1. SUMMARY 1) I am pleased to inform you that the Commission has decided to approve the above measure.

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1 EUROPEAN COMMISSION Brussels, 08/11/2011 C(2011)8117 final PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only. Subject: State aid SA (2011/N) - Cyprus State support to the Cyprus Cultural Centre Sir, 1. SUMMARY 1) I am pleased to inform you that the Commission has decided to approve the above measure. 2. PROCEDURE 2) By electronic notification of 27 June 2011, registered by the Commission on the same day, the Cypriot authorities, in accordance with Article 108 (3) TFEU, notified to the European Commission (hereafter, "the Commission") the above mentioned measure. 3) On 11 August 2011 a letter requesting additional information was sent by the Commission to the Cypriot authorities, to which the latter replied by letter registered on 8 September Κύριο Μάρκο ΚΥΠΡIΑΝΟΥ Υπουργό Εξωτερικών Λεωφόρος ηµοσθένη Σεβέρη Chypre Λευκωσία Commission européenne, B-1049 Bruxelles Europese Commissie, B-1049 Brussel Belgium Τηλέφωνο: (0)

2 3. DESCRIPTION OF THE MEASURE Background and objective 4) The notified measure provides aid for the design, the construction and operations of the Cyprus Cultural Centre (hereafter, "the CCC"). 5) The strategic objectives of the CCC can be described as follows: using culture to promote Cyprus as a bridge for intercultural dialogue between Europe, the Middle East and North Africa; using culture to contribute to social cohesion by encouraging and strengthening the cultural relations amongst people, without discrimination; operating as a high quality Educational Centre which will increase the stock of knowledge in culture and the performing arts; pioneering a fresh approach to discovering performing arts that will enable everyone to become involved in and stimulated by different art genres, without age or ability distinction; operating as a Community Centre which will regenerate the urban area city centre and strengthen the civil society, by becoming a bridge for cultural communication and cooperation between the Greek Cypriot, the Turkish Cypriot and other local communities; creating a cultural hub, affordable and accessible to all, providing social gatherings and cultural activity to the entire Cypriot population, particularly the young people; fostering creativity and presentation of the performing arts, music, dance, opera and every kind of quality cultural activity; transforming the area into a modern agora, where the public shall have contact with art and culture of the same standards achieved in cultural centres in Europe and the world, currently unavailable in Cyprus. 6) The CCC will occupy an ideal position in the city of Nicosia, close to the centre with links to the historical centre. It will be located opposite to the new National Gallery and 100 metres away from the new State Theatre. The site will therefore form part of an integrated plan, combining the major public and civic institutions and grouping them around this new cultural neighbourhood. 7) The urban square which forms part of the CCC Project is of an area similar to the Trafalgar Square in London. It therefore has the ability and the scale to host cultural events where the entire city can come together, which will become part of the collective memory of the city. Similarly, the park of the CCC will create a new public place including an open air amphitheatre, public sculptures and informal places to relax and meet. 2

3 Legal basis 8) The national legal basis for the measure has been indicated by the Cypriot authorities in the following texts: the Decision of the Council of Ministers of the Republic of Cyprus No of 27 September 2006 and the Decision of the Council of Ministers of the Republic of Cyprus No 35/2011 of 10 January Beneficiary 9) The beneficiary is the Cyprus Cultural Foundation (hereafter, also "the CCF"). 10) The CCF was established in 2005, following the decision No of the Council of Ministers of the Republic of Cyprus. It is a non-profit organization which undertook the responsibility for the study, planning, construction and operation of the CCC. As per its Articles of Association, the CCF's aim is to produce and/or organise high quality specialised culture events of international specifications. 11) CCF operates in accordance with the Cypriot Laws relating to Associations and Foundations (1972 and 1997) and its Constitution. The Foundation is managed by the Board of Directors, consisting of eleven members, which were appointed in September 2005 following a decision of the Council of Ministers of the Republic of Cyprus. The Board of Directors' members have knowledge of cultural matters but also of the administration and management of large-scale organizations and projects. Form of financial support and granting authority 12) The financing will be granted in the form of a direct grant. The project will be 100% cofinanced by respectively the European Regional Development Fund (85%) 1 and by national funds (15%). 13) The financing will be granted by the Cypriot Ministry of Education and Culture. Budget 14) The total budget for the project is estimated at EUR The contribution from the European Regional Development Fund will amount to EUR million, while the one from national funds will be EUR 21 million. 1 The European Commission approved on 17 September 2007 a regional development programme, the Operational Programme "Sustainable Development and Competitiveness" for the period This programme involves Community support for Cyprus within the framework of the "Convergence" and "Regional Competitiveness and Employment" objectives. 2 The total cost of the Project (excluding VAT) amounts to EUR million. 3

