The Private Investor Principle Applied to Loans [Commission Decision 2013/528]

ship in the shipyard


The State aid issue in this case is relatively straightforward. Nauta, a Polish shipyard, received a two-year loan from IDA, the state-owned Polish Investment Agency. Because Nauta ran into some financial trouble, the loan was extended for another two years.

In Decision 2013/528, the Commission had to examine two questions: First, did the initial loan market conform? Second, if yes, did the extension market conform?[1] The Commission analysis is of textbook quality.

Question 1: The initial loan

The initial loan of PLN 120 million was granted at a rate of 5.28% and was secured with property that belonged to Nauta.

The Commission first reviewed the business plan and business prospects of Nauta and found them to be, respectively, credible and positive. Then it calculated an appropriate reference rate for a similar loan and for similar security. The reference rate is equal to the country base rate plus a margin for the risk of the company. The base rate for Poland at the time was 4.53%. To the base rate it added a risk margin of 0.75% which corresponded to a credit rating of BBB with “high” collateral.

The quality of the collateral was estimated as follows. Nauta had offered as collateral a plot of land it owned. The land was valued at over PLN 168 million. An independent surveyor expected, prudently, that in the case of forced sale, the land would fetch at least 50% of its ideal value; i.e. PLN 84 million. This meant that, given that the loan was for PLN 120 million, the Loss Given Default would not exceed 30% [120 – 84 = 36 = 30% = 36/120].

According to the table in the Commission’s Communication on Reference and Discount Rates, a credit rating of BBB and high collateralisation require a 0.75 percentage point to be added to the base rate.[2] Therefore, the actual rate of 5.28% that was charged for the loan was the same as the reference rate of 5.28% [= 4.53% + 0.75%].

As a result, the Commission concluded that the initial loan was free of State aid.

Do you know we also publish a journal on State aid?

EStAL banner
The European State Aid Law Quarterly is available online and in print, and our subscribers benefit from a reduced price for our events.


Question 2: The extension of the initial loan

The assessment of the extension of the loan was more complicated. This is because a private investor always has two options: i) call in the loan [and perhaps force the borrower into bankruptcy] or ii) accept a rescheduling. The Commission examined both options.

The loan was extended for another two years with additional collateral but with a rate of interest fixed at 8.46%. The value of the additional collateral, again in the form of property, was estimated by the independent surveyor to be about PLN 190 million.

In case IDA pursued the first option, it would have to sell the land on which the loan was secured. That would generate revenue of about PLN 84 million. This implied a loss of PLN 36 million [plus forgone interest].

The possible outcome of the second option was for IDA to receive back the full amount of the loan and in addition earn interest at a rate of 8.46%. In case Nauta would be unable again to repay the loan, a force sale of land would yield PLN 95 million [= 50% of PLN 190 million]. Both of these possibilities were preferable to the first option.

Again, the Commission concluded that IDA behaved as a private investor and that the extension of the loan was free of State aid.

Noteworthy quotations from recent judgments

C-115/12 P, France v Commission, of 26 September 2013

Policy makers get often exasperated by long and complex explanations on when a public measure may constitute State aid. In this judgment the Court of Justice gave a short, simple and clear explanation: “The term ‘to subsidise’, in its usual sense, means quite simply to grant an advantage. Therefore, the term is not limited, as a general rule, to positive benefits.” [paragraph 46]

And if there are doubts as to whether a tax measure can be State aid, the Court also explained that a “tax reduction measures could be categorised as subsidies”. [paragraph 49]

C‑587/12 P, Italy v Commission (Wam), of 7 November 2013

Those who are versed in anti-trust rules often marvel at the simplicity of the assessment of the impact of State aid on competitive conditions on the market. It is true that, despite the fact that anti-trust and State aid are in the same chapter of the Treaty, the standard of proof is quite different. Here the Court of Justice makes it clear that what is required under State aid rules is reasonable expectation. “It is appropriate to add that a detailed examination of market structure was not necessary to determine whether the aid in question could have an impact on trade between


[1] The text of the Commission Decision can be accessed at:

[2] The Commission Communication of 2008 on Reference and Discount Rates can be accessed at:



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

Related Posts

05. Jul 2022
State Aid Uncovered by Phedon Nicolaides
Why Grant a Loan to an Undertaking in Difficulty? - State Aid Uncovered SM posts 14

Why Grant a Loan to an Undertaking in Difficulty?

