Open - The Scottish Government

How to make your money go further Lorraine Lee Scottish Government - State Aid Unit Eileen Threlfall Scottish Government – Legal Division

Aims & Objectives: Look at ways to reduce reliance on public funding or minimize the value disbursed while avoiding the presence of State aid. • • • •

Market Economy Operator Principle (MEOP) Joint Ventures / Pari Passu Commercial loans Commercial Guarantees

Market Economy Operator Principle Article 345 of the Treaty on the Functioning of the European Union (TFEU) “The Treaties shall in no way prejudice the rules in Member States governing the system of property ownership”.

The only limitation to this general power is Article 107(1) TFEU which prohibits the granting of state aid.

Market Economy Operator Principle To reconcile these two mutually exclusive concepts EC introduced •

Requirement to comply with the Transparency Directive 2006/111/EC – ensure separation of accounts.

•

Developed the Market Economy Operator

Principle

Market Economy Operator Principle Investment by public authorities under the same terms and conditions that would be acceptable to a private investor operating under normal market conditions. 1984, when the Commission published its communication on Government Capital Injections.

Market Economy Operator Principle Public investor

Not relevant: • Policy objectives • Employment • Training • Environment • Productivity

Private investor

Enterprise

Relevant: • Return on investment • Profit • Risk-averse • Better than alternative

Investor or public authority? Ryanair v Commission, 2008 Regional authority offers reduced landing charges Ryanair agrees to establish itself

Commission considered measure aid: authority regulates airport charges

Decision contested

Court agreed: operators of privately-owned airports could have made the same offer

Pari Passu /Joint Ventures 1. Interventions are ‘concomitant’. 2. Terms and conditions same for both parties – levels of risk. 3. Intervention by private sector has real economic significance. 4. Public and private partners have comparable starting point.

Commercial Loans • • •

•

•

No advantage to an undertaking if rate is market conform. Establish a market rate. Investigate similar transactions. If market rate found this is rate to be applied to avoid presence of aid. If no market equivalent available use the EC method for setting the reference and discount rates. 1.5.2014 – UK – rate – 0.88% Plus Margins applied in principle depending on the rating of the undertaking concerned and the collateral offered.

Private lender/creditor High

Normal

Low

Strong (AAA-A)

60

75

100

Good (BBB)

75

100

220

Satisfactory (BB)

100

220

400

Weak (B)

220

400

650

Bad (CCC)

400

650

1,000

Commercial Loans EXAMPLE – Undertaking has BBB rating and Normal collateral = Margin of 100. Proxy for market rate = 1.88% Retain evidence in case of challenge. A lower rate can be applied but the difference between the market rate and rate offered is State aid. Use De minimis Regulation.

Sub - Commercial Loans EXAMPLE 4% 2%

Market rate Rate offered Loan of £30,000 Rate at 4% = £12,000 Rate at 2% = £ 6,000 Difference/State aid = £6,000 Cover by De minimis

Retain evidence in case of challenge.

Commercial Guarantees No aid – guarantee has to:

• • • • • •

the borrower is not a company in difficulty guarantee is linked to a specific financial transaction and limited in time and amount; maximum coverage - 80% of the outstanding loan (or other financial obligation); proportionality in repayments and decrease of guarantee and in sharing losses; market-oriented price paid for the guarantee (taking into account specificities of the transaction);

• SMEs: possibility to use predefined safe-harbour premium (linked to credit rating of the SME). Possibility to demonstrate lower market-conform premium. A safe-harbour premium of 3.8% per year is applicable, even in absence of rating, for start-up companies Aid – sub commercial guarantee premium

As a loan the difference in the commercial premium and that offered is aid and can be covered by De minimis.

Thank you and any Questions? Contact Details: Scottish Government State Aid Unit 3rd Floor 5 Atlantic Quay 150 Broomielaw Glasgow G2 8LU

General Enquiries - 0300 244 1385 Website – www.stateaidscotland.gov.uk