewatering operations and thus secure open and transparent financing of the operations without the need for a special investigation in this respect.

108. As described in recital 71, the Polish authorities undertook that they will ensure separation of accounts and a correct allocation of costs even if, in the future, CP Bolko commences an activity other than the dewatering in the Bytom Basin or the infrastructure of the pumping station is transferred to another entity, which would pursue activities other than dewatering operations.

109. Consequently, the Commission concludes that the second Altmark criterion is met.

The Third Altmark Criterion

110. According to the third Altmark criterion, the compensation must not exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit15.

111. As mentioned above the compensation for the dewatering works covers only the costs incurred with the works and does not include any profit for CP Bolko. No cross-subsidization is possible as CP Bolko does not perform any other activities. For the future this is ensured by the undertaking of the Polish authorities as regards the separation of accounts and cost allocation.

112. The ex-ante and ex-post assessment mechanisms of the costs and activities of CP Bolko, as described in recitals 55 to 70 ensure that the compensation covers only the costs incurred by CP Bolko that correspond to tasks actually performed by it. Especially the ex-post monitoring ensures that CP Bolko is not overcompensated and as a result it has had to pay back the unused part of the subsidy each year from 2006 to 2013.

113. The Commission, therefore, concludes that the third Altmark criterion is met.

The Fourth Altmark Criterion

114. In accordance with the fourth Altmark criterion, the compensation offered must either be the result of a public procurement procedure which allows for selection of the tenderer capable of providing those services at the least cost to the community, or the result of a benchmarking exercise with a typical undertaking, well run and adequately provided with the necessary means16.

115. The State has entrusted the dewatering works to CP Bolko, i.e. the entity owning the pumping station, while maintaining full administrative ex-ante and ex-post control over the activity and ensuring its adequate performance. The Polish authorities consider that the dewatering activity requires supervision by one single entity due to its complex nature and importance and to ensure regulatory coherence as regards the permits and authorizations for the dewatering.

116. CP Bytom is the owner of the pumping station and the only entity currently able to perform the dewatering works. Due to the positioning of the current central pumping station at the optimal location and the requirement for its continuous functioning, it appears that no possibility exists for the Polish State to tender out the dewatering services to an alternative operator. The choice of any other services provider would entail additional unnecessary costs which are not

15 SGEI Compensation Communication, point 60. 16 SGEI Compensation Communication, point 62.

22

justified from an economic perspective as explained in recitals 75 to 80. The Commission acknowledges that no tender is feasible in the case at hand.

117. The Commission therefore has to ensure that the cost for the dewatering services that are compensated by the Polish State represent in fact the least cost to the community by being in line with the costs a typical undertaking, well run and adequately provided with the necessary means would incur. Where a generally accepted market remuneration exists for a given service, that market remuneration provides the best benchmark for the compensation in the absence of a tender17.

118. CP Bolko performs the activity on the basis of pure cost recuperation from the Polish State. It is closely controlled in all respects by the Polish Ministry of Economy which ensures that the activities are performed at the cost level. A series of services exclusively related to the water pumping activity are tendered out by CP Bolko in compliance with EU public procurement rules.

119. The works entrusted to CP Bolko are either performed by itself or, as mentioned above, tendered out. As regards the costs for the works tendered out, as the tenders are organized in compliance with EU public procurement rules there is no reason for the Commission to doubt that these represent the market remunerations for the respective services.

120. Moreover, as all active or closed mines have to perform dewatering works to a certain extent depending on the geological conditions of their location, although such services are provided in house by the mining companies or by their successors, there are market benchmarks for the comparison of the cost detailing of such services.

121. The Polish authorities check, firstly, ex-ante the amounts and the actions proposed by CP Bolko in the annual plan against the prices for similar works and services on the market by way of price inquiries for costs estimations to minimum three contractors. The Polish authorities also check the appropriateness of the planned measures in order to ensure that the most economically sound activities are undertaken, taking into account the need for the dewatering works to be carried out at high standards. No unnecessary equipment replacements or refurbishing are allowed.

122. As part of the ex-post control the nature of the costs for the undertaken works is assessed. The verification of incurred costs takes place by way of price inquiries, market surveys and the comparative method (estimation of the future costs based on a comparison of necessary works performed in the previous period and their costs, to the scope of necessary works planned for the given period). In particular, the ex-post control consists of assessing whether CP Bolko analyzed the economic viability of the repairs performed and whether the prices incurred depart or not from the market prices.

123. The ex-ante and ex-post control mechanisms ensure that the Polish State has leverage to cause CP Bolko to act in the most economically viable manner incurring reasonable the costs of a well-managed undertakings as to ensure the proper standards for the dewatering works.

124. Therefore, the fourth Altmark criterion is met as regards the measure at hand.

125. Consequently, the Commission considers that the financing of the dewatering of excavation voids of former non-ferrous metal mines in the Bytom Basin cumulatively fulfils the

17 SGEI Compensation Communication, point 69.

23

four Altmark criteria and does not entail a selective advantage to CP Bolko. The Commission finds that the measure does not amount to State aid.

4. CONCLUSION The Commission has decided, on the basis of the foregoing assessment, that the measure does not constitute aid. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm. Your request should be sent by registered letter or fax to:

European Commission Directorate-General for Competition Directorate for State Aid State Aid Greffe 1049 Brussels Belgium Fax No: (0032) 2-296.12.42

Yours faithfully,

For the Commission

Joaquín ALMUNIA Vice-president

24

Appendix I

The fee for water discharge is the fee charged for the water permit under the Water Law Act.

25

26