ANNEX 1
Notes of a meeting of the ETRA Committee and European
Commission Officials,
Mr Wouter Pieke (Head of Unit "Regional Aid)and
Mrs Cristina Calabro on Thursday 11 May 2000 (Mr Pieke answered
most of the Committee's questions)
Through the Partnership Investment Programme (PIP),
English Partnerships provides gap funding, ie. additional funds
to private developers for schemes which they would not otherwise
undertake. This is usually where there is high risk and/or low
demand. The scheme involves a claw back mechanism.
Under European regulations all programmes of assistance
offered by Member Countries are required to be notified to the
Competition Directorate General of the European Commission. The
PIP was notified to the Commission in January 1995 and in May
1995 the Commission determined that the scheme was not subject
to state aid restrictions. However, the Commission subsequently
reviewed this decision and on 22 December 1999 the Commission
decided that the whole amount of the gap funding, including the
elements allowed for "site abnormals" and developer's
profit, constitutes an economic advantage offered to the developer.
This is because the whole of this amount is needed in order to
enable it to engage in what the Commission defines as a "commercially
non-viable investment" which would not have been carried
out in the normal course of business. The EC is concerned that
PIP might give an appreciable advantage to recipients in relation
to their competitors and is likely to benefit undertakings engaged
in trade between Member states
The Committee was told that the anti-competitive
elements of the scheme had not been perceived in 1995, but were
subsequently brought to the Commission's attention and had led
to its decision in 1999. The Commission did not aim to hinder
the development of derelict sites, but did not want competition
to be distorted. In the Commission's view gap funding could lead
to a distortion in the following ways:
- It could provide a windfall to the owner of land
(which might, for example, be a car or chemical manufacturer),
hence giving it an unfair advantage over other companies in the
same sector;
- It could provide a subsidy to a developer, and
hence might (for example if it were a property developer which
was active internationally) give it an unfair advantage;
- It could provide a subsidy to the organisation
which rented the new premises, and hence give it an unfair advantage.
We were told that the Commission's ruling affected
the UK particularly badly, because in other countries -
- Planning permission was more difficult to get
on greenfield sites, so there was more incentive to develop brownfield
sites;
- Local Authorities were more likely to use compulsory
purchase orders.
- Local Authorities were more likely to be the
owner of the land - it was far less common as in the UK for the
owner to be the developer.
The situation was now that:
- The Competition Directorate's decision has made
a distinction between speculative development with a developer
as the beneficiary and bespoke development;
- Speculative development could not go on as it
had and a new draft scheme was needed to take its place;
- The Commission saw no problem with bespoke development
taking place within assisted areas; and within the aid limits
allowed there
- Any development outside assisted areas would
require a new draft scheme which will need to be approved by the
Commission; and
- Schemes where the Local Authority was the owner
and developer were unlikely to cause any problems.
Various possibilities were being explored to enable
the development of derelict sites to be funded without distorting
competition. Commission officials had had discussions with Mrs
Armstrong and her officials about a new scheme*. As a result of
the Commission's decision, where there was speculative development
in the UK it needed to take account of the Commission's state
aid policy. The way forward appeared to be to split up regeneration
projects. Decontamination, providing infrastructure on contaminated
sites and building dwellings would not be a problem. It should
be possible to say that part of the financing covering these areas
was compatible aid or not state aid at all and would hence not
fall foul of the Competition Directorate General. However any
windfall gain should not be state aided.
Mr Pieke was optimistic that a solution could be
found. The Commission takes a positive approach to regeneration
as such and hopes to be able to approve a new aid scheme.* The
Competition Directorate General had had a meeting on 15 March
with the UK authorities. After this the latter were carrying out
simulation exercises and had agreed to provide additional information.
The information requested from the UK had not been provided yet,
but once the proposals had arrived the EC was keen to find a way
forward. At the same time the EC was waiting for the new assisted
areas maps proposals from the UK.
A final possibility was to look at the public service
exemptions from competition policy under Article 86, if regeneration
were to be presented as a public service..
*A Regeneration Framework
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