For companies still reeling from pandemic tailwinds and last year’s supply chain shocks, the Russia-Ukraine conflict couldn’t have come at a worse time.
While most organizations were focused on consolidating growth gained within the past year, new concerns raised by the war have forced boardrooms back into crisis mode as they grapple with rising energy and supply costs.
Likewise, further constrictions resulting from sanctions on Russian entities and individuals have impacted certain businesses, forcing them to either abandon or suspend ventures with Russian-linked partners.
As a remedial policy, the EU recently adopted new support measures to aid businesses that have been put at risk by the conflict and attendant sanctions meted on Russia. The measures, which went into effect on 23 March 2022, will provide financial aid up to €400,000 for some affected businesses and state guarantees on bank loans to qualifying companies.
Support measures for war-impacted companies
According to Margrethe Vestager, European Commission VP of competition policy, the state aid measures are adapted under a Temporary Crisis Framework (TCF) that aims to mitigate the impact of the war and existing sanctions while retaining competition in the Single Market.
Three types of aid are available under the TCF:
- Financial aid: Member states are allowed to establish schemes under which impacted companies in agriculture, fisheries, and aquaculture can receive an up to €35,000 grant. Companies in other sectors may receive up to €400,000, and in both cases, states may provide the grant in any form, including direct money transfers. Notably, the aid provided here is not linked to specific costs or liquidity issues.
- Liquidity support: The TCF provides liquidity support in two categories. The first category includes state guarantees in subsidized premiums to support existing loans owed by affected companies. The second category offers subsidized rate public and private loans. In both cases, maximum loan limits will apply depending on each qualifying company’s operational needs, energy costs, turnover, and liquidity needs.
- Energy assistance: Perhaps the most immediate impact of the Russia-Ukraine war is the current energy squeeze being experienced by individuals and businesses. The EU is a major energy trade partner with Russia, but that trade has mainly been suspended due to current diplomatic strains. These events hurt many companies, but the EU is providing some stimulus to subsidize rising energy costs. There are also caps to this aid, though. Companies can only receive 30% of eligible expenses, up to €2 million. If operating losses ensue, companies may receive additional assistance above the €2 million cap – up to €25 million for energy-intensive companies and a ceiling of €50 million for firms in specific industries, including aluminum, glass fibers, and basic chemicals.
Conditions attached to aid and duration
These measures carry additional conditions that states must apply regarding qualifying companies. The EC calls these “safeguards” designed to protect economically-viable businesses, ensure that aid reaches companies in need, and foster the long-term sustainability goals of the EU.
Accordingly, states should establish a link between the impact on affected companies, the scale of their economic activity, and the amount of aid they can collect. They might take each company’s turnover and energy expenses into account in this determination. Likewise, aid to energy-intensive companies is envisaged to mean companies whose energy expenses constitute at least 3% of production value.
Lastly, states are encouraged to consider tying aid to sustainability goals for the affected business, but in a non-discriminatory manner.
The TCF is slated to expire on 31 December 2022. Although, before expiry, the EC will convene to determine if there is a need to extend the framework.
by Doğan Erbek and STF Team