
Article 1 
The State aid involved in the short-term export-credit insurance scheme in application of Decree-Law No 175/2008 establishing the Finova of 26 August 2008 and Decree-Law No 211/1998 laying down the rules applicable to mutual guarantee societies of 16 July 1998 (as amended by Decree-Law No 19/2001 of 30 January 2001 and Decree-Law No 309-A/2007 of 7 September 2007), unlawfully granted by Portugal, in breach of Article 108(3) of the Treaty on the Functioning of the European Union, is incompatible with the internal market.
Article 2 
Individual aid granted under the scheme referred to in Article 1 which, at the time the aid is granted, fulfils the conditions laid down by a Regulation adopted pursuant to Article 1 of Regulation (EC) No 994/98 or by any other approved aid scheme is compatible with the internal market, up to the maximum aid intensities or de minimis limits applicable to this type of aid.
Article 3 

1. Portugal shall recover the incompatible aid referred to in Article 1 from the beneficiaries.
2. The sums to be recovered shall bear interest from the date on which they were made available to the beneficiary until their actual recovery.
3. The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004, as amended by Regulation (EC) No 271/2008.
4. Portugal shall immediately abolish the scheme referred to in Article 1 and cancel all outstanding payments of aid under the scheme referred to in Article 1 with effect from the date of notification of this Decision.
Article 4 

1. Recovery of the aid grated under the scheme referred to in Article 1 shall be immediate and effective.
2. Portugal shall ensure that this decision is implemented within four months following the date of notification of this Decision.
Article 5 

1. Within two months following notification of this Decision, Portugal shall submit the following information to the Commission:
(a) The list of beneficiaries that have received aid under the scheme referred to in Article 1 and the total amount of aid received by each of them;
(b) The total amount (principal and recovery interest) to be recovered from each beneficiary;
(c) A detailed description of the measures already taken and planned to comply with this Decision;
(d) Documents demonstrating that the beneficiaries have been ordered to repay the aid.
2. Portugal shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid referred to in Article 1 has been completed. It shall immediately submit, on simple request by the Commission, information on the measures already taken and planned to comply with this Decision. It shall also provide detailed information concerning the amounts of aid and recovery interest already recovered from the beneficiaries.
Article 6 
This Decision is addressed to the Portuguese Republic.
Done at Brussels, 23 November 2011.
For the Commission,
Joaquín ALMUNIA
Vice-President
ANNEX

Premiums for insurance cover are set in such a way as to cover at least the expected loss and the administrative costs. Therefore the minimum premium acceptable for a sound economic operator can be expressed as follows:
PR=Prob×ExpectedLoss+adm=Prob×ExposureAtDefault−RecoveryAmount+adm, where:
PRpremium charged by the private insurers on the stand-alone basis;Probprobability of the insured event;Recovery Amountexpected amount of recovery, based on historical market data;admadministrative costs. For the sake of simplicity, in this analysis administrative costs are assumed to be equal to zero (). This assumption does not affect the outcome of the analysis because administrative costs are not a decisive component for setting the premium level. If reliable data on administrative costs are available, the variable can easily be included in the analysis.
(ExposureAtDefault — the maximum loss amount to which an institution would be exposed in case of the default of its counterpart.)
In the following, the subscript ‘0’ designates a variable in the absence of (or prior to) the State intervention, and the subscript ‘S’ designates a variable with the State intervention.
From the formula above, it can be seen that:
PRSPR0=ProbSExposureS−RecoveryAmountSProb0Exposure0−RecoveryAmount0
By definition:
RecoveryRate=RecoveryAmountExposure
or RecoveryRate×Exposure=RecoveryAmount
The expression is transformed as follows:
PRSPR0=ProbS×ExposureS1−RecoveryRateSProb0×Exposure01−RecoveryRate0
A feature of the measure under scrutiny is that the cover under the scheme is at most equal to or lower than the cover provided by the private (base) insurer in the absence of State aid (that is, that the State supported cover is at most equal to the cover provided by the private insurer). Assuming for the moment that the State supported cover is exactly equal to the cover provided by the private insurer, the following relation results: ExposiçãoS=2×Exposição0.
In that case the expression is transformed as follows:
PRS2PR0.=ProbS1−RecoveryRateSProb01−RecoveryRate0
The consequences of what is known in the industry as ‘over-crediting’ on the correct pricing of a trade insurance cover are explained below. Over-crediting is observed both at the level of the probability of default and at the level of the recovery rate.

— Probability of default
The probability of default increases with the trading activity of the buyer. Trade credit and bank loans are imperfect substitutes: in particular, both can be used to expand the activity of the buyer/borrower. Therefore, as in the case of bank loans, increased trade credit creates a risk of over-crediting, i.e. the buyer expands his activity beyond what is economically efficient. In the terms of the formulas presented, over-crediting can be expressed as:
ProbS Prob0
That situation would in particular arise in cases where the exporter is the main supplier of the buyer. In that case the economic activity of the buyer increases proportionately to the trade transaction concluded with the insurer exporter and thereby increases proportionately to the amount of credit cover granted.

— Recovery ratio
Owing to the increase in credit exposure, the amount to be recovered also increases. However, given that the recoverable amount depends on the hypothetical liquidation proceeds, this theoretical recoverable amount is capped by the amount of the assets that the buyer (or the liquidation administrator) can sell to cover the trade credit liability and, as the amount of assets is finite, the recovery rate would increase less than proportionately to the increase of credit cover.
RecoveryRateS=RecoveryRate0×α, where:
0,5 ≤ α ≤ 1 (α = 0,5, if the recovery amount does not increase at all where the exporter is granted the State's top-up for a transaction with a certain buyer; α = 1 in the theoretical case where the recovery amount increases at the same pace as the total credit limit received by the exporter for the transaction with a certain buyer.)
Given the above, it can be concluded that PRS 2PR0
Therefore, the premium to be paid on the State cover is higher than the premium paid to the private insurer for the initial cover.
A premium of 110 % of the premium paid for the initial cover can be considered to factor in to an adequate extent the increase in the probability of default and the decrease in the recovery rate. Such level of premium would be consistent with the pricing in the market. Under approved export credit schemes, the increases in premia from one category of risk to another were in the range of 25-50 %.
If, ExposureS 2 × Exposure0, PRS decreases proportionally (but is always higher than PR0). In order to take that factor into account, recital 93 of the Decision envisages quantification of the amount to be recovered in each transaction as the amount charged by the State multiplied by 5/6, based on the following reasoning. In each transaction the State charges 60 % of the rate charged by the private insurer, whereas the market price would have been 110 % of the rate charged by the private insurer. Therefore, the market premium is calculated by dividing the premium effectively paid to the State by 60 % and multiplying it by 110 %. From that premium the amount already paid to the State should be subtracted in order to arrive at the amount to be recovered.
PremiumPaid×110 %60 %−PremiumPaid=PremiumPaid110 %60 %−1=PremiumPaid×56