When a market operator invests in an undertaking in difficulty it also considers the possibility of restructuring, sale or closure. Introduction The answer to the question posed in the title of this article is “because the loan enables the undertaking to become viable again and repay the loan with interest”. It is now well established in the case law that […]
07. Sep 2021
State Aid Uncovered by Phedon Nicolaides
Assignment of Public Service Obligations - wordyannik mika GjFbKfI874o unsplash

Assignment of Public Service Obligations

The compensation for public service obligations may include reasonable profit and incentives for cost reduction. Introduction Member States have discretion to define services they consider to be in the general economic interest [SGEI]. However, they need to justify that definition. The Court of Justice has ruled on numerous occasions that an SGEI has “special characteristics” that set it apart from […]
09. Mar 2021
State Aid Uncovered by Phedon Nicolaides
Can the Decision of a Private Entity be Imputed to the State? - StateAidHub blogpost7 Bank Italy

Can the Decision of a Private Entity be Imputed to the State?

A measure is imputable to the state whenever the state is involved in its adoption or shapes the decision that leads to its adoption. Introduction One of the trickiest aspects of determining whether a financial transaction involves State aid is its attribution or imputation to a decision of the state, especially when the entity providing the funding is private. Private […]
14. May 2020
Guest State Aid Blog by Wout De Cock
corona virus

Belgium and COVID-19: The European Commission Approves Several Belgian State Aid Measures

We are happy to share with you an update on the Covid-19 measures that have been approved in Belgium. Our guest auhor Wout De Cock is a PhD candidate at the Vrije Universiteit Brussel and part-time teaching assistant at the Katholieke Universiteit Leuven.* Introduction In issue 1/2020 of the European State Aid Law Quarterly, we concluded that the European Commission […]
05. May 2020
State Aid Uncovered by Phedon Nicolaides
corona virus poster

Non-recovery of Incompatible State aid Is Costly

Legal and practical difficulties in the recovery of incompatible State aid do not constitute justifiable “absolute impossibility”. Temporary Framework On 1 May, the total number of State aid measures to combat covid-19 approved by the European Commission reached 102. Their legal basis was: Article 107(2)(b): 9; Article 107(3)(b): 86; Article 107(3)(c): 7   Introduction The 2020 Temporary Framework for State […]
27. Apr 2020
State Aid Uncovered by Phedon Nicolaides
corona virus poster

Identification of Undertakings in Difficulty

A company is in difficulty if, in practice, its accumulated net losses exceed 50% of its subscribed capital, regardless of whether the subscribed capital is formally written down. The classification of a company as being in difficulty is independent of the sector in which it operates and of whether a private investor would be willing to invest in it. Temporary […]
09. Apr 2020
Guest State Aid Blog by Lexxion Publisher
Woman sitting by the computer

Follow Up Webinar with Phedon Nicolaides on ‚COVID-19 and State Aid Law‘ on 20 April

The European Commission is working on quickly adapting the existing State aid legal framework to address the current Covid-19 pandemic. Join us on 20th April from the comfort and safety of your (home) office to get an insider update on the Covid-19 response by State aid experts from the European Commission and national governments. ✓ Join from wherever you are – […]
27. Dec 2019
State Aid Uncovered by Lexxion Publisher
5 Most Read Articles on StateAidUncovered in 2019 - 5 most read articles 2019

5 Most Read Articles on StateAidUncovered in 2019

Groundbreaking judgments like “Eesti Pagar”, applications of the private investor principle in air transport or questions of interpretation of the GBER besides many more, have moved and shaped this year’s judgments on State aid. Also Brexit and its meaning for State aid control in the UK has still been on everyone’s mind. See which articles by Prof. Phedon Nicolaides were […]
10. Dec 2019
State Aid Uncovered by Phedon Nicolaides
Retroactive Application of the GBER - m

Retroactive Application of the GBER

When an aid scheme is adjusted by limiting the eligible beneficiaries, it becomes “new” aid and must be notified to the Commission. The GBER can be applied retroactively to aid that was granted before it came into force.   Introduction In July 2016, Dilly’s Wellnesshotel wrote legal history for being the first undertaking to contest the application of the General […]
26. Nov 2019
State Aid Uncovered by Phedon Nicolaides
How to Assess a Shareholder Loan - StateAidHub blogpost49 shareholder loan MEOP

How to Assess a Shareholder Loan

A shareholder loan cannot be simply compared to a bank loan because the shareholder also benefits from improvements in the future profitability of the borrower. Introduction When a public authority grants a loan to a company, the methodology in the 2008 Commission communication on reference and discount rates can be used to determine whether the loan contains State aid. However, […]