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.
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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
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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:
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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