State aid: Commission opens in-depth investigation into public support for expansion of LG Chem’s electric vehicles battery plant in Poland

This article is brought to you in association with the European Commission.

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The European Commission has opened an in-depth investigation to assess whether €95 million of public support granted by Poland to chemical company LG Chem Group (“LG Chem”) for investing in the expansion of its battery cell production facility for electric vehicles (EV) in Biskupice Podgórne in the Dolnoślaskie region (Poland) is in line with EU rules on regional State aid. Commissioner Margrethe Vestager, in charge of competition policy, said: “EU State aid rules enable Member States to foster economic growth in disadvantaged regions in Europe. At the same time, we need to ensure that the aid is really needed to attract private investments to the region concerned, and avoid that the recipient of the aid gains an unfair advantage over its competitors at the expense of taxpayers. We will carefully investigate whether Poland’s support was necessary to trigger LG Chem’s decision to expand its existing cell production facility in Poland, is kept to the minimum necessary and does not distort competition or harm cohesion in the EU.” In 2017, LG Chem decided to invest more than €1 billion in the expansion of its production capacity of lithium-ion cells and battery modules and packs for electric vehicles in its existing plant in the Dolnoślaskie region of Poland. In 2019, Poland notified the Commission of its plans to grant €95 million of public support for the expansion. EU State aid rules, in particular the Commission’s 2014 Regional State Aid Guidelines, enable Member States to support economic development and employment in the EU’s disadvantaged regions and to foster regional cohesion in the Single Market. The measures need to fulfil certain conditions to make sure that they have the intended positive effect. This includes that the support must incentivise private investment, be kept to the minimum necessary, must not lure away investment from a region in another Member State which is at least as disadvantaged (“anti-cohesion effect”) and must not be directly causing the relocation of activities (such as jobs) to the Member State granting the support from elsewhere in the EU. At this stage, the Commission has doubts that the planned public support of €95 million to LG Chem for the expansion of the Biskupice Podgórne plant complies with all relevant criteria of the Regional Aid Guidelines. In particular:

• the Commission has doubts about whether the measure has an “incentive effect”, i.e. whether the decision by LG Chem to expand its battery production capacity in Poland was directly triggered by the Polish public support or whether the investment would have been carried out in Biskupice Podgórne, even absent the public support;
• the Commission has doubts about the public support’s contribution to regional development and its appropriateness and proportionality;
• the Commission cannot exclude at this stage that the public support exceeds the maximum permissible aid intensity for the project.

The Commission will now investigate further to determine whether the initial concerns are confirmed. The opening of an in-depth investigation provides Poland and interested third parties with an opportunity to comment on the measure. It does not prejudge in any way the outcome of the investigation. Background In 2019, the Commission approved a €36 million investment aid granted by Poland to support LG Chem’s €325 million investment for the creation of the Biskupice Podgórne in the Dolnoślaskie region of Poland. The Commission assessed and approved the measure under the 2014 Regional Aid Guidelines. Evidence shows that large companies take decisions to invest in a given region not only due to State aid, but based on numerous factors, including the cost and availability of labour and land, tax legislation, their existing operations in the given region, proximity to clients, and the business environment. Granting aid in a context where a large company would have invested in any event would merely reduce the company’s ordinary operating costs, which its competitors have to meet without aid. This leads to competition distortions at the expense of taxpayers. The Commission’s 2014 Regional Aid Guidelines allow Member States to support regional investment to support economic development and employment in the EU’s less developed regions and to foster cohesion in the Single Market, if the measure respect a number of conditions:

• The aid must have a real “incentive effect”, in other words, it must effectively encourage the beneficiary to invest in a specific region;
• The aid must be kept to the minimum necessary to attract the investment to the disadvantaged region;
• The aid must not have undue negative effects, such as the creation of excess capacity in a declining market;
• The aid must not exceed the regional aid ceiling applicable to the region in question;
• The aid must not directly cause the relocation of existing or closed down activities from elsewhere in the EU to the aided establishment; and
• The aid must not divert investment away from another region in the EU, which is at least as economically disadvantaged as the region where the aided investment takes place.

The non-confidential version of the decision will be made available under the case number SA.53903 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.