4 Duration 15) The Cypriot authorities confirmed that, upon Commission approval, the grant will be given for a period of 13 years: 3 years for the design and construction of the CCC and 10 years for operating expenses. 16) The construction Project will be completed by the end of 2014 and consequently the CCC will commence operations during the last month of that year. Intensity and cumulation 17) The intensity of the direct grant for the construction of the CCC is 100% of the costs incurred by the beneficiary. The financing granted under the present measure may not be cumulated with other sources of financing awarded to the same project and the same eligible costs by any other public or private entity. Eligible costs 18) The grant is aimed at covering the costs for the design and construction of the CCC and 10 years of operating expenses. 19) Following the Decision of the Council of Ministers of the Republic of Cyprus No 35/2011 of 10 January 2011, the Cyprus Cultural Foundation shall be given a government grant for the proportion of its operational costs that are not covered by its operating revenues 3. The amount of the government grant will range between 32% and 36% of the total operating expenses and will be calculated every year depending on the gap between operating revenues and operating expenditure. If in a given year the Cyprus Cultural Foundation generates a budget surplus, then this surplus will either be used to reduce the subsequent year's grant or will be channelled into the subsequent year's productions. 20) The granted assistance will be allocated as follows: Building of the CCC (54%); CCC Equipment (16%); Park/Car Park/Civic Square (13%); Architects fees (6%); Engineering fees (4%); Theatrical designer (1%); Acoustian fees & Audio-visual design (1%); Quantity surveyor (1%); Other fees and miscellaneous costs (4%). 3 Up until the commencement of the operations of the CCC, the CCF will have no sources of income other than the government grant for the design and construction of the CCC. The grant will cover the CCF's operational costs that are not covered by its operating revenues. This shortfall is a direct result of the CCC's artistic planning and pricing policies not being solely based on commercial criteria. 4

5 4. ASSESSMENT OF THE MEASURE 4.1 Notification requirement 21) The Cypriot authorities have complied with the procedural requirements of Article 108 (3) TFEU by notifying the measure for the project before putting it into effect. 4.2 Existence of aid within the meaning of Article 107 (1) of the TFEU 4 22) The Commission has first examined whether the notified measure can be characterised as State aid within the meaning of Article 107 (1) TFEU according to which " any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market...". 23) The notified measure allows only a single beneficiary, namely the Cypriot Cultural Foundation, to be relieved, by means of State resources, of a part of the costs linked to its core activities (the construction and operation of the CCC) which it would normally have to bear itself. 24) The CCF is a foundation that will with the financial assistance operate a cultural centre in the future. It cannot be excluded that the grant may indirectly contribute to the development of certain economic activities undertaken by the CCF (e.g. music, theatre, dance performances and other recreational activities). 25) In addition, the notified measure may also have indirect economic effects on the tourism sector. The public support may contribute to increase the number of visitors to Cyprus, which would also have a beneficial impact on tourism and hospitality services of the region. 26) However, it is not obvious that the notified grant will affect trade between Member States. As a matter of fact, the geographical position of Cyprus, being an island at the south-eastern most tip of Europe, does not encourage the transfer of audiences from other European Member States. 27) The scope of the project is nevertheless not negligible, the CCC will host the highest quality and best forms of world-wide art and culture, and it aims to attract audiences from the nearby regions to its events. The fact that these audiences will mainly come from third countries does not fully exclude that part of these audiences come from other Member States and that the support from the Cypriot authorities may strengthen the position of the CCF in relation to its competitors in the Union and have the potential of distorting competition. 4 With effect from 1 December 2009, Articles 87 and 88 of the EC Treaty have become Articles 107 and 108, respectively, of the TFEU. The two sets of provisions are, in substance, identical. For the purposes of this Decision, references to Articles 107 and 108 of the TFEU should be understood as references to Articles 87 and 88, respectively, of the EC Treaty where appropriate. 5

