EU Geopolitical Risk Update - Key Policy & Regulatory Developments No. 119

On 13 December 2024, the Commission published a call for evidence and a public consultation on the planned revision of the Public Procurement Directives that regulate public procurement in the EU.*

Backdrop / objectives. The Commission indicates that some 250,000 public authorities in the EU spend around 14% of EU GDP (over €2.4 trillion per year) on purchasing services, works and supplies. Public authorities are the principal buyers in various sectors (e.g., energy, transport, waste management, the provision of health services).

Last reformed in 2014, the Public Procurement Directives have sought to ensure transparency and integrity in public spending and strengthen competition in the EU for the provision of public goods and services with respect to higher-value public tenders (with monetary values exceeding certain thresholds)** and which are presumed to be of cross-border interest.

However, according to the European Court of Auditor's Special Report 28/2023 on public procurement in the EU: "Our analysis of the data available [i.e. 2011-2021] indicates a significant increase in single bidding overall, a high level of direct contract awards in most member states and a limited level of direct cross-border procurement between member states. As several objectives of the 2014 reform remain unattained, we conclude that, the entry into force of the 2014 directives has had no demonstrable effect." (see also ECA Dashboard on data set used to prepare Special Report 28/2023).

The Commission's planned revision of the Public Procurement Directives, as set out in its Political Guidelines 2024-2029 issued by Commission President Ursula von der Leyen, seeks to:

• enable giving preference to European products for certain strategic sectors in public procurement;
• ensure EU security of supply for vital technologies, products and services; and
• modernize and simplify EU public procurement rules, in particular for EU start-ups and innovators.

The Commission's plan to give preference to European products in certain strategic sectors has already raised the concerns of, inter alia, U.S. companies active in Europe.

Consultation. The consultation aims at collecting quality evidence providing information, data and feedback on how the Public Procurement Directives have performed. It also seeks to assess whether these Directives still suffice to address current challenges and to achieve EU policy objectives (e.g., promoting a greener and more innovative European economy).

Next steps. Interested parties can contribute to the call for evidence and public consultation until 7 March 2025. The Commission will consider these contributions in its evaluation of the Public Procurement Directives.

Within eight weeks of the close of the public consultation, the Commission will publish a factual summary report, as well as a report summarizing the results of the consultation activities that will be annexed to the evaluation staff working document.

* These Public Procurement Directives comprise: (i) Directive 2014/24/EU on public procurement; (ii) Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors (Utilities Directive); and (iii) Directive 2014/23/EU on the award of concession contracts

** For example, for the above-referred Utilities Directive 2014/25/EU, the thresholds include, e.g., for works contracts (€5,538,000) and certain service contracts, all design contests, all supplies contracts (€443 000).

On 18 December 2024, the Commission announced the approval of a €1.3 billion Italian State aid measure to support Silicon Box in constructing a semiconductor advanced packaging* and testing facility in Novara, Italy. The aid will consist of an approximately €1.3 billion direct grant to Silicon Box to support its investment worth €3.2 billion in total.

The Commission's assessment was based on Article 107(3)(c) TFEU (which enables Member States to grant aid to facilitate the development of certain economic activities subject to certain conditions) and on the principles set out in the European Chips Act, which entered into force on 21 September 2023 ( Regulation (EU) 2023/1781 of 13 September 2023 establishing a framework of measures for strengthening Europe's semiconductor ecosystem).

To recall, the Chips Act is part of the Commission's package of measures released in February 2022 (see here) aimed at ensuring the EU's security of supply and technological leadership in the field of semiconductors. (Micro-) chips or semiconductors are key building blocks for digital products, e.g., smartphones, computers, and medical equipment (see also Jones Day EU Emergency Response Update No. 107 of 29 September 2023).

A key pillar within the Chips Act is a framework to ensure security of supply, which seeks to spur public-private investments in manufacturing facilities for chipmakers and their suppliers. In particular, "first-of-a-kind" facilities, including those producing equipment used in semiconductor manufacturing, are expected to reinforce the EU's supply security.

State aid. In light of steep barriers to entry and the capital intensity of the chips sector, the Commission notes that private investment in chips manufacturing facilities may likely require public support. In this respect, the Commission may consider approving State aid to such facilities under Article 107(3)(c) TFEU, weighing relevant positive effects such as the following:

• The chips facility is "first-of-a-kind" in Europe (as defined in the Chips Act), such that an equivalent facility does not already exist in Europe;
• The public support covers a maximum of 100% of a proven funding gap, i.e., the minimum amount needed to ensure that such investments occur in Europe; and
• The chips facility would enhance security of supply for European businesses using chips in their products, e.g., where such facility accepts to satisfy EU "priority-rated" orders (as provided in the Chips Act) such as orders from entities from critical sectors whose activities are disrupted or at risk of disruption due to chip shortages.

