Welcome to the second edition of the State Aid News

And thanks to all of you who took the time to read and comment on the first edition. It is clear that the newsletter has been well received across the Scottish Executive, the Enterprise Networks and the Local Authorities. We hope this continues and look forward to your continued feedback on articles. More importantly, we would like some suggestions on what you would like to see covered in future editions. This applies equally to our website. Monthly access is increasing, which is good news, but we would like to hear from you on how it can be improved ..what is missing what you would find particularly helpful etc.

The prime purpose of the newsletter and website is to raise awareness of state aid, and to help policy developers and aid practitioners make best use of the provisions of existing EU frameworks and regulations, to meet policy objectives - without overstepping the mark. State aid can be a complex subject, but there is a surprising amount of scope available to support a wide range of bodies, provided some time is spent at the outset to determine the best fit. This is where the State Aid Unit can help most. If state aid is not addressed at the development stage of new policies, initiatives can be delayed for months or even years, while European Commission approval is sought. Forging ahead with your project regardless could lead to the recovery of aid (plus interest) from the beneficiary and, of course, the possibility of political embarrassment. But all of this is avoidable just by addressing state aid at the outset and contacting the State Aid Unit for advice.

The European Commission has taken a number of decisions lately that show it is cracking down on state aid to airlines.

In December last year the Commission launched a formal investigation into possible illegal state aid granted to Ryanair and also ordered Greece's Olympic airlines to pay back almost €200m (~£128m) in illegal aid. Just one month later, in January 2003, the Commission launched another formal investigation into aid for airlines, this time concerning aid granted by the French authorities to Air Lib.

In the Ryanair case, the Commission has decided to open a formal investigation into the advantages granted to the airline by the Walloon Region and the airport management company (Brussels South Charleroi Airport), when it set up its first base in mainland Europe at Charleroi in 2001. The advantages include a reduced landing fee, a substantial contribution towards the promotion and advertising of Ryanair's services and concessions in the costs of recruitment, training and subsistence of Ryanair staff and ground-handling prices. If the Commission finds that the support to Ryanair is not compatible with the common market, Ryanair could be ordered to repay all the aid it has had to date.

In the Olympic Airlines case, the European Commission had previously approved aid from the Greek authorities to the firm. However, as a result of its latest investigation, the Commission found that airline had not met all its obligations in order to keep the aid and had  also recently received new unlawful aid which was not notified and approved by the Commission. The Commission's investigation revealed that the aid could not be considered compatible with the Common Market and ordered the Greek authorities to recover €194m aid.

Interestingly, the Greek authorities are claiming that the Commission has over-estimated the amount of unfair aid paid to Olympic airlines and that they will only seek to recover €41 million from the state-owned carrier. However, the European Commission has subsequently stated that it will bring the case to the European Court of Justice as soon as possible if Greece continues to refuse to recover the full €194 million of state aid.

All of the above illustrates that the European Commission is taking an increasingly firm stance on aid granted to airlines. It is always wise to take state aid into account before granting aid, particularly in this sector. Please contact us, or our transport colleagues, should you have a proposal you would like to discuss.

Everything you ever wanted to know about de minimis aid but were afraid to ask!

If you are involved in assigning public resources to enterprises, chances are you are aware of the existence of de minimis aid. You may already know that this is one of the few types of state aid you can give out without prior notification to the European Commission and you may have heard of the  100,000 rolling three years limit. However, there is much more you should know if you want to grant de minimis aid with confidence, so read on.

De minimis aid is not a new concept. The Commission issued a Notice on de minimis as far back as 1993 and formalised its thinking on 'small amounts of aid' by introducing a legally binding regulation in January 2001 (Commission Regulation (EC) No 69/2001).

Key features of the regulation

It is possible to grant up to  100,000 (around  65,000) of aid to a firm over a rolling three-year period without prior notification to the Commission, as long as all the terms of the regulation are met. This aid can be granted regardless of the size of the firm and for a range of purposes (see below for exclusions). The rolling three years counts from when the de minimis aid is first offered.

Aid paid as de minimis does not have to be linked to the eligible costs of a project in the way that aid under many approved state aid schemes does; the aid goes to the recipient firm directly, not towards a project. De minimis can even be used as operating aid, i.e. towards a firm's normal running costs such as staff costs or marketing. The Commission normally considers operating aid to be the most distorting kind of aid but, as long as the limit is adhered to, de minimis aid can be used for this purpose.

De minimis aid can also be used alongside aid that is granted under an approved scheme (see the approved schemes in Scotland page of our website for more information on the types of cover currently in place in Scotland).

Some well-known examples of de minimis aid include DTI's Small Firms Loan Guarantee scheme and, currently, the first stage of SMART, a scheme run by the Scottish Executive to promote innovative Research & Development projects.

Requirements of the regulation

If you give out de minimis aid, you should be aware of the following requirements:

• Aid administrators must obtain information from the recipient firm about all other de minimis aid - from all sources - received in the three years preceding the date of offer
• You must check before granting the aid that it will not bring the firm over their  100,000 threshold
• You should make recipient firms aware that the public support they are receiving is a de minimis aid by -
  Stating in the offer letter that they are being offered de minimis aid,
  Stating how much the amount is in Euros and Pounds, and
  Telling them about the  100,000 over three rolling years limit.