6 28) In the specific case of the support to the CCC, it is difficult to determine, on the basis of the information available, whether this funding risks distorting competition and affecting crossborder trade. It is not necessary either to decide whether the notified measure should be qualified as State aid, because the Commission considers that this measure can, in any event, be declared compatible with the internal market in accordance with Article 107 (3) (d) TFEU. 4.3 Compatibility of the measure 29) According to Article 107 (3) (d) TFEU, aid to promote culture and heritage conservation may be considered compatible with the Internal market, where such an aid does not affect trading conditions and competition in the Union to the extent that is contrary to the common interest. 30) The Commission's compatibility assessment of the notified measure did not imply any serious difficulties. The Commission has also duly taken into account Article 167 TFEU 5 and the UNESCO Convention on the Protection and the Promotion of the Diversity of Cultural Expressions 6. 31) The principles laid down in Article 107 (3) (d) of the TFEU have been applied to cases similar to the case at stake in a series of precedent decisions 7. The Commission's analysis confirmed that the notified measure, if it had to be considered as aid, would fulfil the substantive requirements laid down in the mentioned precedents. Genuine cultural objective 32) The information submitted by the Cypriot authorities shows the cultural character of the project to be subsidized. In this regard, it should be noted that the primary objective of the measure in question is the promotion of culture through the construction of a cultural centre that will comprise dedicated facilities for performances of classical music, opera, musical theatre and dance. Similar multipurpose cultural centres already exist in other European cities. 5 According to Article 167 TFEU " the Union shall contribute to the flowering of the cultures of the Member States, while respecting their national and regional diversity and at the same time bringing the common cultural heritage to the fore...action by the Union shall be aimed at encouraging cooperation between Member States and, if necessary, supporting and supplementing their action in the following areas: improvement of the knowledge and dissemination of the culture and history of the European peoples, conservation and safeguarding of cultural heritage of European significance, non-commercial cultural exchanges, artistic and literary creation, including in the audiovisual sector ". 6 Approved by the Council on behalf of the Community by means of Decision 2006/515/EC (18/5/2006). With respect to Article 167 (4) TFEU (ex-151(4)ec), Council Decision 2006/515/EC stipulates that " the UNESCO Convention constitutes a relevant and effective pillar for promoting cultural diversity and cultural exchanges, to which both the Community, as reflected in Article 151(4) of the Treaty, and its Member States attach the greatest importance ". 7 N 122/ State aid to Danube Cultural Palace (Hungary), adopted on , OJ C 147 of , p. 3; N 293/ Cultural aid for multifunctional community cultural centres, museums, public libraries and complementary higher education centres adopted on , OJ C 66 of , p

7 33) The Articles of Association of the CCF specify that its activities concentrate on culture 8. 34) The CCC aims at covering the void that currently exist in Cyprus from the lack of supply of cultural events across a range of genres. 35) The Cypriot authorities have provided the Commission services with a "Feasibility Study and Cost/Benefit Analysis" showing that all existing indoor venues in Cyprus are theatres, the majority of which fail to provide the stage, backstage and orchestra pit areas necessary for the highest quality and the best worldwide culture that the CCC aims to host. These indoor venues are also deficient in terms of acoustic design adjustable to different genres, clear auditoria sight lines, theatrical stage elevators and heavy theatrical stage machinery. 36) The construction of the CCC will not result in excess capacity of performing art venues. On the contrary, it will assist in bridging the existing gap between Cyprus and comparable European regions as regards seating capacity and number of performances. 37) The CCC will be Cyprus' national centre for the arts, a necessary culture infrastructure that is currently missing in the island and a literal centre that will act as the focal point for the development and advancement of performing arts in Cyprus and the Southern Mediterranean. 38) The Cypriot authorities have illustrated that the CCC will host the highest quality and best forms of worldwide art and culture, including opera, musical theatre, symphonic, chamber, baroque and jazz music, music of the world, modern music, classic ballet, contemporary dance, musical production for children and a series of educational programs. 39) The Commission also notes that the CCC Project will improve the popularization of arts by making the subject interesting and accessible. It will contribute to the development of cultural knowledge. Thus, it can be concluded that the Project will bring access to cultural, educational and recreational values to the public 40) In view of the above, the Commission considers that, given its cultural purpose, the notified aid measure, i.e. the construction and operation of the CCC, qualifies as aid to promote culture within the meaning of Article 107 (3) (d) TFEU. The measure would not affect trading conditions and competition to an extent that is contrary to the common interest 41) The Commission accepts the view of the Cypriot authorities that the public funding is necessary for achieving the objective of culture promotion. In this respect, the sources provided by the subsidy seem to be indispensable in order to promote the construction and operations of the CCC. 8 The compliance with this objective is ensured by the audit carried out by the Auditor General of the Republic of Cyprus and by the monitoring of the CCF's Board of Directors. 7

