Alcoa has thus been enjoying an unfair advantage over competitors that have to buy their electricity at higher prices, it said at the close of an investigation opened in July 2006.
"Price subsidies that result in artificially low energy prices for selected companies waste taxpayers' money and distort competition in the single market. Alcoa will have to pay back most of the illegal subsidies," said Competition Commissioner Neelie Kroes.
The Commission ordered Italy to halt illegal subsidies and Alcoa to pay back part of the state aid it has been receiving since 2006.
Alcoa responded by announcing that it would temporarily shut down its two aluminium smelters in Sardinia and Veneto. It said that it was no longer certain to power its operations at competitive rates.
"This is a dark day for European heavy industry. The European Commission is sending a signal to investors and workers that heavy industry is no longer a priority," said Klaus Kleinfeld, Alcoa president and chief executive officer. "Particularly in today's economic crisis, this decision is hard to understand. Skilled and long-term jobs will be lost, facilities will be closed, and companies in Europe will not be able to compete."
The two smelters, which employ approximately 1,000 people and create an additional 1,000 jobs indirectly, would not be viable at current Italian power prices, Alcoa said, vowing to challenge the decision in the European courts.
The company pointed out that the Commission had already approved the preferential tariff in 1995, when the Italian government sought to ensure that heavy industry can access Italian energy at a similar price to that of other EU countries.
But the EU executive countered that the fixed tariff originally agreed for ten years was an ordinary business transaction under the market conditions of the time. Italy's decision to prolong the tariff after 2005 without adapting it to the evolution of the market effectively turned it into a price subsidy, financed by a levy on electricity consumers, the EU executive said.
Kleinfeld argued that the European aluminium industry would end up at a competitive disadvantage compared to international competitors.
European electricity prices are expected to rise, with the EU's emissions trading scheme adding a carbon premium to power generation. Electricity utilities will as a rule have to pay for all their emissions from 2013.