In the present case, according to the Commission's assessment, the State aid measure to Silicon Box will reinforce Europe's security of supply, resilience, and technological autonomy in semiconductor technologies. In particular, the Silicon Box facility:

• is first-of-a-kind in Europe, as there is currently no comparable advanced packaging facility for the specific technological features; and
• contributes to security of supply in Europe (e.g., by committing to comply with priority-rated orders to produce in Europe in case of a supply crisis and by helping to halt overreliance on packaging services offered outside of Europe).

This State aid measure is the Commission's fifth approval based on such principles set out in the Chips Act (e.g., on 5 October 2022, the Commission approved an Italian measure to support STMicroelectronics in constructing an SiC wafer plant in Sicily (see Jones Day COVID-19 Update No. 89 of 14 October 2022); and on 27 April 2023, the Commission approved a €2.9 billion French aid measure to support STMicroelectronics and GlobalFoundries in constructing a new microchips manufacturing facility in Crolles, France (see Jones Day EU Emergency Response Update No. 102 of 3 May 2023).

Looking ahead. The Silicon Box plant is anticipated to reach full operating capacity in 2033.

The non-confidential version of the decision will be made available under the case number SA.113264 in the State aid register on the Commission's competition website once confidentiality issues are resolved.

* Advanced packaging allows for the integration of multiple chips (often with different functions) into one package, creating a "chiplet" (multi-chip module) that functions like a single chip to enhance performance and power efficiency.

On 16 December 2024, the Commission approved an €81 million Spanish State aid measure to support Diamond Foundry Europe in building its first factory in Europe (in Trujillo, Spain) to produce semiconductor-grade rough synthetic diamonds. The aid will consist of a direct grant of €81 million to Diamond Foundry to support its investment totaling some €675 million.

The Commission assessed the measure under EU State aid rules, and in particular Article 107(3)(a) TFEU (which allows aid to promote the economic development of the most disadvantaged areas of the EU) and the 2022 Regional Aid Guidelines (RAG).*

According to the Commission, the measure will notably contribute to the EU's strategic objectives relating to the green transition of the regional economy, regional development, and job creation. The new factory is designed to be carbon-neutral, powered through fully renewable energy generated by a solar photovoltaic plant.

Using Diamond Foundry's plasma reactor technology, the plant will produce rough synthetic diamond wafers, which the semiconductor industry can use as an alternative to other resources, such as silicon. The project aims at responding to demand in key sectors, such as 5G networks and electric vehicles.

Looking ahead. The plant's anticipated capacity is approximately 4 to 5 million carats annually.

The non-confidential version of the decision will be made available under the case number SA.106799 in the State aid register on the Commission's competition website once confidentiality issues are resolved.

* The Commission's 2022 RAG sets out the conditions for considering regional aid as compatible with the internal market and the criteria for identifying the areas fulfilling the conditions of Article 107(3)(a) and (c) of the TFEU. On this basis, Member States notified their regional aid maps to the Commission for approval.

The Commission approved additional measures under the State aid Temporary Crisis and Transition Framework (TCTF) to support the economy in the context of Russia's invasion of Ukraine and in sectors key to accelerating the green transition and reducing fuel dependencies (as most lately amended on 2 May 2024 and 20 November 2023).

Among the most recently approved State aid schemes under the TCTF (up to 31 December 2024):

• €9.7 billion Italian scheme to support electricity production from renewable energy sources to foster the transition towards a net-zero economy.
• €167 million Italian scheme to support the primary agricultural production sector in the context of Russia's war against Ukraine.
• €400 million Finnish scheme to help companies decarbonise their production processes and to support investments in strategic sectors, to foster the transition towards a net-zero economy.
• €32.5 million Irish scheme to support tillage and horticulture producers in the context of Russia's war against Ukraine.
• €2.6 billion Estonian State aid scheme to support renewable offshore wind energy to foster the transition to a net-zero economy.
• €590 million (BGN 1.15 billion) Bulgarian scheme to support investments in electricity storage facilities to foster the transition towards a net-zero economy.