8 42) The "Feasibility Study and Cost/Benefit Analysis" provided by the Cypriot authorities shows that in general, with the exception of the Cyprus Theatre Organization and other state funded small theatre companies, and the Cyprus Symphony Orchestra, there are no large production organizations on the island. Most of the performances to date in the genres to be hosted at the CCC have either been productions imported by local small and medium size producers, or locally produced small and medium size productions. The CCC aims at improving the local competitive environment by supplying the market with cultural events across a range of genres which will enlarge the island's cultural audiences. It will also allow local producers to host and/or produce high quality, best forms of worldwide culture currently absent from the island as a result of the existing deficiency in cultural infrastructure, in terms of seat capacity, acoustic performance and stage facilities. 43) The measure has an incentive effect as it is aimed at providing financing for a cultural project which could not be developed under normal market conditions without State support. As a matter of fact, the CCF is a non-profit organization and the CCC is a non-revenue generating project. The CCF lacks own resources to finance itself the construction and operations of the CCC. Thus, the grant appears to be necessary to promote culture in Cyprus. 44) Furthermore, the information submitted by the Republic of Cyprus shows that only costs that are essential for the promotion and preservation of culture are subsidized under the measure. Moreover, the Cypriot authorities confirmed that the measure under review does not promote commercial, profit-making activities which would be viable without State aid. The aid is restricted to the initial construction, investment and start-up phase 9. Thus, the financial assistance is limited to the minimum necessary. 45) The CCF has put together an operational model that minimizes, as much as possible, the need for a government grant through operational revenues, in addition to revenues from tickets sales for cultural events, such as 10 : sponsorships relating to cultural/educational event organised by the CCF; memberships (the CCF will implement a membership plan for the Friends of the CCC who will pay an annual subscription and enjoy certain benefits); renting the premises to third parties, primarily for organising cultural events, and events peripheral to cultural events, e.g. lectures by artists, master classes, etc. 11 ; catering services (the CCF will outsource the operations of the catering areas to a third party, the selection of which will be the result of an open tender process. This third party 9 The percentage of the government funding over the total operating expenses approximates 32% from 2018 onwards, while it ranges between 34% and 36% during the first three years of the CCC's operations (2015, 2016 and 2017). 10 The ancillary activities that are not strictly "cultural" will be managed and monitored as a separate cost centre of the Finance and Administration Department. Open tender procures will be carried out for the assignment of the activities at stake. All relationships with third parties with regard to the use of infrastructure will be made on a contractual basis and at market prices via a bidding process, or if there is no market price at a price reflecting full costs plus a reasonable margin. 11 Rental prices charged will be at the higher end of the market prices to reflect the capacity of the Halls, the improved acoustics an the fact that they are going to be better equipped with specialised equipment and audio-visual facilities, compared to the existing venues in Cyprus. 8

9 will operate all catering areas at market prices, for use not only by the public but also by members of staff and event organisers); other income (granting the use of the commercial shop selling music, books, small pieces of art to a third party; ticket issuing services; car parking fees). 46) Therefore, the Commission notes that the measure, if it had to be considered aid, would not affect trading conditions and competition in the Union to an extent that is contrary to the common interest: its amount will only cover costs that the CCF has demonstrated it has no possibility to afford itself. 47) The Centre aims to attract audiences from the nearby regions of the Middle East and North Africa to its events and, thereby, act as a bridge between these audiences and European culture. The geographical position of Cyprus does not encourage the transfer of audiences from other European Member States. Cyprus is three and a half hours flight from central Europe. Athens, the nearest culture hub, is 100 minutes flight away. Therefore, the impact on trade between Member States as a result of the CCC's operations is expected to be negligible. 48) In view of these elements, the grant, if it had to be considered aid, would also be proportionate. 49) The Commission concludes that the measure under review, if it had to be considered aid, would not adversely affect trading conditions to an extent contrary to the common interest. 5. CONCLUSION 50) In the view of the above, the Commission finds that the financial support granted on the basis of the measure in question is compatible with the Internal market in accordance with Article 107 (3) (d) of the TFEU. The Commission has accordingly decided not to raise objections to the notified measure. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: 9

10 Your request should be sent by registered letter or fax to: European Commission Directorate-General for Competition State Aid Greffe J-70 3/232 BE Brussels Fax No: Yours faithfully, For the Commission Joaquín ALMUNIA Vice-President of the Commission 10