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

2. 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

3. 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.

4. 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

5. 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.

6. Market Economy Operator Principle Public investor Private investor Enterprise Not relevant: Policy objectives Employment Training Environment Productivity Relevant: Return on investment Profit Risk-averse Better than alternative

7. Investor or public authority? Ryanair v Commission, 2008 Regional authority offers reduced landing charges Ryanair agrees to establish itself Decision contested Commission considered measure aid: authority regulates airport charges Court agreed: operators of privately-owned airports could have made the same offer

8. 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.

9. 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.

10. Private lender/creditor HighNormalLow Strong (AAA-A)6075100 Good (BBB)75100220 Satisfactory (BB)100220400 Weak (B)220400650 Bad (CCC)4006501,000

11. 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.

12. Sub - Commercial Loans EXAMPLE Market rate 4% Rate offered 2% 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.

13. 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.

14. Thank you and any Questions? Contact Details: Scottish Government State Aid Unit 3 rd Floor 5 Atlantic Quay 150 Broomielaw Glasgow G2 8LU General Enquiries - 0300 244 1385 Website – www.stateaidscotland.gov.uk