State subsidies and tax concessions

The payments made by extractive companies to gov- ernment agencies (see chapter 4) are offset by subsi- dies and tax benefits granted by the state to support companies. The grants for the hard coal mining indus- try (see chapter 6.a. and b.) is the only subsidy specifi- cally related to the extractive sector. Until 2018 the hard coal mining industry received subsidies for the sale of hard coal, compensation for the financial bur- den resulting from capacity adjustments and adapta- tion payments for socially-acceptable personnel reductions in the sector.

Extractive companies outside the hard coal mining subsector can benefit from further grants that are not specifically designed for the extractive sector (see chapter 6.c.), including  concessions for  energy and electricity taxes   for production industry companies (see chapter 6.d.).

There are different definitions of the term subsidies at both national and international level, and several methodological approaches are used to tackle the topic. The term used here is based on the definition of the subsidy report of the Federal Government. According to this report, only directly budget-relevant subsidies (grants) of the Federal Government and tax concessions for private companies and economic sec- tors are considered. Information on subsidies granted at Federal State level are available in the subsidy re- ports of the Federal States (see Annex 5 of the Subsidy Report of the Federal Government).

Subsidies in the German hard coal industry 2017 and 2018

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Subsidies for the sales of hard coal and closing down mines

The German hard coal industry is not competitive, mainly because of geologically-related high production costs. An agreement was therefore reached in 2007 between the Federal Government, the hard coal-pro- ducing Federal States of North Rhine-Westphalia and Saarland, the RAG AG (the largest German coal mining corporation based in the Ruhr region) and the Mining, Chemical and Energy Industrial Trade Union (IG BCE) that the subsidised hard coal industry would be ter- minated in socially-responsible manner by the year 2018. The agreement was based on the Hard Coal Mining Financing Law of December 20, 2007 and on a framework agreement between the Federal Govern- ment, the hard coal-producing Federal States, the RAG AG and the IG BCE. The public sector grants temporary aid to promote sales (balancing the differ- ence between domestic production costs and the world market price) and to cope with the necessary decommissioning measures. The subsidies are gradu- ally reduced and ultimately cycled out, a move that also addresses climate protection and resource conservation.

Development

In 2018, the amount of Federal aid for the sales of hard coal and the shutdown of mines amounted to €967.3 million. The Federal State of North Rhine-Westphalia provided more financial aid. The sales and shutdown aid promised to the hard coal mining industry was degressive. Between 1998 and 2005, Federal subsidies were cut by approx. 50% – and they were again reduced by 25% between 2006 and 2014. Deviations from the declining trend of subsidi- sation are based on the fluctuating world market prices for hard coal (inter alia).

Control measures

The subsidisation of the German hard coal industry is subject to approval by the EU and has been reviewed and approved by the EU Commission. The German Federal Office of Economics and Export Control (in cooperation with auditors) also monitors how these financial subsidies are being used on an annual basis.

Prevention

To cope with the necessary decommissioning activities, the private-law RAG Foundation is making the former investment assets of the RAG AG available to finance the remaining perpetual burdens following the closure of the mines (burdens such as mine water drainage, permanent land subsidence and groundwater purifi- cation). If these assets are not sufficient to cover the perpetual burdens, the Federal Government and the hard coal-producing Federal States will provide subsi- dies at a ratio of one-third to two-thirds respectively.

Subsidies for the sale and closure of German hard coal from 2014 to 2018 (Federal Government amounts)

See detailed sources here, Own representation View Data

Adaption payment

Employees who are at least 50 and 57 years old (un- derground workers and surface employees respec- tively) and who will lose their jobs before January 1, 2023 due to the closing-down of mines or rationalisa- tion measures, will receive adaptation payment (APG) as an interim benefit for a maximum of 5 years until their entitlement to pension insurance becomes valid.21 The adaptation payment reflects the social responsibility of the Federal Government and the hard coal-producing Federal States. In 2018, the Federal Government guaranteed adaptation payments totalling €90.4 million.

Employees

The number of employees is declining. At the beginning of 2008, 32,803 persons were employed in hard coal mining. By the end of 2018 the number of employees had been reduced to 3,349 employees. The number of persons entitled to adaptation payment is following this reduction trend, albeit with a time lag. Since more employees will be retiring after the last mine closures at the end of 2018 and a declining number of employees will still be needed after 2018 to complete the closure of mines, the current adapta- tion payment guidelines will still apply until 2027

Control measures

In addition to the monitoring of the intended use of funds by the German Federal Office of Economics and Export Control in cooperation with external audi- tors, the German Federal Audit Office also reviews in- dividual adaptation payment on the basis of random samples within the framework of the Federal Office’s annual budget review.

