State aid: Commission approves €226 million Hungarian scheme to support SMEs in context of Russia’s invasion of Ukraine

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The European Commission has approved a €226 million(HUF 90 billion) Hungarian scheme to support small and medium-sized enterprises (‘SMEs’) across sectors in the context of Russia’s invasion of Ukraine. The scheme was approved under the State aid Temporary Crisis Framework, adopted by the Commission on 23 March 2022, based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (‘TFEU’), recognising that the EU economy is experiencing a serious disturbance.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This €226 million scheme will enable Hungary to mitigate the economic impact of the war in Ukraine and the liquidity shortages that SMEs across sectors are facing due to the current geopolitical crisis and the related sanctions. We continue to stand with Ukraine and its people. At the same time, we continue working closely with Member States to ensure that national support measures can be put in place in a timely, coordinated and effective way, while protecting the level playing field in the Single Market.”

The Hungarian measure

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

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

In light of the high degree of economic uncertainty caused by the current geopolitical situation, the scheme is aimed at ensuring that sufficient liquidity remains available to the companies in need.

The measure will be open to companies across sectors, with focus on the agriculture, food industry and along the bio-economy value chain. The credit and financial institutions will be excluded from the measure.

The eligible beneficiaries will be entitled to receive new loans that will be covered by a State guarantee not exceeding 90% of the loan. Losses will be sustained proportionally by credit institutions and the State.

The maximum loan or lease amount per beneficiary, which may benefit from a public guarantee, will be equal to (i) 15% of its average total annual turnover over the last three closed accounting periods; or (ii) 50% of the energy costs incurred over a 12-month period preceding the application for aid. Exceptionally, when the SMEs are active in sectors that are heavily affected by direct or indirect effects of Russia’s invasion of Ukraine, the amount of the loan may be increased to cover their liquidity needs for the 12 months following the moment of granting.

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

Furthermore, the aid is subject to safeguards to ensure that the advantages of the measure are passed on to the largest extent possible to the final beneficiaries via the financial intermediaries.

The Commission concluded that the Hungarian scheme is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Crisis Framework.

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

Background

On 23 March 2022, the Commission adopted the State aid Temporary Crisis Framework to enable Member States to use the flexibility foreseen under State aid rules to support the economy in the context of Russia’s invasion of Ukraine.

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

• Limited amounts of aid, in any form, of up to €35,000 for companies affected by the crisis active in the agriculture, fisheries and aquaculture sectors and of up to €400,000 per company affected by the crisis active in all other sectors;
• Liquidity support in form of State guarantees and subsidised loans; and
• Aid to compensate for high energy prices. The aid, which can be granted in any form, will partially compensate companies, in particular intensive energy users, for additional costs due to exceptionalgas and electricityprice increases. The overall aid per beneficiary cannot exceed 30% of the eligible costs, up to a maximum of €2 million at any given point in time. When the company incurs operating losses, further aid may be necessary to ensure the continuation of an economic activity.  Therefore, for energy-intensive users, the aid intensities are higherandMember States may grant aid exceeding these ceilings, up to €25 million, and for companies active in particularly affectedsectors and sub-sectors up to €50 million.

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

The Temporary Crisis Framework includes a number of safeguards:

• Proportional methodology, requiring a link between the amount of aid that can be granted to businesses and the scale of their economic activity and exposure to the economic effects of the crisis;
• Eligibility conditions, for example definingenergy intensive users as businesses for which the purchase of energy products amount to at least 3% of their production value; and

The Temporary Crisis Framework will be in place until 31 December 2022. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended. Moreover, during its period of application, the Commission will keep the content and scope of the Framework under review in the light of developments regarding the energy markets, other input markets and the general economic situation.

The Temporary Crisis Framework complements the ample possibilities for Member States to design measures in line with existing EU State aid rules.  For example, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Furthermore, Article 107(2)(b) of the Treaty on the Functioning of the European Union enables Member States to compensate companies for the damage directly caused by an exceptional occurrence, such as those caused by the current crisis.

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

The non-confidential version of the decision will be made available under the case number SA.102986 in the State aid register on the Commission’s 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 Competition Weekly e-News.

More information on the Temporary Crisis Framework and other actions taken by the Commission to address the economic impact of Russia’s invasion of Ukraine can be found here.