Home Framework EU temporary framework for state aid in response to the conflict in Ukraine and to support the banking sector

EU temporary framework for state aid in response to the conflict in Ukraine and to support the banking sector


This GT Alert covers the following:

  • Legal basis and types of measures under the Temporary Framework for Ukraine
  • Previous State aid Temporary Framework cases
  • The banking sector in the Ukrainian Temporary Framework and the revision of banking rules on state aid
  • Notification of aid under the Temporary Framework for Ukraine

Following Russia’s invasion of Ukraine, the European Union (EU) adopted a wide range of sanctions against Russian and Belarusian individuals and companies, including export and import restrictions. access to financial markets. Similar measures have also been adopted by the EU’s international partners, notably the United States, the United Kingdom and Japan. While the Russian economy will suffer a substantial setback due to the sanctions, a significant slowdown in European GDP is also expected in the coming months, in particular due to the increase in energy costs and the difficulties in supplying certain raw materials, such as cereals, oilseeds and fertilizers.

In this context, the European Commission (the Commission) adopted on 23 March 2022 a communication on a temporary crisis framework for State aid measures (temporary framework for Ukraine) in order to support companies and sectors severely affected EU Member States.

I. Legal basis and types of measures in the temporary framework of Ukraine

The Commission based its proposal on Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which allows the granting of aid to remedy “a serious disturbance in the economy of a Member State”. Therefore, state measures adopted under Ukraine’s Temporary Framework must be notified to the Commissionwho will assess, through an accelerated procedure, the compatibility of the aid with the specific criteria described below and with the rules of the EU Treaties. In any case, help cannot be granted to persons and entities subject to EU sanctions.

It would be complement existing instruments of EU state aid law (for example de minimis regulationBlock Exemption Regulation), as well as the possibility under Article 107(2)(b) TFEU for Member States to mitigate the damage directly caused by Russian military aggression or by the following economic sanctions.

In particular, the Temporary Framework provides several types of aid:

1. limited aid: Member States can provide up to €35,000 for companies active in the agriculture, fisheries and aquaculture sectors and up to €400,000 per company for all other sectors (thresholds are expressed in gross values). Such measures can be granted to businesses affected by the crisis in any form, including repayable advances, guarantees, loans and equity;

2. liquidity support: this could be granted either as:

(I) loan guarantees. The premiums will not be less than 25 bps – 100 bps for SMEs and 50 bps – 200 bps for large companies, gradually increasing according to the duration of the guaranteed loan. The duration of the guarantee is limited to six years and can reach a maximum of 90% of the underlying loan or 35% for first loss guarantees;

(ii) subsidized interest rates on business investment and/or working capital loans. Discounted interest rates must not be less than the base risk-free rate (one-year IBOR) plus the above-mentioned minimum premium.

In both cases, the maximum amount of loans to be guaranteed or subsidized per beneficiary is set as follows: (a) 15% of the average total annual turnover for the last three closed financial years; (b) 50% of the cost of energy over the last 12 months; or c) the total amount of cash needed for the next 12 months for SMEs and six months for large companies. Reduced interest rates and public guarantees cannot be granted for the same underlying loan, but can be cumulated for different loans (if they do not exceed the limits of the total amount of loans per beneficiary);

3. aid for additional costs due to rising energy prices: temporary aid can be granted in all its forms (direct subsidies, tax advantages, guarantees, loans, etc.) to mitigate exceptionally severe increases in the prices of natural gas and electricity. The aid cannot exceed 30% of the eligible costs for each beneficiary, up to a maximum of two million euros. Eligible costs are calculated as the difference between (a) the unit price of electricity and natural gas paid by the beneficiary (as final consumer) in a given month during the period between the 1st February and December 31, 2022, and (b) double (200%) the unit price paid by the company on average for the reference period between January 1 and December 31, 2021. Additional aid may be granted when this is necessary to ensure the continuation of the economic activity of “intensive undertakings” (as defined in Article 17(1)(a) of the Energy Tax Directive), until 25 million euros, and companies active in specific sectors, such as aluminum and metal production, fiberglass, paper pulp, fertilizers, hydrogen and other chemicals, up to 50 million euros. Aid can be granted in advance, before the eligible costs have been incurred, provided that Member States verify the relevant thresholds ex-post (within six months) and claim any excess amount.

