EU court set to reject French appeal against SNCM state aid ruling

PARIS, Sept 2 Tue Sep 2, 2014 11:51am EDT

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PARIS, Sept 2 (Reuters) - The Court of Justice of the European Union (ECJ) is set to reject on Thursday an appeal by the French state against a ruling forcing France-Corsica ferry operator SNCM to pay back 220 million euros of illegal state aid, court documents show.

SNCM received the aid during its privatisation in 2006, and got European Commission approval for it at the time, but in 2012 the ECJ's first-level General Court ordered it to repay the aid following a complaint by SMCM competitor Corsica Ferries.

An appeal against that order by the French state and SNCM - now 66 percent owned by transport firm Transdev, itself a joint venture between water and waste firm Veolia and French state bank CDC - is likely to be rejected, in line with a January recommendation from the court's advocate-general.

Advocate-General Melchior Wathelet rejected the French state and SNCM's arguments and proposed the ECJ dismiss the appeals. The Luxembourg-based court generally follows the advocate-general's advice.

No further appeal is possible and the European Commission, which has ordered SNCM to repay after the court's first ruling, could impose fines on France if it does not execute the order.

SNCM has racked up cumulative losses of 250 million euros and has a second state-aid repayment claim - also of 220 million euros - hanging over it, which it is also appealing. The second claim relates to aid given in 2007-2013.

Veolia has long said that the only way to protect SNCM from the claims is to go under Chapter 11-style court protection, and continue the viable part of the business under a new legal structure, with new shareholders and with part of the company's staff and assets.

The French state, which owns a direct 25 percent stake in SNCM besides its indirect stake via CDC, came round to this view in July, but has promised the unions not to seek court protection before the end of October.

A source familiar with the situation told Reuters that if SNCM runs out of cash to pay salaries and fuel before then, court protection could be necessary before that date.

Transdev has said it will put no more new funds into SNCM and efforts to find a buyer have foundered. Norway's Siem Shipping and Mexico's Baja Ferries have considered buying SNCM, on condition of guarantees that they would not have to repay the aid, which its shareholders cannot give.

The long-running SNCM saga has stopped Veolia from selling part of its Transdev stake to CDC, as the state bank does not want to take over majority control of Transdev as long as it owns the troubled ferry operator, whose unions have launched several strike actions in the past years. (Reporting by Geert De Clercq; editing by Susan Thomas)

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