In an attempt to rescue manufacturing yards at Methil, Burntisland and Arnish, the Scottish Government granted loan facilities to Burntisland Fabrications Limited (more commonly referred to as "BiFab"), back in 2017. Following this move, a Canadian firm (DF Barnes) took over control of BiFab, with the Scottish Government retaining a minority share.
Recently, there has been growing criticism over the awarding of lucrative renewables contracts to firms overseas (and not to BiFab). The criticism appears to have peaked this week, after it was reported that BiFab had pulled out of a bid to work on the substantial Neart na Gaoithe (NnG) offshore wind farm project, citing that the firm had done so as a result of a refusal by the Scottish Government to provide financial guarantees.
The Scottish Government's position now is that they cannot provide such financial guarantees as they would constitute illegal State aid.
What is State Aid?
'State aid' is part of European Union law and describes any public assistance which may have the effect of unfairly distorting competition in the marketplace. The prohibition on State aid is aimed at ensuring fair competition. State aid can take many forms – as well as grant assistance, the provision of guarantees, the sale of property at less than market value and contracting on terms other than market terms can all constitute State aid.
There are exemptions to the prohibition on State aid including de minimis State aid and various categories of aid set out in the General Block Exemption Regulation ("GBER") such as Regional Aid, Aid to SMEs and Aid for Environmental Protection. Further, there will be no State aid if the public body is acting on commercial terms – known as the Market Economy Investor Principle.
It is important for those granting public assistance and those receiving it that any public assistance is either deemed not to be State aid or that it is permitted State aid. The European Commission can require illegal State aid to be repaid with interest.
Given that State aid rules are part of EU law, there have been some suggestions that after 31 December 2020, UK public bodies will be able to grant State aid more widely to UK businesses. Our current view is that the prohibition on State aid is likely to form part of any trade deal agreed between the UK and the EU. Even if it is not, after 31 December 2020, the UK will still be subject to the subsidy control rules of the World Trade Organisation.
This is a complicated area of law, subject to much additional uncertainty at the moment. If we can help guide you through it in any way, please get in touch.