In addition, Member States are invited to consider the introduction of environmental protection requirements for granting aid. This could be done, for example, by imposing on beneficiaries minimum thresholds for the use of renewable energy sources or investment requirements for increased energy efficiency and reduced use of natural gas, such as electrification or circular solutions using renewable energy or waste gas.

Assistance under the Temporary Framework for Ukraine has to be granted (and disbursed) before December 31, 2022, when this instrument should end. The Commission will consider at a later date whether to extend its duration.

II. Previous State aid Temporary Framework cases

This is not the first time which the Commission used exceptional state aid schemes to deal with a serious crisis. During the 2008 financial crisis. the Commission has adopted a series of communications on aid to the financial sector, as well as a communication for a temporary framework for state aid to support access to finance for companies and SMEs (temporary framework 2009).

Moreover, already on March 20, 2020, at the start of the Covid-19 pandemicthe Commission has created a State aid temporary framework for companies impacted by the economic consequences (COVID-19 Temporary Framework). The temporary COVID-19 framework, which was originally scheduled to expire on December 31, 2020, was later extended until June 30, 2022, and has proven to be a powerful tool in supporting the European economy. Indeed, between March 2020 and September 2021, the Commission adopted more than 650 clearance decisionsfor a total of more than 3 trillion euros in potential aid. Germany granted the largest amount of aid, corresponding to more than half of the total amounts approved, followed by Italy and France, both slightly less than 15% of the total aid approved.

It should be noted that under the COVID-19 Temporary Framework, aid could only be granted to companies which were not already in financial difficulty before the start of the pandemic, while no limitation concerning Beneficiary viability does not appear to be provided for the Ukrainian Temporary Framework.

The Commission points out that the aid measures adopted under the The temporary framework of Ukraine can be combined with those already approved under the COVID-19 Temporary Framework, provided the respective conditions are met. However, Member States should avoid the overlapping of different support measures for the same liquidity need of the beneficiaries.

III. The banking sector in the Ukrainian Temporary Framework and the revision of banking rules on state aid

Ukraine’s Temporary Framework focuses on credit institution acting as an intermediary for State aid measuressuch as loans and guarantees, to the final beneficiaries and clarifies that these measures cannot be aimed directly at maintaining or restoring banks’ liquidity.

On the other hand, the aid granted directly to banks and financial institutions to deal with the consequences of the Russian invasion and the resulting sanctions not be considered as “extraordinary public financial supportunder the Bank Recovery and Resolution Directive (BRRD) or Single Resolution Mechanism Regulation (SRM), which would otherwise determine the bank’s placement in resolution. In addition, recapitalizations or impaired asset measures does not lead to designation of a credit institution as a “defaulter or likely to default” or it would trigger burden-sharing procedures between shareholders and subordinated creditors.

In addition, the Commission, on 17 March 2022, launched a public consultation on state aid rules for banks in difficultyto gather feedback from various stakeholders.15 In this context, the Commission will assess whether the current state aid banking rules are still fit for purpose. The consultation will close on June 9, 2022 and the results of the Commission’s review are expected to be published in the second half of 2023.

IV. Notification of assistance under the temporary framework for Ukraine

Ukraine’s Temporary Framework applies retroactively from February 1, 2022. As was the case with the temporary COVID-19 framework, additional support measures could be added in the coming weeks or months, depending on the future evolution of the war and its economic impact in the EU.

The Commission ensured a rapid assessment of the measures granted under the Temporary Framework for Ukraine upon receipt of clear and complete notifications.