Adaption Payment (Anpassungsgeld) 2014-2018 (Federal Governments amounts)

See detailed sources here, Own representation View Data

Transparency of grants and subsidies

Extractive companies can also receive non-specific, non-extractive public grants if they meet the relevant criteria of the financial support programmes. Finan- cial support can be given in the form of grants, loans or debt service assistance, with the majority of grants today consisting of subsidies. Loans granted directly from the Federal budget have been less important for some time. This is also due to the fact that the Federal Government uses financial institutions for lending, which usually receive an interest subsidy for imple- menting the programme. The Federal Government’s subsidy report provides information on these grants, including their scope and funding objectives. The report does not contain information on the amount of grants paid to individual beneficiaries.
State subsidies for companies are also the subject of the Treaty on the Functioning of the European Union as they can affect competition in the common inter- nal market. Instead of the term subsidy, the EU uses the term state aid and a legal definition that differs from the subsidy concept.22 State aid is not only un- derstood to mean direct financial grants to compa- nies, debt relief or loans at reduced rates, but can also include guarantees, tax concessions or the provision of land and goods as well as services at special condi- tions. To guarantee fair competition in Europe, the EU member states have imposed rules on themselves that define under which conditions state aid is per- missible and when it is not. In addition, as of July 1, 2016, the Member States of the European Union are obliged to publish information on the granting of state aid on an annual basis. Any state aid above a threshold of €500,000 per company, beneficiary and year has to be published on a Aid website (see chap- ter 6. D.) including:
The name of the beneficiary, the amount and purpose of the state aid and its legal basis. If companies in the extractive sector receive state aid exceeding the threshold (e. g. in the form of reduced-price loans), the information about the aid is publicly disclosed.

Concessions for electricity and energy taxes

There are various tax concessions for both electricity and energy taxes, including tax exemptions, tax reduc- tions and tax relief. The Electricity Taxation Act (StromStG) provides for certain types of use, or elec- tricity generation. The Energy Taxation Act (EnergieStG) also covers uses in which energy products are tax- favoured. A part of these concessions is mandatory under the Energy Tax Directive (EU) 2003/96/EC of October 27, 2003.
As production industry companies, extractive sector enterprises can particularly profit from the different tax relief possibilities provided by energy and electric- ity tax legislation.
Three regulations are particularly relevant here:
  • Tax relief for companies (§ 54 EnergieStG, § 9 b StromStG):
    If a production industry company applies for elec- tricity and energy tax concessions and its applica- tion is approved, it is granted a reduction of 25% of the tax rates on electricity, heating and the fuels used in its production facilities eligible for tax concession.
  • Tax relief in the form of so-called peak compensa- tion (§ 55 EnergieStG, § 10 StromStG):
    The additional burden of the “ecological tax reform” on production industry companies is lightened by a reduction in their energy and electricity taxes. Since the increase in revenues generated by the ecological tax reform also served to reduce the factor of “work” and contributed to companies paying less for employers’ contributions to pension insurance schemes in comparison to 1999, a comparative peak compensation calculation is carried out for companies in question. In order to avoid double re- lief for the employers’ pension insurance as well as for the energy used, saved pension contributions are taken into account in the calculation of the tax relief. The amount of relief is therefore calculated individually depending on the company, and is also capped at a maximum of 90% of the electricity tax paid and 90% of the tax share pursuant to § 55(3) of the EnergieStG. Prerequisites for claiming peak compensation are, among other things, evidence
    of a certified energy management system and an annual energy intensity reduction (by a statutory value) achieved by all the plants of the production industry company. The comparative value is the av- erage energy intensity value for production industry companies between 2007 and 2012.
  • Certain processes and procedures/manufacturer privilege (§ 9a StromStG, § 51 EnergieStG, §§ 26, 37, 44 and 47 EnergieStG):
    Companies in the manufacturing industry can use electricity or energy products for specific, energy- intensive purposes (such as electrolysis, metal pro- duction, manufacture of glassware, etc.) and reduce their tax bills by 100%. In addition, companies that produce energy products on their own premises (refineries, gas extraction and coal mining compa- nies) can use these self-produced energy products tax-free (or obtain tax relief) for the purposes of maintaining operations within their own companies.
The subsidy report of the Federal Government con- tains the total subsidies for the entire production in- dustry; they are not shown separately for each sector such as the extractive sector. If the benefits in the ar- ea of electricity and energy taxation are state aid, the notification and transparency obligations defined by the European Union for state aid apply (see chapter 6. c.).
In Germany, tax concessions are published in accord- ance with the regulation on the implementation of publication, information and transparency obligations under EU law in the Energy Tax and Electricity Tax Ordinance (EnSTransV). Under this regulation, the customs administration may collect, process, store, transmit and delete data relating to energy and elec- tricity tax concessions. These data are available on the European Commission’s state aid website23.
The extent of the concessions24 granted to extractive sector companies reporting under EnSTransV is be- tween €12 and €27 million25 for the general tax con- cessions pursuant to § 9b StromStG, €25 – €63 million for peak compensation pursuant to § 10 StromStG, €0.5 – €1 million for peak compensation pursuant to § 10 StromStG and €1.5 – €3 million for facilities eligi- ble for tax concession, pursuant to §3 EnergieStG.