When de minimis is not an option

De minimis aid cannot be granted to firms in the following sectors: transport, agriculture and fisheries. In addition, de minimis cannot be given as export aid - aid directly linked to increasing quantities exported - or for aid favouring domestic over foreign goods.

Drawbacks of de minimis aid

Granting aid as de minimis may seem like the easy option, but it can be complicated to administer. The  100,000-over-three-years limit applies to de minimis aid from all sources. The more schemes that use de minimis aid as their basis, the easier it will be for firms to reach their limit. In addition, it can be difficult to find out about a firm's de minimis history because they may not know whether aid was de minimis. Our advice is that, where possible, you endeavour to ensure your aid measure can be covered by an existing approved scheme, or the SME or training block exemptions, leaving de minimis for those occasions where scope is limited or does not exist.

Our website contains more information about de minimis aid. You can also read frequently asked questions about de minimis. Alternatively, if you would like to get in touch with someone to discuss a particular case involving de minimis aid, please contact us.

The State Aid Unit is on the road again. Following on from a successful round of introductory state aid presentations to colleagues across the Executive and the Scottish Enterprise Local Enterprise Companies, the Unit is now offering these presentations to all 32 Local Authorities in Scotland.

As detailed in a letter sent to all Local Authority Chief Executives, the Unit plans to visit every Local Authority from Stornaway to Stirling, from Glenrothes to Glasgow, every Tuesday until August 2003.

The presentations are pitched at a basic introductory level and are suitable for all Local Authority staff who are involved in some way in the provision of support to 'undertakings' (any bodies involved in economic activities).  Previous audiences have included staff from economic development, legal services, financial services, property development, training, social economy and European affairs to name but a few.

The presentation covers:

Why we have control over state subsidies
How to identify a state aid
Details of current Local Authority state aid cover
De minimis aid
Structural Funds
State aid and the community/voluntary sector
Cumulation of state aid from several public sources
What happens if you get it wrong
Where to get further information

Time is reserved at the end of each presentation for a Q&A session.

Due to the recent approval of the Property Support Scheme and other developments in this area, the Unit can also offer a second presentation for those staff involved in property development, should this be required. This brief presentation looks at the state aid schemes available to support property development activities in more detail.

Interested? Get in touch! Don't get caught out, check it out!

Contact George McGhee of the State Aid Unit on 0141 242 5616 for further details or visit our website for dates of availability.

We look forward to meeting you very soon!

Some interesting state aid developments at the European Commission...

• In October, the European Commission gave state aid approval for the Community Investment Tax Relief scheme. This measure is designed to improve access to capital for small businesses, business start-ups and community projects in disadvantaged regions throughout the UK by giving tax benefits to investors who back businesses through Community Development Finance Institutions (CDFIs). Mark Hambly at DTI's Small Business Service can provide further information on 0114 259 7422.
  
  
• In January, a scheme providing exemption from stamp duty payments on non-residential properties in disadvantaged areas was approved. It is hoped that this scheme will contribute to the physical, economic and social regeneration of designated disadvantaged areas by reducing the cost of acquiring all non-residential properties in these areas.
  
  
• The Commission has opened investigation proceedings into the proposed Small Business Service Business Incubation Fund in England. This fund is to support the development and operation of office premises that meet the special needs of small firms. The Commission has opened proceedings in this case as it doubts that the proposed aid respects the relevant aid intensity ceilings (under both the regional aid guidelines and/or the SME block exemption regulation). The UK authorities argue that any aid to companies operating the incubator units would be the minimum necessary, and that any aid to the end users of the premises would be kept under de minimis levels. Watch this space for developments in this case 
  
  
• Two fairly recent approvals give a useful insight into the Commission's view on the 'effect on trade between Member States' criterion of state aid. The Commission found that aid for a leisure pool in Dorsten, Germany, had no effect on trade between Member States (one of the 5 tests that must be met for aid to be a "state aid") as pool users would not travel more that 50km to use the facilities. The Commission also approved aid towards the restoration of Brighton West Pier, backing up this previous decision. In the Brighton case, the Commission states that the aid pursues a genuine cultural objective and would not, in any event, affect trade between Member States as no-one would come to the UK purely to visit a pier though the fact that the pier has now fallen into the sea may well deter even domestic visitors! But this is a tricky area and we suggest you contact the State Aid Unit should you require guidance...
  
  
• An investigation into various aspects of public funding towards Terra Mitica, a theme park in Benidorm, concluded that the funding of infrastructure - in this case roads - that can be used by the entire community does not constitute state aid. 
  
  
• Are you involved in awarding investment aid based on the assisted areas map? And have ever wondered whether mobile assets are eligible for aid? The answer is 'yes' if the firm's headquarters are based in an Assisted Area and the economic benefit of the aid is being retained in the assisted area. This is based on the decision of a German case where the Commission determined that where mobile assets are concerned, it is where the economic benefit is being felt that should be considered If you want to know more about how to apply this, contact us.
  
  
• Lastly, the Commission proposes to introduce a block exemption regulation to speed up the implementation of certain agricultural state aids. Once in force, the new regulation will enable the granting of various types of aid without prior Commission clearance. Due to be implemented in January 2004, this measure will allow Member States to react more rapidly to the challenges faced by farmers. If you would like more information contact Mike Watson at the Scottish Executive Environment and Rural Affairs Department on 0131 244 6244.