Business World

Sunday 21 January 2018

Smurfit Kappa awaits ruling in EU case over rival's state funding

John Mulligan

John Mulligan

PACKAGING giant Smurfit Kappa will know next week if it has won the opening salvo in what could shape up to be a prolonged battle against the European Commission and its regional state aid guidelines.

The Irish group -- the largest packaging manufacturer in Europe -- will hear the crucial judgment of the Luxembourg-based European Court of Justice next Tuesday.

Smurfit Kappa, headed up by chief executive Gary McGann, wants reversed a 2008 decision by the commission to approve €83m in funding granted to a rival by the Brandenburg-Nordost region in Germany to build a major manufacturing facility.

Construction of the rival packaging plant, owned by Progroup, which Smurfit Kappa noted would be the largest of its kind in the European Union, proceeded after the European Commission rubber-stamped the state aid. It has since been commissioned.

The facility is located in Eisenhüttenstadt, a border town beside Poland. The state aid was paid to Progroup's Propapier PM2 unit. Aside from the aid, the company spent €640m on the project.

Smurfit Kappa declined to comment on the legal action yesterday. It is also looking for the commission to pay what are likely to be fairly substantial legal costs incurred by the group in taking the action.

The company has argued in court that while there were clear indications that the subsidised investment would have serious and disproportionate effects on it and on the sector as a whole, the European Commission did not believe that a formal investigation into the planned aid was necessary.

The commission made its decision on the basis that the regional aid wouldn't meet market share and capacity increase thresholds laid down under regional aid guidelines.

Smurfit Kappa has insisted that the commission erred in its findings, and that it should have launched a formal probe into the planned state aid.

One observer told the Irish Independent that while any benefit to Smurfit Kappa in winning the case would be only incremental in the longer term, it would serve to provide a more level playing ground for an industry where over-capacity is a constant issue.

Smurfit Kappa has consistently said that it won't build another packaging plant in Europe because there is no need for the extra capacity.

The industry is very cyclical and capital intensive, and costs are highly impacted by energy and other input factors.

The new Progroup plant in Germany can produce 650,000 tonnes of packaging a year, making it the biggest in the EU.

The smallest plants have a 70,000-tonne annual capacity. There's about 25 million tonnes of packaging produced in the EU every year, and Smurfit Kappa has a 20pc share of that.

The European Commission's existing regional aid guidelines expire next year. Earlier this year, it launched a public consultation process as part of a revision of those rules.

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